Palestra - Parte 1 - Psicologia do Trading

Hello. My. Name is Mark Douglas and I'm the author of the disciplined trader and trading in the zone, I've. Been a trading coach since 1982. And, over the years I've worked, with some of the industry's biggest hedge fund and money managers, as well, as some of the exchanges largest, floor traders I know. That all of you want to experience consistent, results from your trading in other, words you want to be able to generate an income, you can rely on however. One. Of the major obstacles, in trying to accomplish this objective is. In the area of trade execution. To. Produce a consistent, income a trader has to be able to execute their trades without. Making, any errors or mistakes in other. Words trading, without hesitation, reservation. Or internal conflict. Basically. All of the errors we are susceptible to our result, of a lack of confidence, or. More specifically, trading, with fear, what. Most people don't realize is, that trading, without fear is actually a to learn training, skill a skill, that has to be cultivated and is, the primary difference that, separates the professional, from the typical trader, in. This series of DVDs I'm, going to provide you with the kind of insight, understanding, and specific. Mental techniques you'll need to. Learn to trade without fear, so. That like the professional, you can move in and out of your trades with, the kind of confidence, and ease that will allow you to take full advantage of your wise trade or any other trading methodology. Hello. Yeah. Good morning and. Also to how many people came from the west coast or in, that in the West Coast time zone yeah. Is like, the. The, wise trade people pick me up at 6:30 in the morning which was 4:30. In the morning. For me so, so, when I say that you know when I say this we're, here for you and to, ignore the cameras ignore the environment, I really mean that but at the same time I want, you guys to help me a little bit okay yeah, it, might take me a little bit you know might take me a little bit to get going because I'm, not used to doing presentations. That you know 6:30, in the morning my, time or 7 o'clock in the morning my time but. Anyway what. We're gonna do is we're gonna we're. Gonna go through the process, of, learning. How to think, like, a professional. Trader. Why. Would we want to learn how to think like a professional. Anybody. Got any ideas what's that make. Some money but you don't have to think like a professional to make money do you.

What. Does it even imply what does it imply to to, think like a professional trader I mean let me ask you this how many you, guys have I don't know what your what your trading experience has been in terms of the number of years you've been at it or you kind of give me an idea of the. Demographics. Here of the audience I mean how many people have been trading for more than two or three years. Most. Everybody. Then. Then less than less. Than two years kind, of new people, no. Okay so we've got about half and half. What. Would it mean to. Guys. To say well, let's think like a professional trainer. What's. That not thinking like an amateur okay that's good but what, what are the implications of, the difference between a professional and, amatuer. Consistency. There you go you see you read my Houston workshop right yeah, consistency. Exactly, in, other words what, what that would imply is, that is that, if I'm if, I'm a professional, trader in other, words if I've aspired, to, be. A professional. It. One. Of the implications would be that that I can, make consistent, money. Because. If, I'm trading, in the mode of a professional, I could, be a hedge fund manager. You, know a. Professional. Hedger working for trading companies, or just. Having. A full time job as, a trader where, my income, my sole income is derived. As a trader and to. Be in that kind of a position or to be in a position where other people, are going. To give you their money or or, give you their assets. To. Be able to you. Know. Make. Money for them it. Would certainly imply, that. You. Can make consistent, money, that. There is a way for. You to let's say. Create. An equity curve, that. Looks you, know something like this. Is. That right. Are. You going to give your money to somebody with an equity curve that looks like that. I'm. Not saying that people don't do it and I'm not saying that it doesn't happen but. I'm saying that if I've aspired, to be, a professional trader. It. Means I must have learned something that's different than the people who. Can't do, this. There. Must be something, about about, the way that I approach trading. That allows me to do that. And. Believe. Me there is there's. A lot. Well. Then. Yeah. Cool. Basically. And. I don't know if how many people in the room have, have. Either read trading, in the zone or the disciplined trader, we've. Got a few people so on so probably. There, so there's actually most the people in the group I aren't, familiar. Maybe. Even with me or my background, at all true. Or not yes or no see no right okay. So. I'm gonna just give you a little bit and. I'll give you more later on but I started, trading back in 1978. And. The. First trade that, I made I the, first trade I made was in potato futures, at, the Chicago, Mercantile Exchange, which they don't even trade potato futures anymore why pick potato futures I have no idea I think. That's probably what my broker said I should be trading maybe, he said that there was you know there was an opportunity in potato futures but anyway I made, money and of course you know and just like most people who make, money there their first trade or the second trade it's, it's about as easy as, one could imagine and, therefore, you think to yourself oh my god why, didn't I learn about this a long time ago.

It. Sounded I mean that sounds kind of familiar right, in terms of a thought process and. I. Went, from trading potatoes, to trading gold to trading silver, and. My. I'd, say my trading experience back, then was probably typical even. To what it is today with most people although you have to keep in mind that the technology. That we had back then wasn't anything. Anything. Like. What you have available to you right now today it, still boggles, my mind. When. I think, about the, way we had to trade 25, years. Ago or almost 30 years ago compared. To what's available right, now I mean. I've never I've, always been attracted more to trading commodities, than stocks I was a matter of fact I've never even traded stocks I'm always traded commodities and options and and. It's just and I've never really never, really had the desire to train on the floor of the exchange. Although. I lived in Chicago for, 20. Years. It. Just it never really appealed to me I don't know how many people are familiar with the floor or the order or the training pits but I just thought it was an extremely, harsh environment, and and. Not something that you know not something that just like I said it appealed to me. But. The, kind, of trading platforms, that you guys have available, to you today really. Truly. Approximate. What it would be like to have a seat at the. Chicago, Board of Trade or Chicago Mercantile Exchange. And. And. To trade at that level you, have instantaneous. Execution. And. And. It's like you can and you like you can change your mind and not feel humiliated, or, or like. You know there's something wrong with you you put in an order you can cancel it. You know before before. The advent of electronic trading platforms, we used to have to call a broker now you think about the time you made a decision to put on a trade you think about the time that it takes one to dial the phone for, someone to pick the phone up you. Know how many times it has to ring and then he gets on the other end of the line you know you got your broker and then you give your broker your order and then you've got to deal with the fact that does your broker really approve of your order in other words my Buddha me buddy prove is that we'll say I'm you know I want, to buy you know I want to buy three gold contracts, saying well you, know some of my biggest biggest customers, they just went short gold, now. You know now what are you gonna do with that information okay. Or, I've got you know X number of guys that are that are on the other side of that trade and say well yeah if you want it you know you want to take the other side of their trade I mean that's fine fine with me I'll put the order in so. It's like you know so, he could put the order in and then, you know you've got to wait for it you got away for a fill I can't. Tell you how many times that I put orders in the market where, there were limit orders because they didn't want to do a market order because I didn't want to get the slippage of a market order so, you do a limit order in and on a limit order the market has to trade to, garrard be guaranteed to fill the market has to trade through your price does it not how. Many times has, the market traded to your price okay. Just write to your price, on. A buy order and reversed, and, you. Didn't get filled, that's. Very possible, the problem, when you're doing it with, it with it with a broker over, the phone is that, is that that order goes into the pit it, goes to an executing, executing broker, in the pit itself so you've got a runner.

