Today I want to talk about the secret mind trick of a proven eight figure trader. Please don’t tell me you fall for that bullshit. At any rate, there is something that you can do to put your thinking in order to help you improve your trading. That I use, and I’ve been using for my entire career, well, not my entire career, but I found out about this early on, the little not public secret that no one wants you to know that you could find only in the inner mind of the supermarket wizards, and that was when I put on a trade. Say you got a million bucks, you put on a trade risk, 1% you put on say, so that’s $10k, and the position goes up to $14,000. You might be like, okay, +$4k or $14k total, let’s make it $15k. So now I’m up half a percent.
What I don’t look at is the rate of return on the particular trade itself. I look at how it moves the account balance. So if I had $10,000 and I was up to say $12,500 on the trade, that’s only one fourth of 1% that moves the bottom line. So in my minds, at least the way I think, I don’t care about that, that’s not enough money. Now, I will share with you, given my upbringing in blue collar lifestyles, working class and having caddy golf bags, did landscaping weighted tables, comparing that money to what I used to do for a living when I worked at the mafia joint, I’d make $500 a weekend. That was a lot of money. It was cash and it was the early to mid eighties. That was a lot of money back then, but I can’t compare and contrast the two because they’re really two different qualities of money.
Same thing, caddy and golf bags in Westchester County, New York, that was hard earned money and it was meaningful for me at the time. So if I said, okay, lemme take that $2,500 that I have in unrealized gains based on this position, and I compare it back, some of those times it’d be like, man, this was a whole summer of work, or in certain circumstances, this was three times my starting salary on Wall Street. So what I do, and it’s not necessarily a secret mind trick, but when you start to think, not like, okay, if you put down a $1,000 and you have a trade that’s now worth $3,000, and that happens if you trade futures or options because the margins are smaller and you can amplify your cash quickly. I learned to change or affect my behavior in managing risk based upon what the position was doing for my overall account balance.
That was really the goal was to say, double or triple my account. Now you can say you can build a beach, one spec of sand at a time, but is that really what you want to do when you’re younger and you’re starting out? You need those emotional wins. You want to be validated and you can say, yes, I’m making money and it feels good. There’s two payoffs to every trade and you’re doing it. But what I learned the hard way is that sometimes I was in the right place at the right time, and what I thought was winning behavior was just good luck, which I’ll take because I have to take the bad luck too. So of course I’ll take the good luck, but I don’t want to take the good luck and think that I have skill when skill’s not there. That’s a delusion, right?
That’s why I was always very, very stayed and kind of stoic about things and didn’t get over my skis, if you will, because I knew pride’s a big banana peel and there was no sense because I remember how hard it was to lose. So yes, I felt a little relief when I would win, but I just didn’t know what added up. How did the win happen? What the hell was it that I did? That’s why I talked yesterday about what is your edge. It’s probably not the chart pattern, but it’s the way that you trade it. So you have to document it because your mind will put you into thinking all these different crazy things that are not really based in reality, but based on your emotional constitution and your psychology. So when you write down the data points, you can actually see stuff. They say a short list is better than a long memory, and I still do that even though I have a mind, like a trap.
I remember distinct conversations I had with people 50 years ago. But the thing is about your trading, you really need to look objectively at the data and then better yet, show it to somebody else who just knows the math. Show it to somebody, go to Upwork or Fiverr, maybe not Fiverr wouldn’t have it, but find somebody who knows mathematics and say, look at this data. What does it tell you? Maybe it costs you 50 bucks for an hour of their time to look at the data and have them harvest results and give you some feedback on it. The kind of stuff, I don’t hire the people because I know the math myself, but that’s where the simulation can help you, especially if you’re not looking at one name over two minute bars. I’m talking about making bigger money without having to do a lot of work because in all of that stuff, while I’m not poo-pooing, scalping, I also think in terms of Pareto efficiency, if you have to use time and money as an input to get a certain X output, how can you get that output by using less input?
So for me, it’s about the time. If you have nothing but time and you’re starting out, you’re probably happy to be sitting at a trading desk or in front of a bunch of monitors that do it. For me, we have different taste in women. I just don’t care about that. But if it matters for you, then I’m happy because ultimately, if you win, even if it has nothing to do with this channel, I’m happy for you. I want the abundance to be spread. I think this is a great industry. You can make a lot of money. You can affect your family. You can certainly give away a lot of money as well and help other people out, which you should always consider. But in order to grow your account, you really need to see sizable chunks. And when you think about it, it’s kind of a truism, but you don’t really need to see 45 different big moves across the year in order to have an immediate and a gigantic impact on your overall equity.
You just need to see two or three moves, be positioned accordingly, and then try to stay with that move for as long as you possibly can stomach it. Now, I talk about adjusting stops and all this and that for whatever reason, some of you like to kind of jab and jab and jab and jab, and I’m like, I’m not really looking for jabs. I’m looking for more significant knockout style punches. Now, some of you are going to, yeah, Mike, it’s hard to find 5R. Here’s the old psychological test that people do. Get out in your car, jump on the freeway, and then notice all the Toyota Prius is out there. And what you’re going to find when you come back in is you’re going to be like, man, they’re all over the place. Now, if I give you another exercise for the following week, go out on the street and find all the Teslas that you can find. All of a sudden you’re going to notice them all over the place. So from my mind’s eye, if you know that you can see winning trades and you can go back and study the charts of the seven, the magnificent seven or the darlings, you can look at Coco, you can see all of those things. How hard was it to actually get into that winning trade and then actually sit on your hands?
What was it emotionally about that winning trade that you couldn’t handle that you had to get out of when you did, which was presumably before the end of the day? Now, I know Coco’s a little different. I understand that the margin went from whatever it was, $6,000 to $20,000 now, if I looked at my account, and so I know that’s a little different. I have the money, you might not, so that’s kind of unfair. But those are extenuating circumstances. Most of the time you’re not going to see that where the exchange has to take into account a whole bunch of things to keep integrity of the marketplace there. So they boost the margin to make sure that people don’t get hurt. You could say it’s not fair, but it is what it is. But look to see for all your trading, when we do the mastermind, for example, in the program, the first thing we do is establish clear goals, and I never let someone say, well, I want to make 50% rate of return for the upcoming year. What does that even mean? What does that mean? Why would that be the goal? Why not pick 250%? What’s the difference? You’re just picking a number out of a hat. What are you trying to be reasonable?
So we talk about process. What’s the process that you can follow that will put you in the ballpark or at least on the path to get the returns that you want? Because the behavior predicts where you end up saying that you want to quit smoking or quit drinking or want to lose 15 pounds or want to get a blue belt in Jiu Jitsu or whatever. Those aren’t really, to me, they’re not real goals because you’re putting yourself in a spot where you can envision yourself in the future having physical things that you don’t have now and after you’ve bought enough of the physical things from having made the money that you made either in your career or your trading, you realize the toys don’t make you happy.
