Iteration is your key to discovery

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• 0:00Speaker 00

  Everybody, so as a follow-up to yesterday's episode, I think, you know, trading is experiential. So, one of the things that you can do to develop your own style is to actually iterate, right? You have to keep doing it. When I look at, you know, different trading styles and different types of painters, if you look at the early works of, say, Pablo Picasso, or even, you know, Keith Haring, Jean-Michel Basquiat, and even Jackson Pollock, their early works looks nothing like what they became known for in many ways.

• 0:39Speaker 00

  You know, after Picasso went through his cubist, you know, area, or career, if you will, or period is a better word, right? He has a very distinct style that you know, but if you look at his early work, right, it's very, very different stylistically, too. If you think about how much art he created in terms of drawing, painting, and sculpture, as great as he is, and I'm a big fan, I've seen a lot of his work. I was just in MoMA a couple of weeks ago in New York City, and I was looking at "Girl in the Mirror," which is as good as anything he's ever done.

• 1:19Speaker 00

  There's a lot also Picasso in the Metropolitan Museum of Art on Fifth Avenue. He had to develop his own style through iteration, right? Jean-Michel probably is the closest one, but his themes and the way he expressed it kind of evolved. Keith was always a drawer. That's how I looked at Keith Haring. He was always a guy who really kind of drew on topolin with either, you know, a paintbrush or using a kind of a marker type of a deal. But I always looked at him as someone who really drew a lot, and his style evolved as well.

• 1:58Speaker 00

  If you look at his early work, it wasn't until he was even at SVA that he got his distinctive style. How did that happen? Massive amounts of iteration. And that iteration isn't a mistake, it's developmental, right? So, although I kind of talked about this yesterday, today I want to talk about the emotional side of it, like you have to be able to try and fail. So make sure you're not betting that much, because it's the experience of doing this where you're going to find your own unique trading style. It's going to come that way. Trust me when I tell you, like, you just have to start the process. Don't sweat the details, bet small.

• 2:39Speaker 00

  Because once you figure out the process, right, with that grit and determination, that's where you're going to start to hit your stride. And then, once you've done, I don't know, 20 to 50 trades, you can start to scale up a little bit and risk a little bit more. Then, once you get that down, that becomes your money printing machine, that's your cash register. Then you can say, "Okay, let me see if there's a B setup that maybe is only going to have 30% accuracy, but a 3 to 1 payoff, where I might not have the same type of bet size as my A setup, or whatever my top setup." You can call it whatever you want, it doesn't matter if you use numbers or letters. But get in the habit of doing the practice. Now, if money's tight for you and you don't have the money, and you're working through

• 3:22Speaker 00

  one of these funding accounts or these funding trading challenges, I don't know what they're called anymore, I would encourage you to do as much paper trading as you possibly can, but take it seriously. Like, do your work the night before, right? Because even though the list is going to change, it does something to your psychology, and I still do it. Right now, as I'm recording this, it's 8:10 in the evening, and I have to do these videos now, because I just have so much going on, and if I don't put the time in now, they're not going to get done, right? So, the iteration is what's key. What you're trying to do is marry, and conjugate is a better word, just like you're learning a foreign language, you're trying to conjugate your emotional constitution, which includes

• 4:07Speaker 00

  your emotional intelligence, your trading psychology, with what you're trying to endeavor as a trader, which means what's the system or the setup that you're trying to trade? The one shortfall that happens for everybody who's trying to sell a system to you is that they don't take into account that even though you can look over their shoulder and watch them take 10K to 150 million, there's no guarantee that you're going to have the psychology to be able to pull that off, even if you can watch them do it. That's why I don't sell trading rules. First of all, you can get most of them for free on the internet. You don't have to pay somebody 3 to 5K for them, right? The key part is to marry your, who you are as a person, right, compatibility.

• 4:50Speaker 00

  You have to have that compatibility with what you're trying to do. That's where my success as a coach comes in, is helping you remove things that are inefficient and add things that can amplify, right? It's chemistry. Do you have things that accelerate a chemical reaction, or they act as buffers? That's what I do. I'm kind of an HGH kind of a deal for, you know, your trading. And that's why I create these videos, because I believe this is the missing part to most training programs. And if they, here's the problem, right? If I just opened an ice cream shop and I said, "I could probably do well if I just had chocolate," or some variation of chocolate. But, you know, there are some people who just don't like chocolate.