And-and-and-and. And. Then the order got to go back to the runner back to the phone bank back to the broker and the broker calls you with a fill you're talking several minutes now what if you're in a situation in a fast market, where the market actually hit your price you, may have gotten filled but you really don't know you. Don't want to put a stop in the market because you don't even know if you're in or not and, the. Markets screaming let's say even in your favor and you'd like to take profits but you still haven't gotten your fill back yet, you. Don't even know if you're in the market, this. Is the kind of stuff we had to deal with all the time all. The time it was a completely, different world not, only that the only information that we had available to us was, open. High low and close that. Was it. Open high low and close bars. And. We used to have to get those unless we talk to our broker and pestered them you know X number of times a day you know after you get, it through the Wall Street Journal. Used. To have to keep our own daily charts intraday. Stuff was just like non-existent. So. So, anyway I you, know that's I I, started, trading like that I went through oh. I. Don't even remember what my first trading account was I think was around $20,000. You know I lost all of that and, then you know saved up some money and opened up another one for around 15, you, know lost all of that and then, we went to another broker, and I'm thinking this guy doesn't know what he's doing and I'll find somebody who does and. And. Then, this is this is what really really. This, is probably the reason I'm even standing here today was. This particular trade, because because, this particular trade. Just. It. Had a profound impact. On me in terms, of in terms of how it changed my life and what, I was willing to do to find out what this was all about to. Find out really what, does it take to be a consistently, successful trader, what, does it take to really be, able to earn. An income as, a trader. I. Was. I. Was. Long. Silver. This would have been back in right. Around 1980, or 1981, in 1980, I think I. Was. Long silver, at around 975. An ounce, and. There. Was two 5000, Isles contracts, at the Comex, in other words I was long 10,000. Ounces of silver at. 975. An ounce and, right. After I got into the market the, market dropped about 20 cents on me. To. About 955. So. I was down $2,000, and my. Broker said well okay you know here's what we're gonna do instead of getting out, well. Well we'll put you into a spread and, so. What we'll do is we'll your long ten thousand ounces of silver in, New York will. Go short ten thousand ounces of silver in Chicago. You could trade Chicago silver at the Chicago Board of Trade everybody. With me on this dozen want to make sure that you guys are all with you know even though I know many of your stock traders it's the, concept, is the same okay so. I'm long, ten, thousand and nine seventy five he puts me short ten. Thousand, at 9:55. In Chicago, so I've got this spread going on and then. He said well when the market goes back in your favor we'll, just take the short leg of the spread off, now. Keep in mind back, then you. Guys are you guys are what, do you typically pay for commissions even, in commodities, or, even I don't know what you'd pay for stocks but but typically. The average Commission is about four to five dollars around turn right that's. What you'd expect to pay no. What are you paying less. More. Round. Turn. Wow. Really, well. You're in the Dow mitt you're in the Dow mini what do you pay for the Dow domine a. Lemon. Okay. Well anyway then eleven. Okay. Well back. Then back in the 80s we were how much you think we were paying back then. Come. On give me guess come on yeah, what. Yeah. 125. How about house 125, around turn per. Contract so. In other words me to put this trade on cost me 250, bucks. Okay. When, he put this one on right here it cost me another 250 bucks and then. He said of course that when the market goes back into my favor he'll. Take the short leg of the spread off and you know I should be alright so that's exactly what the market did the market went back up to you, know right around the 975, area he took the short leg of the spread off and, then the market immediately dropped back down another 20 cents and put the shirt this is a short leg of the spread back on again so, that's another 250. Bucks okay plus, he just locked in when, he took this off first. Of all he locked in a 2,000 dollar loss by putting this trade on when, the market went back up the 975. And he took this off he locked in another $2,000, loss and then when it went back down again, he, put it put it back on and locked in another $2,000.

Loss Now I'm down six, thousand, seven, hundred and fifty dollars. Okay. And then. Of course it happened, two or three more times now from, from from the markets perspective all, I'm in all the markets silver mark assists in a trading range that's all it is I say it's just in a trading range but. But, I don't really I didn't know how to read chart math chart patterns at the time and didn't really understand, what was going on I was just listening to him and. So. What, he was doing is just taking advantage of the fact that his going back and forth between support, and resistance, and and. Generating. Commissions, for himself okay, that's. That was it that's that's basically he was just he was just turning my account. But. That's that's not the story okay that's that's happened to a lot of people of course it happens less now because we're all responsible. For, the, trades that we put on all we have to do is click the mouse button and, it's not that much money but, here's, here's the story is, that, as. These losses are as, these losses are mounting, okay and I can't I can't sleep and and and, getting real stressed out you. Know I wake, up one morning I, thought you know what this is it I just can't take this anymore I just I just can't take it and so, you. Know when I got to work I, called. Them and I said you know what just get out of the whole damn thing I just can't do this so. Just liquidate the position. Does. Anybody remember the hunt brother silver, debacle, oh. It. Didn't. Does. Anybody say, the word limit, up does anybody understand, what I mean by that okay, the exchanges, will impose artificial. Price limits, of how, much, a commodity. Or even stock for that matter can fluctuate in any given day before they stop trading so. We. Don't have the cut we don't have these kinds of moves too. Much anymore but. Back in the 80s limit, moves were really quite common they really were in other words what would happen is this is that is that if the market if the market went up let's say I think in silver was 50 cents I don't remember exactly what it was but if the market went up by 50 cents they would actually stop trading meaning, if the market was bid up to let's say in this case ten dollars and 25, cents trading would stop in essence, what that what this means is that is that, is that, at ten twenty five there, were no people there wasn't anybody in the world it wasn't I keep but this, is important for later on there wasn't one person, in the world who was willing to sell silver at 10:25, if it was a limit move.

