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  • Hello, everyone.

  • This is Adam Halpern with Indicator Warehouse.

  • And I want to thank you all for joining us today.

  • I have the pleasure of having Richard Friesen and Erich

  • Senft, both with two of the most difficult last names you

  • could imagine.

  • So for those of you who don't know Rich, I met him,

  • actually, when I was trying to build a

  • trading assessment test.

  • Because of our diversified trading system, I really

  • wanted people to be able to get a sense of where their

  • strengths resided.

  • Do they tend to lead towards scalping,

  • swing trading, whatever.

  • And Rich will give you a little bit about his

  • background, but he is the perfect match.

  • He used to be a pit trader.

  • Now he has a background in psychology and many, many

  • other interesting things.

  • He's definitely earned his gray hair.

  • For those of you that don't know Erich, he owns and

  • manages supportresistance.com, and he's

  • also our lead educator.

  • So I thought it would be perfect to get these two guys

  • together and have a conversation.

  • So with that, I will hand it off to Rich and Erich.

  • I'm happy to be here.

  • And my background started on the floor of the Chicago

  • Mercantile Exchange, trading options on the S&P futures.

  • And then I built a trading desk at the Pacific Stock

  • Exchange on the options floor, trading options on equities.

  • I ended up through some perverse things trading on the

  • Chicago Board of Trade, trading options on wheat.

  • And then I built an electronic exchange during the dot-com

  • boom called ePIT systems.

  • I have been working with professional traders, money

  • managers, and active traders for the last decade, working

  • with them to build their emotional, mental, and

  • psychological strengths.

  • And from this, I have developed a number of

  • processes and found where people get stuck, where

  • traders do those things, those behaviors that no

  • longer serve them.

  • And so I've been working, building a series of processes

  • to overcome the major issues that traders have.

  • So that's where I have been.

  • That's what's exciting me today.

  • And I'm just excited to talk about whatever

  • Erich brings up.

  • I know that he sometimes can be a little creative in his

  • questions, so I'm ready.

  • All right.

  • Well, I'll try not to throw you too many curveballs.

  • All right, so the first question--

  • fear.

  • I think this is probably the biggest psychological obstacle

  • that plagues traders.

  • You're afraid to take a trade.

  • You're afraid to pull the trigger.

  • You're afraid of being wrong, and everything

  • that goes with that.

  • How does a trader deal with fear?

  • Well, first we have to realize that fear is there for a very

  • positive reason.

  • We're still operating with our 50,000-year old brains.

  • In other words, our basic neurology hasn't

  • changed that much.

  • And on the savannas and in the tribe, fear was a very

  • positive contributor to our survival.

  • And as a result, it's really deep into our brains.

  • Now, the problem is that we're no longer on the savanna.

  • There's no longer tigers.

  • And we're no longer in a clan environment.

  • But our brains haven't shifted.

  • And as a result, because trading puts us as close as we

  • can get to the edge of risk, of survival, of making that

  • hunt and making that big kill, it triggers all the same

  • things that our brain is used to from the

  • savannas, early on.

  • So as a result, we drop into fear.

  • We drop into stress cycles.

  • And we act the same kind of ways that we did

  • 50,000 years ago.

  • The problem is that those ways 50,000 years ago really helped

  • us survive.

  • But in a training environment, it almost brings us to the

  • opposite behaviors of what we need to do.

  • That's an excellent answer.

  • It kind of reminds me a little bit of road rage too, that

  • would explain what's going on on the highways.

  • Yeah, the exact same thing.

  • The whole survival thing.

  • Yeah, we trigger that fight or flight.

  • And there are some things you can do, and a couple of break

  • state exercises.

  • And I think that Adam can maybe drop those into the chat

  • box for people who want links to the Flight to Freedom.

  • There's an exercise there.

  • And that exercise is basically a breathing exercise.

  • What happens is, when we're threatened, our brains are

  • great pattern matchers.

  • And they see the pattern of the threat.

  • We drop into our limbic system, and that's our more

  • primitive animal survival brain.

  • And it immediately gives us adrenalin cocktail.

  • It immediately gives us what we need to move our large

  • muscle groups.

  • But it shifts our thinking also.

  • And to get out of that fear state, we need to then

  • interrupt that cycle.

  • And what we can do is do a breathing exercise.

  • And for those of you who are interested, you can go to that

  • link, and there's the exercises there.

  • And that breaks that state.

  • Because what happens is, our limbic system puts in the

  • adrenalin cocktail, gets us ready for fight or flight, and

  • then it says, OK, is there a real threat?

  • It does that first and then checks.

  • So it checks with our more thinking brain, our neocortex.

  • And if, in fact, the neocortex says, hey,

  • there is a threat here--

  • because the neocortex is somewhat slower--

  • but if it evaluates and says it is a threat, then it goes

  • back to the limbic system and says, OK, let's pump up that

  • adrenalin again.

  • And so for some of us, we can get into this cycle whereby

  • the neocortex says, oh my god, we're in a panic state.

  • There must be something wrong.

  • The adrenalin says, the neocortex thinks there's

  • something wrong.

