Prepare for the worst and the worst Martin Shkeli joke you ever heard

Martin: I have a horrible migraine. Prison guard: A bottle of Advil is $750,000

It's easy to lose sight of the dangers of trading when things are going well. A few good trades and you are invincible.

But it only takes one bad trade to wipe all the profit away.

Anybody remember KBIO?

A novice trader shorted the $2 stock. The next day it gapped up eight hundred percent. His account went from plus $36,000 to -$107,000 in one night. 

In twenty-four hours his life changed to the point of cowardly begging for money on social media.

He should have planned like a stoic and practiced premeditatio malorum, translated as a premeditation of evils.

In other words, prepare for the worst.

If the above mentioned KBIO trader had planned like a stoic, he probably would not have taken that trade or he'd have at least position sized in a way that protected his account. 

I know what you are thinking: that's quite the negative attitude. 

Living as a stoic does not mean you are a negative person.

Think positively but prepare for the worst while planning for success.

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It starts with one: habits, excellence and 112 push-ups

Aristotle said excellence is not an act, but a habit.

What he was telling us is that excellence does not begin fully formed, but builds over time through habit. Excellence does not start excellent.

Dream big, but start small.

With one.

At the beginning of the year I told a skeptical friend that by year end I would do 300 pushups without stopping.

He shook his head and said "nope", so I decided to prove him wrong.

As a symbol and to get me started on a routine, I did one pushup (one armed Rocky style).

I woke up on day two and did 10.

I decided I would add only 1 or 2 everyday the second I woke up.

As of March 18th I am currently at 112 pushups and a habit has formed.

This new habit is leading me to my goal of excellence.

Aristotle would be proud.

Leave a comment if you can see how this related to trading.

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The Fallacy of Backtesting and Adapting to Current Market Conditions

I recently engaged in an interesting chat with a novice trader this weekend. It got me thinking about the fallacy of backtesting and why I don't rely on past statistics. 

You heard me correctly. My take on backtesting is controversial and puts me in the minority. Some have called me an idiot for this view and I don't mind at all. The majority is often wrong, and I've made a career out of going against the grain. 

Here's the conversation that illustrates my point.

Paul, how are you doing trading breakout-pullbacks?

I haven't traded any this year.

Why not? A few years ago you made a killing off that setup.

That was a few years ago.

Yeah, but I backtested the past 10 years and they have a 58 percent win rate and average gain over 7 percent on winners.

Nice stats but they don't apply to this market.

Stats don't lie Paul.

Have you made any money this year trading breakout-pullbacks?

No.

The take away from this chat is that you need to understand the current market you are trading. Backtesting can give you a general idea of how reliable a setup is, but there is much more to trading a setup. 

You can not test for every variable and different market reacts differently to specific setups. A successful swing trader must understand the current market and adapt accordingly.

Forget about backtesting, understand the current market conditions, and trade right setup for the right market.

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If you would like to learn more about how I trade, receive my nightly focus list with market analysis, setups and trade alerts, sign up at BullsonWallStreet.com.