A true story I want to share.
About 6 months ago I re-connected with a childhood friend whom I had not spoken to for 25 years.
I’ve known my friend Guy since Kindergarten. We went through grade school, Jr. High, and H.S. together. Academically, he was as gifted as they come. What took me hours of study to accomplish or complete, Guy seemingly could accomplish in a third the time and get better results. He was in the National Honor Society in High School and was accepted at MIT in the fall of 1979.
After his first year at MIT, Guy secured a summer internship at a brokerage firm in Chicago at the CME. He started as a gopher in June, but by August he was trading on the floor of the exchange. Old school trading; hand signals and all. Guy’s effort, results, and promise led the firm to “make him an offer he couldn’t refuse”. His trading career was underway…..he never set foot at MIT or any other institution again.
He traded in Chicago for a few years, then the company moved him to CA where he traded on the Pacific Exchange. After about 5 years, he quit to start a winery in Oregon. It did not work out. Severely tapped out financially from the Winery Operation, he moved back to the Chicago “to make some money”. There he spent many years as a market maker / trader in a number of stocks. All told, he spent 25 years in the pits.
After some “googling” I caught up with Guy. I told him what I was doing and solicited his help as a trading mentor. ……I assumed he was still in the business.
Turns out he retired as a floor trader about 2 years ago and is now back in the Pacific Northwest. When asked why he quit, he said. “I really didn’t like what I was doing”.
He got his Real Estate license and now has a small real estate office.
I asked him why he didn’t just trade his own account from home. He said “I tried, but I wasn’t successful.” I was absolutely dumbfounded. Here is one of the smartest people I know with a 25 year track record of success as a trader failing as a stay-at-home trader. We talked about that and drilled down. Here are my conclusions.
Circumstance, Environment, Tools, and Attitude Play a huge Role.
So although trading from home seemed like a no-brainer, it turned out to be a problem in real life. From Floor Trader / Market Maker to ThinkorSwim platform in the basement, doing a job you don’t particularly like was a step down the food chain. Its doesn’t really sound appealing…..or a recipe for success.
Guy's story doesn't need to be our story. Guy made his mark on the floor and in the pits. We can make our mark in our own way.
Happy Hunting and Good Trading.
I recently listened to a segment on NPR's "Here and Now" where they interviewed Tony Bennett who just turned 90.
You can listen to the 11 min interview here if you like.
Bennett recounted how his career blew out of the gates in the early 1950's. He had multiple hits and looked unstoppable. After a sold out performance, he was met backstage by George Burns and Jack Benny. They wisely offered some sage advice based upon their own experiences. They told him "its gonna take a long time for you to learn what not to do". Robin Young, the interviewer asked Bennett how long it took. Bennett replies " 7 years "
If you pay attention you will be quite amazed at how often the " 7 year rule / cycle" pops up.
Ask almost any professional person ( artist, doctor, lawyer, engineer, carpenter etc ) how long it took them to become truly comfortable and capable in their profession and many will say 7 years. I don't think its a coincidence that the highest divorce rate among married couples occurs at or very near the 7 year mark of the marriage. Its a law of nature.
Read "Market Wizards". Nobody, not even wizards, hit the ground running and never look back. Most are beset by painful and humbling experiences; often more than once. Even the very best took time to become the best. Don't think that after a couple of years you'll reach hero status.
Tony Bennett was lucky. He was given a gift. But even for him, it took a long time to learn what not to do; how not to screw it up. For myself and probably most traders, learning to become consistently profitable traders is a long road. We need to learn not only what to do, but what not to do. That takes a long time.
For those relatively new to trading and even for those that have been at it a while, keep things in perspective. Rome wasnt built in a day and trading is no different. It's a long, tough haul. Dont be too elated with a few nice wins, nor depressed during a rough patch. If you're working hard on your process and keeping your focus on becoming a true craftsman, then you are making progress. You'll likely start becoming competent and self assured over time.... it's gonna take about 7 years.
The other day a trader reached out to me for a helping hand. He wanted to learn more about how to become a more confident trader. It’s a great question and one I have spent time thinking about and working on for my own trading. In my mind we are looking for the sweet spot (as defined by me) between lack of confidence and cockiness. Stereo-types however lead us to believe that the most successful traders are also the cocky ones. Confidence taken to the extreme. I don’t think it’s true. What is true IMO, is that cockiness can lead to eventual ruin because the trader can never envision true risk or imagine being wrong. For the purposes of this note, let’s define the sweet spot as “quiet confidence”.
