200: Best of Trading Psychology, Pt. 2

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Welcome back everybody. Great to have you here for episode 200. Which is a nice milestone to hit. So I'd like to say a quick thank you for your continued support of the show. It is very much appreciated. Now, as an extension of the previous episode, I present to you the second instalment for the best of trading psychology. This is, of course, a compilation of snippets on psychology and mindset taken from previous episodes of Chat with Traders.

And I feel like this is a fairly important topic to highlight, given the psychological aspect can really make or break many traders. With any of the snippets, if you would like to hear the full episode, links will be in the show notes at chatwithraders dot com slash two hundred. Otherwise, go direct at chatwithraders.com slash the episode number, which I'll indicate prior to each clip.

To get things underway, like last time, we'll start with a clip from the very early days. This is Lance Beggs from Episode thirteen. A former military pilot who's been trading futures full time since twenty ten, Lance could be described as a discretionary price action scalper. Although it pertains to psychology still, this clip is a bit unique in the sense that Lance speaks to how he adapts the mindset of other market participants and how that then drives his decision making.

I'm not really a pattern trader. I'm more of a uh looking at the internal nature of price, the strength and weakness of how the price swings uh show on the chart and uh also metagame aspects. Um do you want me to get into that? Yeah, yeah, go for it. All right, how do we do this? The the ultimate aim of my approach is to identify, if I want to simplify it, a short term bias for market movement.

Okay, so price is it g are the next two or three price swings going to be bullish or are they going to be bearish? Okay, and then we're looking for a price movement against that bias. So I'm looking at people pushing the price against that bias. Now as I'm looking at that. pullback against buyers to try and time my entry. I'm not looking from a pattern perspective. I'm looking from two alternate perspectives. First is

the nature of how price is moving. Um, is it pulling back? If we take an uptrend for example, is the bearish pullback sort of occurring with bearish strength or is it weak? And I'm really looking to fade weakness. If it pulls back with strength, That's information I wasn't expecting. I'm standing aside and waiting. Um so I'm looking at the internal strength and weakness of the uh the the pullbacks, but I'm also looking at a metagame perspective, and this is the the people perspective.

I'm really trying to get in the mindset of the people who are trading that pullback. Who's getting trapped? Who's in a losing position? When are they feeling fear? When are they praying to the market gods that come on, please just once give me a winning trade? And I'm trying to feel that fear and I use that to time my entry.

Basically, I'm looking to uh identify the point where these people know they've got it absolutely wrong and then profit from their exit order flow by entering at or before that point of their failure. So While I'm a price action trader, it's a little different to most. I'm not looking at heads and shoulder patterns and triangles, etc., etc. It's really uh looking at the internal way that price is moving and the people aspect. Do you want to

Metagame. Metagaming for people not familiar with that term. It's really uh to put it simply, it's just the game hidden behind the game. For me most people are stuck in the game of the year.

of price. Just they look at price moving and uh they're they're trying to identify when do we buy, when do we sell based on these chart patterns. And uh for me I recognize that that's not actually the real game because the the price itself and the price movement comes from And that order flow comes from traders making trading decisions.

So in trying to identify the cause of a price move, you really need to be getting down into sort of analyzing what the traders are thinking who are making these price patterns occur. Uh so that's the metagame, that's where I operate in timing my trades. Yeah, and I think that that ties in very well with something I read on your site uh yesterday, and you mentioned the aim of analysis is to identify where you know others will buy after you.

and identify where others will sell after you. Yeah, absolutely correct. And and you know, that that's the metagame approach. Uh actually I think the article that comes from was the rock, paper, scissors one, is that correct? Quite possibly. Yeah, the the rock, paper, scissors is a good analogy for m for what a metagame is. And uh there's there's there's a Simpsons episode which I I mentioned in that article where um Bart and Lisa uh they're disagreeing over something and so Lisa says

Well Bart, there's only one way we can solve this and that's rock, paper, scissors. And then they go to Lisa's thoughts process and she's thinking Poor predictable Bart always chooses rock. And Bart is thinking, Good old rock, rock never fails. So he throws rock, Lisa throws paper, Lisa wins. Rock Lisa were there was playing the metagame. She's not playing the rules of uh rock, paper, scissors, which is basically that uh hey it's all random, you've got a one out of you got a

30% chance of uh winning, 33% chance of losing, 33% chance of draw. She is actually playing the game of um thinking uh getting inside the thought processes of her opponent. and using that to her advantage. And that's what I'm trying to do in the charts. When you break it down to first principles and go back to sort of what is price, how does price move? What causes price to move? And I think that was a critical part in my development when actually

stop to look at cause and effect. I realized that uh it it's all trader decisions. And it doesn't matter what technical patterns or indicators you use for entry. If you buy in the market and no one buys after you, They're not going to drive price further. Uh so you lose.

So really the game comes down to sort of identifying the places on the chart where you know people are gonna buy that after you. You're getting in before them. Um or if you're short, people are gonna sell after you have already sold. And that is essential for driving price in your direction. It's essential for profit. And uh so i I think if you're not looking at the market from that perspective, you're doing yourself a disservice.

Next, this snippet comes from the series My First Year Trading Full Time. It's episode 196, so a recent one, with Ryan Tross. Ryan's a junior equities trader at the NYC prop firm SB Capital. You've hinted at psychology a couple times, uh, during our conversation here. And I know one of the things you've said in the past is that traders shouldn't underestimate the psychological aspect. How come?

