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Using the 9 Exponential Moving Average (EMA) for trailing stops is a popular technique, particularly in day trading, because it offers an effective balance between responsiveness and reliability.
Why traders use the 9 EMA for trailing stops:
- Trend Following: The 9 EMA acts as a "guide" for price action during strong trends. When price "rides" the 9 EMA, it provides a visual confirmation that the momentum is still in your favor (54:14-58:14).
- Responsiveness: Because it only considers the last 9 periods, the EMA is highly sensitive to recent price changes. This allows traders to exit trades relatively quickly if momentum starts to shift or stall, helping to lock in gains before a full trend reversal (59:49).
- Objective Exits: It removes the emotional component of deciding when to take profits. As discussed in the video (58:11), a common rule is to trail your stop below the 9 EMA and exit only when a candle closes below the line. This gives the trade "room to breathe" while maintaining a strict exit criterion.
- Spotting Micro-Trends: Traders often use the 9 EMA on shorter timeframes (1-minute, 3-minute, or 5-minute charts) to catch quick momentum bursts. If the line tilts upward and price remains above it, it signals that buyers are in control and urgency remains high (57:26).
Key Considerations:
- Context Matters: While the 9 EMA is excellent for capturing fast-moving trends, it can lead to premature exits or "whipsaws" in choppy, sideways markets. Traders often combine it with other indicators or structure (like VWAP or price action levels) to ensure they aren't exiting based on minor noise.
- Confidence: As highlighted in the video (59:01), trailing with the 9 EMA requires the discipline to trust your system. It can be difficult to ignore the urge to take profits early when a trade is working, but staying committed to the 9 EMA exit plan is how elite traders avoid leaving money on the table during extended moves.
In this episode of Chart Fanatics, host Words of Rizdom interviews Jeff Holden, Head of Trader Development at SMB Capital, to discuss a professional framework for developing consistency and momentum in trading. Instead of focusing on unrealistic P&L goals, Holden shares a momentum model designed to help traders build long-term careers by focusing on small, stackable wins.
Key Highlights of the Framework:
- Daily Report Cards (6:34 - 10:17): Holden emphasizes using daily report cards to track performance rather than just focusing on monetary outcomes.
- Mistake Identification (11:33 - 13:30): Traders are encouraged to list their mistakes for an entire week without judgment to identify recurring themes and prioritize which issue to fix first.
- The Five W’s (13:40 - 16:02): Inspired by Toyota’s efficiency methods, Holden advises asking "Why?" five times to diagnose the root cause of a trading mistake, which often leads to more effective solutions than surface-level fixes.
- The Role of Friction (19:57 - 22:54): Friction is presented as a necessary part of growth. When a trader experiences difficulty implementing a solution, it provides critical information for further refinement.
- Playbook Development (1:05:03 - 1:08:12): For traders who aren't consistently profitable, the focus should be on mastering one playbook at a time before expanding, ensuring they have the structure to execute effectively.
Practical Application:
- Institutional Mindset (54:14 - 57:20): Using a Microsoft trade example, Holden explains how to read institutional buy programs on the tape, advocating for trailing stops based on indicators like the 9 EMA rather than selling prematurely out of fear.
- Use of AI (16:28 - 17:52): Holden notes that SMB Capital uses AI as a research assistant to analyze data, identify edges, and help traders work through their processes faster, rather than as a "get-rich-quick" tool.
- The 10-Year Career (43:05 - 44:00): The goal is to build a mindset for a decade-long career, acknowledging that success will include varied periods of performance, but following a strong process will lead to sustainable results.
According to Jeff Holden, focusing on 'small, stackable wins' rather than singular, large outcomes helps traders build a sustainable career by creating consistent momentum. (3:00 - 3:30) Instead of attempting to hit 'home runs'—which are rare and unpredictable—traders use this process to identify and eliminate specific, recurring mistakes through a diagnostic approach. (12:45 - 13:30, 43:43 - 44:10)
By systematically working through these small issues, traders generate incremental progress that compounds over time. (24:51 - 25:27) This approach removes emotional pressure, as the trader’s primary objective shifts from chasing monetary gain to simply executing a refined process. (25:38 - 25:52) Holden explains that this creates a growth mindset where each small win serves as a foundation for the next, ultimately allowing traders to remain active and profitable in the market for a decade-long career. (24:08 - 24:19, 44:37 - 44:40)
Why avoid setting two goals?
Jeff Holden explains that setting broad, outcome-focused P&L goals often leads to 'friction'—a state where traders become overwhelmed by market challenges and repeatedly 'blow up' their plans, which prevents sustainable growth (4:41 - 5:52). He argues that attempting to work on multiple goals simultaneously is ineffective, as research shows it hinders progress (0:55 - 1:00, 31:45 - 31:49).
Instead, Holden advocates for a process-driven approach:
- Building Momentum: By focusing on the 'smallest win' possible, such as mastering one playbook or addressing a single recurring mistake, traders can stack these successes to create genuine momentum rather than relying on inconsistent, sporadic bursts of profit (13:10 - 13:30, 43:43 - 44:10).
- The Diagnostic Approach: He advises using the 'five W’s' to diagnose the root cause of mistakes. This shifts the focus from the monetary result to the execution of the trade, allowing traders to develop clear, actionable solutions (14:36 - 16:02).
- Long-Term Sustainability: Holden emphasizes that trading is a skill-building career. By prioritizing these small, repeatable wins, traders remove the emotional pressure of chasing 'home runs,' which ultimately enables them to develop the consistency necessary for a decade-long career in the market (25:34 - 25:52, 44:00 - 44:40).