Ideas on Building Self - Confidence
1. Transition from Seeking Shortcuts to putting in the Work
I think there is something deep within all of us that seek and relish a short-cut. Successful people push that urge down so that it really does not emerge into their actions or thought processes. Some of you may know that I enjoy cooking and seeing my family and others enjoying the fruits of my labor. The recipe is simple; Fresh ingredients and the willingness to put in the time. You’re not going to have great Mac n cheese out of a box. You need a solid process ( the recipe ) and be willing to put in the time.
Confidence in cooking or in trading stems from a willingness to put in the hard work. The hard work of sifting thru hundreds of charts, the hard work of creating, tweaking, polishing, and following a trading process. We’ve talked about owning ideas before; it’s critical to building confidence. There’s a bridge that must be crossed from idea origin to idea ownership. When I offer or you see a trade idea, take that idea and rip it apart. Dissect it and see if it makes sense for you. A blind follow is a trade gone wrong from the get go. Even if you make a lot of money from tagging along other folk's trades, no confidence will be built. I see a lot of people racing around frantically trying to find “good follows” on social media almost as if that is their edge… Finding the best traders to tail. Although I am not deep into it, it was a problem for me too. Less so now.
True success has no short cuts. Focus on your work. Put in the time. Good things will come your way. Your sense of accomplishment and confidence will grow.
2. Transition from Negative Self Talk to Positive Self Talk
When we focus on everything we could have done better and everything we did wrong, we create mini failure experiences for ourselves over time. Our self-talk reflects our relationship with ourselves. How can we feel confident in who we are and in what we do if we're constantly tearing ourselves down? When faced with a disappointing result from a trade, try to engage in positive self-talk and look for the many good aspects about the trade. Examples:
3. Identify, then play to, your strengths
Many traders attempt trading styles that don't match their personality and cognitive strengths. Over time that generates frustration and erodes confidence. Work hard at matching your skill set and personality to the trading style you employ. To a certain degree this is a trial and error process. For a while I tried to be a Swing Trader and be a Day Trader on the side. Didn’t work…….but I sure tried. In the end, the skill set and temperament for Day Trading does not suit me well. Swing Trading is in my wheelhouse. Trying to force Day Trading into my mix was a real confidence killer. My frustration at lack of success in Day Trading overwhelmed the good things that were happening on my Swing Trades. Document your feelings in your Trade Journal when you try different trading regimes or styles. I think you’ll soon know in your gut if something isn’t right.
4. Avoid and reject negative environments; Seek out and Embrace Positive Ones
Imagine if you were helicoptered deep into the Rocky Mountains and dropped into a commune of hardcore survivalists. Upon arrival, you’re handed a gun and a Manifesto explaining in deep detail how the Government is after you. Doomsday is near. At first you laugh at the comical notion, then 3 weeks later you’re practicing your marksmanship with a bazooka and organizing the ammo bunker.
We absorb the ideas and attitudes of the people that dominate our environment. Same is true for we traders. If we hang out with the “trader’s lonely losers club” would we be surprised to feel confidence being drained from our existence? Losing is a part of trading, but it doesn’t have to be a lifestyle. Find a diverse mix of positive people and traders to associate with. Get out of the chat rooms where the prevailing view is that Lloyd Blankfein is pulling on all the strings so it’s impossible to succeed. If you truly believe that, simply stop trading.
Hanging out in the wrong places can also affect your P&L along with your confidence. It happened to me in the Spring of 2016. I’d like to think I am a good market technician. I can certainly identify pattern changes, trends and breakouts etc. How then would it be possible for me to miss, ignore, or even shoot against a powerful rally? Because I was living in the Bear Base Camp. Daily readings of Bearish theses, homing in on all the bearish macro factors that are out there of which there are many, seeing earnings collapse etc. It was no different than living in the survivalist commune; boogeymen everywhere. I subjected myself to a harsh bearish environment that blinded me from bullish chart input. In trading what you call an advance really doesn’t mean anything. Bear market correction or Bull rally? Who cares! If price is going up, get long or step aside if you don’t trust it, but certainly don’t hold shorts or fire bazookas. Price = Truth. Opinions about the whys and what-for’s are pure speculation and wont contribute one iota to your P&L.