Not. One person and so, what happens, that the market the price will go up, seeking. To find who will actually sell so. What and but, what they but what the exchanges, didn't want his exchanges, didn't want there to be this is huge fluctuation, all in one day there, might have been sellers at 10:26. Or. There might have been sellers at $11. But, you don't know that because the exchange says we're gonna stop trading at 10:25. It. Guys with me on this ok. So, what. Happened is that I don't think it happened more than maybe a half. An hour 45, minutes after I got out the, mark was trading right around 975. An ounce where. Silver. Went limit up and. Went. Limit up was. 30. Days in a row. 249. Dollars an ounce. 249. Dollars an ounce I. Was. Looking now now kita now think now think about this okay now think about being in this kind of a winning trade now. When, we're in a winning trade. The. Market almost never go straight up and it never goes straight down there are rare occasions of. Course like in this case when it does so, that we're when we're in a winning trade we have to constantly, be making decisions, about where we're gonna take profits, and. How much heat we can take with, the market coming back against our position to say well is this the time to take profits or am I gonna let it come back a little bit further we're gonna come back a little bit further. Against. Me, because. Well this, is the nor is this normal retracement, or is, this more significant, okay is this a little bit of a profit taking retrace or more significant, I get out now do we have more or less is it are we gonna make new highs you. Got to be making all these kinds of decisions and it's, very difficult as we all know right, see. In this case I didn't, have to be making any decisions because. The market went limit up 30, days, in a row boom, boom. It. Was like waking go in I. Was. Out I just, got out like a half an hour before it happened. Only. The, problem is I couldn't even get back in. Because. There wasn't anybody willing to take the other side of the buy orders on, a limit move you can't get back in. So. I sat. Back and watched. In a, complete, agony I mean. And I mean intense. Intense. Agony. No. I'm not a nine throw up but you know it's like yeah maybe I almost did I don't know go ahead. You. Said you had five contracts, no to to just, take one off the table that the other one run for another, day, first. Of all Jerry you're you're assuming that I knew that this was gonna happen no, I'm assuming that getting, out all at once takes you off takes, you out of the play completely, Jerry. Have you ever been in a situation we really, lost a ton of money and you just can't deal with it anymore yeah I know, I have, situation, where I've been down a lot of money I didn't lose because that's on paper, no. Well commodities, no with stocks you're right with stocks it's technically, on paper with, when you're when you're in commodity, is the money is out of your account it's gone it's, gone at the end of the day okay. It's not this is not paper money this is real money. Are. You with me on that yeah I'm understanding, you okay so. So, so, I wasn't looking at at I. Wasn't, looking at at you know and like. I said paper losses. The. Money was out of my account, so. I had had enough I couldn't, I couldn't take it anymore so, when you when you think about it in that context. When, you just made up your mind that I just can't deal with this anymore it doesn't even occur to you to get out in stages why would I get out in stages when.

I When I've already gone through a week and a half of this back and forth and you, know and. It's virtually wiped out my account. Because. By then I probably would have had to put more money even, for me to take just one contract, I'll leave one on I probably would have had to put more money in the account and, I'm not there's, what any point in doing that, are. You with me on this I get I don't trade commodities, that's right other things in but, the concepts, the same except. It doesn't come out of my is you, said it's a paper, trail yeah you already own is who you won't stock you on an asset, and if you want to hold on to that asset until it goes down to zero that's, fine okay your money, is not flowing in, a sense money's flowing out of your account but not in the same way it is whether they come out of yeah okay I have to pay that money right now you're, just losing the value of an asset I actually have to pay that money. And. It comes out every single day. Go. Ahead go into handing microphone back to that gentleman. Another. Thing that can be of. Interest here is at, least from way I gathered, you was talking a while ago you. Really weren't controlling this your broker was. Doing the correct so. Even, if you had wanted to get out in stages your broker was doing it saying, hey here's, what I'm doing to, you yeah. Pretty much yeah it's like I didn't really I wasn't really in control of the situation because I didn't know what I was doing. All. I know was that I was within let's say a half an hour 45 minutes of just, a monster trade, a monster. Trade yeah. And. Like I said I sat, back and watched, an agony as the market went up to 49 dollars an ounce I'm thinking myself I was, like that, close to. $400,000. On. Just two contracts. $400,000. It's, so like I said when I first started telling you this this really, had a profound impact on me it really did and, I thought to myself and at the time I was managing, a commercial, casualty, insurance agency, in the suburbs of Detroit not.

Really You know I thought that's what I wanted to do I didn't really know what I wanted to do but you know I aspired. To to management I was very successful and. You. Know for at the time you, know even back then in the you, know the late. 70s, early 80s was. Making a six-figure income and I was only in my early, 30s so, you, know it was I really had a lot of things going for me but in, you, know after, this experience I thought to myself you know and I gotta figure out what's going on here and, I certainly wasn't going to be able to do it in, Michigan. So. I thought you know what I'm going to Chicago and. That's. What I did I went to Chicago the, first thing just thought you know well, if I'm gonna get into the business Who, am I gonna get into the business with well. Back then there was Merrill Lynch there's. Witter Smith, Barney you. Know and I thought were you gonna who, you gonna pick you pick mural that's right okay, so, I went over the Chicago Board of Trade they have an office right there and right. On the second floor the Chicago Board of Trade and, they. Just so happened they had three. Openings. For. Trainee brokers, and they had over a thousand people applying. For it. So. How am I gonna how am I going to be one of those three people I. Thought. Well you know what I went. Back you know I went back home I went, to you know one of the one of the bigger Merrill Lynch offices, in the Detroit area and I went through the whole employment, plan employment, process to, fill new your eyes myself, with, what it is that they required to get a job and, and. And this is what I think got me that, job at the Board of Trade is that, they had an aptitude test and there's a multi-page, application. But, on the back of the application, they had a they had a square. Like. This on you know and, and they wanted spontaneously. While you're in the you know while you're filling this application, out spontaneously. What, they wanted you to do was, to write like a little mini essay, about, some philosophical, question before. I went to the Board of Trade and actually, filled out that application I spent two weeks, agonizing. Over every word we, just to make sure every, word of that two or three paragraphs that I wrote down was completely, perfect, so then when I took the hat I wrote down exactly what I'd worked on and and I can imagine why they hired me because if he thought that I wrote that spontaneously. In the moment but hey this, guy we got to have this guy here we got to have this guy okay, so I did I got the job now, think about this now when I was working. For the agency the casualty, gauges commercial casualty insurance I was, as, a matter of fact I just signed, a contract not. More than like three or four months before I actually went to them went to work in Chicago over. A three-year period for, $360,000.

