Ive tried and failed to write this article ten times.

Even after I finished, I thought it was terribleactually I was just scared to share the story. I sent it to a reader who had asked me about trading. He replied:

Its different than most that I have read because there is no bullshit to try and look past and all of your readers appreciate that.

This is about the lessons I learned while trading. The pitfalls people fall into and the ways people destroy themselves. Theres also the time I raised money for a hedge fund. Then my partner turned $30,000 into $2,000,000 in three months. It only took him two months to turn $2,000,000 into virtually zero.

I mean trader as in day trader. From the time I was 15-22 I sat in front of 6 computer monitors watching charts go up and down. Why am I not doing it now? I didnt make the billion dollars before hitting 22.

Traders are unique in that they might be the only group of people more delusional than entrepreneurs.

According to my calculations, theres no reason I couldnt have made a billion dollars day trading. Never mind that 99.9% of traders are losers. Forget the fact that 80% of traders are depressed middle-aged men going through their mid-life crisis. (I saw one in the local library yesterday, he looked like he was avoiding his wife. I saw another today at Starbucks, he didnt buy a drink and he smelled funny.)

I was the exception. I was going to get my billion-dollar pay day before my 30thbirthday.

And I actuallywasthe exception. I made a nice chunk of money before stopping. I treated the thing with respectnot some get-rich scheme.

It breaks my heart when I see people tell me they day trade and then see them following some bullshit newsletter or some coach with a fudged track record. When I see someone watching another FOREX algorithm sales pitch or drooling over some penny-stock report I just want to shake them and sayYou have potential! Stop letting yourself get scammed! Stop scamming yourself!

If you trade without the proper preparation youd be better off in Vegas. This is not an exaggeration. Not only are there free drinks, sexy ladies looking for fun, and an obscene selection of Cirque du Soleil showsyour odds at pretty much any casino table are better than the markets. I mean this literally (like literally as defined by a dictionary)you are guaranteed to lose money over any decent period of time unless you learn to trade well.

And then even once youre prepared and you feel you know everything there is to know about the markets, youre still not guaranteed to win. Thats just the nature of the beast.

Thats why I started meditating at 16. Trading is intense. In college I would make $5000 in the middle of class and then lose $10,000 a few hours later while watching a movie.

That kind of thing gives you a different perspective on money.

One last thing before we get into the meat of the post: Like Garrett said, this is probably different than anything else youve read on trading. Why?

I dont give a shit if you trade or not. Actually, I would almost rather you

trade most people would be better off spending their life doing other things.

Ive double-checked my methods and they still work, so the information is current, Im just not spending my life using it.

The focus isnt on the methodalthough Ill give you all the dirty details.

Youve got to be fluid as a trader. The top hedge funds in the world hire mathematicians, physicists, meteorologists they are constantly shifting algorithms. How do you compete with these people? You dont. This will make more sense later.

I dont have any stake in you listening to me.

For real: nothing is for sale. Im not going to teach you to trade. People that teach people how to trade or run newsletters giving trading ideas make more money by selling their ideas than using their ideas. They all have their own stories about why they are being

but its bull. (Not that all this information is bad, its just that you got to be carefuldont follow

my incentives for writing this? I just want you to like meI want you to like me and this article so much that you subscribe for our newsletter and I can write more things. Also, Ive been thinking about writing this for way too long and I had to do it.)

Im not trying to convince you the world is ending.

Okay okay its time for the meat and potatoes.

Meat and potatoes? Ha! Youll be eating liquid gold with the information Im about to give you! Yes, you too can be a Rich Kid of Instagram!

Just kidding, you probably wont do anything with it. (And thats probably a good thing.)

Someone did make $2,000,000 with this information though. For real, I watched it happen.

Before we get to that story, were going to go through some of the major pitfalls new (and experienced) traders fall into.

[Note: Ive provided the meanings of some words but Im going to leave the glossary work to you, Google, and other places on the Internet that like defining words more than I do.]

Why start with what not to do? Becausenotsmoking cigarettes is more healthy than eating all organic. Because if you lose all your money then trading becomes kind of impossible, doesnt it?

