It’s not the chart, it’s you

So you’re talking about relationships yesterday or the day before and guy that I know is going through a breakup. So it reminds me of or any of these other dating apps, for example, some of them have an algorithm where after you put up your data, they try to match it up with the data of another person of the gender that you’re interested in. And then at least you’re kind of targeting inside a group of people with whom you may have type of rapport. Sometimes they just have a search engine kind of built in and you can kind of seek what you’re looking for. Certain height, certain religion, certain blah, blah, blah, and then all within a certain distance from where your zip code is. So it’s like screening for stocks. So I think what they’re talking about at that point, ultimately is giving you the tool to find compatibility.

So as that relates to managing risk, I believe each system and every chart, every chart pattern has an emotional response attached to it. Every zig and zag of a head and shoulders chart up gives feedback. It’s not just P&L…it’s not just tick and tick multiplied by your position size, which is obviously what makes and loses your money, the position size. It’s also, how do you feel when you’re inside that chart pattern? So as you can imagine, when we talked about this a week ago today, we talked about the feelings that you needed to feel either through perfect compliments Coca-Cola and pizza. And then when you think about those perfect compliments, what does it make you feel like? Does it feel different if you just have pizza by itself?

Does it feel different if you just have the Coke or how does it feel when you have the two of them together? So when you look at your emotions, you might need to see your emotions unfold when you manage risk in a certain sequence. We went through that, go back to last Wednesday’s episode. And we talked about how do you feel about the research part first, you’ve got a screen. So that might suck for you. You might like that part. And this way you can kind of learn about where are you good in that process of finding the names, creating your wishlist, putting in your stops to let the market come to you. How do you feel about the risk being put on? How do you feel while the risk is on? And then how do you feel about managing it when it’s either making or losing you money? How do you feel when you get out of the trade, either having made or lost the money, and then when you reflect, how do you feel about the entire process. How do you feel about yourself after that process?

So that’s why I like to say it’s not about the chart pattern because the chart pattern is there to basically evoke emotions from you. It represents crowd behavior. Doesn’t necessarily say anything about the fundamentals of the company in the short run, but how people feel about the prospects of that company. When you summarize or you create the sum total of everybody, else’s behavior. Now, some folks like to believe that that means those charts are reliable and that that’s predictable. I, myself don’t find myself in that camp because I don’t think there’s anything that you can trust. And the minute you kind of re resign your need and desire to play superior defense is when you’re going to take the biggest losses that you’ve ever imagined. So it’s not that the things aren’t trustworthy it’s that anything can happen at any given time.

And all you can do is control your own behavior. So if you become emotionally invested in the outcome of a certain chart pattern and you add risk and it betrays you intentions equal results, what is the betrayal trying to teach you? And where else does that betrayal show up in your life? That’s what I’m saying. Like this is deep sh*t. Most people don’t want to talk about it, because I could go to f*cking and sell you a course on How to Trade for $97. But I find all of that to be terribly worthless.

So when you look at certain chart patterns and you look, take, take your favorite chart pattern, I don’t care what it is. And imagine being long at any one particular point. And, and then the chart evolves to the next point. How do you feel about that? Then it zags against you. How do you feel about that? Then it moves in another direction. How do you feel about that? So then what you do is go back to the same chart and vary your entry. Because I’ve yet to see a back test that shows what’s the expected value of a particular chart pattern. So you need to learn, how are you going to respond emotionally to what the chart pattern might evolve to? How do you feel if you’re let down, how do you feel when things work out the way you had hoped they would. And I didn’t come up with this expression, but it’s out there. And then that says expectations have built in disappointments. How do you feel when you’re disappointed? How do you feel when you disappoint yourself? How do you feel

When you’ve been living your life with a certain belief system only to wake up one day and to realize that you’ve been played. Like day traders, waking up and finding out that they’re not the ones who are actually making the most money on wall street, do you feel betrayed? Because you believed somebody without really knowing the facts. Did you want to believe that? So we talk about responsibility. Same thing could be said for trading systems. Each trading system evokes an emotional response. It evokes emotional responses in calculating position, sizes, entries, magnitude, and duration of draw down sharp ratios, Monte Carlo testing. So the fact that you could use any of this stuff and have it match up for you right away is a miracle. It’s probably one of the reasons why people struggle and or fail very, very quickly is because they can’t latch onto something with which they’re compatible.

Why will because they don’t know their emotional constitution. They don’t know the equation and they don’t know the sequence of emotions that they need to feel when they want to feel their best. So when they’re trying to match that up with trading, it’s a crapshoot that they’re ever going to get it. So what I’m trying to say, and I’ll say this in conclusion and stop talking today, you can buy a system or I can teach you one, but you are not going to follow it. Even if it makes money, if it doesn’t feel good for you based on the feelings that you need to feel based on the feelings that you don’t want to feel and based on the sequence of feelings that you need to feel.

This is a computer generated transcription.

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