  • So we get into this cycle.

  • So this is a break state that traders can do.

  • Hm.

  • That's really interesting.

  • I had no idea.

  • So a simple breathing exercise can actually help you refocus

  • and give you some clarity on the situation and help you

  • decide whether you should pull the trigger on a trade or

  • perhaps exit a trade early.

  • Well, it's not going to give you the decision process on

  • that, but what it's going to do is break that cycle.

  • So if your limbic system in the brain notices that you're

  • breathing slowly and regularly, it will say, oh,

  • there must be nothing wrong.

  • So you can actually take a symptom and turn it into a

  • cause and change the state of your brain.

  • Then once you're not in the fight or flight mode, you have

  • less fear, then you can take and say, OK, what do I need to

  • do here, and make a decision.

  • Well, that sounds a whole lot better than my method of

  • dealing with it, which was usually

  • just to hold my breath.

  • Well, OK--

  • you can go another direction on this.

  • And that is, another way to break that fear is to take

  • some deep fast breaths until you start to feel lightheaded.

  • You need to lie down for this--

  • is to lift your legs, lift your belly, clench your arms,

  • clench your legs, clench everything as tight as you can

  • and hold your breath and squeeze hard.

  • Just hold that breath.

  • Hold it until you feel like you're going to pass out.

  • And then let it out.

  • And what this does is it takes that fear state, builds that

  • physiology that a normal fear state would do, by using your

  • big muscle groups.

  • And then when you release and breathe slowly, it's another

  • way to break that fear cycle.

  • I may actually try that one.

  • That sounds pretty good.

  • It's a great exercise.

  • Yeah, no, that sounds fantastic.

  • All right.

  • Next question here, we have greed.

  • I think probably behind fear, greed is probably the next

  • biggest obstacle that plagues traders.

  • We're in a position, we have an open position, we're making

  • profit, we don't want to get out of a trade any earlier

  • than we need to.

  • But at the same time, there's probably no worse feeling in

  • trading than to have a profitable position turn on

  • you and turn into a loser.

  • What advice do you have for people when it comes to

  • dealing with greed?

  • Well, greed is a word that covers a lot of different

  • psychological and physiological states.

  • So let's parse this out and break it down a little bit.

  • You know, on Wall Street, the Gordon Gekko, "Greed is good."

  • In one sense for traders, greed is great.

  • And we can talk about that later.

  • What you just mentioned, though, is that sense of loss.

  • Psychologically, and when I'm doing presentations to groups,

  • I'll say, OK, let's say we bought something at 100, and

  • it ticks at 99.

  • Have we really lost money?

  • And most people say no.

  • It ticks to 98.

  • Have we really lost money yet?

  • No.

  • 97, no, no, no, no.

  • And then they say, OK, we get out.

  • And then I say, have you lost money, and the answer is yes.

  • If, on the other hand, you buy something at 100,

  • and it goes to 101.

  • Ooh, that's cool.

  • 102, oh, man.

  • I called that right.

  • I'm a giant in the industry.

  • It goes to 103.

  • Wow, did I nail that.

  • 104, whoa--

  • everything I dreamed about is coming true.

  • And I'm exaggerating here, but what happens is when we're in

  • a winning trade, what we do is we associate that win with a

  • lot of psychic and psychological value.

  • Now, let's say it gets up to 110.

  • And we're going, man, am I a genius.

  • And then it ticks to 109--

  • have we made money from 100 to 109?

  • Well, really the answer is no.

  • We've lost money from 110 to 109.

  • Because psychologically, we've already

  • banked that 110 number.

  • And as a result, it ticks 108.

  • Whoa.

  • We don't look at it, is the overall strategy, what's the

  • best way to get out?

  • Do we have trailing stops?

  • How do we exit?

  • What's our goal?

  • All those things that are statistically valuable, we

  • lose sight of those because we've already

  • banked that high watermark.

  • Right.

  • I can certainly relate to that.

  • I can too.

  • So what's a solution to that?

  • How do we deal with the market backing up on us?

  • Do you have any suggestions?

  • Yeah, that is moving from trade winning to strategies.

  • When a new trader starts out--

  • and I've trained lots of traders to trade my money.

  • And usually on the floors, they spend six months or a

  • year as clerks, and then they move up, and first, they're

  • getting your coffee.

  • Then they're running your sheets.

  • Then they're helping determine implied volatilities, like I

  • was on the options floor.

  • So on the first day, almost every trader that I've

  • trained, deep down inside, believes that he's a god, he's

  • a trading genius, and that if somebody would

  • just give him a chance--

  • just give me a chance, I'll show you.

  • So they've worked a way up.

  • They've learned the system.

  • It's consistently profitable.

  • Well, maybe we had one losing month during one of the

  • crashes, but we made that back very quickly.

  • But consistently profitable over almost a decade.

  • So they get to the floor, they get their badge, I put money

  • in their account--

  • what's the worst thing that could happen to

  • them the first day?

  • They take a losing trade.

  • No, that's the best thing.

  • The worst thing is that they make money.

  • And the reason for that is it plugs into this inner dream

  • that they have.

