I want to address a comment that came in on a video. The video was called How to Discover and Define Your Trading Edge, the comments from a man named James Sparks. I think if I read it right, great video got me thinking about how I want to quit after three years, and I won’t go through the details. You can read it yourself. It’s a very heartfelt message, and I appreciate the sharing. I appreciate where you are. I myself had found myself in this place 30 something years ago, and I know the level of despair and despondency that you might be in. The best thing to do, in my humble opinion, is just what you suggest, which is sit on your hands for a while. Think about what it is that you want out of your trading. The comment also, and this isn’t certainly to rub salt into the wound, but it also throws into sharp relief, my opinion of why you really don’t want to follow gurus for your trade selection.
You really have to learn how to do it on your own. If you talk to 10 people about whether NVDA is it a good buying opportunity or Bitcoin is right now, and you ask 10 people who are pros and who are well respected in the community, take me out of it. You’re probably going to get 10 answers and it becomes very, very difficult to trade using somebody else’s ideology. We’re not talking about Christianity or Judaism or Islam, right? We’re talking about a trading ideology that has to be congruent with who you are as a person. Makes sense? So he says, here, I trade futures and God is my witness. I see 10 setups of one strategy make money, and as soon as I take the trade, it loses. And so the important thing is, and again, go back to yesterday’s episode about why I don’t do the chart reading part is because for this very, very reason, and I couldn’t have predicted that this type of comment would’ve come in on the heels of yesterday’s video, and it’s just my opinion, you may feel very, very differently.
The two personality traits are persistence and determination. You really have to learn how to shave your own face, which is a way of saying from the ideation, how do you collect your list, your wishlist? How do you narrow that down to the point where you want to actually put in stop orders, right? You don’t want to act impulsively and buy and sell things at the market. And then really importantly, how do you manage the trade? What do you do once you’re in the trade? I’m going to guess that 90 a hundred percent of you go start looking at your p and l right away. And if it starts going against you, it’s a bad trade. If it starts making you money, it’s a good trade. And the truth is, if you’re following a rule or a set of rules or set up or even a mechanized trading system that has positive expected value, every trade is good, because you should only be trading when you can express your edge. We talked about that earlier the week. What is the edge? It’s when you put on a trade that comes from having a positive expected value in a very simple way of saying it. I know there can be more deep expressions. So as long as you put those setups and those trades on, every time you’re aware of them, there’s a good trade. The outcome in many ways is irrelevant. Why? Well, because you know where your protective stop is going to go and from having back tested or simulated and or using real trading results, the percent of time that you’re going to lose the frequency with which you’re going to lose and the average size of your loss, the magnitude. And so knowing that ahead of time, you become emotionally placated that any one particular trade doesn’t matter.
You also need to know that you’re going to stop focusing on the results of any one particular trade and think about how your winning trades actually grow your account balance, right? Because that’s the goal is to grow your wealth. If you’re going to do this, it’s not to say, I put down a thousand in margin and I sold my trade or got out of the winner for $2,500 gain, you could say, or even $2,000 and say, well, you’ve doubled your bet size. That’s not really relevant in the grand scheme of things because we don’t know making a $1,000 – what does that do to your overall account balance, right? If you’re trading a million dollars, it’s 1/10th of 1%, so it’s a rounding error. Who cares? Why would you get all lit up about that? And if you lost that amount of money, who cares?
Why would you get all lit up about that? So I look at this jiujitsu, how do you get a black belt? Well, it’s simple and easy at the same time. You got to put your guy on and get on the mat and go to class, and the hard part is you got to put the guy on on the mat and go to class every day. And so you need to start to think about this as a marathon. I suffered through four years of culturing the pearl, and I don’t want to say suffering because I knew I was onto something and every day I uncovered more data, mostly about myself because the market was going to be the market. Wheat was going to go where it was going to go, whether I was in it or not, whether I was watching it or not. It’s an independent instrument, and so I don’t get emotionally connected to things that I can’t control.
I don’t fall in love with women who I’ve never met and who I’ve never spoken with because that’s an infatuation. That’s a whole different emotional system that you’d be running. So same thing with trading. I can appreciate that there’s a whole host of people who can do things from high frequency trading to scalping for a minute or two to day trading, to swing trading, and then for the longer timeframes, I celebrate all of it, but I can’t come and say that one is better than the other definitively because so much it is tied to what one resonates the most with you. You may understand everything intellectually, but from a compatibility standpoint, it’s how does the ebb and flow of your capital when you’re running those particular models impact your emotional constitution? Because your ability to make money is really going to come down to your emotional ability to deal with the level of uncertainty that’s attached to any particular trading style.
I don’t think winners take care of themselves. So a lot of times when I would backtest, I would say, okay, who cares about what the compounded annual growth rate is and the Sortino ratio? What’s the drawdown and how long did it last? Because that’s what’s going to be the hardest part. That’s when you see people freak out and abandon their system. They go for broke. Why? Well, they can’t take the heat in the kitchen. So again, I’d love to go over charts and God knows we do that. There’s 150 hours worth of content behind the firewall. But to do that without marrying up the emotional and the psychological to play matchmaker that way wouldn’t make sense. So for James, it might make sense to sit on your hands, go back to paper trading and pick one strategy that really, really resonates with you. Then cut off everybody.
Don’t go to social media. Why would I care what Paul Tudor Jones thinks of Cocoa right now? Because I have to manage the risk here in Los Angeles. He’s a very smart guy, and you can look up to him. He’s given away over $2 billion through Robinhood Foundation and he’s a great human being, but I can’t trade with his risk management rules. Obviously, if he gave me an allocation, there are parameters, and I guess somebody in the firm or whoever the risk manager is that would come knocking on the door and say, here’s your VAR, and here’s what you can do all that notwithstanding, I’d still have to find a way to make my personality work within those constraints or those boundaries. I don’t want to say constraints. That makes it sound like there’s no upside, and you need to figure that out for yourself. So what are you willing to feel?
Are you afraid to do your own research or do you even know how to, because that’s a solvable problem. You can learn how to do your own research, but then you have to have the confidence again in the emotional constitution to learn to rely on yourself. Can you do that? You said you’re 60 years old. Where have you learned to rely on yourself in other parts of your life? Can you borrow that feeling and use it in your trading if you’ve taken direction your whole life and kind of did what you were told? There’s something very studious about that and dutiful, but it’s not going to help you trade because traders are independent thinkers and they’re leaders. I’ve said before about Discords and Telegrams, they can be helpful for two or three months after which point you have to take what you’ve learned, make it your own, and then push your own bird out of the nest.
There’s no reason to be sucking on the nipple when you’re 14 years old, so to speak. Learn what you need to learn and move on. All of my coaching programs have a finite ending period. There’s no way or reason to go on and on and on and blather at the mouth. I don’t want that type of fandom. If I can do my job very, very well, I should be able to get the job done in a finite amount of time and guarantee the results and send you off on your own so that you can go win and take all the credit you’re going to have to anyway. If you win and you make money, that’s on you. If you lose money, that’s your responsibility too. I can’t blame anybody or anything for my trades and the trades that I put on. I have to live and I have to eat my own cook, and I guess is what I’m saying.
So there’s no real reason to get stuck here unless you’re spending too much time on social media looking for validation for the trades that you think you want to put on. So all of that’s curable. You just have to make the decision to do it and to learn to rely on yourself, which is also a teachable skill. That’s the first way to take responsibility, right? Because as traders, we live in a paradigm of personal responsibility. It’s all up to you. I wish you all the best. Thanks very much for being here.