Trader mindset is the most important thing that you need besides having some type of skill to manage the risk. What traders are, they’re risk managers and you can really train your mind to make money. What do I mean by that? Well, when I went to Wall Street, I did make assumptions, and I’ve mentioned before a lot of them were completely wrong, but at the end of the day, my mindset was such that I know I could win at this. I saw who was doing it, I saw how well they were doing, and it was easy to emulate their behavior, at least from the outside. Then I needed to learn the inner game, and that’s where the money actually is made as far as I’m concerned, right? It’s widely understood that 80% or so of trading is about psychology. People will come out and say trading psychology doesn’t matter, but for those who, people who say that they were born with the right psychology, so it was never an issue for them.
Unfortunately, for the millions of other people who are going to try to trade, especially if they come from a very academic background, they’re going to find out that the level of failure on a per trade basis is very high. The frequency is very, very high, but as long as you don’t go on tilt, you can train yourself to understand the new math, and that’s the mathematics of expectation. That’s understanding that 60 70% of the trades that you put on are going to lose you money, and the ones that will make you money can make you money very quickly, and you can take scalps like we talked about yesterday, or you can learn to get comfortable taking overnight risk and over the weekend risk, and I have studies that show where you can actually make your money. The thing is, I think traders make things very, very difficult for themselves because they want to have the macho win, the emotional win I put on the trade, I carved it out of stone and I did all this work and this is how I got rewarded for the trade.
I’ve been there. I understand that it’s definitely a peacocking thing, but when you look at the results of buy and hold, which takes really no particular skill whatsoever, and you could make almost as much money, you don’t have the same emotional payoff because there’s nothing to brag about. You just put on a good trade, it made you money, you left it on for as long as possible and you took it off. So the emotional win for that type of trade is very, very different than someone who has four monitors. 18 indicators has real-time data, has a headset on, is listening to a squawk box. That’s a whole different type of emotional reward system that’s lost on me. I don’t need that stuff. I kind of think that it’s younger guy macho stuff, personally speaking, but I’ve had those types of trades where I’ve done sufficient work, put a trade on, used all my own ingenuity, used and relied on my own sense of
Timing and made a bunch of money and it felt very good. I felt self-actualized, but at the end of the day I had to start to think how much time do I want to actually put into this and how do I have a quality of life? It’s not written anywhere particular that you have to spend eight hours in front of the screen every day. That’s your choice that you choose to believe that. So this stuff gets kind of deep. In the meantime, you can train your mind to see other possibilities. That’s also up to you to be open-minded because I think this is, to me, the shorter term stuff is really built for younger folks who have unlimited energy and this and that, but I don’t know too many guys who are 70 years old that are scalping even though they might’ve done that because the need for the money isn’t there anymore. They’ve already made their tens of millions of dollars, so it doesn’t move the needle for them to sit and scalp unless they can see something from five miles away and they’re like, oh, yeah, that’s so obvious to me. Just going to go put on the trade and nail it because the old guys, yes, still got it. That kind of stuff. So as you age, you tend to have longer holding periods, not everybody, but that’s what my experience has suggested.
So be mindful of everything that you’re doing and all the choices that you’re making. You can understand. You can only see so much, but there’s a whole other world of trading that you might not see, and to me, if you’re going to be a pro, you want to investigate all of those channels to see what one’s the best fit, so you don’t have to necessarily marry the first girl you ask out on a date, so to speak. You should get to know the environment a little bit. Now, I trained my mind by not taking my losses personally. I knew that I had to be in it to win it. I knew I had to put on risk in order to make money, so I had to think what’s a good risk versus what’s a bad risk? I also kind of understood that sometimes in the short run, you’re shot by friendly fire.
You could have a really good trade, really good name, good fundamentals, which I think you should study. If you’re learning stocks, you should definitely learn fundamentals and not just rely on charts and level twos and come to understand that I’m going to have bad luck and bad timing on top of bad decision making, and then reconcile that with yourself early on and not beat yourself up over it and just understand that this is going to come over time. Baseball players, they’re going to strike out, they’re going to put trades on, excuse me. They’re going to get to bat, and they might not even be facing a good pitcher, but they still might get called out on strikes.
There be bad calls. They might swing at pitches that fool them that have late movement, and that doesn’t mean they can’t be hall of fame. So I trained my mind to make more money by not getting emotionally invested in any one particular trade. So pick the darlings of the day. You know what they are, MicroStrategy, SMCI, Nvidia, anything with AI attached to it. We’ve seen this before Bitcoin, remember this, what do you think are the names that people will make the most money on? Write the top three down. Then show me the list and I’m going to show you the top three names where people lose the most money on because if you don’t have a strategy and you get sucked over to the light like the moth, you’re going to get blasted. And if you know anything about history from ’82 to ’87 before the correction, we’re in a really big bull market, but most individual investors lost money because they had no sense of timing. They were trying to time the market without knowing how to do it, and you can do it. Most traders are time in the market every day, right?
Then same thing, if you watched what happened from ’95 to 2000 in the Dot Com era, the names that people made money on, it doesn’t matter. What was it? Cisco, Sun Microsystems, Vertical Net, CMGI, right? Siebel Systems, JDS Uniphase – for the Love of God, Global Crossing. You can list a number of those names, the top 10 holdings of that five-year window, but those were also the same names where people lost the most amount of money, so why was that? Well, they weren’t mentally prepared. They got in at a late stage. They were in a stage two breakout buying into the fifth base, very, very, just as it started to go to stage four breakdown. They tried to sell puts and they got exercised against, and it seemed so easy for everyone else to make money, but you have to train yourself what not to do. You can’t fall victim to every emotion that’s running through your body, and that takes time.
