So you can tell now from the conversation we’ve been having this week, the level of uncertainty that any of us have to feel at any given time is really all relative to our environment. Like the environment that I was raised in as a trader, very different from the one that you all might be being raised in as we speak, but everyone has to deal with there that uncertainty, if you will, and their own environment for the time that they’re there. No one’s immune from it. I certainly wasn’t. But I remember going home thinking like, wow, I’m in a losing streak. My equity’s down and I have to put on a trade and I’m going to have to deal with the commission. So the first two or 3 cents that I would make, so think about it this way, for some of you who are trading short term, if I put on a wheat trade and wheat, corn and soybeans are priced in bushels, each contract is uniform lee at 5,000 bushels, which is a measure of volume.
And so each full point, or each full point in that regard is five K, and they move with fractions of a cents. So each full penny would be $50. But between fees and commissions, I had to do 3 cents just to break even. So I didn’t have the luxury of thinking of trading corn, soybeans, or wheat for a 10 cent move because 30% of that move would just go to cover the cost. Do you see where I’m going with it? So that’s how I got shaped into thinking the way that I’m thinking. It wasn’t that I had a bias to say, and I learned how to read the tape actually pretty well as far as stock trading was concerned back when you could kind of do it. Now it’s all high frequency trading and this and that, but if you had a level two and you had ticker tape and you could learn that as a skill, and I definitely did.
That was a big part of why I kind of added the equities back in to my trading after having, I don’t want to say mastery A, who knows what the hell that means, but once I knew I could make money with futures, that’s when I kind of went back to where I had struggled and failed and tried to show more promise in my work. So it’s easy to understand that the bias is not a bias that I have. It was the environment that I was in, and I know that there are other traders who talked about having to pay a minimum, trying to trade size for their clients at the time, and the best that they could do as a negotiated rate was paid 25 cents a share, which might seem like mafiaa loan to you all today. So the environment that you’re in really shapes us, just like the environment that you were raised in around your household and how did those people feel about taking risk? What did they feel about other people who were risk takers, right? Because you hear lots of snarky stuff from people who are really, really ignorant and have
A fundamental misunderstanding of how markets work. We talked about a few of them, like the trading part is legalized gambling. Well, certainly it can be as long as they understand and concede to the fact that if you have a model that has positive expected value that you are the casino, you’re not the gambler, right? Gamblers are people who typically as a group, whether they’re in Vegas, Atlantic City, or any other place where gambling is legalized, whether it’s sports betting or whatever, they don’t know the odds and they don’t really care about the odds. They’re kind of in it for the entertainment value. There’s nothing wrong with it, it’s their money. But when you act like a pro trader, even if you don’t register or set up a fund or this and that, you should incorporate, but you’re a person who knows what the odds are, and odds are probabilities.
So you can calculate probabilities from the odds and vice versa. If you know your bed size, you can calculate expected value. If you know the expected value and what you make on a trade, you can use Kelly criteria to figure out how many trades you would need to put on to hit a certain level. You can calculate portfolio heat. So there’s really nothing random about your behavior at that point. There’s an awful lot of science for the people who talk about commodities having no real value. Well, that’s a truism. Everybody knows that, right? My dead grandmother knows that the commodities don’t have value the way a stock would, but that’s because it’s not a capital market. It’s not a stock or a bond. Futures deal with risk transference, right? So it’s more like it’s an insurance market, right? You’re underwriting the risk of someone who’s on the other side of the trade.
So of course not the same. But if you took a damn finance class instead of studying some bullshit major in school, you might know that, right? So you have really ignorant people showing up with a microphone in their face saying stuff that’s completely asinine. So at any rate, I don’t begrudge them studying what they want to study. But it’s interesting how the media has an uncanny ability to always put a microphone in the person who’s the biggest jackass in the crowd. And it’s usually along political lines. They don’t really ask me. I wonder why. So we are all shaped by our environments. And so your behavior in the trading as well as your behavior around what your understanding is about risk really comes down to what other people taught you about taking chances. Did they become victims? Did they say, Hey, you win some and you lose some? Now it’s onto the next challenge. The environment I grew up in is like,
If you don’t take chances, you’re not going to get anywhere. You had to be super bold. And that was from my parents who were born in the depression. They weren’t reckless, but they knew in order to escape them, a you, which growing up in the depression in the aftermath of my stock market crash in 1929 had huge psychological impact on people. I can remember hearing relatives mind you, B, hold your T, do your W, then your D, mind your business, hold your tongue, do your work, and then you’re done, which is, it’s an anthem for working class people. Why was that? Because coming out of 29 into the early thirties, you were on your knees at night thanking the Lord Jesus Christ that you had a job because so many people were out of work and they had to beg, borrow, and steal to get through the day. So having a job was like manna from heaven. Things have changed right now. People are very, very comfortable. They’re spending 10 bucks a morning for some kind of coffee drink, and they complain that they don’t have any money. So you look at that type of behavior and it shapes people. It’s very difficult to unwind them from that because it’s almost traumatizing. And so your upbringing might not be traumatizing, but you might’ve been exposed to a certain type of mindset or a collective type of mindset that conditioned your behavior in and around taking risks.