If you don’t have a lot of friends and you’ve made a lot of money and you got your place in the Dakota building at 72nd and Central Park West and you got yourself your new Ferrari, you still don’t have any friends and the people who would want to snug up to you, snuggle up to you because you had a new Ferrari or a place in the Dakota are probably not necessarily worth having as friends, but you can be your own judge and jury on that. So we talk about the process that you can follow because it’s the day in. It’s the day out that really predicts where you end up, right? Thoughts, feelings, actions, your actions or the behavior. The behavior predicts where you end up. When people ask me about my promotions in Jiujitsu, they’re like, how’d you get blue belt? How’d you get purple?
How’d you get your brown belt? It’s very simple. It’s simple and hard at the same time. The simple part of it is that just got to go to class, put the gi on every day, get on the mat. The hard part is you got to go to the gym, you got to put the gi on. You got to get on the mat every day. So it’s easy to do one day. It might even be easy to do for some of you for a month, but try doing it six days a week for six, seven years when most of the time you lose and you get beat up. You look at my face. So at the end of the day, when I think about the trading stuff, I was always clear about the fact that I was a broke ass bitch and I didn’t have enough money in that. No one cared about five, $6,000 account. No one in my office where I worked would want to take that account and help that person. So I really thought about it from the 360 degree view. It’s like I’m on my own. It really on your own, no matter who says they’re going to try to help you, you’re on your own,
And there wasn’t enough money in the account to earn commissions and fees to make it worthwhile. Anyone wanting to give me any time, people are basically self-centered. They’re only going to help you to the extent that there’s something in it for them, right? So that’s why, another reason why I did this show most of the time, I mean, I’m not going to know the majority of people who ever watched this show or listened to the audio version through another podcasting platform such as Spotify. So for my activity and for my behavior and for what I wanted out of it, I learned to not care about the small tips I wanted the tables that were going to drop. Like I said, when I worked at the Mafia joint in Westchester, I knew who the bigger players were because I knew who the owners were and when they came in, I knew who they were.
I played stupid, but I smothered their table. I even paid off the bus boys, I’ll have to tell you the story one day to basically run the other tables because I knew not mentioning any names who the namesakes were, and I knew that if I gave them good behavior, because a lot of the money that was coming, it wasn’t. It was cash. It was never declared. So when they went out to dinner, it was big bottles of wine, Dom Perignon, champagne. There was no expense that they couldn’t afford at that point. Kind of what they did is they lived it up. So if I had 10 or 12 people twice a night on a Friday, Saturday, those tips were monster and they were huge. They helped me get through school. But at the end of the day, going back to the trading part, you need to know what you’re doing it for.
I’m not doing it for the small emotional wins. There’s a lot of times where I might be up, say, one fourth of 1% and I’ll have my stop at break even, but I’ll be looking to add more and guess what happens, and it happened last week. The market reverse is down and I get knocked out. So what did look like one fourth of 1% unrealized gain goes to zero, but I will do that all the time. That’s one of the things, hallmarks of my own trading that I do very, very frequently is I’ll invest the gains into my stop is how I explain it, because then it’s a bit of a free roll. Now, if I added all that money up at the end of the year, it might add to another 5%. Who knows? But at the end of the day, I don’t care about that.
I don’t care if I have 40% for on the year or 45%. I don’t care if I have 150 or 155%. You see what I’m saying? Emotionally, I’ve let go of that. I’m trying to find and position myself into the spots where I think there will be bigger moves. I don’t know that there’ll be bigger moves. I don’t know that the three R is going to go to five R, but I’m open to the possibility and I position myself accordingly. You have to deal with the uncertainty. You can’t predict it. Stop trying to think you can. That’s the problem with especially guys, is that they’re insecure and they want certainty. They’re very demanding. Think about it. You want to come to the trading desk and you want validation. You want security, and you want to know shit. You want to be able to predict the future.
You’re in the wrong business. I don’t even know where you could find that. Can’t find it. I don’t even know where you would be able to find all that. So I think it’s very unreasonable. So that’s why that we do that in the mastermind anyway, in week one is to recalibrate the system. What do you think you’re entitled to? Well, you’re entitled to the results that you get from the behavior that you’re willing to take. No one’s given you shit and you have to do it on your own. I can help you. I can steer you, I guess in the one-On-one, it’s a little bit more, I can do a little bit more work paying for my time. But in the Mastermind, it’s more of a mentoring, guiding hand kind of a deal where you still have to do all the work, and if you’re not willing to do the work, don’t look at me.
I’m not going to build it for you. You’ve got to do it yourself. But if you want to make more money, in my opinion, the secret trading hack of proven eight figure traders that they don’t want you to know is think about the gains that you have on any one particular trade and see what it’s doing to your bottom line. You don’t want to sit there making nickels and dimes. If your goal especially is to grow 50 to a hundred percent per year. You have to figure out what that is. The good news is if you go back to yesterday’s episode and you know what the expected value of a trade is, you’ll be able to calculate how many trades that you need to put on in order to get the percent and the dollar value of what your goal is. So it changes your thinking. You’re like, wow, I’m too narrow minded here. I’m sitting here trying to make day trade for 150 bucks, and I have this as a financial goal. Mathematically, it’s never going to happen because there’s just not enough trades in the universe of the instruments that I’m looking at.
How to discover and define your trading edge
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After all the books and courses and the experimentation, sooner or later, you have to get down to brass tacks and define what your trading edge is. Now the problem is, is that if you ask 10 people, even at the pro level like where I’m at, what’s your trading edge? Half the time they can’t even tell you. So I’m going to give you a simple explanation. You have to experiment, right? So I don’t want to talk out of both sides of my mouth, and that means you’re not really expecting to win or build a career on this particular aspect of your trading. You’re trying to put it on for size. So when I was learning how to trade, I realized there are all these different chart patterns, but what made them all unique was that every trader who was trading them would trade them a different way.
So I started to understand a little bit more about the nature of trading is that it’s not necessarily the chart pattern, but it’s how you trade the chart pattern because you can show head and shoulders or cup and handles to some people and they screw it up, which is hard to imagine, but they do. So I realized there was a little more to trading than meets the eye, that it wasn’t just a book of chart patterns because look, if head and shoulders down represented one thing or head and shoulders up meant another thing. How come there weren’t more people making money if the damn charts were so obvious? That’s the big pink elephant in the room is like if these charts are in fact bullish, how can people trade them and still lose money? Because losing is what losing does. So the simplest way to understand it is to segment your trading by pattern probably and then figure out what the expected value is because at the beginning you might not know or recognize or be able to understand what it is that you actually bring to the table.
In the world of trading, it’s hard to see the fire sometimes when you’re standing right on top of it. So it might make sense for you to just look at the math and say, okay, I might like this one particular pattern better, but this is the one where I’m actually getting the results. If you look at the data, you’d be surprised what you might find. It’s true, and it’s happened with me plenty of times, which is why I started to look at the data, look at the results, look at the math. What was my frequency of winning? What was my frequency of losing on certain setups? And again, I use mostly data, not chart patterns, but at the end of the day, they all work. They all can work. Lemme say it that way. The key to having the trading edge though is knowing that you can make money if you have the patience, which is a mental part of it, to sit on your hands and wait for that setup to show up.