Because I think that it's so easy to, you know, get caught up in the idea that this is all systematic. You know, it's all patterns. It's all, oh, you buy these breakouts and you sell when you reach your target. You know, you s risk this amount per trade. You only take good setups at work. And none of that is really taking into account that you feel a certain way when you make or lose money. No, anyone who denies that.

I think is fooling themselves. You know, I feel a certain way when I have my best day ever. I feel a certain way when I have my worst day ever. And those f emotions and psychological aspects that come into play. aren't never gonna go away. You know, it's impossible to be robotic. Even the best traders at this firm, you know, you read their reviews or you you talk to them after a good day or a tough day, and it all comes down to, you know, were they in the right frame of mind?

Were they putting themselves in the mental state where they could perform at their best? Did they meditate? You know, are they taking regular breaks to, you know, refresh themselves? Are they doing some type of best practice to take their temperature. You know, th that's a that's a saying we have here at the firm, you know, you take your temperature and at fifteen, thirty minute intervals on the day and say, okay,

Maybe I just took a loss really early. Why did I take that loss? Was I in this trade because, you know, I was chasing the symbol or I had a fear of missing out or You know, it was a boredom trait because there's not really anything else going on today. You know, all of those things are not really a product of your system, but they're a product of your personality and the way that you think about the day.

I think that if you don't really focus on the fact that it's impossible to completely devoid yourself of emotion unless you're a strictly algorithmic trader. It becomes not about fighting your emotions, but learning to use them in a way that is productive. and leveraging your own personality and your strength. You know, you don't have to avoid your demons. You know, Tom is pretty active on Twitter and he'll always talk about how

You know, there's certain things that make all of us tick. There's certain things that get us happy, th certain things that get us excited, sad, frustrated, angry, you know, overconfident. All of those things are going to play into the role of a performance-based job. And that's what this is. You know, you can only be at your best if you put yourself in the right mental state. Dr. Steenbarger talks all the time about how there is an analogous relationship between us and professional athletes.

Professional athletes, sure, you can focus on what are the plays that you need to run, lift, exercise, get your body in shape, you know, have the talent, be at peak physical performance. But at the end of the day, there's a reason that field goal kickers miss the game winning kick all the time. There's a reason that basketball players miss certain free throws that could be game winners. You know, it comes down to is the mental aspect of your game there.

And trading is no different. You know, you have to be able to put yourself into the mindset where you can perform at your best. And the longer you spend not thinking about that, the more likely it is that you can continue to make those same mistakes over and over again and not really understand what's actually making you do that.

Are there any tricks that have helped you as of late or any practices you've been putting into place uh to help you with the psychological aspect that comes with trading? Yeah, so I think the biggest thing that I do is, you know, I'm not trading from twelve to two. So during that time is when I reflect on the morning and prepare for the afternoon. So, you know.

Did I do a bunch of nonsense in the morning that Was I not involved in the right stocks or was I involved in the right stocks and just executed improperly? Did something happen outside of work that has me, you know, off my basis today? Do I need to really look at my entries and exits in the morning and and figure out, you know, what was going on? Am I tired? Am I How do I have too much energy? Did I expect too much from the day?

All of that for me is really done during that two-hour block where I can kind of refresh myself, go get some lunch, take a walk. prepare for the you know, the close and and really figure out where I'm at mentally. So that's one step of it. And the other two steps are, you know, pre-market prep, relatively the same thing. You know, I take my energy levels. I think about, you know, am I tired and how am I feeling? Did I get a good night's sleep? Did I eat well the day before?

um taking physical journaling notes of all of that and keeping track of it. Doing the same thing on the clothes, reviewing every one of my trades, again, you know, taking my temperature at the end of the day. Am I happy with how the day went? Am I not happy with how the day went? Why? What can I put into practice the next day to change that?

So it all really comes down to review. You know, I do things outside of work as well. You know, I exercise as much as I can. I try to go to the gym every day, keep myself in a good good headspace. My girlfriend is always on me about eating Eating better. I don't say I eat the best, but I d I do try. Um and you know, that's all plays into getting yourself in, you know, peak performance state.

Now I'll share a couple short segments from a popular episode I recorded back in 2015. It's episode thirty-nine with currency trader Tom Dante. and here he speaks to some of his observations while trading in prop. It was understanding how seriously these guys approach the market that that I think was one of my one of my biggest lessons. But you know, like I say, it's hard for me to to to give you specific examples because I took so much from so many different angles. Um

Uh another thing was was composure under pressure. You know, watching guys have big down days and not seeing it rattle their confidence at all. You know, seeing them be able to walk up the office, head held high, with a big smile on their face. And you knew for a fact. that the guy who is down a massive amount on the day. Like we're talking tens of thousands of pounds. And and again it it it kind of it it drilled into you that right mindset.

that you didn't you didn't have a pro trader ha you know, get his arse handed to him on a day and then turn up the next day and go, Oh, I I'm fucking scared. I'm scared to click the mouse. I I you know, I don't know what to do. And it and it it just i it made you stronger, i i if that makes sense. It it It kind of made a man of you, I guess, if if that's the the the right way of describing.