And What, Merrill Lynch was offering me was. $20,000. On a draw okay, in other words it was it was a you know they're, gonna give you 20,000, but it's a draw I mean I got to pay a back based on commissions now, though if you can imagine there wasn't one person in my life not one person who, thought that I wasn't absolutely. Stark. Raving out of my mind, to. Give that up to go to cago to do this. So. You, know wasn't like I had a lot of support you know, and I wasn't like I wasn't catching a lot of grief from everybody that I knew about what it was that it that I was doing. So. You can imagine my. Horror, you. Might use a good word for it I mean because. When I got to Chicago I'm thinking why am I even doing this I'm doing this because I'm, going to Chicago because, because that's where the traders are that's, that's where the people are who know who know what they're doing. Correct. And, then. To get there to find out that that is not the case that, is. Not the case at all. That. The brother were 40 almost, 50 brokers, in the office and none. Of them knew how to trade. Not. Only did they not know how to trade I mean they'd Merrill, Lynch made absolutely, no bones about the fact that we were not traders, they, spent no money no time and completely discouraged, us. From. Even learning how to trade we. Were salesmen. We. Were taught how to talk, about, training. We. Were taught how to talk about investments. We. Were taught how to you. Know it's called dialing for dollars to get on the phone and get people to open up accounts, and and. The, and. Even though this was unspoken. I'd. Say the the underlying philosophy behind the business was especially, in the commodity business I'm not talking about the equities I'm not saying that that on the equity side of the business that there was that it wasn't more reputable but. But this was about as your reputable as it could be because, the underlying philosophy, that, we operated, from was. All. Commodity. Traders are terminal, meaning like they have a terminal illness it's, only a matter of time before they do what I say all commodity, traders are terminal, and it. Is our job as a broker to make. Them as comfortable as possible until they expire. In. Other words to extract, as much money out of their account as you could until. They're gone and. And. And and even to this day even. To this day it, just, blows me away to think that, when I went I went to a 30-day training class in Manhattan. And. There, were brokers, from all over the world probably about in 80 or 90 of us and and. The guy and, and the person that was the head of Merrill Lynch commodities, at the time his name was John con Heaney and when he came in to address our class. And. To this day I don't know why he did this but, he like he said hi he started out and he started out with these words the, average Merrill Lynch customer loses all their money in six months. And. That was the truth at commodities not equities commodities, and.

That Was the truth that was about what it was that's it took about six months for people to lose their accountant, and and, and. You just like I say just go to the next one so. Here, I'm I left. This six-figure, income to, go to Chicago, to learn about, this, business and this industry and here, I'm in a situation and it's like. It. Was I guess it was appalling absolutely, appalling so. I thought well okay I'll. Make, friends with people on the floor they must know what they're doing, the. Floor traders the floor traders know what they're doing, well. I found, out that wasn't necessarily the case either now, it doesn't mean that the floor traders didn't. Know how to make money but, what this is and I'm not going to get into this because we don't have time but, even though what. You do is called, trading. And. What they do they call trading. The. Way in, the mindset, that you have, to have to make money couldn't, be further apart even. Though they're both called, trading. The. Typical, local when. I mean the person who traded for their own account in the, pit or in the floor of the exchange. The. Way they made money almost they didn't they didn't weren't trying to make Direction, related decisions in. Other words it wasn't the kind of trading where they actually they. Would find themselves in winning trades that were going in their favor but that's not the reason why they put the trade on and. Like I said I'm not going to get into the specifics. Of dynamics of it because it take me too long to explain it just doesn't necessary for right now all. I'm saying is that is that it just it's, it's a completely as a matter of fact before I left. Chicago and, move to, to. Arizona I. The. Chicago, Mercantile Exchange, asked, me and I and I worked on it for a, while for about six months, left asked, me to put together a program to help floor, traders make the transition, from, the floor to, screen, based trading because it's, very it's it's a huge psychological leap, it really is it's a huge transition that that that has to be made so. What I'm saying is that not. Knowing that before I got to Chicago it, was like here I'm in a situation where where, I really. Didn't know anybody who really knew how to trade or at least know how to trade in the sense of creating, that consistency. That, we're looking for it doesn't mean that people couldn't make money people. Are making money all the time it's just that you, know what's the point of making money, if, you're. You're susceptible to giving it all back in other words if this is your equity curve and, then all of a sudden you're you're, you're, experiencing, these huge losses and huge drawdowns. Not. Only is this - certainly damaging, financially. But, it's also damaging. Emotionally, and, it. Can be very difficult to recover from. These. Are what I call the boom and Buster's. Okay. You basically, add traders, that fall into three categories, if. As far as equity curve is concerned. You've. Got your consistent, winners the. People who have. The. Traders. You've. Got your consistent. Winners now. That doesn't know it doesn't mean that there aren't draw downs here okay, but. What do you think these draw downs would be a reflection of for. The consistent, winners, consistent. Winners take losing trades all. The time but. Their draw downs are a reflection of what. Anybody. Got any ideas. Yeah. Money manage money management skills. Capital. Preservation, okay these are okay these are two good. Answers but not the answer I'm looking for their, draw downs are simply a reflection of. The. Normal, losses, that any trading, methodology. Will incur there. Are there is such a thing as normal, losses, you, don't have to write this down because I'm, just we're, just starting to scratch the sorry are going to go into this and far more detail later on so yeah, I mean if you guys want to write it down that's fine but it really isn't necessary. Okay. Normal, losses. That. Any trading methodology, will incur. Then. You've got people who who. Have who learned. Something, about how to trade, who. Acquire a good methodology, where it is possible based. On that methodology. To. Experience. Consistent. A consistent. Income. But. Your equity curve might look more like. This. Most. People, who are experienced, the boom-and-bust cycles. Use, the bus cycles. Would. Say that something, happened, in the market to cause this. What. You're going to find out today is that that is not the case.