You can do a lot by avoiding bad as opposed to seeking good. Paul Graham, founder of Y-Combinator

Warren Buffetts 1 rule in investing is to keep your capital. He says that his regrets have mostly been acts of omission instead of commission. That is because he doesnt throw money at something that he doesnt think will workand so he misses out on making money on tech bubbles but doesnt lose his ass when they bust. (Honestly, Warren Buffett isnt a trader he plays the long term and hasnt done anything but acquire massive companiesor huge pieces of themfor decades heisone of the worlds best money-getters but not someone who will give you anything useful in trading.)

What does this mean for you? Paper trade before you put any of your capital on the line. (Paper trading is when you make trades with a fake account. There are tons of platforms you can use for this, I used TD Ameritrades Think or Swim.)

How do you know when to start putting money on the line? When a system has proven itself.

When has a proven system proven itself? For me, a month of profitable trading (and a statistically significant number of trades).

If youre trading willy-nilly youre going to lose.

I dont even know exactly what willy-nilly means, but if you have to ask if your trading would fall under the willy-nilly category,then stop trading right f*&ing now!

Youre not George Soros, you dont get to trade on your gut.

You dont need an algorithm running on a supercomputerbut youdoneed some sort of system that wont let you be an idiot.

You will tell yourself you dont need a defense against being an idiot. This is you being delusional. Believe me. I betrayed myself too many times before committing to my systems. You dont win every time if you follow your methods but youdodo a hell of a lot better.

So what makes a good system? Well get into this more later when I show you the exact system I used (dont skip to it, this post will be useless if you do that). For now, this will be helpful when thinking about how to approach your trading:

. It tells you exactly when and how to enter a trade. Maybe its 3 of the 5 requirements must be met to invest 1 share, if 5 of 5 are met 2 shares. This is one line of emotional defense: trading will make you think that you can make a million dollars today, this is very exciting, you will want to fudge the rules. Warren Buffett only broke his rules when he got borednotice when youre bored. If you think you can take advantage of more opportunities in the market then alter your system, test it, and implement it. Remember: no willy-nilly!

(These are orders that automatically get you out of a trade when the market youre in hits a certain price.) A common rule is to take 50% of your position (your money in the market) at a certain profit point, maybe 100% maybe 68.2% (this is a Fibonacci number that is extremely popular among traders). It also defines exactly how much of a loss you are willing to take on a certain trade.

This must be determined before you enter a trade.

If you dont put a stop loss in your brain will justify your position over and over to you while your hopeful trade ends up losing you your house (and family). This is even more important than a strong offense

Sometimes you may want to make your position bigger as the market moves in your favor. You need to have a set of rules determining how youll do that.

Every tool seems so powerful, so prophetic! Early on I had a habit of adding signals that I would wrap up into my system. I theory they should make your trading better. Maybe it does for a Harvard physicist, it didnt for me. The more complex I made my system the worse I did, over and over. I would start simple, screw it up by adding a bunch of things people recommended, then go back to the drawing board. The best method I ever used was dead-simple (thats the one well get to in a little bit).

Eight out of ten trades failed for me. That was fine because when I hit a winner it

But if youre averaging eight out of ten trades failing, then it will be common to fail 20 times in a row. Ive gone through streaks of 40 failed trades in a row. Youve got to be able to survive those. My recommendation would be to risk 1% (or less) of the money youre willing to lose on each trade. That gives you 100 chances for failed trades before you go bust. It shouldnt happen. (Of course, when I was twenty I was risking 10% on some trades if I went bust it wasnt that big of a deal.)

Again, test the damn thing. If it doesnt make fake money then it certainly wont make real money.

There is a time and place for throwing caution to the wind and just going for it. Trading is the worst place for that kind of bullshit. The adrenaline that comes from the potential of losing thousands of dollars in a minute is enoughyoure mission is to keep a cool head.

If you do this right, you have the potential for makinga lotof money faster than any other method out there. (Excluding entrepreneurs who are insanely talented and simultaneously insanely lucky.)The potentialchances are it wont go that way.

Or youll make money, feel like a god, trade like a god, and lose all your money.

When you put real money on the line the game completely changes again.

You think youve tested your method. Youve gone the first month and everything looks solid. Great.

Then you put money on the line.Shit gets real.You cant seem to follow the system like you did in the test month. The market seems totally foreign again.