Prescriptions to re-boot your attitude and to begin building Self - Confidence
Think about this one. I challenge you to "Trade like a Monk" for 6 weeks . Imagine yourself as a monk in a cave on the far edge of civilization. All you have is your trading platform and your charting package. No phones, no chat rooms, no blogs, no TV to distort your market input. Can you imagine the clarity of your thinking going sky high? Can you imagine truly owning your trade ideas? Can you imagine the confidence you'd gain by seeing and trading pure market input?
These ideas are free and you can start tomorrow.
I challenge you to follow the above ideas for 6 weeks. It's a big ask. From experience, I know 95% of you either wont try it or will fall off the wagon within a week as you battle symptoms of withdrawal. The reward for challenging yourself however will be great. For the 5% of you that give it your best effort, you will emerge a different trader. You will emerge a more confident and disciplined trader. By eliminating all the noise, you will become very attuned to market input. You should experience a groundswell of self-confidence. A self-confident trader is a powerful trader. Beginning that journey is one of the most important things a trader can do.
If you decide that it's worth the effort and give it a try , keep me posted on your progress. Either post a comment here for others to see and learn from, or send me a private note. Reach me anytime at email@example.com
Happy Hunting and Good Trading
Back in 1989 I took my nest egg of about $100,000 and plunged into the tropical plant business. I found out very quickly that those monies did not go very far. But over time the business grew. I funded expansion through internal cash flow. I liked the idea of being debt free. Then in 1992 I had the opportunity to acquire a larger piece of property that was in foreclosure for $200,000. Having had the property on it's books for quite sometime, the bank seemed motivated to give me the loan with a nominal down payment.
A short 3 months later Hurricane Andrew rolled through Homestead, FL and upended my world. My inventory and nursery structures were gone. Cash was non-existent. I was wiped out. I calculated that I needed about $500,000 to rebuild the operation and get back on track. Back to the bank I went.
This time however the bank was much more skeptical of my ability to repay a loan of that amount. Bankers know 80% of small businesses fail. To make a long story short, they agreed to fund me with $200,000 but with lots of strings attached. Each quarter I was required to submit financials with cash flow statements and forward looking projections. They kept me on a short leash. Over time, I rebuilt the operation and held true to the covenants of the loan. About 5 years later I went back to the bank and requested another tranche to the loan. With a proven track record of prompt payment and with a growing business to support the debt load, it was easier to get funded.
Now About your Trading Ambitions
You've worked hard over a long period of time to build your nest egg. You have big dreams about parlaying that nest egg into a vast fortune through trading. That's fine. Most trader's are optimistic and probably think that way. But what if your own Hurricane Andrew hits your trading account? Remember 90% of would -be traders fail. What if you're not as good as you think you are? Are you really willing to put your entire nest egg at risk out of the gate without a demonstrated track record of success? Once your trading capital is gone, its gone.....you are out. It's a risky proposition. It's also true that your family has a stake in those monies as well. Would it be responsible to head off to Las Vegas with your entire net worth in hundred dollar bills in a briefcase? Think about it.
Hire a Banker
When I got my operating loan from the bank, I absolutely hated all those hoops the bank forced me to go through not only to get the loan but to remain in compliance with the covenants. But you know what? It enforced a discipline both on myself and the business. It protected the capital that was at risk. There was another set of eyes watching me. It instilled fiscal discipline. It forced me to perform. I think that same forced discipline would be helpful to traders.
Designate someone in your life to be your banker. Could be your spouse, could be your parents, could be someone else you trust implicitly. Put them in charge of your trading capital. Let's say you are starting with $50,000 for trading. Fund your account with $10,000. Set up a quarterly reporting scheme whereby you visit with your "banker" to review your progress. Establish the covenants of your trading account. If after 3 months your trading account is down 50% ( which is very easy to accomplish ) do you think your banker will be inclined to offer additional funding toward your trading efforts? If however after 6 months or a year you're up 50% and have demonstrated continual improvement in your trading, your banker may see fit to extend you additional trading funds. It's a forced discipline and a check on you the trader. It makes you accountable to another human being for your performance. Will it be a pain in the butt? Yes. Will it save you from yourself? Probably. Hiring a banker will put a fine point on what you need to do to perform and make progress. I recommend you giving this idea strong consideration.