You have a quote which um I really I really like it. I think it's an awesome quote and it goes, if you're not working on your edge, someone else is. So now I'd love it if you could expand on this for everyone listening and speak to the competitiveness of trading. Right, th you know, you should know that there are guys working so hard, so hard on their edge. And

It's often the guys that are huge that are working the hardest, right? Which is why they're huge. Um You often hear People saying that they want to get into this game so they can make loads of money and they can retire and you know sit on a beach sipping pina coladas and you know placing a few trades from their laptop.

The fact of the matter is, is that these guys I worked with that have made enough money if they wanted to live that kind of lifestyle, do not. They are the first in the office every morning and they are the last one to leave. And the reason that they've done so well is because of the amount of hours that they've put in and

They are the guys that are essentially taking your money. These are the people that have done the work that most people are not prepared to do. And at the end of the day, you're paying them, right? So I'll give you an example. When I was improv. Uh and I and I often tell this story. There was um there was a couple of really big, big guys there. Uh we're talking like a couple of hundred grand a week that they would be making. And they were huge and

One day the one of the guys had had a stellar day. I don't know how much money he'd made, but we we are talking a sh a lot of money. And everybody was kind of, you know, had had heard about it and there was a bit of a buzz. And he was just, you know, he was he was just cool. He was just, you know, staying, you know, uh uh uh emotionally uh cool, but you know, had a had a smile on his face and was chatting with some of the guys.

And anyway, um I left the office at about, I don't know, five o'clock and I got the train home, I got right to my front door and I realised that I'd left my key. in the office to to my front door. So I thought, well, I'm not gonna call a locksmith. I'm gonna have to go all the way back into central London to the office, get my key. So I get all the way back to the office. By the time I get there, right, it's about

half past I reckon it's probably half past nine. Like the market is closed at this time. Took me ages to get back. And the market is closed now. I come into the office, right? And All the lights in the office are out. There's just a little uh light on at the back of the office. Lo and some like, okay, there's some somebody's here, but all the markets are closed. Lo and behold, there is one guy left in the office, and it is that guy that had had that.

huge return and he is sitting there um recording his trades for the day and he's writing down, you know, what went well, what went badly, and making a plan for the next day. And that to me was just it was a real eye opener because, you know, again, most people are thinking to themselves if you know, they they wanna make money in this game to live the easy life. And yet the reality of it is that most of these guys that have got all this money are working so hard. A lot of them don't have.

In their lives. That's just the way it is. So when I say somebody is, you know, if you're not working on your edge, somebody else is, I mean that. You know, these are the kind of hours that people are putting in. They are taking this game seriously. They know their statistics. Um, they know their edge inside out and and back to front. I mean, I personally spend a lot of time. Uh, number crunching. So I I I crunch a lot of things to, you know, w when I see patterns in the market.

I look at the the probabilities of certain things happening and sometimes um I see guys call trades out, for example on Twitter. And I think to myself, and I don't I honestly don't I don't want to come across in a kind of smug, know it all way, because trust me, I get it wrong, massively wrong from time to time. But sometimes I see people call these trades and I think to myself, you know what? If you'd have done your homework, you would never be taking this trade because there's no

You know, there's there's very, very little probability that you're gonna see that um, you know, see that make money. For example, I might see them um, I don't know, trading a pattern that I know has a very, very low strike. Um and and again, you know, it's not to say that that I'm always right, but this is what I mean when I say that people have done this work.

And a lot of the time they're the guys that you know the the newer traders are, you know, uh making ill informed decisions and and ending up paying the bigger guys that have done the work and and put that time and effort in.

The following clip is taken from episode 106 with Turney Duff. Turney's a former Wall Street hedge fund manager at the infamous Galleon Group with one hell of a story containing plenty of excess, a cocktail of drugs, alcohol, sex, money and power. This clip comes from the end of our interview as Turney reflects on his current situation, having now moved on from the fast life.

My my life is very simple. I'm I'm paying thirteen hundred bucks a month for rent. Uh I barely get by every every month, but uh I manage to do it and I'm just trying to stay sober, I'm trying to write and I'm trying to be the best dad, friend and son that I can be. And, you know, interestingly enough, I've I've never been happier. You you made a lot of money during your your stint on Wall Street. Um I think you said you made about ten million dollars. Where is that today?

Um, I wish I knew. So, you know, let's let's say I made ten million dollars, you know, just for for sake. Uh we'll say, you know I lost three of it just from three or four from taxes. Um I I was the owner of uh a f fast food or a casual dining concept called Fat Burger for the state of New Jersey. Um so I put a million dollars in that. That ended up being a zero. Um I uh Bought a house in two thousand s two thousand seven at the height

of uh, you know, the real estate bubble. I bought that for two point one million, put another half million into it. Um, I ended up selling that for 1.2 million. So I I ended up, you know, taking a bath on that. Um, you know, in in my early thirties, I was living in uh twenty seven hundred square foot apartments. Um, paying ninety three hundred bucks a month in rent. You know, like I lived like that for a couple of years. So uh it was a combination of some bad investments.

a house, an apartment that I bought, and living like an asshole for for many years and and and the money just went. Yeah, yeah. Sure. And you say that you're pretty much never been happier than you are right now. W why do you say that? I mean, because I presume that when you were When you were living in this uh New York apartment a and and living life big, you must have been you must have thought that was happiness at the time. Were you ever content with where you were? No. So um