  • And then they make money the next day or the third day.

  • Then they start losing it, and it devastates their dream.

  • If, on the other hand, they lose money the first day, they

  • came to me, their hands are shaking a bit.

  • They say, gosh, Rich, I'm sorry.

  • I lost money.

  • And we'll say, OK, let's just go over your process.

  • Losing days happen-- not a problem.

  • And we look and see what their process is.

  • Now they're concentrating on what their process is and

  • statistically the behaviors they need to do

  • over the long term.

  • That's great advice.

  • I like that.

  • All right, Adam, what's the next slide, please?

  • Loss.

  • Yes, losing money.

  • I think this is probably a big one for a lot of people too.

  • You touched on this already a little bit, but how do you

  • deal with losing days?

  • Like, how do you come back when you've devalued your

  • trading account by 10 or a big 20% draw down?

  • How do you deal with that?

  • Well, first of all, your money management strategy needs to

  • be addressed if you've lost that much in a few days or a

  • few trades.

  • But that's another issue.

  • Let's concentrate here on the psychological part.

  • And again, traders start out.

  • They attach their success to whether or not they won or

  • lost the previous trade or the previous two or three trades.

  • Then after a while, they realize it's not the last

  • trade, because that really doesn't matter.

  • It's whether or not they have a good strategy.

  • Then they attach themselves to a winning strategy.

  • And we can talk about this more, and I give a long talk

  • about strategies, but eventually

  • all strategies fail.

  • They have to.

  • It's the law.

  • If you had a strategy that never failed, everybody would

  • figure it out.

  • I mean, we've got all these incredible artificial

  • intelligence computers out there looking for the edge,

  • looking for the strategies.

  • We have intelligent traders out there looking for new

  • strategies.

  • And if a strategy never failed, everybody

  • would figure it out.

  • And if everybody's using that strategy, of course, then not

  • everybody can be rich.

  • People would have to jump the gun, people would have to get

  • out earlier.

  • And you have the stuff where the actual market action on

  • that strategy destroys the strategy itself.

  • So they move from first, did I have a winning trade?

  • Do I have a winning strategy?

  • And then further to say, OK, strategies fail.

  • What strategy am I going to use in this market?

  • And then they get their satisfaction of really looking

  • at the market, noticing what's going on, paying attention to

  • all the nuances, and able to actually see what's happening

  • in the marketplace because they're not

  • attached to any strategy.

  • They're not attached to the last trade.

  • But now they can see things that they didn't see before.

  • And they can either stay out of the market or use a

  • strategy that's appropriate for that moment.

  • I love how you summed that up.

  • That was actually the whole emphasis behind DTS, that you

  • have three instruments, three signal generators--

  • one scalping, one for swing trading, one for trend

  • trading-- something that allows you to see the big

  • picture of the market and take advantage of whatever the

  • market is offering you at that time.

  • But I love how you said that no strategy is perfect.

  • I think a lot of traders delude themselves into

  • thinking, if I can just find the right entry signal, I can

  • make my money, and I'll never have another losing trade.

  • But it really doesn't work that way.

  • Well, what I do is I have an exercise

  • that I give my clients.

  • And this is a tough one.

  • I asked them to go to a bank and take out 100 bills of the

  • largest denomination they can stand.

  • So for some people, it might be $20 bills,

  • which would mean 2,000.

  • Or for some people, I asked them to take out $100 bills.

  • And what they do is, we play a game.

  • And the game is that we divide their pile of money in half.

  • I get half of it, they keep half of it.

  • We play with it, we initial it.

  • And then I flip a coin.

  • If they call the coin flip correctly, I give

  • them five of the bills.

  • If they call it correctly, they give me four.

  • Now, the question is, would you take that trade?

  • Fair flip a coin, I pay you five, you give me four.

  • Would you take that trade?

  • Well, sure.

  • Let's take it.

  • Sure, you're going to take that trade, because

  • statistically, over the large sample size, you're going to

  • make money.

  • Yes.

  • That's how Vegas does it.

  • Yeah.

  • That's absolutely correct.

  • You're like the house.

  • You're going to make money.

  • But what happens is, in a random flip of the coin, we'll

  • sometimes get four heads in a row, or four tails in a row,

  • or they'll call it wrong four times in a row.

  • And then what we do is we work with the emotions.

  • Now, they've got a strategy that's 100% guaranteed to make

  • money over the large sample size.

  • So it's not the strategy.

  • They statistically have absolute confidence in it.

  • And yet emotionally, when they call it wrong, what happens?

  • And that's where we concentrate on working on what

  • their process is.

  • How do you make yourself feel bad?

  • How do you make yourself feel bad about losing and losses?

  • And we look at the psychological processes that

  • they create in that moment in order to

  • not fill the strategy.

  • I like that.

  • So you try to actually take the emotion

  • away from the money.

  • It reminds me of something I heard, one of these poker

  • stars on one of these World Poker Tournaments, they were

  • playing for 100,000 or more in the pot, and they were

  • throwing around $10,000 like it was nothing.