Happy Hunting and Good Trading!
( An imagined recollection )
I seem to be the talk of the town now, but it wasn't always that way. Let me take you back to the beginning.
When I was a kid, I dreamed of being a big -league ball player. I did not have the best set of physical skills, but what I lacked in that department I tried to make up in sheer grit and determination. After high school I was bitterly disappointed not to be drafted by any team. After several months, I was lucky to be signed as a free agent by the California Angels. Here I am as a rookie.....full of dreams and big plans.
Over the next 3 years, those dreams and big plans slowly dissolved. I did not get to play in very many games and those I did play in were uninspiring. In 3 years of single A ball, I batted barely over .250 as a role player. As my dreams of being a big league player evaporated, I re-aligned my sights toward being a Manager. I approached the organization and expressed my ambition. They gave me a chance to manage their rookie and Class A teams. Over the next 6 years as a manager I learned a lot but never once posted a winning record. Again, not very inspiring. Inexplicably, the organization did not fire me but re-assigned me to "roving scout" and roving "hitting instructor". Imagine that. A career .250 minor league hitter as a roving hitting instructor. My boss at the time impressed upon me that my role was that of a teacher and to maximize each prospect's potential. My lack of hitting prowess shouldn't hinder me from helping others get better. I think I was good at that.
Life as a minor league anything is not a bed of roses. If you don't know anything about the economics of baseball, it works like this. All the money is at the top. Compensation drops off fast as you work your way down the food chain. By the time you get to the minor leagues and "roving instructors" there isn't much money left. Money was always tight for me. I wasn't able to give my wife and 2 small kids the life I thought they should have. The financial strain and transient lifestyle as a roving coach took a toll on my young family and my marriage fell apart. That was a huge sacrifice to give to the game. Still, I kept putting one foot in front of the other.
Over time I made my way up the ladder to become a bench coach on the Angels. All told, I gave 31 years to the Angel's organization before being named Manager of the Tampa Bay Rays. That's a long time to wander in the wilderness. Most folks conveniently forget about the sacrifices that I made and the years of self-doubt that I had as I pursued my dream.
As Manager of the Tampa Bay Rays for 9 years, I had my share of success and began to emerge from the shadows into the limelight. Now as Manager of the World Series Champion Chicago Cubs, I qualify as the quintessential "Overnight Success". It's only been 40 years in the making. It's been an amazing journey. My name is Joe Maddon.
Back in the day I used to think of myself as a big fish within the niche of my small South Florida pond. A successful business, a beautiful home, kids in private schools, and a sweet convertible sports car were the fruits of that labor. Striving for success and acquiring the trappings thereof consumed much of my waking hours early in my career. Maybe it’s the same for you.
Anyhow when I used to visit George, my counselor, up in Coconut Grove, I often took the back way up Old Cutler Road. It’s a winding 2 – laner which works its way along Biscayne Bay from Homestead up toward Miami. Old Cutler’s path sweeps the entire the American economic spectrum. It begins in a neighborhood described by of abject poverty, drug dealing and hopelessness. I used to feel like such a big shot beginning that drive. When the air was cool, I’d put the top down on the convertible. The feeling of power under the pedal and success would fill me. As you drive north, the scenery dramatically changes. In less than 10 miles, you go from “the projects” to gorgeous neighborhoods built during Miami’s golden age from 1905 through the 1920’s. Mansions on manicured estates worth 10’s of millions of Dollars. Driving through that wealth deflated my balloon. It made me feel like a piece of garbage. All the education, all the hard work on my business and here I was, probably making less than the Gardener on these Estates. I was a piss ant in my own mind. It was painful.
This property at 8525 Old Cutler Road just sold for $16 million
After explaining my discontentment to George he used to tell me, “All you have to do is decide to step off the hamster’s wheel”. Running on the hamster’s wheel gets you awfully tired and you go nowhere. Once you step off by skipping the desire, the reaching, and the constant comparisons to focus on your own contentment, life begins to unfold in different and better ways. You can admire a beautiful waterfront home for its architecture and elegance without becoming pissed off in the knowledge that you’ll never own it.
