This Blog is not going to be about enlightenment. I will save that for Bhagavad Gita or the Bible. This is also not going to be the lyrics to the Drake Song. No, this blog is strictly about helping you make money as a trader. How may you ask?  It sounds simple but it is extremely hard - Know Yourself. Know your personality. Pick a trade setup that fits this. Do nothing but this trade setup for as long as it takes.

I touched on this in my last blog, but I realize after reading it back that I let everyone who read it down. I gave a small taste but didn't actually add the punch line. This changes today. 

I can boil the "styles" down into 2 categories.

The first thing that you have to do is understand your personality. The example I gave in my last blog - are you someone who is extremely patient, is okay with losing small many times in a row only to have that one huge winner come along and not only wipe out all of the prior losses but add a huge bump to your equity curve? Are you disciplined enough to stick to/stop out at the important area on the chart that you deemed your risk? Last but not least, are you able to hold a giant unrealized winner through pull backs, aka let your winners run? If you answered yes to all of these, you can group yourself into what I call the "Lottery" bucket. I must confess this is an awful name, but you will understand why I picked it as the name shortly. 

But First...the 2nd category.

Are you someone who hates to lose, extremely impatient and will fight losers to avoid taking a loss? Do you have trouble holding winners and tend to take profit too early? If you answered Yes to these questions, then stop right now and see a shrink. Just kidding (but seriously get some help) there is nothing wrong with being in this category, I count myself among this one. This category is called the "Insurance" model. 

Ok, now with that out of the way let me explain the names. The names are based off of win rates. Think about it, when you are playing the lottery, you usually lose. You may go your entire life without winning, yet people still play it every week. Now this does not reflect the actual setups that fit this group very well (hence why I called it bad above), all this is meant to convey is that this group is okay with having a low win rate, High reward to risk setup. For example, this group is typically okay with a win rate that may only be 40%, however they may take trades that are 5 to 1 or higher reward to risk. That means that they are willing to risk 1 to make 5. You may see some people put this into R's as a unit of risk. They set a dollar risk, say 100 dollars as example. For a 5R to 1R reward to risk setup they expect to risk 100 dollars to make 500 dollars. Simple in theory, very hard to execute for myself personally but that is because of my personality. For more information on R as a unit of risk and how to calculate see @BrianLeeTrades on Twitter. He is a boss. A few clarifying points on this group -1.) I used 5 to 1 as an example, every trader is different it could be more or less. 2.) I would tend to put a trader like Roland Wolf into a group like this and you can see how parabolic his trading career has gone. This group in general tends to make more money quicker. Later I will name some traders that I think have evolved to fit into both groups and I would encourage everyone to go look at their equity curves. They are all on Profitly as transparent traders. Another trader who is not on Profitly that fits into this category is @Quallamaggie.

Now onto the second group. The degens. Nothing wrong with this group, as I said I put myself into this group. We know who we are - we know our strengths and weaknesses and try to create a setup that fits these. I call this group the insurance model. Think about any insurance company, Geico, Farmers, etc. They all take calculated risk. As an example, they insure your car. If you are a safe driver, then chances are they may never have to pay out on the policy that you have purchased from them - yet you pay them every month. They sit back and collect premiums every month. Until the day, you get rear ended in your Telsa sitting in stand still traffic on the interstate. You call them up and suddenly they are on the hook for a 15K bill. This insurance company has an extremely high win rate (collecting premiums) yet they have a low reward to risk setup (15k Tesla bill). This group is only comfortable with a win rate above 60% and their risk reward is usually 1 to 1, maybe 2 to 1 on a good day. That means that they are willing to risk 100 dollars to make 100 dollars (or 200). But with a high win rate, they should be winning more often which allows for profitability. 

It is less common to see traders fall into the 2nd category, in fact most Guru's actively tell traders to avoid this as it is easy with such a low risk/reward setup to allow that risk to creep and boom suddenly a blow up happens. The P/L of this trader usually looks like this as an example - win 100, win 200, win 100, win 100, win 100, lose 500. You can see how if that loss was 1000, this would not be a profitable strategy. Usually, this crowd will try to size up after several wins in a row with the growing confidence. They still may have 2 to 1 reward to risk however they may be risking 500 dollars now to make 1000. It is extremely important that if you choose this strategy that you keep your risk in dollar amount even. You size up only after you have earned the right and you don't compare your loss to your previous wins when you had smaller size. If everything remains equal, your losses will get bigger but so will your wins. I will write a future blog on sizing up.

So those are the two buckets I boil every strategy down into. You can try to improve these and find the holy grail of trading - high reward to risk, high win rate setup and I am sure it does exist for certain pockets of time or certain niches but in the meantime, find a setup that fits your personality and stick to it.

For the first bucket, I see this as more of a long strategy where you are comfortable stopping out and reentering if the stock sets back up. For the second bucket, I see this as more of a short strategy where your win rate maybe higher, but you may not always be getting the highest reward to risk. 

I will end by saying a few traders I respect that have setups that fit into both buckets - @Jackaroo_Trades, @traderkylec, @MikeHuddie and the legend @kroyrunner89 all fit into both buckets at times. Check out their equity curves and you can see they have gone parabolic. They all talk a lot about emotion and trading psychology and have all worked on this for many years. All of the names I mentioned above are actually their Twitter handles, I would encourage you all to follow them and check them out. I also can't forget @goodetrades. I would group him in the same bucket. 

I have rambled long enough. Hope that you find this helpful - please reach out with any questions or if you disagree with anything I have said, please leave a comment - I would love to discuss. I struggle with my own trading demons and do not have all of the answers otherwise my curve would look like the guys I have mentioned in the blog.