That's one of the things. I was never content. Um, you know, when I was when I was uh Morgan Stanley making twenty-two thousand dollars a year, I would say to my friends at the bar, if I could just make fifty thousand dollars a year, then all of my problems would be solved. And when I made two million dollars Literally, I said out of my own mouth, if I could just make three million a year, all of my problems would be solved. Um, so

that was never going to end. And so there was a moment back, you know, in uh you know, after I'd left the business where, you know, I'd kinda got my life back together and I Still wasn't happy. And so I ended up going to the computer and and I searched what the pursuit of happiness meant uh back in 1776 when they when they wrote the Declaration of Independence. And what I learned was

That happiness used to mean courage and integrity and honor and it was about how you lived your life. And I was like when I read that I was like, what? Um,'cause I always thought happiness was pleasure and material things and and and and stuff like that. And and so on that day I was like, you know what? I don't even want to be happy. I was like, screw it. Um and I kinda just said I just wanna live A good life. Like I want I want to be a good person. And and once I made that shift.

So I went from a guy who wanted to live the good life to a guy who wants to live a good life. That's when it all clicked for me, and that's when I became happy. Yeah. So I think a lot of people listening to this right now and maybe even myself a little bit. You know, we understand exactly what you're saying, but are you only able to say that and actually believe it because you have experienced it, because you've had that life experience? Yeah. I I I used to say I'd be like I would say

Any asshole who says money can't buy happiness never had any money. Like that's that was my my my frame of m mind, you know, and I truly believed it. And so It's so cliche and and and y you probably hear it all the time. So it it is. It's a difficult concept to grasp unless you you get it because And and I'm not I'm not pointing the finger at anyone, but like No one no one wants to look in the mirror and and and say, Hey, uh, you know, I could be doing more or, you know, if only um

you know, I had these things, my life would be so much easier. Because you know what? It's true. Money money will make your life easier in a lot of respects. So it's hard to to look beyond that.

Next up, a ten minute segment from episode thirty with Tom Baso. Tom's a systematic trend follower of futures and currencies and a retired money manager. His firm Trendstat grew from a few guys running an investment club to a fund with six hundred million AUM. and Tom was also profiled in Jack Schwager's series of the Market Wizards books. Note, just a little forewarning, as you'll soon hear, the sound quality from this segment isn't great, it's quite poor, uh though the content is quite good.

And I think I could almost quote you um saying from other interviews that psychology is probably the most important aspect of profitable trading. So why do you believe this to be the most important aspect? All right, well I would say good trading falls in to three different things that have to happen.

The first one which everybody spends all their time on is the buy-sell decision. You have to have a way to uh to say this is how I would buy or sell a market, a stock, or whatever it is that you're trading. Secondly, you'll have to answer the question of how much should I buy and what types of instruments should I buy? I call that whole area the sort of portfolio management, risk management, volatility management area. And you have to be successful at that too.

The third area, and the most important one in my opinion, and the one that a lot of people spend the least amount of time thinking about. Is your own psychology because you, as the human being, who ultimately, even in the case of fully automated trend stat back in the day.

I had the power as the owner of Trentstat to go in and pull the plug on the computer or override it or do whatever because I was I own the company 100%. So it's my psychology wasn't in good shape and my knowledge of what we were doing comfortable with what we had created. Then the first time I go through a drawdown, I'm gonna start second guessing myself and all those computers.

And I'm gonna start telling my computer staff, Oh, we need a whole new way of doing things and let's go research this latest hot strategy that seems to have made fifty percent last year. And I could go buy black boxes or build black boxes. What's the difference? And uh and and keep switching and trading and and fail time after time after time because my psychology wasn't right. So even though it was automated, you still have to have a good balanced mind about what you're doing.

Trading like like for instance, uh a good example that I've heard uh Dr. Tharp, uh Van Tharp, talk about Good trading is following your strategy that day. It is not whether you made money or lost money that day. It's simply following your strategy. And that's a very profound thing. Hit me fr long, long time ago when I heard him say that, I thought, Yeah, that's perfect. That's exactly what I do every day. And that's why he and I worked together w a few years at least. I helped him out with some

seminars he was doing and I found it fascinating to meet a lot of people around the world and we had a good time doing'em until my schedule got so busy it it got unreasonable to do'em anymore. But um That was a very succinct and and smart way of putting it. Good trading is following your strategy. It's not

Y good trading isn't making money and bad trading losing money. Good sh good strategy development is what you need to do. Once you have that strategy, you need to follow it and to uh to actually execute it. And the time to change your strategy isn't at the heat of the moment uh halfway through the trading session when your particular position is going against you by three percent.

And uh you're unsure whether you should pull the plug on it or not, you should have already figured that out and it should be just blindly done. And when you're out of the position and the markets are closed, if you want to sit back and think about what just went on and try to come up with a better way, all good and fine. I'm not saying anybody

shouldn't be constantly striping. I was sitting here. One of the reasons I called you a little bit late today was I I got completely mesmerized by some uh stock research that I was doing. So I still am doing it here at sixty two years old, retired. And uh I think you have to keep working and getting better, but you have to stick to what whatever it is that you're coming up with unless you can figure out a better way.