Where you can get sidetracked is if you’re looking at one instrument because your account is small and you’d only have so much margin. You might find yourself forcing trades that you have no business being in because you’re watching the market move. It’s not your setup, but you have to be involved anyway. You can’t take the emotional pain of not participating. You see what I’m saying? So that’s one of the reasons why I poo poo small accounts is because you want to be in the game. You’re the sixth man on the basketball team and you can’t wait to get in the game, but when you’re underfunded, you’re the small banana in the crowd, and that’s just the way it goes. So you have to have an extreme amount of patience to be able to sit on your hands and wait for that setup to show up.
Otherwise, you’re satisfying emotional needs, not necessarily a financial one. Now, I’ll be the first one to admit that it feels good to make a winning trade, at least it was at the beginning of my career. At these days, I don’t really care emotionally about the outcome of any one particular trade. We’re going to talk a little bit about that tomorrow in the secret mind trick that I use because if you don’t put the word secret or millionaire or eight figure in the fucking title of the YouTube video, no one’s going to watch it. So I got to start doing that, right? Obviously, my videos suck because I don’t say the secret trading tactics of a proven eight figure trader. Go ahead, buddy. Good luck to you. At the end of the day, the mental game is the most important part of it, right? Plus half of these people, the deal joke is how do you make a million in commodities? Well, you start with 2 million, so I don’t trust anybody with titles like that, but you can do and figure out what’s best for you. I’m not here to preach I, so in the simplest definition, check out the expected value of a trade. It’s easy. You’ve got the math, you keep a trade ledger, you should keep that anyway, just to keep a diary of what it is that you’re doing so that you can put your behavior down and keep track of that over time. The importance of a chart pattern in and around that.
I have mixed emotions about chart patterns. Again, because you can look at ’em, you can study ’em. I know that there are guys on Twitter who pump out this, I call it nonsense, right? Because when I look at it, it’s like it’s filler content really. It’s like the rue that you put in gravy. It doesn’t really help anybody because then they’re looking at the chart and they’re like, damn, is that a head and shoulders? I guess you could look at it that way, but the thing is over here and it’s too small and it’s this and that, and it’s like, so I have mixed emotions about chart patterns being fail safes, like being definitively bullish when I know, and I’ve witnessed plenty of people losing money trying to buy things long when they should trade less frequently, I guess is what I’m saying, and I know that’s the hard part. You have to figure out what is it is that you’re doing, why do you do what you do? And
That’s the part that no one really talks about. I try to speak about it as much as you can because I know that’s what’s going through your brain when you’re sitting there in front of your desk like, okay, I see this thing. I got my account set up. I got all my charts, and so-and-so’s telling me this is a bullish pattern. I’m seeing all these tweets and blog posts and other social media mentions of everybody’s favorite darling stock. I’m not participating in that, and then you’re so confused, you don’t even know what to do. So I would, again, keep it super simple. Pick one, pick one, and then trade it because it is going to be your uniqueness. That’s the alpha of the trading. If beta, it represents the market. The alpha is what you bring to the table above and beyond what someone could do if they just did buy and hold.
So I would think the best thing for you to do is to experiment knowing that it’s not necessarily about building a track record from that point, but it’s about trying to get a feel so that as you execute the trades, you can figure out is this a trade setup for you? I know plenty of people who don’t trade cupping handles, for example, even though it seems to be popular and why? Well, it’s just like, why did you pick the partner that you’re with? This is probably good chemistry, right? So there’s no definitive right answer for all of this, right? You can buy, heck, I’ve been given a million books on technical analysis. Frankly, I find it exhausting. It’s like there’s just too much to know, and I can’t take each one of those data points, if you will, and turn that into the proverbial fortune.
You really need to pick one or two things that you’re really, really good at, and then take solace in that and execute that day after day after day. And so if you have positive expected value, I would say then therein is your definable edge. Start with the expected value, right? There’s a video on this YouTube channel on how to calculate it. It’s pretty simple stuff. It’s not that sophisticated, but it does show you the evidence that for that particular setup or chart pattern or whatever it is that you’re using to enter adding risk and then removing the risk, that net net of all your activity, you’re actually making money, including the fact that you might not win as much. I mean, you might not win as frequently as you lose, but your winners are many multiples the size of your losers. So that this way over time, over hundreds and hundreds of trades, you know that you are now the casino.
That’s your trading edge. That’ll help you be able to define what you’re trading trading edge is for you, because you can’t just say, well, I’m trading cup and handles, or I’m trading 1, 2, 3 reversals, or I’m fading two B reversals. That’s all great, and I’ve done them all myself. But you have to go back and then look at the math and see which of these proved profitable for you over many, many, many, many trades. It’s a mistake to think like you did one thing once or twice that you’re onto something. You could certainly give it attention and try and try your hand at it. Especially trying it across many instruments is probably the biggest test. Now, you’re very robust. You don’t want to find yourself day trading or trying to scalp on one instrument, on one pattern, because in the short run, you’re not going to know if you were just in the right place at the right time.
The ego wants you to be like, yes, I’ve made it. I’ve conquered the world, and I’ve had those feelings, but there’s not enough scientific evidence to prove that that wouldn’t hold water in. I wouldn’t allocate money to you. You had a good week. It’s not enough time. You’re thinking about years, right? The money’s hard enough to come up with in the first place, so you really want to make sure, even if you’re back testing, I say minimum 10 years across any 60 different instruments minimum. Now, the problem with that though is that there’s still problems. There’s lots of problems. One is that you don’t include oh 7 0 8, when we had all that subprime morass emphasis on the second syllable, right? You’d missed nine 11. You don’t know two. Then if you look at the data, we always have survivorship bias to have to think about why.
Well, if you look at what happened in that period of time over, I’ll just think about a few things. From the last 30 years, you had companies go under, companies go broke. Well, guess what? If you type in the ticker ENE, which was for Enron, it doesn’t come up. You can’t see the data. Why? Well, you can’t trade it. So the folks who are the data providers are figuring, why would we even put that in the dataset if it’s gone for good, right? So you have everything that failed, right? You have Bear Stearns, which was BS, C, that’s the out, LEH for Lehman. That’s out. Then you have the companies that did get taken over, like when the banks were hot and glass Tiga was appeared and everyone was accumulating. The bigger companies were accumulating the smaller banks. You had First Tennessee, you had Bank Boston.
They don’t show up either. If you type in BKB, which I know I’ve mentioned before on the show, that doesn’t show up. FTEN, which was First Tennessee. That doesn’t show up, and they were good companies, but still all you can see are the survivors. Now, they might’ve been rolled up into other successful companies, so you have to follow other tickers. But the point I’m saying is that if you go back in time, 30 years, when all those tickers were alive and kicking and you had a trading model or you were trading setups, you’d want to know ahead of time if your thought process or your methodology would have put you in those trades, especially long trades in the companies that went bust long trades where the companies got taken over. Maybe you have a knack for that, but you would never know it if that data’s not included.