I see Traders everyday creating their personal prisons brick by brick as they compare their trading results with those on social media or with trader’s they know in “real life”. Why aren’t my results better than theirs? What am I doing wrong? I have been trading for 5 years and I don’t seem to be very far along. This guy has only been trading for 3 years and is killin’ it. I suck! It’s that constant comparison that leads you down the path of self-doubt and unhappiness. Teddy Roosevelt captured the essence of it over 100 years ago when he said "Comparison is the thief of joy"
A More Productive Path
Stop Comparing. Step off the hamster’s wheel. Maintain a laser-like focus on YOUR process. ( not your trading results ) . Benchmark yourself against yourself and no one else. Ask questions and monitor your responses. Am I executing my process better than I was last month? Am I controlling my impulses to over trade? Am I being more selective by taking only the very best set ups? Am I quickly dumping losers? Am I carving away the wasted, unproductive hours within my week so I can devote more time doing trade preparation? As emotions tug at me during the trading day, am I improving at documenting them in my journal? Am I adhering to responsible and prudent position sizes or am I still being a putz by trading out-sized positions that will hurt me? Identify important areas to work on that you feel are holding you back.
Trust me. If you keep the focus on your own improvement, ( rather than comparing your results to others ) you’ll experience a well-spring of new-found sense of accomplishment and progress. Over time you will notice your new attention to detail in your trading process. The impulsive trades will dissolve and fade away. Your trade selection criteria will become narrow and crisp. You can’t help but notice your trading results gradually improve as you hone your craft. Most importantly, you’ll be able to congratulate your fellow traders on their huge wins without your own feelings becoming diminished. That will be possible because you’ll understand that what they do does not hold one iota of meaning for your life or your work. That realization is real power. It cuts away the thick branches and clears the debris from your path toward making progress in your own trading.
Give it a try and let me know how it goes. Good Luck!
Reach me anytime at firstname.lastname@example.org
Have you noticed that everyone is a specialist these days? It's gotten so bad in the medical profession that finding a good general practice / family doctor is a tough ask. Go down the list of almost any profession and you'll find specialists and then super - specialists within one narrow sub-sector of a specialty. The reason? Specialists, especially good ones, are more highly paid than generalists. They "own the space" they work in. I found that out first hand a few years ago when i faced jaw surgery. I searched a radius of 300 miles and kept getting the same name; Dr. Steven Holmes. He owned the space, was Best in Class, and charged accordingly. When you are getting your face operated on, the "jack of all trades, value guy" probably isn't a smart option.
Is it a coincidence that a trader who only trades oil is better at it than when you or I put on our one oil trade for the year? I don't think so; he loves taking our money. What about the guy who only trades precious metals? Probably the same thing. When we try to do too much, our bandwidth gets stretched thin. When bandwidth is thin, focus is diminished. When focus is diminished, unforced errors increase and trade results suffer.
Check this out. I know a very good trader that addressed his bandwidth issue in the following manner. He only tracks and trades 45 stocks / instruments. He doesn't worry about the other 12,000 stocks; he has narrowed his universe to 45 stocks. And guess what? He owns those 45 stocks. He knows them like the back of his hand and he wins. Coincidence? His bandwidth is narrow and his focus is intense. He doesn't miss a beat.
Here is an overview of his stock selection Criteria.
So if you often find your self jumping all over the map and having that "Jack of all trades; Master of None " feeling, try dramatically narrowing your bandwidth and jacking your focus to the moon. I am willing to bet right now that your trading results will improve with that laser-like focus. Over time you can gradually increase your bandwidth to your own personal sweet spot.
Happy Hunting and Good Trading!
One technique that has really helped me improve my trading psychology and consequently my trading results is to carefully examine where my head is at BEFORE I close a trade. I do that by incorporating a "closing trade checklist" into my process.
CLOSING TRADE CHECKLIST - Why do I want to close the trade?
Knowledge is real power. Creating the checklist and really working it will be very revealing to you. It will give you the information necessary to begin the process to effect change and move toward a place of more robust decision making that will improve your trading performance.
Happy Hunting and Good Trading!