And I think a lot of people don't do that. I think they pull the plug on it or they buy the black box and e six months later they throw it out and they change everything they're doing and they're They're adding so many layers of filters. I've had people at Facebook uh give me a message and ask me questions and

I'll say, well, tell me what you're doing and I'll see if I can react to it. And I'll go into this involved explanation of all the different filtering this, and they only do it at the ADX is that and on and on. and on and on. I'm wondering how they ever get a trade to h happen. They get so many filters in the thing they they're trying to achieve perfection.

And it's so complicated, it's probably not workable, and they're likely to miss those two or three very large trades that are gonna pay the way.

And uh because they filtered those trades out somehow. So I encourage people to really understand their own mind. I think some people are A little more cut out for trading than others. I I think that sometimes extremely cerebral. uh highly intellectual, you know, they view themselves as smarter than everybody else. They're brilliant.

they sometimes have a hard time with trading'cause they just know too much. And some of the best traders, if you look at some of the the floor traders, the people that have come off the streets that really didn't know a whole lot about investing at all, certainly don't have the MBA or anything, but they're successful traders because they find something that works and they stick to it and they don't

let the markets uh beat them up because they don't really have that mental side of them that wants to analyze and theoretically understand everything out there. They just wanna make some money and go home. You know, and so that's what they do. And uh so it's something to think about. Everybody needs to to study their own psychology.

and try to ask themselves what could they be doing to balance themselves out more so that when they're doing actual trading functions that they can stay in the now, they can analyze where they want to be, be fairly unemotional about it. and uh and react quickly. That's really what it good trading is. And that's psychology. The first two, you can do all the work you want, but if you don't have the psychology, you'll never execute those first two.

And when Jack Schwager interviewed you for the the New Market Wizards He actually dubbed you as Mr Serenity because of your cool, calm and collected style of trading. So I mean How were you able to actually achieve this and maintain this evenly killed mindset even through times of drawdown? You know, I I've asked myself that question a number of times and The only thing I can think of that seems to play in my mind about history and you know my life looking back.

Is that I was so d godarn uh busy doing so many things. that didn't involve sitting by a phone or in front of a quote machine. And I had so many varied interests that were outside the markets. I I've run into people that uh in the middle of the night wake up and they want to see a quote machine down by their bed and to know what the euro's doing tonight are weird that's obsessive to me. I like well if I'm gonna you know cook dinner tonight I Uh I like

helping other traders. I I uh yesterday was pruning my front uh yard. I love to do sort of an Italian landscape scheme with everything's flowering. I hand prune all my bushes and trees and Do it myself and um

There's so many things for me to fill up my day that trading just becomes sort of one of the many, many things. And by doing that it sort of removes the attention to my conscious brain of all the different pre-Crisis is doing this and oh my god, gold's up ten dollars and you know, all these different things that go on that could capture your mind and all of a sudden pull you uh uh down some kind of a psychological hole.

because I was so busy, because I allowed the computers to do their things, because I spent time programming those computers to do what I wanted them to do. And I knew they were doing that. It sorta gave me that peace of mind to, you know, wonder what I was gonna cook for dinner that night. Or or something else. Or concentrate on my golf game or have fun vacationing someplace. I didn't have to be obsessed with every day, you know, read the paper, read the quote machines.

look at the charts, you know, agonize over everything. That's where I think a lot of traders, including Jack, I believe, back in the day when he interviewed me, he was very caffeinated. He he New York, you know Uh fast go go personality kind you know driving and a lot of the market wizards that he interviewed, some of which aren't around anymore. Um

you know, were pretty fast, high risk guys in the end. And some of'em blew up and didn't make it over the long run. By comparison I was pretty boring, but where I was unusual was the kind of the systematic, keep it simple, don't get stressed out over it. I think that appealed to Jack in a way because he sort of wanted to adapt some of that for himself. He was just the opposite and I think that he found it appealing in a way. And uh that's probably how that chapter got written somehow. But um

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I'll now play for you two parts of pulled from my interview with James King. See episode one hundred and thirty-three. Having studied sports science and performance psychology, James was brought on as the performance director at a commodity trading firm in London. Here, James talks about building resilience and stretch goals, a method for expanding your comfort zone.

So here we're we're talking a lot about resilience and you're using some pretty I I guess advanced methods of training for resilience or or testing for resilience. For the trader who's at home, the trader who's listening to this. Are there any

methods or exercises they can try to help build their own resilience because, you know, you you're kind of mentioning it here as though it's a it's a key trait to have where it's uh can be very beneficial for traders to build up their levels of resilience. I mean What would you suggest to someone at home might be a couple of things they could try to help Right. Well, this is where I guess I'm gonna be controversial. The

The thing I would suggest is that resilience is something that's in everyone already. It's there. If it's something you're struggling with consistently, then there's probably some more deeper sort of root cause problem you might might want to look at. And it and it all comes back to that first point.

Make sure you're chasing the right goals in the first place. Make sure you're using your strengths. Make sure you're doing something you you genuinely, sincerely find meaningful. And make sure you're clear about you know what you're getting from doing that. Again, when you're in that sweet spot, you're you're in you're instantly at the best

Operating at the highest level of resilience you sort of you you sort of have in you. So so that's where I'd always start. Because if the goal's not if you're not sufficiently motivated to pursue the goal, then you'll find any excuse to be unresilient. Uh a and you'll be constantly distracted and you'll y you know, you'll constantly wanna perhaps

uh d minimum effective dose everything and do the bare minimum. And if you find yourself doing that, then I w I would I would certainly or first thing is I I'd remind you that that that's that's not you. You are not Not resilient. Um, but what what is happening in those sorts of situations is that it's a clear indication to me that you're probably chasing the wrong goal.