Even. Though it may seem like it it is not the case. These. Are virtually, always the result of trading, errors what, I call trading errors. Which. We're going to go into in detail later on. One. Of the oh just, just to I. Just. For the gentleman the people a few people back here that don't have any idea of my background I'm gonna. Go a little bit further in it and and just I'm just gonna jump ahead for a second I ended up ended up being. A trading coach and and. Working, with I was, trading coast for probably about 17, years I don't really do it do. It much anymore, I just, pretty, much focus on my own trading but, but, while I was especially in, the you know throughout the the 80s and and, most, of the 90s I. Worked. With a lot of floor traders and. Wonderful. I would talk about boom and bust there. There. Was one of the floor traders I worked with was probably. One of the five, biggest bond traders at. The Chicago Board of Trade and when. I met him was. In like, around May of 1992. And. From. January, of 92 until, the time that I met him in May of 1992, he, had around this is no key this is a guy that just traded for himself he didn't trade for a firm he just traded his own account on. The floor of the Chicago Board of Trade in the bond pit he had 12 million dollars rolled in and out of his account he. Had a particularly bad day and, he. Ran into somebody who attended one of my workshops and say hey you should go see this guy he called me we had a few appointments didn't. Really go anywhere and, the. Next thing about, a month later I get a frantic call from his wife who, I hadn't even met didn't. Even know who she was got. A frantic call from his wife that said you know they're gonna lose her house if you know if if. I don't do something with him okay. He. Had had a particularly had another bad real bad day so. Anyway I started working with him in July of 1992. And from. July of 1992.

Until, The end of the year he ended up the year with with, almost, 6.6, million dollars now. That. May not seem like a lot considering, he, had these swings but he'd never finished, he'd never finished, a year with more than I think around 700. 650, or 700 thousand dollars so, he had just under six million dollars and so. Then he went on vacation he. Happened to take a book with him called the coming collapse of the bond market and this would have been in. Like December over late, December, of 1992, early, January, of 93 and. Came. Back now if anybody, remembers the bond market back then it rallied, to rally. To spectacular, Heights but. In the meantime he'd read this to come and collapse of the bond market so he was going into the market every day short ok and and. Pissing away the six million dollars until he got to the point where he had about to of it left. And. It took him about I don't know until. Maybe mid-february, and. And. He was so exasperated. That. He. Said hey you know what I'm willing to do anything. Okay, now keeping my I'm willing, to do anything, and, he wasn't it wasn't lip service it was real it. Was genuine, it was sincere, and I. Said if you're willing to do anything then here's what you have, to do. What. I've been working with him what I notice is that he, was able to stay focused, really. For not more than about an hour a day now. This guy loved trading, I mean he just loved being in the pit he just loved every, part of it he just he just had the hardest time tearing, himself away. But. If you really wanted to make consistent money then. I, felt. That an hour a day was about it because, after an hour a day he, started losing his focus would start to diminish, and. Then he'd also start to get reckless he. Was the kind of guy in this in this here again did this even kind of this. Is very difficult for people to comprehend, but it is the absolute truth, he. He was the kind of guy where when I was working with him during period you know in in in second half of 1992, where. He would have a. He'd. Have a half. Million dollar day winnings. He'd make a half a million dollars but, when. He called after he was out of the pit to have his consultation, you, know he'd be real angry with himself because. He up till about five minutes before the clothes he, was up a half a million dollars and then he then he piss away about 175. Of it so we're only end up with, $325,000. For the day now. This is just like a normal guy like like us here in this room with, three hundred and twenty five thousand. Dollars and this. Was not an abnormal day, but, he's real angry with himself because. He pissed away that hundred seventy five and then. The next day you, know he'd do about the same thing he'd make four hundred and and, and piss away maybe two at the close and then, the next day he'd make you know 350, and then piss away another, 150. He's, got spectacular winds. Up until Friday but this accumulated anger, anger that that he was building up throughout, the week Monday Tuesday Wednesday Thursday by, five time Friday rolled around, you. Know he'd lose a million and a half bucks. And. Then start to cycle all over again. So. This. So, now it's, like I'm saying you know what especially. As a floor trader as a, floor trader you really, have to be focused when you're trading at the level that he traded at when you're trading hundreds, of sometimes thousands, of contracts if, anybody knows anything about the bond market we know that that that one incremental. Price change in a bond contract, is. $31.25. Okay, you. Guys with me on this so this would be a tick so in other words if the bonds went went 1-1 tick up and you're, long one contract, you'd make, $31.25. If it went down one tick and you were long one contract, you just lost. $31.25. He. Would trade a thousand, contracts, at a time. That. Means one incremental, tick priced range was. $31,000. 31200, fifty bucks. Now. If anybody's ever watched the bonds move you. Know that it can move five ten fifteen tics like that not. Only that there can be what's called price of vacuums, they're running in familiar with a price vacuum, you. Know what I mean by price vacuum it.