  • And he said later in an interview, he says, as soon as

  • I think of it as real money, I'm sunk.

  • He doesn't think of it as money.

  • So is that the direction you're going with this, try to

  • take some of the emotion away?

  • Well, one of the things that I do is never take emotion away.

  • Because emotions are part of us.

  • We have it.

  • The important thing is to be aware of it.

  • So there's two ways to handle this.

  • One is try to discipline yourself, try to force

  • yourself to be rational.

  • But in My Muscles training, what we do is we just

  • acknowledge what is there and are aware of it.

  • And the more awareness we have of it, it's like we

  • can rise above it.

  • You can say, oh, I'm feeling a fear of loss right now.

  • Oh, I'm in a state of panic.

  • That's OK.

  • And then we can handle that from that

  • higher decision point.

  • And that poker player is right.

  • As soon as he starts worrying about the amount of money,

  • he's hosed.

  • I like that game, though, especially when you're playing

  • it with somebody else's money.

  • Yeah, if anybody wants, they can email me, and I'll send

  • them the details of the game.

  • Then you just have to find somebody to play with you.

  • All right, Adam.

  • Next slide.

  • Stress, yes.

  • This is a big one.

  • Now, I know we're overlapping a little bit here.

  • You've touched on some of these things.

  • But how do you handle the stress when you're in a trade?

  • You're in a profitable position, like you said.

  • The market ticks against you a little bit.

  • All of a sudden, the juices get going.

  • What can people do?

  • Well, again, we need to define--

  • this is a broad topic-- stress.

  • So I like to think of stress as long-term self-feeding

  • mechanism that keeps you in a space of anxiety for a long

  • period of time.

  • So if we look at stress, which is this low-level anxiety that

  • just is maintained, there's a loop that goes on.

  • And there's ways that we can break that loop.

  • If you're looking at a specific anxiety around a

  • specific trade, then we look at what is the mechanism that

  • you use to get there.

  • Because anxiety is internally created.

  • In other words, the monitor, and your screen, and the

  • prices, there's no way in the world that they can cause you

  • to be stressed.

  • The only way that you can be stressed is if you create an

  • internal mechanism to make that happen.

  • So what we do is we look at the internal mechanism.

  • How are you doing that?

  • For example, and this is one of the things I do, is I

  • actually work with traders while their trading.

  • So a trader's making money, making money,

  • starts to lose money.

  • And I notice that he's leaning forward, his breath is

  • shallow, his forehead is furrowed, his leg is starting

  • to bounce up and down.

  • So I notice know that he's feeling a lot of anxiety right

  • in this moment.

  • So I work with him on what that mechanism is.

  • So we work for a couple of hours, just going through

  • layer after layer.

  • And ultimately, it came to the fact that when he was losing

  • money, his dad is going to judge him.

  • And that's how he created it.

  • He had a though, boy, if I lose this trade, my dad is

  • going to be judgmental.

  • He's not going to be proud of me.

  • Now, it may be irrational, but I've found that almost every

  • trader that I've worked with has these mechanisms running

  • way deep, often out of consciousness, that in fact

  • create the stress.

  • So once we can learn what that mechanism is, then we can do

  • exercises that break that process.

  • Wow.

  • That's a real eye opener, I have to say.

  • We always think of stress as being external, something from

  • the outside affecting us.

  • But the fact that it's actually internally generated,

  • I never even considered that.

  • It is.

  • I mean, for example, I'm going to do this webinar.

  • There is nothing in doing a webinar that is a necessary

  • causation of stress.

  • Now, I can think, oh my god, I want to do a real good job for

  • Adam, or I don't know Erich that well yet.

  • What if he throws me a curveball?

  • What if I embarrass myself?

  • What if I run out of things-- and I can create--

  • in fact, I could do that right now.

  • I could create a tremendous amount of stress around

  • talking to people.

  • I can just feel myself going into it.

  • But that's what we create internally.

  • There is no environmental issue in trading that is a

  • necessary connection to our prolonged stress.

  • Well, let's get on to the next slide, then.

  • Yeah, we're covering a lot of territory here.

  • So we'll see how close we get to covering them all.

  • But like Adam said originally, we're really

  • here for the traders.

  • And we'll do whatever we can, even if we

  • run out of time here.

  • Doubt.

  • I think traders are always second-guessing themselves,

  • especially if you have a string of losers.

  • My experience when I've dealt with people, they hit a bit of

  • a skit, and all of a sudden, they abandon their system.

  • And they start looking at something new.

  • And they're essentially starting from square one.

  • How do people know if they're on the right path?

  • There's so many systems and methods, how can they stop

  • doubting each other and not starting over all the time,

  • not wasting their time?

  • Right.

  • Going from guru to guru, strategy to strategy, asset

  • class to asset class.

  • Well, first of all, let's talk about the good part of doubt.

  • When I was a trader on the floor, every morning when I

  • got there, the visualization I did is that I was standing in

  • fog so tight you couldn't see three or four

  • feet ahead of you.

  • And I mentioned that there was a bullet

  • heading toward my forehead.

  • And I said, OK, how are they going to get me today?

  • How are they going to wipe me out?