And it's not really got you firing on all cylinders with regard to motivation. The second part of that is that resilience is built by stepping out of your comfort zone and making sure that you're sort of taking taking small steps and it's a capacity that's expandable. So i i the other thing that could be happening is that if you are finding that um resilience is perhaps an an issue for you, then perhaps your steps are a bit too big.

So what I'd encourage someone to do is um before we start talking about any resilience quick tools or hacks, these are sort of the foundation things. So the the first one is, you know, make sure you're chasing the right goal in the first place. And then secondly

Check the step size. For instance, if if you sat on the couch for three months, you suddenly decide to want to go out and run a marathon and then the next day you decide, right, every day I'm gonna go out and run five miles and then and then you find yourself that you're giving up, not doing it, or sort you quitting halfway through. and making all the excuses under the sun.

I mean the point I'm sort of arguing is that you're probably trying to do too much too soon and you need to build your capacity for that. And small, slow, steady steps are going to be better. And what happens is you set yourself small targets, you complete them.

And then the the unconscious message to yourself there is that I said I was gonna do that and I did it. And that reinfirms and it becomes sort of a spiral of um of sort of uplifting sort of success there. And and that's where you build your identity. Around oh, I am resilient, I am confident, I am motivated. You know so so make sure that your your sort of step size is i i is appropriate. We I think we do live in a society where people watch an advert or a soul on something and then

go from zero to a hundred very quick. And I think it's really important to really reflect and and before you pursue any goal, make sure sure you y you really are aligned with it. And then secondly, baby steps a and then that will that will th those will very soon compound and you'll find yourself going exponential. But general resilient tools as well. I mean, uh a lot of people are talking about meditation, works for some people, doesn't work for others.

I think it's about just experiment with stuff like that. I think it'd be silly not to try these things out, trying them on. Apps like um Headspace are great and I know I think they're almost Almost every trader I've met sort of has that app somewhere, um, pulls on it from time to time.

One of the things I've heard you speaking about in the past is a thing called stretch targets. Now I'm not sure if this is something you have come up with or if it's something that's maybe a little bit more widely known, but It sounds kind of interesting. I'd like to hear a little bit more about it. I mean, what are stretch targets and and how are they used amongst the traders you've worked with?

Stretch targets. If you can imagine y y three zones. Um you y the first one would be your comfort zone, uh and that's the zone in which y you know what you're doing. Okay, you don't learn anything or um adapt or improve anything in i in your comfort zone. It's maintenance at best, although probably some entropy sets in when you stay there too long. Um and then the next zone would be your stretch zone. Essentially the stretch zone is an area where

you're having to switch on in order to sort of successfully operate or or to to perform in that that uh in that in that area. Um and that's what that does is it creates a gap between your current ability And the ability required in order to be successful in that moment. And it's that gap which causes your body, your brain or body to take the you know, make the changes physiologically and and urologically.

uh that will enable it to successfully complete that task. And then then then essentially what happens is your your comfort zone expands and what was initially stretched would become comfort. And that's the process of learning and growth. Beyond beyond the stretch zone you've got your panic zone, and that's when uh essentially You haven't got a clue a and you're really shitting yourself and it's just too much. And there's you just absolutely put bodies full of cortisol, adrenaline.

Uh and and and and because of that it it's just too overwhelming that no learning learning occurs. And it and so it's it's really important to get that sort of Steps you take in order to improve are small, iterative, and the and then you you can progress as your confidence and resilience to deal with sort of more stretch uh increases. I think where I heard you speaking about these stretch targets was a video that you created for Mandara.

I'm just trying to think over the example you gave in the video which was kinda cool. You said Oh, I think I know okay, so this comes back to I think I know what you're talking about now. So this comes back to so earlier we were talking about, you know

When you see this sort of pattern of thinking whereby okay, I'm crystal clear on my current condition. I know what everything's like, you know, everything looks like then I've got my target condition over here, which is why I want things to look like. Now, where we talk about stretch targets there is that

If you if we were to ask a guy at Mandara, okay, you made you as let's just for example say, Okay, you made a million last year, we want you to make one point two this year. The problem with that is that The sort of solution that most people jump to there is okay, well, I'll just do a little bit more of what I'm doing now because I need to make a little bit more of

what I'm doing now. Um where whereas if you sort of almost ten X that you'd be like, okay, well I want you to double that next year and also I'm gonna remove this resource from you. You're not allowed to do that. Also I want you out the office by four every day'cause it's not sustainable the hours you work.

uh suddenly forces the individual to look at the problem in a in just a completely different way. And they've suddenly become a lot more creative and their lateral thinking sort of goes through the roof.

What are some of the ways that you would encourage them to rethink things? I'm just trying to think like if someone at home or someone who's listening to this wants to try and put in place some kind of stretch goal, uh stretch target for themselves, I mean, what might be a good way to think through that or actually try to apply this this type of thing?

Uh starting off with a blank, blank slate. So forget everything you're doing at the moment and just look, okay, this is the target. How do I do this? Um and then and then think about where you have leverage. Okay, so where can I leverage something in order to produce uh a new new result? It could be okay, so there's a classic ones, time and effort.