• 5:33Speaker 00

  Now, we can never be friends, but, just kidding. But they leave out a big part, because if they said to you, "Now, listen, in order for you to become this type of a position trader, where you're going to add 2 or 3 or 4 risk units, be fully loaded, and then take that risk home overnight and over the weekend," people would be like, "Wait a second, I'm not ready for that." But that's a key component to those types of tradings, for those particular types of trading systems, you know, trend-following systems, position-trading type of models, they require you to take big risk overnight. You might not be ready for that. Even though the returns look compelling, trust me when I tell you that risk and reward

• 6:17Speaker 00

  go together, but the risk isn't just the financial risk, it's the emotional stuff that you have to go through. And that's where I had the upheavals, was the emotional growth. When I knew, like, my capital was limited, and, you know, I had to take risk home overnight, because that was the only choice that I had for that period of time. Like, MJ wrote a comment the other day about, you know, the market environments, you know, whereas I had eights and quarters, I had, you know, I could read the tape a lot better than you can today, but I also had high commissions. Nowadays, you have no commissions, you have decimalization, so super tight spreads,

• 7:02Speaker 00

  but you have high-frequency trading, quote stuffing, spoofing, and all that other kind of bullshit that you have to deal with, right? So, it doesn't matter when you learn to trade, there's going to always be something to overcome. Now, guess what? Anybody, including someone who's starting to trade for the very first time today, and me, we're all facing the same market environment. We all have those hurdles to have to overcome, and to find a way to make money with the current environment. So, over time, by definition, you're going to have to figure this out. It's not going to go away, and then it's going to change. Victor used to say, like, "The markets are always trying to morph and to kill you to

• 7:44Speaker 00

  take your money," right? I interviewed, like I said, a good friend of mine, Jared Dillian, who wrote a new book called "The Awesome Portfolios," coming out on September 8th. He says, a quote in the book, "You know, the volatility makes people do stupid things with their money." So, all of that stuff is universal, and I think it sticks with every particular trader over long periods of time, and you find new and improved ways to have to deal with those types of realities in the marketplace. And they're things that are omnipresent, and they do change over time, they do evolve,

• 8:27Speaker 00

  they do get to a point where, you know, you're going to have to be aware of it, you'll be mindful of that, and then kind of change your, you know, position sizing to take into account what happens with volatility.

• 8:44Speaker 00

  But don't be afraid to take chances, right? You have to, you have to wanna take risk. That's, that's the key part to all of this stuff is that you have to wanna take the risk. You wanna have to take chances. You wanna have to win at this game. It is a bit of a challenge. It's kind of you against everybody else. But I know like losing money or, or losing, losing on a trade or being wrong with your analysis, right? It doesn't say anything about who you are as a person, right? It doesn't say anything about your level of intelligence or what have you. It just means that there might be one component to your trading that you need to focus on to sum it all up, right? Cause when you think about what are the, what are the pieces that go into a trading? Let's do this together off the top of our heads.

• 9:28Speaker 00

  You somehow have to screen, right? Now, I tend to do all that the night before because I want the mental edge of knowing that I've done some preparation that gives me confidence. I might not use any of those names and the list might change by the time I wake up in the morning, but I go to bed at night saying, I've put the work in. I've made an intentional effort towards my trading career. I'll double check the list in the morning and I'll see if I can't add something else or maybe even remove something that looked good just the night before, but things happened overnight, you see? So we have the screening part. Then we're like, okay, what's your risk unit? That should probably stay pretty consistent over time regardless of what happens. What's your entry rule? Or setup? Is it an opening range breakout?

• 10:13Speaker 00

  Is it a late bloomer kind of a thing? Do you trade the lunchtime breakout, right? Or do you fade that move coming into the close? Like there's any number of things that you could trade across the, the, the hours of the day, right? Then, once you're in the trade, you need to have a trade management rule. Okay, when do you adjust your protective stop up? Cause there's a couple of parts in the trade management. It's like, okay, I have my risk unit. Is it my, am I risk on, risk off? Do I always put on like what's an optimal unit and then remove it? Or do I put on a smaller risk unit? And then look to both raise my protective stop up, but then add another smaller piece of risk and kind of pyramid and add to my winners as they, as the instrument starts

• 10:55Speaker 00

  to advance, kind of like as a starter piece, right? And then how do I adjust my stops throughout the day? How do I, where do I put my stop in overnight? That kind of a deal. How much risk do I take home? What's reasonable for my capital base, you see? And then as it becomes time, when do I know that there's a reversal? When the move is definitively over, right? There's another, there's a number of ways that you can look at reversals. Now, the intraday players are looking at, you know, a close on the one, two or three minute bar, say below a nine minute EMA. But for longer term players, the nine EMA doesn't even show up on their screen. It's much, much more structural in terms of looking at the daily bar.

