In This Episode
- Why we stop using trading systems that work
- Jake Bernstien: The Stochastic Pop trading strategy
- Why automated trading programs are ultimately discretionary
What Would You Have Done Differently When You Started Trading?
Hindsight is always 20/20, but we discuss what we would have done differently if we could go back in time and start trading all over again.
This is not to lament over what we did wrong, but rather to help new traders avoid pitfalls that we went through.
We hope you can learn a few things from this episode and that helps you sidestep a few issues that cost us time, money and sleep.
Read the Transcript:
Hugh: Hi, Walter. When you're first starting out, what would you have liked to know about trading psychology that you know now?
Walter: It's a good point. I think that's probably the biggest part of the trading game; it is the Psychology part and not the systems part. I was like a lot of traders probably like you in the beginning where I was. All of my focus from 2000 to 2004 was on systems and back then there was one Forex book that was available that I could find.
Anyway, the rest of them are all technical analysis books for stock traders and so that's what my focus was, you know. In fact, I remember one day when I moved to Australia I didn't really have anything to do. All I did was just get books from an interlibrary loan.
There's a little tiny library in the town I lived in that was about the size of like a really big garage. It was weird, man. It was crazy. It was like walking into a sheep shed or something; it was weird. Anyway, they had no books. Certainly no trading books but what was cool was, I could pay like ten dollars, fifteen dollars, twenty dollars and they would send these books from all over you know from universities like Adelaide and stuff. It was amazing.
So I had this really cool education of learning all these strategies but in the end, I realized and I remember one day, I had the system. It was called, I'll put the link in the show notes. I learned it from a Jake Bernstein book called the Stochastic Pop. I was trading the strategy and it was actually working and yet I didn't follow the rules.
I remember going out surfing, it was a rainy day and I remember just thinking to myself, “What am I doing? I have this strategy. It works but I'm not following the rules. I'm taking my profits too early blah, blah, blah. I'm doing all the wrong things.” It was at that point that I really understood the magnitude of the trading path, really what it is. It is really about you. It's about you, the trader. You are the mechanism that makes it all work. Even if you're an automated trader.
I know some people might be listening to this and they're like, “Well, I program and I use EA’s blah, blah, blah, I don't have to worry about that or remove emotion from my trading blah, blah, blah”. Well, no. Not really because you turn it on; you turn it off. You modify it. You're still tinkering around. So it's really no different for a discretionary trader and an automated trader or what they call systematic trader, I guess.
So that would be the biggest thing and the other thing that drove that home for me was the Market Wizards books because I saw all these different traders who were successful. They all had different ways of doing it and I was like, “Whoa!” Because I always thought like there's got to be one way or maybe a couple of different ways it would work.
They didn't realize that there's all these paths you can take. That was really cool too because it showed me a lot of them had that experience of having a terrible loss and that sort of set them off on the right path in terms of risk and stuff like that. They really kind of recognized the importance of risk management.
Also, it was an eye-opener because all these guys have totally different approaches and they're all making it work. So that's kind of, it sort of readjusted my reality and it wasn't about systems anymore because why would it be about systems? All these guys are you know, they're trading totally different; completely opposite in some respects like a hundred and eighty degrees opposite.
For me, that was really important. It was the realization that it is about you, the trader and not so much the system. The system is important and you interact with it and that relationship between you and the system is really important but it's not the real gains you're going to make as a trader.
It is once you realize that you are the reason why you succeed or fail. Everything else is just kind of like real estate. They say in real estate, “Location, location, location” and that's true. You can have a gorgeous mansion but if that mansion is in like the ghetto of South Central LA nobody is going to want it. It's the exact same thing.
Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.
At the end of each month, we'll look at the comments and reviews from the month and we'll pick a winner at random. Each comment and each review counts for one entry during the month that it's pitted.
So, if you're interested in that, be sure to enter after this podcast is over. Alright, back to the episode.
Walter: Whereas, take the opposite. Let's say, you find a total rat infested disgusting house that's barely holding up but it's like in Beverly Hills. Guess what? Everybody's going to want it because what are they going to do? They're going to knock it down and fix it up.
So it's the same thing with your trading psychology. If you have that part right, the system don't worry about that. Like that will come if you can get “you” right then it'll work. So what about you? What are your thoughts on that?
Hugh: I totally agree. I mean, I think that's something that everybody goes through. I just don't know if you can get around that or if there's a way to shortcut that realization. So my thought is that maybe you can look at other areas in your life. Figure out maybe what are your shortcomings there. Try to fix those things first and then that will carry over to your trading because I think just inherently the way that trading works, everybody defaults to the trading strategy.