Which everyone sort of jumps to, the capacity, oh let's hire more people to do it. Um, then there's things like a beta that become then there's other areas which a sort of out of the box so there might be things like, Okay, well I could what if I designed a new tool? What if I le leveraged technology? What if I shared a resource here? What if I partnered with this individual? What if I um you know look even looked in a completely different area? What if I started trading more products?

Um, what if I s started trading new time zones? What if I automated half the stuff I'm actually doing? Because that that is sort of taking up sixty, seventy percent of my time. So it's asking those sorts of questions, looking at every area. What if I sourced expertise from uh an individual here or there or what if I go and speak to someone who's had this problem before?

ond yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r yw'r But again, it really helps doing that if you're crystal clear on what your process actually looks like and and and actually get down on paper how you spend your days and how you actually um engineer the results.

This next snippet features Charlie Bathgate on episode seventy-three. Trading has been a part of Charlie's life pretty much for as far back as he can remember as his father was a professional trader. And today, Charlie's a partner at Sangluchi and a true fanatic on psychology and biohacking matters. I'd like to ask you, what is it about this aspect that that really fascinates you and and what makes you think that it is such a big part of a trader's profitability and success? I think that the

you know, that that it's just the way that psychology has always been the way that when I look at the world, that's what explains how things work for me. It just kinda makes sense. I think everyone you know, to a certain degree from a natural predisposition has something, some discipline that when they try to understand why things are happening the way they are,

you know, that explains it for some people it's physics or economics or whatever and and for me it's just psychology makes sense. Um and a lot of it comes from experience, um both watching my you know, growing up with my dad, with um, you know, watching a lot of other traders and that that we knew, you know, that were kind of close to my family and whatnot. the guys that had a grip, you know, a handle on their psychology, on their mental health, on on their consistency. Uh

tended to trade better, they tended to not blow up, they tended to not make, you know, poor decisions, impulsive decisions, decisions for the wrong reasons. They tended to execute their strategies with more discipline.

Um, and the guys who had other issues, a lot of times it it really bled into their trading. Oftentimes the guys who were some of the guys who were really, really smart, really talented Um, you know, they it didn't matter how much knowledge they had in their brain if, you know, what was if the filter to execute it was was broken, you know, if they if they had a mood disorder and they and they were, you know, emotionally all over the place.

it doesn't really matter how smart you are or how good your understanding of the of of the markets is, you you you just you don't have a a shot at that. Um and may and and you know, I I kinda gravitate towards the mental health side of things sometimes, but you know, oftentimes it's not that severe. It's just like If you're sleep deprived, if you've slept for two hours a night for like the last, you know, four nights

like your ability to to make decisions and to react quickly and to execute is diminished. Um and I there's a lot of guy I've heard a million times from people who are like, Oh no, actually I'm like I can get by with, you know, like two hours of sleep. It doesn't really affect me. I'm like, you're full of shit. Like that's just not like you're a human being. I'm sorry. At the end of the day, like it's gonna add up. It's gonna affect you.

Um and maybe the adrenaline in the moment, you know, can get you through could get you back up to where you would be for like, you know, a five or ten minute span, but like you're gonna you're gonna come down. Um so I think it's a good thing.

uh in part from personal experience, you know, watching it happen, you know, over and over um, you know, with with people that I knew in in my personal life. And then once we started doing everything that we're doing now, uh witnessing it, you know, more on the professional side and

um both in the in the traders that we've provided education to to and then also people that we've either worked with in the hedge fund or considered working with. Um in in moments of honesty and, you know, when when people were saying, you know, okay, really this is the reason why I can't, you know, trade consistently or whatnot.

it's often they just turn to the the psych the psychological side of things. You know, they're just like, I c I can't, you know, I can't get my head around X Y Z or you know, I really can't focus because of blah blah blah. Um so you know, I don't have any uh beyond just a lot of personal experience and watching it and and observation, um, I think it also comes down to to me and my own obsession with it. Um I mean I just I think I get kind of obsessed with like

uh you know, like the compass effect, right? So if you have a compass If you're standing in the middle of the woods and you know, you have a compass and it's and it's pointing, you know, directly north and and you start walking that direction, you're gonna end up, you know, just walking directly north, right? If you move it one degree and you take one step, you're not gonna be that much.

far and that far off from where you would have been, you know, had you stayed on, you know, true north. But if you do that for, you know, a mile, you know, the distance, the how far off you are is from where you would have been if you would have stayed going north. is pretty far, you know, and if you sort of extrapolate like, okay, if I could get if I had my sleep cycles down, if I did this, if I did that, if I, you know, went through a list of things that I could do in each one of these things

Maybe improved my performance, maybe improved what I was capable of by one to two percent. Let's say I do 10 of those things a day. you know, I give myself between 10 and 20% more, right? What effect, what compounding effect is that going to have over 20 to 40 year career? You know, that's how I I think about things. Um, I don't think about it as much in terms of

the day to day, it's it's much more like, okay, long term, like, what do I want to look back on and say, damn, I'm glad I did this because it gave me that much more, you know, and it allowed me to achieve that much more. So I think in my own life, um, and you know, really always trying to to foster the resilience that is kind of required for, you know, in an entrepreneurial setting like