Means That if the, bond is, if the bonds are at let's, say, 106. 106. 10 a kinds. Of probably not familiar with bond prices 106. 10 that, was the last posted, price. That. Something can happen and your. Long, something. Can happen where there, are there, are no more offers. And. The. Next posted, price is 106. Even. That. Means the market went down 10 ticks without there being any trades, between, 10 and even no trades at all. Which. Means if you're long you. Just lost in that instant 30 1000 dollars and 25 cents on a thousand, contracts this. Is quite common. So. You really, have to be focused, it. Would be like when you're trading at this level I would. I would make an analogy it's, almost like there's a couple of analogies one. It's. Like if you're. In, an NBA playoff, if. The finals, it's, the last game 7, games it's, all it's 7, game NBA Finals. One. Minute left the score is tied, the. Coach is going to send somebody in who's really focused, if. The coach thinks you're distracted, and you're not on your game, you. Think you're gonna get in that game. This. Is the way you to, be in these kind of circumstances in the pit that's the kind of mindset, that you had to maintain. Because. Even if you got you just even if you were if you were distracted. And turned away, there could be bids and offers that, would have gotten you out of your trade that all of a sudden dry up meaning when guys are bidding an offering in the pit they're using hand signals and there's and they're telling you they want to buy or they want to sell and how many and. There's. There's hundreds, of guys all around screaming, now. These bids and offers can dry up because when you have make eye contact, any point you, say okay we've got a trade and then you write your trade down in a trading Carter now sit electronic, handheld handheld. Device, but, otherwise you make a trade and then, you could be out of your trade and take your profits. When. These kind of things happen these price vacuums, you know you're you could be in bad shape and just be a matter of just, just a momentary you look away the. Guy that you were gonna use to get out of your trade is gone now he put his hands down oh oh I'm I'm, in I'm in trouble. Well. What I found is that, is. That, he, could maintain, his. An ideal, mindset. For about an hour a day. And. So that's why I said it so you're really sincere you. If, you're really you really want to do you can really do anything you can, only train an hour a day and. He agreed to it and, he said what hour a day I said doesn't it really won't matter and, it really didn't he was convinced, initially that what hour he went in would make a big difference it really didn't make any difference at all he was so good as, a matter of fact there were other bond traders that I work with that said that watching him trade would have been the equivalent of like watching Michael Jordan play. Basketball, he was that good. And. So. He did he went in just one hour a day and because, he knew that you only had that one hour, he. Was really focused and he, was averaging, a hundred. And seventy-five, thousand, dollars for. That one day for that on an, average for that one hour per day. Okay. But, that would be an example he, would be an example of an extreme boom, and Buster. Kind. Of gonna kind of have that concept, down in their brain about boom and Buster's okay and then, what you have is you, have the consistent, losers. People. Whose equity curve looks like that. Now. Just. To get back to. My. Situation when. I when. I like I said when I went to Chicago I'm, thinking, okay you know I. Mean. I've got quite a bit of money I sold. My interest in the agency, but. At. The same time I had, a. Pretty. Expensive lifestyle, you, can quite imagine I had, a house in Michigan, that I. Had. A girlfriend a very high-maintenance girlfriend, and and and who to who to her. Two daughters, were living in and I. Had a very expensive apartment, in Chicago and a Porsche and I just I had the life okay and. And. You know I was, going back and forth every weekend to visit them.

So. I'm really my situation, was I really. I couldn't, maintain that kind of lifestyle, with, the money that I had without making, without, being successful, as a trader, and. That was a whole IDN e way I thought you know okay I'll I'll. Make whatever shortfall. That. You know I end. Up with as a trader and interestingly, enough I had to have my trading account with another, brokerage, firm secretly, I. Couldn't. Train through Merrill Lynch and. There. Wasn't anybody else in the office who traded, their own money I was. The only unless they were doing a secret lien didn't tell me I was the only person in the office who was actually trading, their own money. Who. Actually traded period other than putting on trades for their customers. So. What ended up happening is. That. And. Although. Part. Of this is that is that I also, had. This I. Just. I don't. Know I can't really tell you why I knew, this just. That I did I just, it just made, sense to me it just never occurred to me that trading, was anything other than about, psychology. I, mean. The first trading book I ever bought was. Was, they actually the very first book on trading the only the first book that was devoted it's. A. Specifically. Trading psychology which, was Jake Bernstein's, investors quotient that came out in 1980. And. There weren't that many trading books of a leavin available back then and that was the first trading book that I didn't buy a book on technical analysis, I bought a book on trading psychology. So. I was I was not. Only immersed. In the, concepts, of trading psychology, virtually. Right from the very beginning I was also keeping very extensive, journals of, my. Thinking, process what, was going on what, I was observing from other, brokers, in, the you know in the Merrill, Lynch office as well, as what I was observing from interacting. With my customers, and. I. Noticed we were all kind of all kind of you, know conforming. To the same patterns, the, same problems. But. Just say that because I did, have you know I did have this kind of foundation, you know to, understand. That that it was basically, psychological. In nature because, one of the things we're going to talk about you. And I get into the skill section of this, of the presentation, is that, when you look at trading, skills. It's. Like what kind of skills are we talking about we're, talking about thinking like a professional, we're. Applying that the skills are all mental in nature and they are. Because. When you really get right down to it you really start to think about it what physical, skills are necessary to trade. But. We're not talking about a golf swing or a, tennis racket or any other kind of you know any other kind of physical endeavor, that that, we're that, we're familiar with, what. Kind of skills we what, does it take physically, to put on a trade. The. Mouse-click, that's it your. Ability, to move the, mouse and, click. It on. The. Buyer cell button. It's. That simple. And. As. A result of it being that simple, it's easy to think that oh my god trading is so easy, it. Isn't as. You. Will probably know whether. You've been added a long time or even a little bit of time there. Are some very sophisticated, psychological. Skills. That. You have to acquire to get this kind of an equity curve. And. And. Virtually all these skills are founded in. Learning. How to trade without fear that's. Basically what this whole workshops, about, is. Learning how to trade, without, fear. Because that's what's gonna screw you up on virtually everything, everything, that you can do wrong as a traitor is going, to be the result of what you're afraid of and. The. Effects that fear has on your perception of market information. So. So, with my situation. It's. Like. Here. I'm. Given, all this up to. Go to Chicago, to learn, how to trade to. Find out that the only people who really knew how to trade back. Then were were, people. That I didn't have access to meaning. There were there, were you know there, were some big names in the industry who. Never. Really took the time or, expended. The effort to find out exactly, what, it is that allowed, them to create, a consistently, rousing.