That’s not something that can be done in one day. You could learn scalping tactics. You could read an article and probably walk away with a couple of gems. You could learn the trend following methodology in the same amount of time, but in order to put it into practice and to make it your own and to do it and to do it and to own it, where it becomes second nature, which is where the magic happens, where you’re not second guessing yourself, you’re not trying to look at your discords and be like, oh, what is so-and-so hey, is this a good time to get in? You have to be independent. You have to be a leader. You have to take the action despite your fear and whatever else you might be feeling.
That all come that mental training takes a lot more time than the actual learning of the trading. The intellectual side’s, the easy part, as I’ve said before, if you don’t know who you are, it doesn’t matter what you know, don’t know what makes you tick, you see, and so you have to learn through real experience. This is an experiential process, not necessarily an intellectual or an academic one. That’s the easy part of trading, even the screening part. There’s all solutions for that. It’s very easy to find, so keep whatever you do, keep your mindset in such a spot where you have to think you’re a winner. If you say, why do I always lose? In my humble opinion, you get what you think about and you give that power. Words have power. I’ve said that before, and so I don’t give power to negative words.
I don’t say like, oh, I got stopped out again. That always happens to me. I don’t recognize it that way. I say something like, well, that’s the place where I was willing to transfer the risk to somebody else, and they were willing to take it on more power to them. I hope they do well because I know I’m winning. I didn’t necessarily win today, but I do. Winning things all based upon your behavior, not necessarily what, so you have to do everything in your power to stay in a good mindset, really. Thoughts, feelings, actions. You can think about what you want to do, then put yourself in that emotional state and then take the right actions. You might not make money today, and I let go of that too. I let go of saying, I need to have a green day every day. I don’t.
I just need to follow my rules, and I know when I do that, the math is in my favor when the winners show up, I don’t know. I’m powerless over that in the way I think in my paradigm, I’m responsible for everything, don’t get me wrong, but I don’t put that kind of pressure on myself where I have to have a green day every day, and especially if you’re starting out, I think that’s the wrong way to do it, but my coach and my mentor says, take $50 even, because at least it’s a win if that’s what you’re comfortable with, but then you have to add it all up and say, is it worth it for me to do that? I can share with you after a while, after you’ve done that for a month or two, you get tired of taking $50 wins.
You’re like, what am I doing this for? I’m running to stand still, you too, song. I’m running to stand still, and I didn’t want to do that. I needed to grow and amplify my cash in a big way because the $5k, $6k, whatever that I had in my account, I knew that that wasn’t, if I made even 20% on that, it’s a thousand dollars. That’s one month of student loans. That wasn’t going to move the needle for me, so I had to put myself in the mindset and make the determination that I’m going to make three, four, 500% of my cash on my account balance. That’s what I meant by that, right? Then you have to envision it and say, okay, well then what do I have to go through in order to get there? What kind of pullbacks and drawdowns do I need to go through?
It’s a lot different from scalping, but I knew the market would, if I caught the right moves at the right time, especially in futures, the market would do the work for me. Plus I had the leverage, so I was like, okay, if I put myself in the right place at the right time, the leverage and the market forces that are more powerful than I’ll ever be will put the wind at my back and move my account balance, and then I got used to that. I got used to that overnight risk. I got used to that over the weekend risk with futures positions, because when the moves happen in your favor, they tend to open up with you. Your long, they open higher.
It doesn’t have to be by a lot, but when the trends hit, they hit very, very well, and you can make more money from doing less work, which in my opinion is what you should be doing. You shouldn’t be ready, willing, and able to have to do all this extra work to reinvent yourself every day. That’s my take. You can make a lot of money by taking the risk home. Some of you like the feeling of being busy, so you feed that beast. I don’t like doing busy work. If I’m in winning trades, I like to stay with it, but that’s my mindset. Your mindset may be very, very different. You might like that. All that activity, you might be in a community of people and you’re kind of feeding off of that brotherhood. I’m a loner. I don’t want to hear from anybody, even my clients.
My first rule on the client agreement is don’t call me. Do not call me. I’m not looking to make friends. When you’re younger, you have to make those sacrifices and deal with the people calling you like, Hey, I see this is moving. How come we’re not in it? Or, oh, yeah, we’ve made a lot of money. We made 20,000 in each Bitcoin. How come we are not taking profits here? I don’t want to hear about that. I’m not Merrill Lynch. I’m not interested in having that kind of relationship with people. Again, mindset. I’m training myself to make money. I’m not training myself to take on your emotional bullshit. Watching the market because you’re bored stiff, doesn’t work that way. So think about where your emotions and your psychology come to play in every decision that you make in your analysis to your entry, to your position sizing, to how do you take your losses in a disciplined way, and then also how do you take your winners? Why do you take your winners when you do? And if you start to look at that, you can begin to see patterns, and then that’s when you can begin to make small emotional changes, and in my opinion, and when you’re ready, willing and able to do the work and make those emotional changes, that’s exactly when you’ll start to make more money.