The "pit crew" trading model is an analogy Jeff Holden uses to describe the mindset required for troubleshooting and improving trading performance. He explains that if a Formula 1 driver is struggling with their car, the team does not simply yell at the driver to go faster; instead, they bring the car into the pit to fix the mechanical issues. (1:14:38 - 1:14:52)
This model relates to Holden's broader professional framework by emphasizing that when a trader encounters performance issues, they should not just try to force better results. Rather, they should treat the situation as an opportunity to pause, diagnose the specific problems (using tools like the five W's), and refine their process. Holden notes that this approach shifts the focus from simple output-driven goals to building momentum through small, actionable fixes that improve the trader's "car"—their trading system and playbook. (1:14:53 - 1:15:02)
Why choose a slower, longer-term trading playbook?
According to Jeff Holden, focusing on a single, deliberate playbook is essential for traders who are not yet consistently profitable because it provides the necessary structure to build a foundation. By mastering one playbook, a trader learns to "lay one brick perfectly," which allows them to effectively scale their risk and later transition more smoothly to multiple strategies (1:05:23 - 1:07:30).
The benefits of this approach include:
- Clarity and Consistency: Attempting to build four playbooks simultaneously leads to a lack of a clear model for approaching market opportunities. Mastering one ensures the trader understands the nuances of their execution without becoming overwhelmed (1:06:11 - 1:06:29).
- Reducing Friction: When a trader focuses on the "smallest win" possible, it removes the pressure to force results or chase "home runs." This allows them to work through the friction of learning and diagnosing mistakes using the five W's process without prematurely blowing up their trading plan (0:09 - 0:15, 13:21 - 13:30, 25:32 - 25:52).
- Skill Building: Trading is viewed as a skill-building career. By starting with one playbook and perfecting the risk allocation within that specific setup, a trader prepares themselves for a 10-year career rather than seeking quick, unsustainable gains (43:07 - 43:45, 110:41 - 111:15).
- Adaptability: Once a trader has mastered one playbook and understands how to scale their risk effectively, bridging the gap to additional playbooks becomes easier because the trader has already internalized a systematic process for identifying and capitalizing on market opportunities (1:11:05 - 1:12:13).
According to Jeff Holden, traders should avoid immediate judgment because judging a mistake as a personal failure or trying to solve it prematurely prevents deep analysis and can lead to a cycle of stagnant growth (7:37 - 8:17, 12:02 - 12:13). Instead of reacting emotionally, he advises that traders treat mistakes as opportunities for growth by recording them in a daily report card without judgment for a week to identify recurring patterns (7:19 - 7:37, 12:03 - 12:13).
The recommended diagnostic approach is the five W's, a technique adopted from Toyota, where the trader asks 'why' five times in succession regarding a specific error (12:16 - 12:22, 13:46 - 14:09). This process helps the trader peel back layers of superficial thinking to uncover the root cause, which in turn leads to a more effective, actionable solution rather than a knee-jerk reaction (14:32 - 14:58, 18:02 - 18:18).
What should a daily report card include?
According to Jeff Holden, a trader should include a dedicated section in their daily report card specifically for mistakes. (7:27 - 7:31) The framework suggests the following steps for recording this information:
- List the Mistakes: Record three or four mistakes made during the day (e.g., selling too early, not respecting a stop loss, or failing to hold a position long enough). (11:37 - 11:56)
- Avoid Immediate Judgment: Do not judge the mistakes as personal failures or attempt to solve them immediately upon writing them down. Simply list them out objectively for one week to identify recurring patterns or themes. (12:02 - 12:13, 12:35 - 12:43)
- Prioritize for Diagnosis: After tracking these mistakes over the course of a week, the trader should consolidate the findings into a pattern of the two or three most significant issues. From there, identify the single most important mistake to address, which then serves as the focus for the five W's diagnostic process. (12:30 - 12:50)
Yes, the video states that focusing on fixing one identified mistake at a time is a core component of building momentum in a trader's performance. (13:10 - 13:25) The speaker explains that rather than trying to fix everything at once—which research shows is ineffective—a trader should prioritize the single most significant issue holding them back and work toward a "small win." (31:45 - 31:51) By successfully solving that primary problem through a structured diagnostic process, such as the five W's, the trader generates a small win that allows them to move forward. (13:25 - 13:34, 23:21 - 23:32) These small wins, when stacked consistently, compound over time to create genuine momentum and improve a trader's P&L curve, shifting the focus away from the pressure of large, immediate results. (24:14 - 25:27)
What creates the most trading friction?
According to Jeff Holden, trading friction occurs when a trader attempts to act on a plan in real-time, only to be challenged by the market or face unexpected errors (5:03 - 5:18). This friction often leads traders to abandon their plans or 'blow up' their accounts in search of new solutions, creating a cycle that prevents long-term momentum (5:18 - 5:44, 22:06 - 22:19).
To manage and reduce this friction, Holden suggests the following approach:
Adopt a 'Small Win' Mentality: Instead of chasing major goals or quick profits, prioritize fixing one specific, recurring mistake at a time. This reduces pressure and prevents the impulse to overhaul an entire strategy (13:16 - 13:34, 25:32 - 25:52).
Diagnose via the 'Five W's': Rather than reacting emotionally or jumping to immediate solutions, traders should use a diagnostic process—asking 'why' five times—to uncover the root cause of the behavior (14:04 - 14:45).
Document Mistakes Without Judgment: Maintain a section in a daily report card for mistakes. By recording them objectively for one week, traders can identify patterns and themes rather than viewing every individual error as a personal failure (7:25 - 8:12, 12:02 - 12:35).
Focus on Input Variables: Success is tied to the repetition of a process, not the immediate output (P&L). By concentrating on the inputs—such as following a single, well-structured playbook—traders can build the consistency necessary to handle market friction over the long term (29:46 - 30:16, 46:40 - 47:01).
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