  • What are they going to do?

  • Where's my risk?

  • And I would try to figure out how they

  • were going to do that.

  • And by they--

  • that's another subject, but by "they" I don't mean there's a

  • malevolent force out to get me.

  • But the market naturally has to make it as difficult as

  • possible to trade, or everybody would do it.

  • So there's that kind of doubt.

  • There's that--

  • from the savannas, from our 50,000-year old brain, looking

  • at risk, having doubts, questioning ourselves.

  • There's real value to that.

  • Now, then, the question is, if we do that, how do we also

  • pull the trigger?

  • How do we stay in a trade that's winning?

  • How do we put our stops in and maintain our strategies?

  • And that comes from really doing the homework.

  • That comes from creating strategy methodologies, from

  • testing them, to looking at what kind of markets they work

  • in, being ready to let them go when they no longer work.

  • And that becomes part of a process, so that you have a

  • reliable process that you put everything through that you

  • can have confidence in, confidence in the sense that

  • you know it will work for a time and you know it will fail

  • at some time.

  • But the confidence is in yourself as a trader who can

  • pick those times, who can pick up strategies that work, who

  • can let go of strategies that don't work.

  • And then you have that confidence in yourself.

  • Because that doubt about the market is what's going to

  • happen, that doubt about the strategies, that can all

  • contribute to your survival.

  • Rich?

  • Rich and Erich, we've got a question coming in.

  • It's interesting.

  • I mean, let's face it, each one of these slides could be

  • an hour-long presentation in and of itself.

  • And being a religious studies and philosophies major, I'm

  • loving this stuff.

  • Anyway, the question that came in is, does stress lead to or

  • cause illness?

  • Well, that's a well-known phenomenon.

  • I'm not a medical expert, but yes.

  • The answer is yes.

  • In fact, you talk about stress-- let's say there's two

  • prop traders.

  • And that means they work for a firm, they trade the firm's

  • money, and they come to their desks.

  • One of them had an argument with his wife.

  • His 13-year-old son gave him the finger going out.

  • He's been losing money the last three weeks.

  • He is judging himself.

  • He is angry at himself.

  • Somebody cuts him off on the freeway, and he almost rams

  • them just to show them.

  • He gets to work.

  • Second guy, he's happy with himself.

  • He has a methodology for trading that

  • just grinds out money.

  • He made love with his spouse in the morning and had a

  • wonderful time.

  • And she just told him what a wonderful guy he was and how

  • proud she was of him.

  • He goes to work, and the same guy cuts him off.

  • And he pays attention to how the traffic is and notices one

  • guy's driving aggressively, and he's managed to see that

  • and manage it.

  • He gets to the office.

  • And both of those traders know something odd happened.

  • Let's say their trading the crack spread.

  • And they notice something strange happening.

  • Now then, you walk in, and you've got 10 grand.

  • Which one are you going to put your money on?

  • Which one are you going to follow in their trading?

  • With the guy who's more level-headed.

  • Yeah, the guy who's having a great time,

  • loves life, has balance.

  • When you have stress, you operate from a different part

  • of your brain.

  • So not only can it cause medical

  • problems, but it also creates--

  • we can talk about how you see information, how you filter

  • it, and how you react to it.

  • Yeah, it makes sense.

  • You need to take the overall view and realize when stress

  • is wigging you out.

  • I'm just wondering if that level-headed

  • guy's wife has a sister.

  • Well, I didn't think about it now, because I didn't realize

  • we'd go here.

  • But I have an exercise called personal trading capital.

  • Where is your stress level?

  • Where is your personal trading capital every morning?

  • And I have a way to measure it.

  • And then I have a physical way, of where you have

  • multiple hats, and you put on different colored hats,

  • depending on the level of your personal trading capital.

  • So you can really know where you're at.

  • Because when we go into stress, we're not aware of it.

  • It's like, the size of the yardstick changes.

  • And we don't realize that we're measuring from a

  • different yardstick.

  • That's fantastic.

  • And you can get that information at your website?

  • Or do we have a link for that?

  • No, that exercises is not published.

  • I keep it for clients.

  • But again, if somebody emails me, I'll put it into a PDF or

  • shape it up, and I'll get it to you.

  • Point them in the right direction, anyway.

  • All right, next slide, please, Adam.

  • Advice.

  • Now, this one is kind of the tail end of the other one.

  • But should people be looking for advice?

  • Whose advice should they follow?

  • I've heard before people tell me that everything you need to

  • become a successful trader, you

  • already have within yourself.

  • Or should people be looking for competent advice?

  • How do you measure advice, and that sort of thing?

  • Again, there's two ways to frame it out, and a couple of

  • ways to approach it.

  • One of them is if a trader feels inadequate--

  • and I can identify with this one for the good part of my

  • trading career--

  • is that we're looking for somebody, a groove, somebody

  • who can point us in the right direction, somebody who can

  • take care of us, somebody who we can trust and depend on.

  • We all yearn for that kind of person in our lives.

  • And if we yearn for that, and we're dependent on that, then,

  • of course, what's going to happen, eventually we're going

  • to get down.

