There are two types of capital in trading. You have your financial capital, which is your account size and max loss per trade/day and then you have your mental capital. This refers to whether you're able to stay alert and follow your game plan throughout the day. This way you can hit the stocks on your watchlist when the time comes.
On July 5th, I got stuck at the open trading NVDA. It got stuck in a range the entire morning. I had a whole host of stocks that were my top plays for the day. But i blew so much time on NVDA that I essentially checked out. I hit my max pain for the day, and I started missing the rest of my plays.
NVDA gapped up and I was playing this stock for a green to red. I caught a short at the open, but it spiked up causing my win to turn into a loss. That irked me because I’m usually not that greedy. I went for the home run and added too low. I then shorted NVDA with the anticipation of the break under the VWAP. It came down to 141.80 and then boom, 2 candles later it's at 143.60. I ended up stopping out. I re-shorted as it came under the VWAP but it reversed again, turning into another loss.
Preserving your Mental Capital
If you're struggling to preserve your mental capital there are a few things you can do.
- If you’re up a dollar or 2, lower your stop to your buy price to minimize your risk. This way you don’t have to babysit the trade but move onto other plays.
- If your focus is off you can walk away for the day. Tomorrow is a new day.
- Narrow down your watchlist as much as possible to only the best plays.
- Have multiple screens so you can watch different stocks at the same time and not have to switch back and forth.
- If your risk is causing you stress it might be a sign that you're trading too big.
Making the proper adjustments to preserve your mental capital is essential to long term profitability.
In the morning, I hunt for gappers in the premarket. For my mentorship group, I do a morning class before the market opens. We talk about stocks that had news out and some of these stocks had amazing plays right out of the open. $ORLY had an opening range breakdown. This had a $20 move and I’ve been fighting for pennies. $TSLA was another huge gapper with bad news. These stocks tend to have multiple moves throughout the day - the opening range breakout, the VWAP test at mid-morning, and then the fizzle into the close.
Always remember that there's your financial capital and then there’s your mental capital. Don’t blow it all in the morning fighting with a stock that isn't even ready, especially if you have other stocks on your watchlist. Keep multiple charts open and don't get pigeonholed into one thing so that you're forgetting the rest of your game plan. It's ok to be trading NVDA but it's not ok to miss other setups that are clean and perfect for big gains.
If you’re not sure of the setups and price patterns that we’re talking about you can learn them all here at our Bulls Bootcamp. It's an intensive 60 day course to teach you exactly how I trade and why. To learn more or signup, email me at firstname.lastname@example.org today!