You dont believe me, thats fine.For you its different.

I dont know how many times I told myself that.Im different.

It doesnt matter though, youll feel it the same as I did.

To save yourself some money though, trust me, startsmall.

I told you I started meditating at 16. Its not because I was excited about being in the moment or that I was into Eastern philosophy. It was because if I didnt I couldnt trade. Id mess it up.

James Altucher talks about how he created algorithms for each of his methods and then let them trade for him while he was depressed an losing everything. I wasnt smart enough for this (and my methods inevitably had some level of subjectivity to them) and so I manually entered all my trades. (Entering a trade or putting on a trade or entering a position just means youre buying (or selling short) into a market.)

James got to trade emotionally because he wasnt actually trading.

Youve got a system so this shouldnt matter. But it so matters.

Imagine this: Youve just gone long the corn futures market for 2 contracts. Youre up $5000 on a trade in two hours. Awesome, right? Hell no!

This is what happens in the two sides (side 1 and side 2) of your brain:

1.I want to take this $5000 off the table now, thats a great win.

2. Yeah, but look at this patternthis could be the BIG tradethis could be $100,000 if I add contracts.

1.Yeah, but its more important to conserve capital. $5,000 is a great win. Maybe I could just take half off the table.

2. Yeah, but the system isnt perfect. You made it anywayyou can change it. You can feel it!

And then on and on. I said imagine but that exact inner-dialogue is something I went through twenty times a day every day for a long time.

When did I make the right choice? (The right choice being following the system, not making money. A lot of people make money with a shitty trade and then think they have some special talent of course they go bust within the quarter.)

I made the right choice when I let reason reign.

When I was either excited or scared. Both fear and greed will destroy you. (Immediate greed that overtakes your rational decisionwhich has longer term greed in mind.)

Ive said this earlier, but its important to repeat:

A. Some days you will feel like a worthless human being who has done and never will do anything worthwhile. You will enter trades you arent supposed to because youre afraid of missing out. You will exit trades before you should because your stomach is weak.

B. The next day you will make a winning trade and feel like a god. You will forget whatever it felt like to lose and you will make trades outside of your method. You will enter trades you shouldnt because you have the feeling that you cant do wrong (the market may validate you for a couple days and make the problem worse). You will stay in trades too long because you know that the market will turn in your favorno way could you bewrong!

Your trading decisions need to come from numbers and predetermined rules. Afteryearsof deliberate practice and success you may actually get an intuitive feel for the market. Then begin introducing those feelings into your systems. Before then, no way Jos.

Listen, if someone has a really kickass way to make money trading they sell it to a hedge fund or use it themselves. They dont sell it to you for five easy payments of $300.

That being said, therearesome decent newsletters out there. The James Dines letter being one of them. It may be worth signing up for a couple, but dont rely solely on them. Experiment with their information. Test their ideas against your method.

Think about the incentives at work there is nothing in your favor.

(This means, by the way, dont follow the method below without testing it first. Just so you knowif I were actively trading it right now I probably wouldnt have shared it.)

People will devise elaborate narratives around their ideas they want you to buy into. They will spend countless hours telling you about this thing and why its the next took to make you a millionaire.

They will scare you by telling you youre going to miss out on the next big thing. They will tell you that you need them.

You dont. You need a system that works. Incorporate their idea into your system if you believe in it, see if it actually works. If it doesnt, take it out.

This isnt a joke. Most people shouldnt trade. If youre not willing to give everything to the market then its not worth messing with. Do what Warren Buffett says and put your money in the Vanguard S&P 500 index fund and go about your life. (Or invest in your own business.)

Of course, as terrible as trading is, its also freaking awesome for the right people. To this day I get a warm fuzzy feeling when I see a price chart. Im not joking. I feel at home and I see patterns and I get the urge to dive in Maybe I will again. Who knows.

For real: you should only trade if you are extremely drawn to it and if you can behave rationally (while remaining delusional).

I was on break before going into my junior year of college. I was trading, doing pretty well. I was having a particularly good morning when I received a picture message on my phone. It was a screenshot of my partners trading account.

A couple weeks prior I received one that said $250,000. He had started with $30,000 only a few weeks before. I was freaking amazed.

