The Making Of A Daytrader, Part III

Todd Gordon is a successful daytrader who trades for a living. We discovered Todd when he became a frequent contributor to TradersWire Interactive. Later we found out that he had been taught and mentored by David Floyd.

In this three-part series, "The Making Of A Daytrader," Todd will share with you how he entered the business and how his mentor David Floyd was instrumental in helping Todd become successful during one of the most difficult daytrading environments in history.

When we left off in Part II, Todd was starting to discuss the aspect of discipline in trading. We begin the final installment there.

Duke Heberlein: Todd, we ended part II touching on discipline. Can you now elaborate a little on how Dave approached it during your training?

Todd Gordon: The biggest and most important thing that I learned in this office was to -- at all costs -- guard against the big hits. The way to make a living scalping securities is to not have huge equity swings from one day to next, which does far more damage than you realize.

Heberlein: So the idea is drummed into you to keep losses small.

Gordon: Say you make 10 grand one day and then proceed to lose three grand each day over the next three days, netting one grand after all is said and done. Statistically speaking, you in any one day have a 33% chance of making money. That fact alone is enough to destroy your confidence and psyche which is hazardous to your trading. I know that being correct 33% of the time might be good enough to get in the baseball hall of fame, but not for trading. The key to longevity in this business, from a scalping standpoint, is to have a high win ratio with extremely moderate equity swings. If you do the math, only $500 a day is well over six figures a year. I can live with that.

Heberlein: So the aim is to be as consistent as possible, both for the equity curve and your psyche.

Gordon: Right. Knowing that you have consistency on your side will instill the confidence to walk in the office and be statistically sure that you can make money in any given day. Dave compiled his stats and had them verified from the last four years. I think it went something like 75% of days showed a profit, 89% of weeks were positive, and 95% of months were in the black. How about walking in the office every day with THAT kind of confidence!

Heberlein: Everyone I know would take a track record like that.

Gordon: Speaking further about your frame of mind and confidence, these are two integral tools in making a living trading the markets. You must do your best to take care of your mental well being as well as your trading account. Trading when you are not 100%, be it for whatever reason, will certainly be counter-productive to your account equity growth as well as getting your mental game back on track. The quicker you recognize that you are not on top of your game, the better off you will be.

Heberlein: That is interesting. I have interviewed a number of traders, and nearly all of them have said the same thing. You have to exercise and take care of your body because this is a grueling endeavor. How does Dave go about working with a trader who is going through a string of losses?

Gordon: A cold hard fact about this game, much like anything else, is you can’t fight your way out of a hole. You need to recognize immediately, take a step back, and reassess the situation. Dave is really good at stressing this when times are tough. I associate this idea much like a round of golf. If you’re having one of those “clubs thrown in the drink” kind of rounds, what’s the last thing you should do -- try to change your swing in the middle of a round. You wait until you get back to the range to work it out. This is much like trading. The place to “heal” your mental state is NOT sitting in front of the monitors, it’s at home with your family, at the beach, or on the course throwing your clubs in the lake.

Heberlein: That sounds reasonable. Have you had to take it to heart over the last few months? This has been a difficult market to nail down for many traders.

Gordon: In fact I’m going through this exact situation as this time. June and July were intense trading months, trading bell to bell every day for weeks on end, doing my work for TradingMarkets and pilling through charts for the Floyd Numbers service every day after the close. Added to this, we were in the process of moving offices. As August rolled around, I was wiped out. We had just traded harder than I ever have in my life for the past two months straight. We did very well for ourselves during these two months. I more or less made my year in those two months.

Heberlein: Sounds okay so far.

Gordon: Sure enough, I was 0 for 3 in the beginning of August -- simply unacceptable. Losing money three days in a row doesn’t happen in Dave’s office. We’re looking to make money any seven out of 10 days.

The trade that signaled to me that I needed a break last week was a short of C on the open. I stepped up and went full size and got whacked for 50 cents. I knew that I just didn’t have the edge and it was time for a break. You know what I didn't do? I didn’t sit in front of my monitors trying adjust my technical indicators that had just failed me, or search for a system that would have told me to buy instead of sell, or blamed someone else. The blame was entirely my own. I quickly shut my system down and proceeded directly to the golf course. I know that I am a good trader and that my trading style didn’t fail me… I failed my trading style, and it was my responsibility to make it right. I came back the next day refreshed and ready to go, I traded the same size with the same aggression. I didn’t switch to a lighter bat or be less aggressive, that would have been counterproductive.

Heberlein: So when you came back it was with a new frame of mind?

Gordon: Exactly.

Heberlein: So what is the environment like trading in Dave's office? Most of our members trade out of their homes, and that can get a little lonely at times.

Gordon: If I were to ask you guys to envision our office trading from day to day, what would your answer be? I bet you think it’s constant action, intensity, keyboards and swear words flying, and so on. Well it’s not, quite the contrary actually.

Heberlein: In actuality it is much more calm.

Gordon: Yes. The reason I bring this up is we just finished a weeklong mentoring program here in the office with two traders who brought this to my attention. At the end of the week, one of the new traders confessed that he was surprised by our lack of intensity and selectivity about every trade. The market was simply not there, as is typical of August. He couldn’t believe how much we analyzed the market and weighed the risk/reward ratio of every trade. As I mentioned above, that’s the key to longevity.

When the market is slow, you need to recognize it very quickly and trade accordingly. August was the type of month you needed to realize as early in the month as possible that a little money every day is a victory. That’s the key, a little cash during the slow to moderate trading, and when we are blessed with those pockets of volatility, no holding back. All of us have our huge days, but the best traders minimize our down days.

Heberlein: Any final thoughts to share about your journey?

Gordon: The road to trading for a living is a long and rocky one, but quite satisfying. I hope my trials and tribulations included above will help TradingMarkets members shorten the learning curve to becoming a profitable and consistent trader. So that concludes my three part series. I hope you all enjoyed reading it as much as I enjoyed putting it together. It’s truly an honor to be showcased alongside this elite collection of traders here on Trading Markets. I look forward to doing this again and hope to hear from you all. Please don’t hesitate to contact me if you have any questions/comments: todd@aspentrading.com.

Heberlein: Thanks again, Todd.

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