Equity Curve what. They would say is, well. Yeah you got to go with the flow the trend is your friend cut. Your losses let your profits run you, know as all, these all these neat little phrases but it's like who and I hell knew what that meant and how to do it yeah. It sounds great cut. Your losses let your profits run huh you. Know. Even. Cutting your losses it. Can be extremely. Difficult to, learn letting, your profits run can be 10 times more difficult than learning how to cut your profit cut cut your losses. Fact. Is one of the most difficult things to to, acquire in terms of a skill is learning how to let your profits around. So. It was like all this was kind of building up and, my, lifestyle, was was draining it. Was draining my money away and. One. Of the things that one of the things that that I would say characterized. Me back. Then, if. I was probably. Obsessive. About anything it was my credit it's, like my credit was my as far as I was concerned it was like the most important, thing in life is to, have flawless, flawless. Credit. Not just I mean flawless, and. Here. I'm in a situation, where I am truly, running. Out of money, and. My. Trading loss I didn't, really it wasn't really like I was losing a lot of money trading because I'd really stopped, the hemorrhaging, I wasn't trading in a way where I was actually losing money but. I wasn't making any money. And. It's like there was always this little voice in, the back of my brain you know come to the forefront of my consciousness, and say you, know mark this ain't adding up there's, something wrong here there's. Something there's something wrong. It's. Like it's not it's not adding up and. Then I kind of shove it back there and you know I'm like yeah it's gonna be all right I'll figure it out I'll figure it out it's gonna be all right. Eventually. Got to the point where I I was. Literally out of money and. The. Only choice I had was to file bankruptcy. Fortunately. I was in a situation where I had two residences. One. In Chicago in one in Michigan and. So I had a choice of where I filed and of course I filed in Michigan because. If Merrill Lynch would have found out they probably would have fired me it's. A matter of fact nobody knew what, had happened ie nobody. Knew in Chicago buddy, that I knew in Chicago knew, what. Had happened so, I filed in Michigan and I'm thinking, and literally because of my attitudes, about credit, I'm thinking, if I've got to do this I'm going to fall, beneath the cracks of society, and never, really. Believe that I honestly God really did I just, didn't see how it's possible to live, after. Having have to after having to. Do something like that. And. Of course you, know what I found is that and, when I ended up I mean what I say in the discipline trader and I don't really go into a lot of detail in the discipline traitor about this but just just to say that what I ended up with was really I had an apartment I had my bed in my TV and, and, and, and when I when I filed I was still current, on everything, I wasn't even late one day on any my bills as, a matter of fact they even I even called you, know called, the the, finance. Company to come and pick the car up but I was even late a payment I said you know what I can't do it anymore you're. Probably gonna want it back anyway so you, know it. Was like come, and pick it up and of course they did and. And. The guys, went there's a funny story about that member told, anybody this but you guys want to hear funny story about that. When the guy came to pick it up and. So. I'm thinking you, know because. We're in front of the apartment building, and and, I'm thinking well if he's gonna pick this up you know then, I ought to get some sort of receipt that it was in perfect, condition you. Know because I don't know what the hell is gonna do to it I'm you, know yeah. You mean I don't know so it's like any guy wouldn't give me a receipt saying that and.

So I wouldn't give him the keys and so, you know so we called his boss and and, I and I heard I heard his boss on the other aniline screaming at him. Those. Keys you know they're like yeah he said something else I'm not gonna say yeah for this brother, for this you know for this particular presentation, but, yeah, I was like you know they just you. Know someone, someone's willing to give you the car they don't even have to go repossess, it it's like you know hey give him the receipt but, in any case. What. I realized I mean do you think about this it's like it's, like when you define yourself based. On your possessions, you. Know just like anybody that loses anything you know you've got you've got an internal, representation, and, you've got an external representation and, now, there was there was a discrepancy. Between what, was outside of me and what was inside of me in terms of the way that I defined myself. And. You. Know so that has to be reconciled, and what, I realized, you, know and a dad didn't even really take that long I don't remember how long it took but it was like one, I still had my job at Merrill Lynch and so. As, a result I mean it's like I'm starting thinking okay well things are gonna be alright I was in my worst fear I mean that was my worst fear I mean with it with the fear would creep up into the forefront of my mind I, was like you. Know that was my worst fear now I'm in it and I'm, realizing, that you know I think I'm gonna be alright I'm healthy. I can still think I'm, gonna I'm gonna be alright and when. I came to this realization that I'm gonna be alright this. Is when things change. For me as a traitor and, and. This is and this is the interesting part about my, situation that, that most people don't have the benefit of experiencing. There, are two things one. I had, this foundation, of knowing, that it was all psychological, anyway, so. I had all these things that I that I'd been working on up to that point and to when, you tap out as a traitor I mean when you really tap out you, don't get to trade anymore cuz you don't have any money right. But. I was in a situation where, I still got the trade, even. Though I was working with other people's money I still got to trade every day and. So. As a result, of. Experiencing. My worst fears coming. To the realization that I'm gonna be alright and then. At the same time being. Being in a position where I'm able to interact with the market. It. Was like because. I didn't have anything more to lose I didn't. It. Was like it, was like this the market completely changed. For me. It. Was like I had these blinders, on that, all of a sudden just came off because. The, market, was different, because I wasn't afraid anymore I was. Seeing the same patterns, over and over and over again. Beforehand. But I was seeing the same patterns, differently, I. Was. Seeing the same patterns, from a let's. Say relatively. Carefree, state. Of mind and that. Relatively. Carefree. State, of mind allowed, me to, like. Say flow in and out of my trades, with, an ease and effortlessness, that, I would not have been able to imagine beforehand. And. Then. What happened is that I started making consistent, money for my customers. And. There's. Even well. There's. One, one really there's a matter of one really good good story where I mean there are a lot of good stories, that I can tell you about my customers at Merrill Lynch but, in one case I, inherited.