This particular day, though, I didnt believe it was real. The image read: $2,000,000 (and change, whatever). That was a holy moly moment, to say the least. I stared at it for a long time.

How did he turn $30,000 into $2,000,000 in three months?

But also! (And this is a massively important but.)

He was more balls to the wall than Id seen anyone ever before. Every bit of profit was immediately thrown back into the trade so his position ballooned like crazy. I actually used the term stapled to the wall.

He was insanely lucky. See that lumber futures price chart below? You see that massive move down? Yeah, he got that at the top and rode it straight to the bottom. (He had a short positionmeaning he made money as the price dropped.)

This combination ended up with massive losses in the next couple months. He still ended with an awesome five-month return but you were a millionaire for a month and then not well, it hurts.

I used this method with my balls about a foot off the wall and made great returns. I nearly doubled my personal account in six months and then was able to raise money from investors with that track record.

[Note: This method is specifically useful for commodity futures but can be applied more widely with certain modifications.]

This method required constant awareness of price movements but not a lot of action. With this method you probably wont be making more than two trades a weekoften youll make one every other week. Its also a bit unique in that we are trying to spot tops and bottoms of markets, something that most people will tell you is suicide: like catching a falling knife.

I just looked up the Corn Futures price chart at and found it sitting right at a multi-year low.

The first is the simplest, this is the first filter I use to sort through charts: is it at multiyear high or low? You can see this quickly and skip it if the answer is no. If itisthen go in for a closer look.

(I will keep tabs on a bunch of charts sitting at these areas while I wait for the other requirements to be filled.)

[Note: Im not going to get too technical herejust what you need to have a basic understanding and get started. I recommend you read everything at sStock Schoolif you have any sort of commitment to this. Candlesticks are just another way to view pricing information on a chart. An empty/white bar means that the price closed higher than it begun for the period of time measured by the bar. A red is the opposite, the bottom of the red bar is the closing price. The skinny area is the full area covered by price movement during the period covered by the bar.]

The second thing I would look for is adailyMorning Doji Star or Hammer Candlestick.

Keep in mind we want these patterns at a multiyear high or low. Preferably with a gap. That means, for the corn chart above, we would want the price to openbelowwhere its current.

The gap shows one last push up. The two candlestick show consolidation of price movements. Basically, the price wasnt able to follow throughsignaling that this movement is out of gas.

Now, if you dont see one of these right away, dont discount it totally. Check for the third requirement.

General Mills buys a metric shitton of wheat. They move that market big time. It would be nice to know what companies like General Mills are doing so we could be on their side, right?

Yeah. And we can. And its pretty awesome.

Now, General Mills and other large producers use futures markets to hedge price fluctuations more often than trading for a profit like us. So we dont take them with a grain of salt unless they are making significant movement.

Companies that trade over a certain amount of contracts are required to report the trades they make. These are collected in reports called Commitment of Trader Reports. You can get these reportshere. You can get them in a more useful form (a chart)here.

Lets see an example. I just looked up a promising chart of Soy Bean Futures:

We can see a great multiyear low (which is more obvious in the weekly chart, note that this is a daily) and some consolidation. Okay, lets see what the producers are doingthis information is available to us in the red line in the mini-chart below the main one.

We can see here (and onhere-just CTRL+F soy and youll see it) that producers (the RED line) are still significantly short soybeans and they arent in any rush to get long (get long means to buy).

Because of this Im not going to make a trade but Iamgoing to keep an eye on this over the next few weeks to see if a cleaner setup emerges. (A setup basically means the boxes for your method are checked off.)

We want to see the producers make a significant move in the direction of our potential trade. Here I would want to see a large movement toward zero.

[This is a fascinating topic. Check outTrade Stocks and Commodities with the Insiders: Secrets of the COT Report,its freaking amazing. And if the $40 price tag looks too high, seriously reconsider trading as an option.]

My partner was able to make such insane returns because he caught a great runandleveraged it to the hilt. He put on a huge position and then used all the profits from each movement to make his position even bigger. That means youvegotto hit a home run.

I honestly cant recommend anyone do that. This method alone demands more risk than most (even though you can use mini contracts to take smaller positions). I played more conservatively and did well. When I trade again, Ill trade even more conservatively. Capital is the first requirement for tradingwithout it youre out of the game.