• 11:37Speaker 00

  Does it, the thing consistently make intraday new highs and close in the top half of the candle, right? Cause even though there might be dips and doodles throughout the day, there's still a campaign going on. And I think for all of us, one of the things that we can benefit from is knowing that, look, we're gonna be the mice trying to tap dance in between the feet of the elephants. Who are the elephants? Well, those are the big institutions who might find themselves under, under capitalized in certain names when the good fundamentals come out. So our job then is to get as fully loaded as we possibly can in front of those people because that's when they all start to buy, there could be hundreds of ETFs or mutual

• 12:18Speaker 00

  funds and/or hedge funds that need to acquire tens of millions of shares. And all that buying of those tens of millions of shares is gonna be the wind that they, they put in your sails that, that are gonna help pay you. So, you know, you can think about this philosophically. Do you wanna wait to see if that happens like just for one day and then make it and take it and look to try to replicate that the next day? Or do you understand that when these institutions go on a buying spree, they're not just going shopping for one day. It might take all of them two to four weeks to get their buying situated to their optimum levels, in which case you can have a piece on for quite a while, right?

• 12:59Speaker 00

  And again, if you go back to the last Market Wizards book, you know, some of these guys were, I think it's the, the Swedish guy. He has, I think it's, it's more of a Finnish name, but Christian, you know, he was trailing with a 10 or a 20 day, 20 day moving average to use that as his exit. So if that scares you, go back to Monday's lesson and find a way to do the thing that you don't wanna do. Take risk home overnight because you can take one share home overnight. You might think that it doesn't make any sense because it's emasculating, but to me, it's more important to build that muscle. Cause now it's a skill that you have and that's a huge asset. That's another arrow in your quiver.

• 13:42Speaker 00

  And once you get there, you can scale it and get comfortable with five shares, right? Cause no one cares what the number is. It's only what's right for you. Love yourself through the process, but do it, do it and fall in love with that. Fall in love with the suck because that's, you know, like Jaco says, Jaco, something's not working. What did he say? Good. It's perfect. You're gonna grow. You're gonna grow as a person. Be creative. Figure it out. See, I know you can do it, right? I know you can do it because I came out of nowhere as a working class, a dog, and I made this happen for myself just simply because I could see myself doing it.

• 14:22Speaker 00

  I could envision myself being a success and that vision, even when I had no evidence that I would be a success is really what carried the day. I was like, listen, as long as I don't quit, I come back tomorrow, I'm still in the game. Rule number one, I can't blow up. So that was a real concern, but it was the persistence. It's like, I'm gonna figure this out. And if it takes me a hundred years and having water drip on the stone to crack the thing in half, like that's what I'm gonna do. I don't necessarily care when I'm a success and I don't necessarily care how it happens. I just know it's coming and I have to persist. I can't quit. So I had to put on bet sizes that I know I could withstand and know that I could, um, you know, stick with over a longer period of time.

• 15:06Speaker 00

  And I know that you can do that too. I know it's hard to believe like, yeah, if I can do it, you can do it. That's kind of an empty thing, but when you think about the calculus to it all, it started with the, the simple fact that I had a belief in myself. I believed that I could do it. And that's something that you could make your mind up on right now. Just believe that you can do it. It doesn't matter how it happens or when it happens. That's all your mind effing with yourself. You don't need to know that. You just have to have faith that this is figure outable. There's too many people that are timing the market. There are too many people who are great scalpers. There are too many people who are great swing traders. So you just have to find the one that's most compatible for your makeup and where you are psychologically right now.

• 15:49Speaker 00

  That doesn't mean you're gonna be pigeonholed there because you can grow as a person and you probably will. You might have capital, capital constraints. That's just right now. It doesn't mean forever. So love yourself through it and just remember, if it sucks, good. Keep rocking. Keep pushing because you only lose when you quit. So don't quit on yourself. You got this. All right? Happy Thursday, everybody. I'll see you tomorrow.