So of course, it’s a pain in the ass. You have to go actually buy that data and add it into your data pool. You can get it. But as I suspect, not to sound like a party pooper, most people are too lazy to do it, or they’re too cheap to spend the money, or they’re like, Mike, I’m in trades for two minutes, so what do I care? You’re right. What do you care? But I don’t want to be sitting in front of the screen all day long waiting for that two minute window. I can say that after 36 years, my time is worth more. I’d rather be painting. I’d rather be watching. I’d have MLB tv. I’d rather be watching and baseball games than scalping, but that’s just where I am in my career. You can do what you think is best, but at any rate, in order to define your trading edge, you’d want to look at the data, not necessarily the chart pattern, and say, okay, this is my savior.
The savior is your behavior around the event itself. Because again, if those chart patterns were definitively bullish or definitively bearish, we wouldn’t need any more books. You wouldn’t need to have a CMT because the evidence would be there In the book, this is definitively bullish. This is definitively bearish. This is how you definitively put on spread trades with options, futures of payers, trades in equities, and that would be, it wouldn’t need. It would be so definitive and so crushing from an argument standpoint that there wouldn’t need to be anything. You wouldn’t need this channel. But at any rate, so look at the math, calculate the expected value, and then you can reverse engineer it and say, okay, this is how I define my trading edge. It might be different. It might be better than mine. I hope it is. Then you’ll have a really great career. Anyway, if you like this video, check out this one.
Why buy with other buyers
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The fastest way to put a little wind in your sails as far as your longs are to buy when there are other buyers. Long time ago before all this internet stuff came about, we had level two and you had tape reading. That’s pretty much how you did it. As far as stocks were concerned with the floor, you have open interest volume, and certainly you had the level of noise coming in off the crowd as the prices moved into key inflection points. So my own style of knowing when there’s buyers or when I buy, when there are other buyers comes from understanding pretty much how the floor works. Now granted, there’s not much of a floor environment. I suppose you could look at CVD and this and that. I don’t don’t look at any of that. I try to keep it as simple as possible.
I don’t have any order flow metrics. I really just still kind of read the tape and look how the price performs at key levels, and I keep it simple. Why? Well, because again, I don’t need the level of security that many of you might need to make me feel good about what I’m doing. I don’t mind the risk that goes with it emotionally. I don’t mind the financial risk. I have really, really good instincts. So when I think about how things used to work when you’re coming up to a multi period high, for example, you knew on the floor that the folks who are trying to fade the move aren’t going to stay in a rallying market for any length of time, especially if they’re scalping. They’re going to place their protective stops above the market. We also know that the longer the timeframe, the less random the data are, and there are many breakout system traders who are going to buy, and I used to talk to Bill Dunn about this using “N” as a variable, you can calculate how many different systems are going to come into play by looking at the number of days knowing the N-day breakout.
So I learned reading the tape, learning how the floor worked, and then learning and marrying that up with the breakout traders who were putting resting by stops in above the market knowing that they wanted to catch that momentum and buy the breakout, so to speak, to catch the move to the upside. And I had observed that enough to see that that was, I don’t know that it was an edge, but it seemed to be a good entry point because the order flow that would come in behind was oftentimes, I don’t want to say it was gargantuan, but the shorts don’t want to be in rising markets and the day traders don’t want to sit in there because by definition they’re trying to make money on the day. So they’re not going to sit in shorts that way either. And the breakout traders aren’t really looking at reading tape or otherwise too.
They’re just saying, okay, if the price here is achieved at this price point, then buy me this amount of inventory based on all these other metrics and how to position size. And so what I would do after the fact is go back and look at time in sales right after the fact, while I’m already in the trade, I’m taking it home with me. Again, it might not be your style. You might not have the stomach lining for that, and I would see what kind of orders went through at those price points. Not all the time, but sometimes you’d see that there were bigger prints around those numbers. And so for me, I knew in many ways that those might not necessarily be aggregated retail orders because in the day a lot of those smaller orders were getting done electric even electronically without human intervention even back then.
So I kind of surmised there could be evidence that there’s institutional activity, as you’ve heard me say, I’m not the only one to say it, that institutions leave footprints. So then I’d be like, okay, well those people typically want to defend their positions then because they’re just getting started. If I’m looking at a hedge fund or a mutual fund, and ETFs didn’t exist, you had closed-ended funds at the time, open-ended funds, mutual funds and hedge funds so that the environment was very different. They have so much money that buy-in 10,000 shares of a stock again is just the beginning for them, you see? So I could infer that I don’t know who it might be because it’s all done anonymously, but that there’s more buying behind it. And two, if there is that little kind of cup and handle thing, there’s a moves of breakout, then there’s a bit of a pullback that oftentimes becomes a second entry for those folks, not the first one.
So again, I got to witness other people’s behavior for those people who were buying long and say, okay, what’s going on here? How can I play detective and figure this out? And so from that, I developed my own style just like I advocate for you to do. So what I found over time, not any one particular trade, but long stretches of time for both futures and for stocks that institutions would step up and support those price points. Being a smaller trader, the water’s cold, I needed to make sure that there were those other players there so that I wouldn’t get bullied. Think of them as big brothers because if they liked the price at a certain level for their first risk unit and the market pulled back as it does oftentimes have a bit of a natural reaction where there’s a quick little blow off for the scalpers and the day traders, oftentimes you’d see institutions coming in and buying their second risk unit at a very similar price.
I was like, well, that’s wind in my sail because now I know that those folks who have much greater account sizes who could knock my lights out in the flick of a are going to support the prices there. So that gave me a little buoyancy in my position. Not all the time, but a lot of the time. So that’s what I mean when I say I want to buy when there’s other buyers I want to take now. Now it’s, it’s a little bit different. I have all the money in the world, but when I was starting out, you remember things were trading at eighths. Big swings would hurt me. The commissions were also sizable. It would cost me 50 cents to a dollar to sometimes round turn in a trade just as break even. I wrote about some of these things in the inner voice of trading.
I give the audio book version away. If you’re still watching, the link is in the description. You could download the audio book version for free. It has 4.5/5.0 stars on Amazon, the hardcover anyway, and so this is what I mean by trial and error. I didn’t know what I was doing, but I had to try and see what I could garner from the data so that I could make better decisions going forward. That was always like people say 1% better every day. That’s really all I ever tried to do. I knew that I wasn’t going to become Paul Tudor Jones in a week. That’s just not practical. So through your own trial and error, you might very well find that there are no buyers in pullbacks. That might be an indication that there’s going to be further weakness. It also helped me define why a rule that I have that I don’t trade, and that is, well, did I say that right?