  • But another way to look at advice is to be curious about

  • it and realize that other than Adam, you, Erich, and myself,

  • everybody else is fallible.

  • Naturally.

  • Yeah, so other than us, everybody else is fallible.

  • And you look at them like you do strategies or stories.

  • And the stories you look at is as curiosities about them.

  • They are somebody's locked in view of the world, and you can

  • look at those views with curiosity and learn from them.

  • Great advice right there.

  • All right, Adam, next slide, please.

  • Guilt.

  • Now, I know I've personally struggled with this one a

  • little bit myself.

  • And it may seem kind of silly to folks who are struggling as

  • a trader, but there seems to be a little bit of guilt

  • involved with actually making large sums of money,

  • especially if you don't feel that perhaps you're entitled

  • to it or that you're making your money at the expense of

  • someone else, because trading is a zero-sum game, at least

  • in the futures world.

  • If you're making money, somebody else is losing money.

  • How do you deal with guilt that might arise from trading,

  • or even guilt of losing money?

  • This is a core that I am discovering more and more as I

  • pay attention to it, that traders will sabotage

  • themselves at some level.

  • We've all heard, or at least most of us know, that people

  • who win the lottery end up returning to their previous

  • net worth in a few years.

  • I don't have the numbers in front of me, but NFL, wealthy

  • professional football players and basketball players, many

  • of them, over half of them, end up in

  • their retirement broke.

  • And why is that?

  • It's because normally when you make money, you do it because

  • you feel you're capable of it, and you're worth it.

  • And you have to work for it.

  • But people who win lotteries, people in sports, people in

  • entertainment, the money is just showered on them outside

  • of what I call their personal thermostat.

  • So what happens is, you have an internal thermostat.

  • For example, I have a brother.

  • I love him dearly.

  • And I know that five years from now, he's

  • still going to be broke.

  • Because his internal thermostat is zero.

  • Whenever he makes more money than that, he figures out a

  • way to lose it.

  • A short story--

  • I'll try to make it really short, because I know we're

  • short on time.

  • When I started trading on my own, the first year--

  • let me start, in 1995-- it was April, 1995.

  • And it was the middle of the night, and I heard a voice.

  • And it woke me up.

  • And the voice said-- and I can hear it as clearly as I'm

  • saying it now-- it said, Rich, you're only

  • worth $200,000 a year.

  • That's how much it was.

  • You're only worth $200,000 a year.

  • And so it woke me up.

  • I looked around.

  • My wife was sleeping beside me.

  • There was nobody else in the room, but that was the

  • voice inside me.

  • So I got up in the middle of the night, showered, drove to

  • the floor of the Pacific Stock Exchange.

  • I got there before it was even open and waited for the staff

  • to come open the doors.

  • And I went and stood in the pit.

  • Now, rather than standing near the back of the pit, where I

  • normally did, I went and chose the best spot.

  • Now, this best spot was between the brokers who handle

  • the most paper and right in front of the book staff, which

  • means I could hear everything, and I was closest to those,

  • and I could hear all the trades.

  • So what happened was, all the other traders started

  • pointing, and the trader who normally stood in that spot--

  • now, you can't own a spot, but you have to do it because

  • you're the biggest bully or the meanest SOB or have the

  • most capital, he stood beside me and didn't think

  • too much about it.

  • But let me give you some background.

  • When I went on my own and left my trading firm, CRT, the

  • first year, I was very careful.

  • I made 125 grand.

  • The next year, I was really careful.

  • And I made 150.

  • The next year, I made 175, then 200.

  • And for three years, I made $200,000.

  • Only in 1995, something different happened.

  • I was trading Micron, and there was only three traders

  • trading options on Micron, the memory chip makers.

  • And it just hit a bottom and just took off.

  • And paper was just pouring into the pit.

  • And only three of us traders--

  • and literally, you didn't have to be smart.

  • You just had to write paper as fast as you could.

  • And after one month, I made 200,000, in 1995.

  • The second month, I was still up 200.

  • I'd make 10, lose 5, up 3.

  • The third month, the fourth month, and come April is when

  • I woke up and heard that voice that said, Rich, you're only

  • worth $200,000 a year.

  • So that's when I went to the exchange and I stood in the

  • best spot on the floor.

  • And when the bell went off, the guy who normally stands in

  • that spot, he nudged me, expecting me to move.

  • I didn't move.

  • And it was like electricity went through the

  • pit, because nobody--

  • nobody stood in that spot except that guy.

  • And so we started a shoving match.

  • And the book staff meeting said, do you guys want a fine?

  • And the fine for physical altercations on the floor was

  • 10 grand, automatic, no matter whose fault it was.

  • So I stood my ground, and I ended up doing $650,000.

  • But the limitation was my own, that I didn't

  • think I was worth it.

  • I didn't value it.

  • And what I'm finding, especially among younger

  • people today, is there's a tremendous amount of guilt

  • around wealth.

  • And when I built a trading firm, I brought in a

  • hypnotherapist for some of the traders that were struggling.