Now, I’m looking into this, and I can’t make any broad generalizations, but if you have highly educated parents who have master’s degrees or one’s a doctor, one’s an attorney, they love the educational route because it’s entirely predictable. We talk about the uncertainty. Ask them how they feel about uncertainty. When did it ever show up in their lives? Was there uncertainty about having to pass the bar? Big deal. You could take test again, right? What’s uncertainty, right? Those are really good questions to ask. When did you face an uncertainty and how did you react? Where did you learn that from? Because now if they learned it from their parents, you’re dealing with something that’s generational. And if they don’t want to embrace the uncertainty or you don’t, I find that it’s going to be challenging for you to become a very, very successful trader because that’s where the money’s made. Remember, there’s two payoffs. There’s the financial and then there’s the psychological. And in the psychological aspect of it, you need to have an enormous amount of personal strength, self-awareness, emotional intelligence, in and around how you’re going to behave when the outcome of something that you’re involved in is uncertain and probabilistic. Most people don’t like that because it goes against our primal thing of about fight or flee type of a deal.
We don’t typically invite ourselves to put ourselves in directly into harm’s way, police and firemen do, but they’re a different breed, right? Different type of person. So when I think about what it is that you are doing, where most people have struggled with trading, a lot of the answers to the questions can come from if they would just address how do they feel about dealing with the uncertainty and really map that out. Think about all the different parts of the trading from your research. When do you know you’re done doing your research? Is it a time constraint? Well, I put two hours in every night. Okay, well, let’s talk about the quality of it then. Are you looking in all the asset classes outside of the darlings of the media, right? We had the four horsemen right now. We had fangs. Now we’ve got eight or nine names that have led Nasdaq that have certainly retraced quite a bit recently.
So those themes are certainly something to talk about, but it’s not necessarily professional just because it’s on tv. So if you’re really concerned about making money, are you looking in international markets in other equities? Are you looking at currencies? Are you looking at the etms or the ETFs in and around those structures? Have you learned to short sell? Have you learned to trade the micros and the minis of those instruments just to get a feel for it? Have you learned to look at options trades to the extent that if you have a debit or a net debit balance, you typically have a known max loss as soon as you put the trade on. So how willing are you to investigate your feelings around uncertainty? Because your willingness on a scale of one to 10 has obviously a lot is relative strength, right? It’s R s I. And so it’s not that you should be fearless, but you can still look at your behavior around that. You can learn a lot about yourself. Some of the reasons why you might fold under pressure isn’t necessarily because you want to. It’s because that’s what you were taught to do because you saw other people fall to pieces.
I’m lucky, like Lady Gaga said, I’m born this way. I had a temperament that I was born with that allows me to not freak out when things work against me. So if I didn’t happen to get into managing risk in the markets, I had the same temperament. That would’ve been well for nine 11 operator 9 1 1, what’s your emergency? Because there’s nothing to freak out about or an emergency room nurse or doctor. I’m actually good under pressure. There’s a thing that comes over me that I can trigger that’s part of my personality where I kind of go into an overdrive. I’m actually the perfect person to have in that type of situation. And I’ve been in a few of them where I was able to make the difference,
But that’s just God, and maybe it’s some of it’s environment too. But that internal inner voice of being inquisitive, really sit and studying human behavior, my own behavior, certainly, and think about it, think about what we talk about on this show, and I’m just a pro trader. I’m not a psychologist, and material that we cover here is utterly remarkable, and it’s really helpful to the community. So as Yogi Berro said, you can observe a lot by watching. So that’s what you do. Just study your own behavior. Ask yourself open-ended questions. Why do I feel this way? Open-ended questions are ones where the answers are not yes or no, right? So open-ended questions you could start with where, why, and how did you learn that? And don’t judge yourself. I mean, if you want beat the shit out of yourself, go ahead. But that doesn’t really help you come up with a solution because again, normally we’re products of our environment.
So think about what your environment is. Now, do you have a community? I’ll tell you this. Half the folks that are in the Mastermind or any of the coaching stuff, I mean I didn’t ask them specifically, but I know a lot of them have said are intimated through phone conversations or some of the Zoom calls and the emails, not necessarily as one specific group, but as odd lots over the years. They wanted to be involved in a professional community where they could both be accountable but also understand what their blind spots are because we’re limited to those blind spots. Those are not necessarily limiting beliefs. But there’s information and there are data out there that we don’t have access to because we don’t know how to ask the best questions, not just of ourselves, but of our peer group. And so that’s where that comes in, and we all are better for it.
I benefit from it too because I get posed with questions that I might not have thought about for 20 years, and I get to grow. Look at that in your own behavior because that in and around that solution might be more, excuse me, in and around that study could be more of a solution that can help you unlock skills that you might already have that could lead you to better trading that might help you in those moments of uncertainty that might not even be necessarily any more uncertain than what you’re already willing to take, but can help you lead to more profits, or they can help you understand how to get out of losing trades much more quickly than you’re currently doing. And that can improve your equity curve. And as I’ve said before, we should always be trading our equity curve. Anyway, that’s all I have for you today. Appreciate y’all being here. I hope you’re planning on having a great weekend. I’ll be back again tomorrow. Take care.
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