I don’t trade inside of channels. I either want to be long above resistance or certainly short or not long below support. I don’t really do anything when markets are channeling sideways, find that I don’t like scalping in them, it’s not enough money for me to care. And again, because I’m not in front of the screen. So while everyone’s trying to short it resistance, buy its support, and maybe do that several times a day, I’m going to miss that whole trade deliberately on my own volition and wait for the market to choose who’s actually in control for a much more pronounced move, which for me would happen beyond resistance. You see what I’m saying? You might feel differently. More power to you. I’m not here to again call your girlfriend ugly. I’m just saying that that’s what I observed in the environment that I grew up in. It was very different 36 years ago. So you can’t judge apples. It’s apples and oranges compared to when I started. And so my experiences and the environment I grew up in really shaped me and it shaped my trading the same way you’re going through all of that right now. So in the end, you have to make a suppose. Suppose what happens because you’re never going to really know for sure you have to watch this. I watched, I went back and I dissected and a postmortem on every one of my trades without judgment because I knew I didn’t know shit. So there’s no sense in beating somebody up if they don’t know what they’re doing. So I was looking at the data and what decisions could I have made differently given what I can see after the fact. Is there evidence of something raising its hand before I put the trade on? That might give me a moment of pause. You know what I mean? For example, if you buy breakouts, do you actually buy one tick above the previous high or do you give it more room to take into account that there could be noise around what you think that signal might be? That’s going to come from trial and error. Back testing can help for sure, and you can test to see what that does to profitability. For my style of trading, believe it or not, given another 25 cents on a stock, and even sometimes several ticks on futures didn’t really hurt my profitability all that much. Now if you’re scalping, it might mean all the world, but for me, that data, for my style of trading, it’s too random to care.
So this is what I mean by keeping a diary, going back and looking at your trades and not judging whether you made money or not. That’s not the point. You want to go back and say, well, what did I know at the time that I made my decision and what could I learn from what the result of the trade was by looking at the data, right? We talked about that. If you look at MartinKronicle and search for Annie Duke, she and I had a conversation about “resulting,” you do a lot of reckless behavior, but the trade turns out to be a winner, and all of a sudden you’re like, man, that’s the way I’m going to go. So you got rewarded for doing bad stuff. Sometimes you do all the right things, but you still lose, right? That happens in sports coach, you put Martin in there to steal, he got thrown out, ended the game you’d ever want to get thrown out at third base.
Well, Martin’s been, he’s stolen third 90% of the time success rate. So we figured if there was somebody that was going to steal the bag and get away with it, it would be Martin. This time we got thrown out. That’s the way that it goes. Well, knowing that, would you do anything differently? No, because the probability is that when he steals, he steals 90% of the time. So we’re going to play the odds. It didn’t work out this time, but if we do this a hundred times a season, he’s going to steal 90 bags. So I’m going to be the first 50/90 guy in the MLB in my late fifties. Get ready for me Acuña. So at the end of the day, that’s how you have to think. You have to think probabilistically. Just because something doesn’t work once, it might work out many, many, many times.
And that comes from trial and error. And that’s how I developed understanding where there are other buyers you might not be able to tell in the heat of the moment, but you can see after the fact, look at the size of the prince. They’ll be there if you have success with some of these other things. I’m too old and too cranky to care about CVD. If it works for you, knock yourself out. But I’m not going to look at that at this point. I feel comfortable with what I’m doing and it works for me and I still have great success with it. But again, at the end of the day, it still doesn’t mean when you buy with other buyers that it’s all the time going to work. It still could come back in your face. There could be a piece of news that comes out.
There could be something about the economy, about inflation that sends both the instrument you’re trading as well as the overall market against you. That’s why in the short run, you can’t really beat yourself up over it because there’s a lot of unknowns, things that you never could know. You see what I’m saying? But this is the kind of stuff that I put on in my brain and then I go back and I back test for the things that I can. And I see that there are very, very few things that you can trust other than the price in many ways, even if you’re not a momentum trader, open interest, that too is sometimes unreliable. Take a look at the coca market right now. This is here we are at the end of March in 2024, depending on when you might be watching this video, and the coco market’s going berserk because there’s a lot of things going on with the supply side in Western Africa where we garner 60 plus percent of the world’s cocoa.
And the fundamental side of the story is basically simple. These aren’t beef steak tomatoes where you can plant a new tomato plant every year and get a robust harvest. If something’s wrong in the cocoa crop and you plant new cocoa trees, it’s going to be six or seven years before it going to yield anything material, right? So my hunch is that these prices aren’t going away anytime soon. If you look at the May contract, which is the front month for Coco right now, you’ll see that the price has gone from $6,500 to $10,000 all the while open interest has gone down, and we still have five, six weeks until, well, at least another month until expiration. Why is that? Well, an outlier event, the exchange has seen that the ATR and the volatility has gone from about $60, 70-ish to almost $400. And when that volatility kicks in like that, in order to keep and maintain the integrity of the marketplace, the exchange raises the margin rates. They have a SPAN calculator that they use and they are the sole entities that can increase. Well, the broker dealer fcms can increase margins, but the exchange sets the base level. They can’t make it below the base level. So what ended up happening is the margin went up, whatever it is, $15,000 (it’s $19k per contract now) a contract, and so that’s knocked out many of the smaller traders who don’t have enough money to do that. It might take up too much cash or might cause them to have fear. So you saw a decrease in open interest simply because certain traders got knocked out. Whereas if you look at the July open interest has gone pretty much sideways. Normally when you would see open interest going down as prices increase, you could infer that shorts were covering into the higher prices open interest is going down. So what normally you’d see when you’re in a trend open interest and price moving, not necessarily in lockstep, but both increasing inferring that new longs are entering the market. Anyway, that gets a little too detailed for what we talk about here, which is largely trader mindset. It’s just good to know that when you’re buying that you’re not alone in the trade.
As your trading gets bigger and bigger and your position sizes get bigger, you also want to learn to live with very sloppy entries and lots of slippage and skid. The last thing you want to do is put an order down for 50 contracts of the large gold contracts in the Comex and get everything filled at one price. That could tell you that there’s a lot of people who were looking to move and get out of their inventory and ready, willing, and able to sell it to someone like yourself.
Being open to possibilities and avoiding labels
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I want to help you revolutionize the way you think about trading and kind of backdoor your way into stuff. Help you understand that your mindset, your approach to the trade might be the actual thing that’s holding you back. For example, when I was a kid, my mom would want me to eat broccoli. Apparently it was good for me at the time. I was basically mom, go forth and procreate with yourself. I’m not eating broccoli. I don’t like the way it looks. I don’t like the way it tastes. It’s too bitter. There’s no flavoring on it. I’m not interested. So then you get into this whole battle, she said, what do you think she said, but you haven’t even tried it yet. So when I think about traders, the thing that trips them up is that they wanted to find themselves as a certain type of a trader before they’ve actually tried to accomplish what that type of trading style would actually be.