  • And one of the traders, he was not aware of this at all, but

  • his take was, if I make more money than my father, it will

  • be disrespectful to him.

  • And so out of love and devotion to my dad, I can't

  • make more than him.

  • So when he made more than 150,000, he would start to

  • give it back.

  • And trader after trader that was struggling, that was one

  • of the subroutines that was going on with them.

  • So most traders, if they hit a losing streak, it might

  • actually be internal sabotage, like you said.

  • Exactly right.

  • And I found this among the traders that I'm

  • working with now--

  • I'm working with Chicago Proprietary Trading Group.

  • I've got a blanket contract to take care of their traders.

  • And I'm finding that almost everyone, when it comes to

  • wealth, that there is something that

  • they're going to lose.

  • And I tell them, I say, OK, let's find out what you're

  • going to lose if you get wealthy.

  • And they say, ah, I wouldn't lose anything.

  • I'd do this, that.

  • Oh, I wouldn't lose anything.

  • No.

  • But when we work on it, there is something underneath that,

  • that they're afraid of, that they will lose.

  • I see that we have a link up there as well for your

  • internal thermostat exercise.

  • Oh, good.

  • Excellent.

  • I encourage folks to click on that.

  • Adam, next slide, please.

  • Visualization.

  • It seems to be all the rage, everywhere I look, every

  • self-help book, every book on trading seems to suggest that

  • if you can only visualize your future hard enough, if you

  • repeat enough self-affirming mantras, 100 times a day, that

  • you'll eventually reach your objective.

  • Is there any truth to that?

  • Every day, in every way, you're

  • getting better and better.

  • Every day, in every way, Adam, you're

  • getting better and better.

  • You know the one.

  • Yes.

  • And people like me.

  • And people like you.

  • They do.

  • I don't know why, but I like you, Adam.

  • But again, we have to parse this out.

  • Because there's some real power in visualization.

  • And there's some real destructiveness in

  • visualization.

  • In other words, if you say every day, in every way, I'm

  • getting better and better, and you have a self-sabotage

  • routine, and then every day you come up short, then

  • there's a part that says, you're a failure, you're a

  • failure, you're a failure, and that does not help.

  • But what I do is I have a visualization.

  • And we probably don't have the time to go into too much

  • detail, but you create a brokerage statement

  • two years from now.

  • And in that brokerage statement, you have all the

  • details you need-- how many trades you do a day, how many

  • losses you have, how many wins to loss ratio, what your net

  • average profit per trade is, what asset class you trade,

  • and I say, OK, let's go for your outlook, let's see really

  • where you want to be.

  • And let's create the brokerage statement that supports it.

  • And that makes them get really, real.

  • Oh, that means I'm going to have to stop

  • all my revenge trading.

  • That means I'm going to have to stop my boredom trades.

  • That means I'm going to have to let my profits run, that

  • means I'm going to have a lower win-to-loss ratio.

  • OK, let's put that all in and create

  • that bokerage statement.

  • Then with that very detailed brokerage statement, I have

  • them put them on the floor two years from now.

  • Now let's walk back to see what we need to do to get to

  • this brokerage statement, and all the things you need,

  • specific things you need to be put in place.

  • So it's not like we're just wishing or telling ourselves

  • we're getting better and better, we're actually looking

  • at specific strategies, specific tactics, specific

  • behaviors that you need in order to make that brokerage

  • statement real.

  • Then with those very specifics, you can say, OK,

  • what am I going to do today?

  • What one little thing am I going to do today that's going

  • to move me towards that brokerage statement?

  • That is very powerful.

  • Because if you don't know where you're going, if you

  • don't have a clear map, if you don't have that brokerage

  • statement, then you're just lost in the woods.

  • Right.

  • So it's a little bit of reverse engineering, then,

  • rather than just--

  • Exactly right.

  • --rather than just repeating positive

  • affirmations to yourself.

  • What about the, what do they always say, fake it till you

  • make it kind of thing?

  • Is there anything to that?

  • Like, if you feel like you're a successful trader, that will

  • help you make better trades?

  • Well, the theory of Mind Muscles is that we need to

  • create new, more effective behaviors that feel better and

  • get us to where our goals are.

  • So what we do is we create simulations, much like a pilot

  • before they put them in an F-15 jet, they will put them

  • in a simulator and have then wreck it a bunch of times,

  • learn how to do it, and repeat the successful behaviors over

  • and over again.

  • And it's the same way, that what we have to do is create

  • new neural pathways and new neural connections that create

  • the new behaviors.

  • So by faking it, in the sense of being in a simulator and

  • actually going through it and learning how to create those

  • behaviors and learning what it feels like to create new

  • behaviors, you can, in fact, repeat them.

  • And it's kind of like a muscle memory.

  • You can create new behaviors that feel better and get you

  • to your goal.

  • So I guess you're a pretty big advocate of keeping a trading

  • journal then.

  • Boy, am I. Because ultimately, all this rests on awareness.

  • And the journals help give a very concrete methodology to

  • creating those awarenesses.

  • I agree.

  • I agree 100%.

  • I think it's the easiest thing anybody can do to improve

  • their abilities as a trader.