You need to set a stop-loss immediately after entering your position. I would give different markets different leeway depending on how widely they fluctuated normally.

Corn might fluctuate 10 points daily on average while Crude Oil might fluctuate 20. I would give Oil more wiggle room (notwilly-nilly, mind you!)

The most important thing is that you set a stop loss with a loss that you can manage. It doesnt matter how perfect a setup might appear, it could still lose money. You need to be prepared to take losers.

Ideally your stop loss is below the previous low. Sometimes you wont be able to catch it that close, but if you can youre golden. (You trade seeing more of a movement for taking on less risk.)

Lets say we get long Soy Beans. Weve got our stop-loss right under the previous low.

Version 1: The market moves against us and takes out our stop (this means the stop-loss is hit and we are taken out of the trade, we are flat). This is the most common scenario.

Version 2: This is the more interesting versionthe market moves in our favor! Yeehaw! Were not out of the woods yet though.

Obviously we would love the market to take off in the direction of our trade and lead us to our fortune. If this happens then count your blessings and remember the feelingbecause it wont come often.

Even when we get a winning trade, we have to work with it. It will go up a while and then back down, then up and then down.

When we talk about managing a trade we are really talking about three things:

1. Adding to the position.We talked about this a little earlier. Essentially you can add to a position thats working to double down. Say you get a strong movement in your favor, then it pulls back a bit to consolidate, you can add to your position to double-down on the move.

**2. Adjusting our stop-loss.This is the one you will use most often (as in every winning trade). I like to move my stop-loss to my entry price as soon as possible. This means that if that market moves against you then you still dont lose any money. I will normally wait until there is a new solid level of support created and then move the stop loss up to this new level. A support level is a price at which there is resistance to the market moving below. This is usually created by a small pullback. Continue to adjust your stop losses as the market moves in your favor.

3. Reducing our position (taking money off the table).I alternated between taking 50% of my trade off the table when I had 100% and never reducing a trade unless I got out completely. Often taking 50% or 30% at a certain point is a good way to lock in trades, the only problem is that it limits your upsides.

4. Exiting.At certain reversal patterns I would exit a trade and not wait for it to hit a stop-loss.

Scary simple, right? (There are a few minor things omitted just for the sake of simplicity these items decided most of the decisions.)

You probably noticed that I didnt give you any examples of perfect patterns (if you go back and look at a more magnified version of the lumber one youll see a perfect setup). Thats becauseit takes a massive amount of work to find a great trade.I may have to look through 200 more charts before finding adecentsetup.

If youre really interested in this, go to (or download a trading platform, I like thinkTDA) and look through every single commodity futures chart you can find. Look at a 5 year chart, then if one looks promising look at a 1 year chart, then a 6 month.

Keep a list of ones that look promising that you need to keep an eye on. Review these every day.

Once a week review ALL the commodities again.

When you find a good trade, make it on paper. Either literally with paper or with your program (again thinkTDA is awesome I dont even have an affiliate link for them, theyre not sponsoring this post but now I kind of think they should :P).

When you start to get good at it, dip a toe in with real money.

I was going to recommend more books for you to read but Im not. If you want them in the comments Ill offer some up but the important thing is for you to actually apply this knowledge first. Go and spend an hour looking at charts right now.

This post ended up being fairly long but the topic ishuge. I glossed over a lot of technical stuff on purpose. The goal here was to give you an idea of what it is to be a trader and an example of a method to begin using.

Im happy to answer any questions youve got! Just put them in the comments below or email me.

Thanks for taking the time to read this! Let me know what you think – the good, the bad, the ugly – in the comments below.

Im an entrepreneur (more in theStartupBros About Page) in St. Petersburg, FL

Your narrative is right on! No more daytrading for me, I just dont have the discipline to handle the psychological side and absorb losses and fight another day. Too nerve-wracking for me!

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Hi Kyle good read. Found myself wondering if knowing what you know now, you could go back to being that 15 year kid making $5,000 during class, what would you do differently (if anything)?

Aside from get long $SPX, $AAPL, $AMZN etc! 🙂

Thanks for an interesting article, rather like that.

I would also advise you to read this web resource, sometimes there are interesting articles going through there.

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