This happens a lot in day trading. The marketers fill up their pipelines for everybody to see about how easy it is and how much money you could make. And of course, you can’t take that dirty risk home overnight because that’s how you go broke. Don’t be a broke ass bitch. And my mindset’s very, very different. I don’t walk into a trade and say, I’m going to be a day trader today, or I’m going to be a trend follower. Or today’s the day for scalping. It’s Tuesday. Tuesday is scalping day. So what I would suggest that you do, especially if you’re struggling, is to put the trade on and manage the risk. Let the market tell you when the move is over, as opposed to you trying to impose your will. You don’t even understand how many emails I get from people who are pulling out their hair married to some type of definition of what they think trading is, but yet they haven’t been able to execute on it and they’re like, welcome hell or high water.
I’m going to do this and I don’t mind going broke. And to me, that’s stupid, right? That’s ego talking. A long time. Channel viewer, Matija6884, I hope I’m saying the name right, wrote in a comment on the video that I wrote. I did called What You Should Know About Scalping Before you Start. Now, I’ve done my fair share of scalping and I don’t have any biases. I don’t have any group of traders that I don’t like. Some of my best friends are day traders, so I don’t have that type of bias. What I do have are the data, and I have a deluge of emails and requests to do things on how people can succeed at trading because they’re failing on the short end. So I’m not calling anyone’s girlfriend ugly here. I’m just saying based on the data and the requests that I get, the people who seem at least, okay, let’s say it this way for the people who have watched this channel might be a tiny, tiny group of people.
Their biggest struggle is coming to terms with trading with the most random data there is, which is tick by tick, swing trading, scalping style trades, and I think people can do that, but to me it’s not as much technical as it is. Do you have a good feel? And I don’t care if you’re in the box, I don’t care about all that bullshit. You can look at that all day long. Ultimately, you have to develop a feel for what that data is saying to you and know how to pull off the trade, the technical part, it’s like a person who has the same set of tools that a carpenter has. This is the same tools, but what makes somebody a great carpenter versus somebody to average to no skill at all? It’s the same tools. So to me, stop orders looking at level two, those are just tools.
They don’t necessarily make the trader. They can help them anyway. The comment comes in and says, do you immediately, I think they didn’t put the word in here. Do you also immediately put your stop loss protective? I use protective stop with scalping. And what are, that’s not easy to make five to one or three to one for a quick scalping trade. And if you can’t have a three to one, then why are you even doing it? So mattia, your whole comment to me is a truism. I’ve already made that point. You know what I’m saying? I don’t want to trade for peanuts. My intention when I put a trade on whether it’s cocoa, sugar, is to make it an investment. And what I mean by that is I’m willing to hold that trade for as long as possible throughout the day, overnight and over the weekend, I’ve got the track record to prove it.
At the end of the day, you don’t get paid if you don’t have risk. So to me, your success is going to be limited by not your trading techniques and what you can learn, but your willingness to embrace the uncertainty. The uncertainty means risk and risk is congruent with reward. They’re related like coke and Coke and pizza. So to me that means you want to be able to become friends with all of your feelings. How do you feel about having Coco on at these levels overnight when the markets are closed? Why does it always have to be bad? I don’t understand that because your bias that you’re bringing to the table, that person wouldn’t have a seat at my table because it’s not rational. They’re afraid of the boogeyman at that point. So typically when you scalp, my trading style is the same regardless of the holding period.
I don’t put on an optimal unit and just bet, put my ego on the spot right then and there. I kind of tiptoe my way into my optimal position and I know where my protective stops are right away. If the market starts to move in my favor, my inclination would be to add. Sometimes the market says, not today you are. It’s not going to happen today. So what happens? My trailing stop gets hit. Sometimes I win, sometimes I lose. And if you’re looking on the outside in, you’d say, oh, that was a scalp, and I’m like, I didn’t call it a scalp. I just put the damn trade on and put my stops in. Why are you so married to labels? The labels might be actually holding you back. They also might be truncating or izing your potential profitability. You can just let the winners run.
I don’t care what the box says. What makes that the tell all? You know how many times I’ve been in a trade where it’s gone up and down and up and down and up and down? If you were looking at the box, you’d knocked out of the trade 45 times and all you had to do is position size to the point where you could keep it on, let the market do the work. Again, go back to the broccoli thing. How do you know if you haven’t tried it? So you can solve your own problems if you just stop bitching, right? If you stop worrying about small moves. Now, I’m not saying that it’s easy to make five to one, right? That’s the truism part. I never said it was easy to make a five to one on a particular trade, but what I am saying is that if you take everything off at two to one, you’re never going to see five to one.
And then if you take everything off that you can at five to one, as rare as it might be, you’re never going to see 10 to one. To me, those types of trades, it depends what your R is. If it’s 20 cents, you could see a $2 move. That would be your 10 to one. That could happen in a day, I suppose, but then you have to figure out for the position size because we make our money not by the move, but by the position size, right? So what is that for you? I know for me when I’m wrong, I’m oftentimes early, so I don’t want to get knocked out with my optimal position size, you see? So I’ll tiptoe my way in and I’ll add, sometimes I’ll add as much as five times. I don’t mind that. So where other people are trying to scale out, they buy their optimal unit and they try to feed their orders into reading level two and get out and be happy with that.
To me, it’s not worth my time. You get to determine what’s best for you. I’m not going to, again, if you don’t, some people just don’t like chocolate ice cream. I don’t understand them, but that’s just their taste and preferences. Chocolate ice cream’s going to be more expensive coming up. So I don’t look and try to make up in my mind ahead of time, I need to make a quick scalping trade. Why would I do that? I’m here to make money. So to me, it would be better to scale into my winners with smaller size and let the market show me that it wants to continue to move. That style might not work for you, but it works for me. Now, if I get knocked out, if I get to add a second piece on and it goes and I adjust my protective stop up, I might be profitable on one. My first unit might be a breakeven. That’s just the way that it goes.
Not at that point interested in making a scalp style reward. Now, I know people can do that several times a day. Perhaps I’m just not for where I am in my life and the money that I’ve made, I’m not willing to work that hard for it. I think that’s a young person’s game. In fact, I don’t know anybody over the age of 60 who’s sitting scalping all day. So I think that’s a young person’s game. There could be outliers. I’m not saying that it’s absolute. I don’t say anything that’s absolute because I live in a world of statistics and probabilities and expected outcomes. But for where I am in my life, I don’t want to be sitting in front of the screen where you would have to do that in order to be a scalper. I have better things to do with my time, and I think as you get older and you see your friends getting sick, you see some of them dying.
Timely or not. I’ve had good close friends commit suicide. I want to live my life, so I’m not going to be at the screen from five in the morning Pacific time to 1:00 PM Pacific time, which would be the closing bell. I’m just not going to do it. I know where my levels are. I put my orders. I trust that my stops will get executed and then the market’s going to go where it’s going to go. The last thing I want to do is be sitting in front of the screen and that’s where the younger folks love it. They want to be in front of the screen.