This Guy who was at, the time was, a head of the state of Illinois, mainframe. Computers, and he was from India and he. Had put together his own trading program and he was using the you know state computers, to do it and so. And. He had an account, technically. An account with Merrill Lynch but it wasn't funded because, he had lost all his money but, he but he still had he still maintained the account and so I inherited, him as a customer, and he would call me every day and he, was just like and all he would say to me is like I pick up the phone he wouldn't say hi how are you you say give me data you know like give me the high low and close yeah and you know so we interacted, like this for a long time well he came up with his own day trading system. That. That. That eventually, well. Because he and I started working on it together he had the e and the internal, program for it but he didn't have any money management parameters, for it so, after, about two or three months of working with him on it we came up some really good money management parameters, and then all my customers started, trading it and and we were making consistent money day after day, even. To the point where Merrill Lynch was starting to take notice you. Know that, that you know here we all hold this whole customer because his customer bases is making, money and and, he got to the point where where. He's thinking okay, all these people, are now deriving. This benefit, from my, work I should, be able to do it too and he talked his wife into. Letting him put five thousand dollars into his account to fund his account, now. I don't know what happened to him why I mean I you know there was not like we had personal discussion so I don't know why, he didn't have any money in his account the. Guy was a maniac, it's. Like he got he put the money he put the money in his account and, two days later was all gone it. Was like he called me up and say okay do this I said well wait a second the, system says to do this no. No no no no. They don't care what the system says this is what's gonna happen, he. Didn't follow any of his own rules. Now. Here we had a track record we. Had a legitimate, track. Record, bonafide. Real. Money day. After day he. Gets. A few bucks in his account and it's like he thinks he knows where the markets going. Like. I said he was gone in two days and that was it it was all over with because at that point he, you. Know he, was done I didn't, get the system because it wasn't in his computer mainframe computer, at the state of Illinois and and, had no more contact with them and shortly, after that ended up getting fired from Merrill Lynch anyway, because. There. Was a like, one of these management, consultants, that came in from New York and she. Was going around the office, talking. All the different brokers because of one or whatever what whoever was that they were trying to find out, and, she got to me and at, that by that time I was already writing, the disciplined trader and. So, and I just like you know I started very exciting, to say hell yeah this is what I found out this is what I've learned and her eyes lit up saying this is exactly, this is exactly what, we're looking for and she was just we talked for probably about an hour hour and a half and she's all excited and then she and then said I you know I got to go tell why. Don't I say his name the office manager okay, if she walked away from me walked over the office manager, ten minutes later, ten. Minutes later he came over said pack up your stuff and get out. Right. Then and there right then and there on the spot pack. Up your stuff and get out. So. That's how I ended up. Ended. Up actually being a trading coach because, by. Then. Just. You know floor, trade because I'd made friends with floor traders you know I was making friends to find out how they trade that sort of thing well they started coming to me for advice even. While I was at Merrill Lynch and. And. Because it's a pretty small community. You, know the word gets around especially, when when you you know people. Are really genuinely. Helped, with, with the kind of advice that you're getting that you're giving them and I'd you know and I helped several for traders turn their training around and so, what, had happened is I started getting hired by, clearing. Firms, what. I mean by clearing firms is that to trade on the floor of an exchange you. Have to you, have to clear your trades through a financial institution and so, you, know it's like you're it's these, are traders just like you they have their own account but, but what they have to do is they have to clear their trades through like I said one, of the one of the major clearing, firms at the exchange well.

What Had happened what would happen is this that it, isn't like this now but back in the back in the early 80s or the mid 80s clearing, firms are in some ways like like almost like family operations. Where, where, the people who own the clearing firms they, knew all the all the floor traders they were friends with them they partied together you, know Christmases. And holidays and, that sort of thing and so if one of the floor traders would go debit, if. We know what I mean by go debit in other words you know you have to trade it have to have a positive. Positive, balance in your account well, the problem with floor trading is that not. Again, not today but back then when, you trade it on the floor you had to had to record your trades on a trading card so, in other words if you and I are entering, into a trade where I'm going along and you're going short what, I would do is is that, we would we would take our badge like, the acronym, of our badge and and, our Clearing House number recorded. On this card and how many contracts, we traded let's say you're short 10 and I'm long 10 and when the price that we trade in a map well, those cards didn't have to be turned in until the end of the day and, then. They'd all get reconciled, meaning. That between all the different trades, and all the traders well the different clearing firms this will all go into a central clearing operation, to find out which, trades were you know to find out whose long and whose short how much money's coming out of whose account and whether, or not they were caught what are called out trades meaning that you, thought you, thought I said 10 and and, I thought we were doing it for 100 okay, so now we've got a discrepancy in 90 trades these, were called out trades it had to be reconciled. Before the open of the next day which, is a whole nother world we're not in gear now you're not gonna get into it all but, all I'm saying is that all I'm saying is that is that, it, would not be unusual for, guys, to over trade during, the day in the clearing firm wouldn't, even find out about it until the end of the day. For. Example one of the one of the guys I worked with at Merrill Lynch eventually. He was a mathematics, professor it's. A really nice guy should not have been a trader at all had absolutely, I mean anyway. More. Than Peas at the Chicago Mercantile Exchange. And he was a one lot trader meaning, you know just traded one contract, one in and out one contract, and and. And and eventually the forces inside of him building up where he's, frustrated, with the fact that he's you know I can't make a living at it and he's just eating, and eating it out where, one day he snapped and this. And this one, lot trader almost, took down the, clearing firm in other. Words he's got like several thousand. Snps, on, several. Thousand, contracts, where, other guys are, into those trades and and. The markets going against them. So. He almost took down a clearing firm just just by himself, so. What, would happen is that is that, because. Guys. Would go debit meaning. They end up is they've lost, me they're down twenty five thousand, or fifty or a hundred thousand, dollars. The.

Guy That owns a clearing for him doesn't want to say hey you can't trade until you pay this off they'd. Want to let me go back into the pit to work it to work it down well. After. You, know you've got four or five of these troublesome, or 15, of these troublesome, traders that are constantly running debits you, start to get a little worried and so, what they did is start they, have they hired me to work with these guys most. Of the information most, of the insight, let's say that, that you'll find in the discipline trader and trading in the zone came, from me, working, with these. Floor traders, on a daily, basis. And. It was I'm laughing because obviously. It was. Quite. It was quite. Trip working. With these guys because. They are not like they, are not like you and me that's. That's, that's really about the best I can the best way I can describe it without going into a lot of detail they're not like you and me. So. Anyway, you. Know this is kind of a maybe

2018-10-22 15:59

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