They want to have the highest return strategy. They want to find the most successful trader but in reality, it really comes down to your own psychology. So I think that might be one way to short-circuit that mechanism but I don't know. What do you think about that?
Walter: I think you sound a lot like Ed Seykota because Ed Seykota said that. In his book, I'll put in the link for you guys in the show notes. In the Trading Tribe book, he talks about basically what you're saying in a different way. If you have issues in your life they're going to come up in your trading and so the whole reason why they have these Trading Tribes around the world.
You can probably find one pretty close to you for most people listening to this. He has these groups where the whole point of the group is — I don't go anymore. I used to go for years and years and years and the whole point of it is — for you to pull out those emotions, those dramas like those things that are happening in your life that are like causing friction.
You're supposed to experience those and kind of release them in a way. So in a way it's kind of really Freudian and the way that Freud talks about you know. In Freud's day, the steam engine was the big thing that everyone was relating things to. Today, it's a computer or whatever but back then it was you know the steam engine and so kind of like letting off steam sort of thing and that's kind of what the Trading Tribe was designed for by Ed Seykota.
It was like, look you have these things in your life that are like issues and touch points. Little disagreements with people or issues with whatever you know, whatever dramas are going on in your life and you're not allowed to get emotional about this. You're not allowed to like, especially as males, you're not allowed to talk about them you know.
We're supposed to just kind of take it and you know be a man. Suck it up, boy. So the whole thing about the Trading Tribe is to release it. I guess, what I'm saying is, he would have a similar approach I think to what you're saying which is understanding that it's not just your system.
It's not just you. It's just not you and your trading journal; not you and your platform. It's everything that's kind of impacting that and I feel really sorry. I feel really bad when I hear from traders who have people in their lives who don't like that they're doing trading and they think that it's a waste. You know that's an influence that can really impact your overall bottom line.
I just find that what you said to be very true you know. You have to have a way to release. It doesn't have to be a Trading Tribe but you got to find a way to get like for some people, it's journaling. Just writing it down. For some people might be like working out or running or riding their bike for you know miles and miles or you know whatever it is.
You've got to have this way of kind of like releasing that pent up energy, that pent up emotion inside of you. Otherwise, it can seep into your training and create like trading dramas you know where that's where they play out.
Hugh: Totally. I mean, I've studied quite a bit of ancient cultures and how they heal people and that's totally what it is. A lot of them you know regardless of what method they use, sometimes they use some medicine. Sometimes they use chanting or rituals but regardless of what they use, it's all about facing the trauma and then releasing it.
Until you're ready to face it then it's still going to be there. It's still going to cause problems and I've seen some pretty amazing healing with those types of methods but it all comes down to, do you have the courage to face it and solve it. I think that's the same in trading too, right?
Walter: Yeah, that's really interesting. I bet when you look at that, I bet you found that they kind of set it up in a way where you know, you have like a support system around it when you approach that. It's kind of interesting, isn't it? We think of ourselves as so advanced and we do have a lot of advancements today but it's weird that there's certain areas I think, that historically like what you're saying like ancient cultures had a better approach.
A better way and this might be one of those areas where you see it pretty consistently. There's probably a very strong protocol in a lot of cultures for things like what do you do in this case. How do you help someone through this; how do you get to the other side, sort of thing.
Hugh: That's a good point. I mean, they have a lot of strong rituals and protocols and they also have the support group. So I think it's a similar thing in trading. You should have a support group and you should try out some of these protocols that people have. See if it works for you or not.
Walter: Yeah, cool.
Hugh: All right, cool. Thanks Walter.
Walter: See you.
Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.
Enter the Monthly Contest
We give away a trading prize every month, so be sure to enter to win.
You can win by doing one or more of the following:
Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.
The giveaways can include books, coaching sessions, trading tools, or surprise gifts.
Click Here to Suggest a Podcast Topic
Listen to the Audio Version
Click the play button below to hear the audio-only version. You can also download the mp3 file below.
Podcast: Play in new window | Download
How to Get New Episodes of The Think Profit Podcast
You can get notified of new episodes of the podcast by subscribing to our email list, or subscribing via any of the major podcast platforms that can be found here.
If you enjoyed this episode, a 5-star review on your favorite podcast platform is always greatly appreciated!
Thanks for listening and we hope that your trading is going well!