So when I get knocked out of a trade for a win on the outside looking in, you could say that was a good scalp. And for me it’s like, well, I was really just kind of getting to the first course, but the restaurant was closing so I couldn’t get to the salad. I couldn’t get to the soup, I couldn’t get to the main course. I just got knocked out, and that’s the way that it works. So you might consider taking a look at what biases you’re bringing to the table when you’re starting to trade and letting go of those definitions. They don’t really give you the sense of security that you think they do. If they did, why aren’t you performing better? See what I mean? I’ve learned the hard way.
Don’t bitch at me. I wrote a book about my failures and made it public. This is isn’t about how I’m better than you. It’s not the point. The thing is, I believe the Buddhist doctrine, that man causes his own suffering. And so if you want to define yourself as a certain type of traitor before you’ve tried other styles just because so-and-so has done it, then you might be biting your nose to spite your face. How do you know you can’t be better off without trying? So if you make up in your mind metha that it’s hard to make five to one, I think you give it power. I don’t look at it that way. I just think the market’s random in many ways, especially in the short term. If you’re looking at one minute bars, it’s really, really random. I guess tick by tick time and sales would the most random.
But if you say, well, it’s going to be hard, then you’re going to see it as being hard. If you’re open to the possibility of it showing up once in a while, then you’ll see the abundance, right? I don’t do a lot of driving, but in California you have to drive. For the most part. We’re not a city of pedestrians like New York City where everyone’s largely on foot, albeit walking to buses, trades, Ubers and this and that. You don’t really have a need for a car of your own in New York City if you want. It’s a luxury, but it becomes a pain in the ass’s, kind of like having kids at the end of the day, you can determine your holding period based on where the price is going, and that’s what I would do. And then learn to define. If you need that to feel good about yourself for your self-esteem or for your validation, or because you feel more confident, who knows what the psychological reason is without labeling yourself.
You could look back over 6, 7, 8, 9, maybe 12 months of the year and say, from the data that I have, it seems that I’m a two day swing trader. Or from the data that I have, it looks like I’m an intraday scalper or from the data that I can collect, it looks as if I’m a short to intermediate term trend follower. So I would let your behavior indicate where you are in your trading rather than come into the table and say, come to the trading desk and say, oh, I just have to scalp, because you might be leaving a lot of money on the table despite the fact that other people can do it. Your goal is to find the best strategy for who you are, even though it can help you get started picking a role model, you still have to be promiscuous in your thought process at that point and try several styles, several holding periods, and don’t be so locked in.
It’s going to take time. I wish I could tell you that it’s only going to take a few months and you’ll find your path and you’ll be locked and loaded and you’ll be ready to go. Everyone wants to make money and succeed in two weeks. That’s not practical and it’s not realistic. It’s going to take a long time, perhaps years, and so you better batten down the hatches and get used to the fact that this is going to be a journey of self-discovery. In the meantime, you may or may not make money, but that’s what trading is going to do. It’s going to push your buttons, it’s going to amplify your biggest character defects. It’s going to ask you to feel feelings that you don’t want to feel, and it’s going to ask you to feel them at the times that you don’t want to feel them, right? When you want to feel good, you’re going to be faced with a challenge. And I’ve come to the conclusion through my own trial and error that my level of success in being able to execute every day, as well as my interpretation of the profitability comes down to my willingness to deliver with the uncertainty that comes with managing risk.
And by making myself my own lab rat, I can better determine what’s the best holding period. If the market says, for your temperament and for what you want to do, we don’t have those types of trades and inventory right now. We’re going to relegate you to stopping you out in what’s going to look like scalping trades from the passersby. And if it tends to work out that that makes me a little bit of money, I guess I’d rather make it than not. But at that level, the numbers are not that significant to me in terms of moving my p and l. Now, if I wanted to focus on that, I could make that my primary business, but then my hourly wage would go down, I’d be putting in a many, many, many more hours for a lot less money. So you have to figure out what trade-offs do you want to make? Are you here to make money? Are you here to feel good again? To me? The level of profitability that you have is going to come down to your ability to deal with the uncertainty.
How to be your own trading coach
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The one thing I do to check myself and to keep myself in line is to look at my habits, right? Because the habits reflect my behavior and my behavior predicts where I end up. So one way that you can completely steal this from me is go to school on yourself. It’s a saying that they have in golf, actually go to school. So what I do on any given week, I don’t necessarily look at the results, right? Because you can play a poker hand of aces really, really well and you’re going to get your aces cracked. You can’t look back and say that you did the wrong thing just because you lost the hand, as frustrating as it might be. So what I do to keep myself in check is I say, okay, are my habits today kind of parallel or congruent with the vision that I have for myself in the future?
Now, the future for you can be next week, next month, next year. It probably comes down to returns, but returns are a function of also like your behavior. Why? Well, if you think about it, whether you’re scalping or whether you’re position trading and regardless of your asset class and holding period, the winning trades are there. It’s up for you to kind of use your metal detector, so to speak and find them, and what I have found is that the reason why most people are struggling is not because of the how-to part of trading, right? I even found that out from myself. There was a world of information. I kept feeding my brain thinking that that was the solution, but it’s actually not. You find yourself in that spot when you’re dying for reassurances, and guess what? There aren’t any. There aren’t any reassurances. This is probabilistic, and that’s the feeling tone of what I mean when I say that.
I wish I could tell you that if you put tab A into slot B, the result would be exactly guaranteed and predictable every single time, but it doesn’t work that way. You have to get used to living with the uncertainty and unfortunately, that’s what makes people freak out and stop their habits not being able to deal with the unpredictability and the uncertainty. Whereas if you do more traditional professions, you can have a vision for that. You can see what the outcome is. If you go to school, you get an MBA, someone becomes a CPA or an attorney. That type of lifestyle is pretty predictable, especially the paycheck part. With trading, it’s very, very difficult because you don’t know when your winning streaks are going to show up. You don’t know when your losing streaks are going to show up. So you have to put yourself in the mindset that regardless of the outcome, I know my system has positive expected value. That’s my edge, and I’m only going to trade when I have my edge. I know when I do that. I know at some point in the future I don’t know when, but I do know that and I trust I that at some point in the future my dreams will come true. I’ve seen that enough in my life in everything that I’ve done, not just around trading, is you have to have the vision first. If you have the vision first, you can work backwards and get to the behavior part once you know who you are and what makes you tick. To me, finding the right trading methodology is then the easy part because those are finite when you think about it. And what do I mean by that? So just on the back of a napkin, there’s really when you slice it and dice it, what four asset classes. There’s interbank, foreign exchange, there’s commodity future contracts, there’s options on equities and futures, which include futures on currencies, and then there’s stocks. Right now, I suppose you could throw in rights and warrants, but to me, I don’t really look at those because they work more like options.
So at the end of the day, then what do you have? You have holding periods. So when you think about that and you start to come up with the combinations of are you going to scalp this? Are you going to position trade that? Are you going to trend? Follow this. Even with that, you have scalping. Then you have, we could call it swing trading or day trading. We have scalping, which is a really short window of time, could be seconds to minutes play with me here. Could be longer. Of course, you can define it the way you want to. I’m just giving you an example. Then you have day trading, which might be a longer period of time within the day longer than the scalp. The next step would be some type of a swing trade, which could be one day, three day, four day, even five days.
