I got a great email from a longtime viewer. He asked that I don’t use his name. He said, can you give me a list of the five things that you think that are required in order to make it long-term? And I was like, man, I probably can’t. I know that there’s a lot of things because everybody’s so unique. The five things that I might say might not be relevant to you. But anyway, the things that come off the top of my head are mental fortitude. I don’t think enough has spoken about this. We talk about trader mindset here, obviously all the time, which is kind of like another saying, the inner voice of trading, mental fortitude at the beginning of where if you’re just starting out, you might see trading as a bit of a grind. Once you do know how to make money, you might see it as monotony, right?
So I don’t want to call it grind because once you figure it out, it’s not a grind, but there is something monotonous about it, and you have to have the ability to do the same thing over and over and over again. It takes a special type of discipline to be able to do that. That comes with number two, having a good attitude. Things are going to happen in your life that are outside of trading. That could very well play into your trading. If you want to see what that’s like, go read Victor Sperandeo’s book “Methods of a Wall Street Master,” where he talks about a $4,000 hairdryer. You have to be in the right type of attitude to stay positive because the minute you start to turn sour, that’s going to find its way into your trading as well. Three, however you do it, whether you’re trading and scalping in two minute bars, or whether you’re a position trader or whether you’re even an investor, you do need to have a strong sense of risk management.
Entries and exits matter position sizing and the use of leverage to me are probably 98% and entries and exits are each 1%. That’s how much important it is. You need to understand risk management. You need to know where you’re wrong. You need to think in terms of percentages, not dollars. Retail, small timers think in terms of dollars. So don’t be that way. Think in terms of percentages, because then I think your upside is unlimited. Four, I’m going to put this in there, could be controversial. I think you need a good sense of timing. If you don’t run a full mechanized system where you’re buying 20 day breakouts, for example. You do have to have a good sense of when to add the risk or when to remove whatever risk is that’s appropriate for where you are in your life. That’s especially true the shorter term that you trade, that’s scalping, like I said, 1, 2, 3 minute bars.
I don’t know what you might be looking at. I don’t know if, could you go to ticks? I suppose you could. So if you’re scalper to say, I would say up to like a two or a three day swing trader, you need to have a good sense of timing. The rules are the rules, but in my experience, if you can’t find a way to get good timing around that and develop a good sense for the markets, it’s going to be hard to make money on the short end of it. And then five, this isn’t spoken about enough either, is that you actually have to have the intention of making money. You can’t come in and say, I’m going to try to wing it. You can, but you’re going to get wing it style results. You’ll make a little money. You’ll probably lose a little bit of money. But at the end of the day, what’s it all going to add up to? It’s going to look a lot like whatever your goal is. So before you start and intentions equal results, start to think about what is it that you want out of trading? How do you want trading to serve you in your life? I was very clear about that. It was for me, it was like, you ever see someone do the 800 meter relay where they passed the baton? Remember watching Flo Jo, those Americans were amazing, man. They were so fast, and I was kind of passing the baton on careers. I left from doing waiting tables, caddy and golf bags, having a landscaping company to going to a white collar job, and I knew that that was going to help me go parabolic and go geometric.
Once I figured it out. It was a grind at the beginning. Like I said earlier in this video, I didn’t know what I was doing. I didn’t have any reassurance. I couldn’t get any validation, and that was part of it. The struggle is what builds the character, because as you get on and on in your career, you’re going to end up being tested. So you have to have the intention of making money no matter what. You have to make up in your mind that you’re here to win and that you’re going to use trading as a vehicle to change your life. Doesn’t matter where you live, doesn’t matter your tax bracket, doesn’t matter your timeframe. Doesn’t matter what instruments you trade, it does matter. Leverage for sure, that’s a big part of it, but you need to have a very clear goal. I am surprised how many people I say, okay, well Mike, can you look at this trade and tell me if it’s good or bad?
And whether it makes or loses money doesn’t make it good or bad. The question is, well, what’s the goal? How can I say, here we are at point A and we’re looking out at point B. How can I say that this is a good or bad trade? If I don’t know what it is that you’re trying to do with your trading, it might very well be a good trade even though you lost money. But I don’t know enough about the risk management and your position sizing to know whether this will help you hit your goals or not, right? You might not know the math, so you need to know in and around your goal setting, you’re going to need to know how to calculate expected values. You’re going to need to know how to use bay in statistics. How do conditional probabilities? You should probably know Kelly formula and then be able to calculate if you’d have a certain expected value of a trade, how many trades were you going to need to hit your goal, and then kind of reposition yourself because you might not be taking enough risk. Some of you might not be. If you’re looking at one instrument, you might not have enough ammo to really hit your goal because there won’t be enough setups in that particular instrument for you to put those trades on even at X, Y, Z, expected value. So those are the five that I think can help you. There’s probably a million more, I admit, and certainly if you have a certain asset class or holding period, there might be five others that are much more relevant for you. But just generally speaking, I think no matter your asset class, your use of leverage or not, and your holding period, these seem to be come up for a lot of people. Strong mind mental fortitude, having a good attitude about the process and not getting stuck up in the results even when you’re in a losing streak. A very strong sense of risk management, because as I like to say, if you don’t define your risk, it defines you a good sense of timing and also clear intentions and very, very solid goals. They don’t even have to be realistic. Make them ridiculously fantastic and go from there.