The next interview in the series is with Sunrise Trader. He’s one of the best traders to follow on Twitter and I highly recommend you check him out. He summed up his Twitter purpose quite nicely just the other day:
Scroll through his feed and you’ll find a lot about his trading plan along with nicely marked up charts but also daily inspiration and quotes that make him a joy to follow. I’m really pleased that he agreed to do an interview because I knew he’d give some excellent answers. I love his detailed and concise explanation about money management, an absolutely critical skill for any trader.
What is the most overrated trading advice?
“Complexity/logic and the belief a trader needs to know it all.”
The market is not based on logic and complexity. It is based on human emotion and the current market participants’ thoughts and actions. A trader must keep in mind that it is not the news or earnings release that is important. It is the reaction to the news or earnings release. Reactions are often different than what logic might think.
Many want to know all things trading. It is next to impossible. What a trader should do is hone their skills to one or two types of setups and have the patience to wait for those setups to materialize.
Traders need to keep things simple. Keep their trading plan, charts and methods simple. Don’t overthink. Traders need to trust in their process. Once a trader finds a system that works for them, they need to wash, rinse, repeat over and over again.
I often say: Plan it, set an alert, see it, trade it. See it first. Use your eyes.
What is the most underrated trading advice?
Many come to the trading business thinking about all the money they want to make, when what they should learn right out of the gate is how much money can be lost and a formula for how many shares can be purchased.
As traders our #1 job is risk management/money management. If you take the time to learn money management, you will be ahead of 90+% of new traders in my opinion.
You need to ask yourself and plan with these primary questions in your mind each time you place a trade:
- How many continuous losing trades can my account handle?
- How much am I willing to risk?
- What is my risk vs my potential reward?
Now for some math, you start with an account of $10,000 and you want to buy a stock that is trading at $50 per share. How many shares can you buy? Hint: it is not 200 shares. First, you need to decide how much per share you are willing to risk. Let’s say you settle on $10, really? $10 x 200 shares = a loss of $2k or 20% of your account. Do this just a few times and you will see an account balance of ZERO.
To find out how many shares you can buy, you must calculate using a % of your total account. Traders who are successful will often risk up to 2% of their total account on each trade. 2% of 10K = $200 dollars. You now decide, based on your stop, what the risk per share will be. For this example, your stop is $2 below the purchase price. You are willing to risk a total of $200 (2% of your total capital)/a stop of $2 means you can buy 100 shares. If your stop was $5 you could buy 40 shares. You may find that your risk tolerance is greater than 2%, maybe for you it is 5%. I implore you to do the math based on your personal risk tolerance.
I can tell you that trading takes time to learn, there is no holy grail and no perfect system. If you can spend time on learning a system, gaining an edge and perfecting money management/risk management you will be miles ahead in your trading career.
What’s a non-trading related book that’s influenced you recently?
10% Happier by Dan Harris. He makes a case for mindfulness and meditation. It is a mix of true-life stories with research and wisdom. You learn through practice to quiet the voices in your head and appreciate living in the moment.
Questions for Sunrise?
Ask him in the comments below or ask him on Twitter. Thanks Sunrise!
Do you know someone who you think would make a good interviewee? Contact me!