It really depends who you speak with. And then you would get into say, position trading slash short, intermediate or longer term trend following position trading. And then at the other far end you have investing, which is kind of putting on risk with an open-ended selling or upsetting risk strategy. So when you look at all of those asset classes and you say, okay, I have four asset classes and I have five or so ways to trade them over a certain time period, then there’s only so many combinations that you can come up with. That’s the good news. So for me, I’m like, okay, well I can quantify that. So now I just have to find for what I want my money to do for me, and what do I want to get out of trading? Do I want some kind of pleasure or how does that serve me in my life?
What’s the purpose of it? So once you get to that standpoint, you can figure out the right combination for you that should become habitual so that every single day you know how you’re going to trade and affect your edge because otherwise it wouldn’t make sense for you to put on a trade at all if you can’t affect your edge and an edge in, again, back of the napkin, kind of back of the envelope type of definition would be just in a situation where probabilistically that when you affect this setup or this chart pattern, whatever it might be, that there is a positive expected value. Now there’s a video on positive expected value. You can go look it up here on YouTube and there’s probably more resources At Martin Chronicle. It was hard for me. There was no cottage industry for helping people. The internet didn’t exist, and I know how hard it is.
I know how firsthand it is. In fact, I wrote a book about how hard it was. It’s called the Inner Voice of Trading. It’s got four and a half out of five stars. I give away the audio book version. You can get it for free, the links in the description. So don’t tell me how hard it is. I lived it and there weren’t the resources that there are today even on some of the things that I don’t necessarily poke fun of, but I want you to be conscious of telegrams and private Twitter channels, and of course we’ve got discords. My whole thing on the coaching and mentoring is like the same ethos that I have for doing any of these podcasts or these shows on video in that if I can’t say it in five minutes, then I really can’t say it. There’s really no reason why I would have to get to the bull pit like the monsignor at a church and preach the same damn thing day after day after day and you don’t get it.
You see what I’m saying? If I’m doing my job, which is to give back to the community, you shouldn’t have to pay me month after month after month to get the message. I should be able to communicate it to you in an effective and efficient way that you can take it and put it to work. That’s the whole point. I’m not looking to get a teddy bear to hang onto every night to fall asleep. That’s not the right coaching and mentoring that you should be looking for. There should be a finite window of time, right? My thought process is that if this starts to look like therapy, something’s wrong because so much of this you can figure out on your own. You don’t need a therapist.
It’s pretty basic in that regard. So while I’m not calling anyone’s girlfriend ugly, you have to look at that relationship because the coaching and mentoring that I do is finite. It runs six to 12 weeks, and if you can’t get it by then, then you can’t get it because after 36 years, I know absolutely how to prescribe if I do enough listening to guarantee you results. If you don’t do the work, you’re not going to get anything. You have to be willing to accept the risk. Are you able? Of course you are, but you have to be willing to live with the uncertainty and to get comfortable just knowing that that’s the way it works. But if you don’t develop the habits to go back to the top of the conversation, the predictability goes out the window because you know that over time, if you tell me what you’re losing percent is, I can tell you the frequency or the probability with which you’ll have a losing streak.
I can also tell you how you’ll have a winning streak and you don’t even need me for that. You can do the math yourself. You can predict what it would be like to have three losers in a row. You can predict what’s the probability of you having say, five winners in a row. That’s not terribly sophisticated, but what I do know is that behavior predicts the outcome and until you align your daily habits, your daily behavior with what your vision is for the future, you’re going to be a mess because everything’s going to look good because so-and-so did it effectively. I might as well try it and here’s Tommy over here. He did this strategy, oh, I might as well try that again. It falls into the parameters of the different combinations you can get between asset classes and holding periods. You’re going to find that there’s probably a handful of people across any number of those combinations that are doing well. But whether or not that actually works for you is yet to be seen because you got to try it on for size and then do it consistently. The consistency is the magic potion here is can you dig in? Can you lock in?
That’s the hard part. Admittedly, I was all over the place. I wrote a book about it. Like I said, now, over that time, I had enormous amount of success, but the gloating of the success part doesn’t help you grow. Like who cares? Then I’m just another one of these 26-year-old guys saying, Hey, how AI is going to change the trading world and how you can make thousands of dollars in 10 minutes of work, which is a, come on. It’s the new snake oil stuff. The key if you want to really ramp up your success is work on your getting comfortable with the uncertainty.
That to me is where the rub is. The more you are willing to feel your feelings, all of your feelings, the greater that level of success you’re going to have sooner. So it doesn’t mean you have to be fearless. I don’t think there’s such a person who’s fearless. I think there’s people who feel fear, but are able to take the steps forward despite what they feel, right? If I’ve talked to the best salespeople that I know on Wall Street and they’re sitting with a billionaire prospect, it’s intimidating, but they don’t let that intimidation psych them out from going in and making the presentation. If that was the case, I wouldn’t have made any success. So that to me is really the toughest part of trading, and if a person is struggling, I’m going to bet dollars to donuts. That’s where it’s at. It’s ability for them to not accept because they want validation, they want reassurances, and those don’t really exist in this space.
The only thing you can do is look at your track record, and I don’t mean official track record. Just look at the results of your ongoing behavior, judge yourself on the consistency on the ability to do the same thing day after day after day. That to me is winning behavior, and that to me predicts favorable outcomes when I don’t know, because it all depends on your trading style, and then it all depends on is the market amenable for that particular trading style? Where people get into trouble is they try to do different several trading styles at the same time. The problem is all those trading styles have personalities unto themselves, and so you’re going to be schizophrenic in your brain here, multiple personality disorder. That can come over time for sure. You can train yourself to do it, but in my opinion, you have to start with one and do that consistently before you’re going to sit and try to do several different types of trading strategies so that you can be a person for all seasons, because that becomes very, very difficult.
Then when you’re looking at trying to decipher what’s going on in the marketplace and then decide what type of tool, again, I think you can do it, but I think it takes several years because you need to live through those market cycles and then make those adjustments. But if you want just to summarize everything, you need to make sure that you have the vision first for where you want to be and for where, and what and why, and how you want trading to serve you in your life. Then break it down to what your daily habit, your daily behavior could be, and summed up all of your behaviors in what we call a habit or habits where you can really start to predict your success is based on your daily habits. If you don’t have any, then you got to start over. Start with the end in mind, right?
I’m not the first person to say that work backwards to today and say, what’s the one thing that I can do that’s super simple that I could replicate day after day after day? Because until your behavior is kind of congruent with what your goal is and what your vision is for the future, I don’t think any lasting success is going to happen. You’ll get random bouts of it, and I’m sure it’ll make you feel good. My hat’s off to you because I’ll take good luck any day too. Why not? But if you want to actually be in control, then you need to have a definable trading edge.