  • It really doesn't take long.

  • And in a couple of months, you'll start to see some sort

  • of pattern in your successful trades and your losing trades.

  • And it'll be easier to replicate the winners and

  • avoid the losers.

  • Well, exactly right.

  • In fact, I encourage my traders to start a journal.

  • And every trade they make, they assign a strategy to it.

  • And that strategy might be, impulse trade.

  • Or it might be, revenge trade.

  • Or it's strategy A, B, C, or D. And then what they do is

  • they look at and they also describe the market profile,

  • what kind of profile the market is, and what kind of

  • behaviors it is, how you executed it, whether you

  • followed your strategy, and what emotions you

  • felt during the trade.

  • So then what's going to happen is--

  • I mean, can you imagine trading without having any

  • history of the asset class you're trading?

  • Well, in decision processes, it's the same thing.

  • You can chart that.

  • You can see what works.

  • You can see what doesn't work.

  • And as a result, you can migrate your trading

  • processes, your strategies to what works.

  • Yeah, I agree.

  • I think that's fantastic advice.

  • All right, Adam, next slide, please.

  • Making money.

  • Now, I'm trying to remember what we were basing this one

  • on, but I think it's--

  • Adam, do we have a slide for goals as well, or was--

  • Yeah, this is the slide for goals, I believe.

  • Goals and making money.

  • Yeah, so you already touched on that a little bit.

  • So goal setting is a good idea.

  • From your last statement, you said it's a great idea for

  • traders to actually think out in the future and say, this is

  • where I want to be a couple of years from now, and formulate

  • a strategy to get there.

  • Is that right?

  • Again, it depends on the process.

  • For example, in some things, setting goals is

  • counterproductive.

  • If I say, I want to be rich, I want to be rich, I want to be

  • rich, what do I need to do to get rich--

  • the chances are you won't.

  • Or if you are in an erotic situation, and you're trying

  • to get to the conclusion, the harder you try,

  • the worse it gets.

  • So on some things, setting goals and trying harder,

  • actually makes it work.

  • So what we need to do is, what is our goal?

  • My goal is to become self-aware.

  • My goal is to learn how I relate to strategies, my goal

  • is to execute my strategies.

  • My goal is to have a day where I successfully completed my

  • strategies.

  • Now, that is very different from making money.

  • When I was on the floor, we were the most consistently

  • profitable firm there.

  • And the reason is, we executed our strategies.

  • We didn't worry about whether this trade was going to make

  • money or not, whether we were going to make money.

  • We didn't set a goal, how much money we were going to make.

  • We set the goal as, I, as a human being, how can I improve

  • my capabilities?

  • How can I improve my decision process?

  • How can I execute better?

  • How can I learn about the markets more?

  • And then once we did that, the money fell out consistently.

  • You know, that is a very unique way of looking at it.

  • It reminds me of a golf tournament many, many years

  • ago that Jack Nicklaus lost by one stroke.

  • He missed the final putt.

  • And afterwards, the press asked him about that putt,

  • about missing that putt.

  • He says, no, I didn't miss it.

  • It went exactly where I thought it should go, but it

  • just didn't happen to go in the cup.

  • He picked his line, he stroked the putt just how we wanted,

  • it just didn't break and fall into the cup.

  • So you're saying it's better to remove the money aspect and

  • make your goal something more concrete, something that you

  • can actually handle, like proper execution, sticking to

  • your strategy, not doing the shoot from the hip trade--

  • that kind of thing?

  • Right.

  • So as you tend to do those things, what you will notice

  • is, your account's going to increase in size.

  • If you go the other way and say, I need to make money

  • today, and if a trade starts to lose money, it puts you

  • right back into the limbic system and all those negative

  • processes that do not serve you very well.

  • So money is just a byproduct of successfully implementing

  • your system.

  • That's absolutely right.

  • So if I can interject for a second, as a tool vendor, or a

  • tool manufacturer for lack of a better term, we're going to

  • be coming out soon with a new automated trailing stop money

  • management tool.

  • And one of the debates that we've had in house is, do we

  • show the P&L when the position's flat or not.

  • And all of the novice traders want to see

  • their P&L all the time.

  • And all of the veteran traders are like, no, don't show the

  • P&L. That's just going to distract me.

  • If I'm doing really well, as Rich said earlier, I'm going

  • to start getting all giddy because I got all this money.

  • And if I'm not doing well, I'm going to make bad decisions

  • because I've got fear and greed and

  • stress coming into play.

  • And so the veteran traders have been saying, look, don't

  • show the P&L. You trade, you do your business, and then at

  • the end of the day, you see where the chips fell.

  • So it's interesting to hear that validated on the

  • psychological side of things.

  • Well, thanks.

  • Yes, I'm taking all this two decades of floor trading and

  • training experience and psychology and creating the

  • Mind Muscles Academy.

  • So with that, thanks so much to Rich and to Erich for

  • joining us today.

  • And so look in your inboxes for some more free goodies

  • that are coming your way.

  • Thank you.

  • Thank you, guys--

  • a real pleasure.

Hello, everyone.

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