I've just learned I really have to be on my game in terms of, you know, taking care of myself. Um you know, otherwise I'm trying I'm not gonna be able to to make the best decisions on the fly. I'm not gonna be able to have difficult conversations, you know, with employees or partners or or whatever. Um and you don't get to choose when those moments come up. You know, that's the pain in the ass of it. Like you

If you could just say, All right, all my difficult stuff, like the market is only gonna throw shit at me on Mondays, you know, that'd be that'd make things a lot easier. But it's just not the case. You kinda always have to be prepared. So Um yeah, and then I think growing up um With

with my dad and and seeing, you know, not only his, you know, the fluctuations in in his sort of temperament and and you know, his psychology but also the other people in his life, I just saw first hand, I experienced it on on a really deep level. the amount the degree to which the the markets can whipsaw you around and can really come to dominate your life, you know, and affect every area of your life, not just your professional life. Um, if you

you know, don't have the the walls sort of built up around you, you know, um if you're not prepared to if your psychology isn't really robust about it. So I just think I you know, both from an entrepreneurial side and then, you know, looking at other traders and saying, you know, I don't I don't want anybody to have to kinda lose control of how they feel and what they're capable of on a day to day. You know, that's and if you can build up a

kind of a robust psychological um you know profile and kind of approach to things, then you're just giving yourself a much, much better opportunity to be in control of your life and and you know, I think to to execute at a high level.

Coming up now, equities day trader Peter Toe, who was a fantastic guest, featured on episode 98. I've included this clip in the mix because yes, Peter is a talented trader, yet he's also quite forthcoming about his vulnerabilities when it comes to psychology and the influence it can have over his trading.

Well, let's get into that a bit more. I think that's that's really interesting how you kind of embrace the fact that you aren't a a cold-blooded assassin as you described it. Um and that you do allow your emotion to get to affect your trading in some ways. Um, and I was reading on your blog Uh, before we got on this call and to anyone who hasn't seen your blog, I strongly encourage you to check it out. It's it's incredible. You you do you do a really awesome job of it.

You spoke about a point uh at the end of two thousand and fifteen where you took your longest break from trading. You kind of like lost confidence in in what you were doing. Do you wanna tell us a little bit about what happened?

It really wasn't anything crazy. Like in hindsight, it really wasn't anything crazy worth Like I'm gonna s like the F the the Fannie Mae trade that I made, which is my most popular blog post, which is my big also my biggest loss ever, that was a crazy thing that happened. You know, that's one of those where did that come from type of loss? Um, what happened in November of 2015 when I took that break is I think it was just a really gradual build up.

Where, you know, I was I was I would have these on off periods where I would just get get into trading, get burned out, get into trading. I would take like a one week break and then a few months later a two week break and then a few months later a three week break and

In November I you know, my emotions were kind of like at highs and lows simultaneously, so it kind of exacerbated that effect because I had made my best trade in the first two weeks of November by shorting this uh biotech, uh A VXL and then I gave back More than half of that money by just being an idiot. You know, and like just donking away money by uh g God. And you know, i it just built up all this like

all these negative emotions that I couldn't I just couldn't really deal with at that time. I, you know Uh I would wake up and I'd feel all this dread about trading and I'd be like, I'm I'm sleeping in today. I just I don't wanna have to deal with my mistakes from yesterday. And that's one of my like kind of one of my weaknesses. A lot of a lot of really good traders I admire. I'm all I'm I was like totally jealous of this. They're just

They just tweet things like, Oh, I lost. I'll I lost a ton of money, but hey, next day is a new day, right? You know, I can tweet that, I can say that, but it will never actually be that sincere feeling that I feel inside. You know, I I can I can carry a lot of baggage with me and, you know, I'm a bit of a front runner. I that's why consistency is very important to me. Like mate being green almost all the time.

'Cause when things kinda look when the wheels fall off, like I start I get really, really hard on myself. I I start to feel that self doubt, you know, creeping in and it just becomes impossible to trade. So I decided I have to take a break. I can't take this anymore. I hate trading. You know, it's a love hate relationship. I hated it. So it wasn't anything crazy. It was just bad trading. You know, run of the mill, bad trading. Right.

And is is taking breaks something that you like consciously decided that you were going to do, or is it just something that You know, like you said, these these mistakes kept kind of happening and you just didn't want to face them and you just kind of got to a point where you couldn't be bothered to say like, I'm not trading this week. Or was it an actual Something that was predetermined as like a a good thing that you would have a a week away from trading.

W when a boxer gets like knocked out by a punch, did he decide to lay down in advance? That's how I want to put it. That's just the visual that came to my mind. You know, you just reach you just reach your limit and then you're done. Like I mean that's that's at least that's how it is for me. You know, I didn't I didn't calmly sit aside and say, Okay, I'll just take a a loss period and then we'll be like

And then everything will be okay afterwards. It it's just like I I'm just like I can't do this, I can't do this, you know, and like I don't know when I'm gonna come back and trade. I really don't. Like maybe I'll never trade. I no, I I started having these worries that I'll never trade again. And I think that's what makes me trade again. So I'm always kind of on that emotional edge. In fact, I'm on that edge right now. I actually did have my worst month.

This October. It's my only red month. So I'm actually kind of on that edge. Not not to the same extent'cause I've had a good year overall, but still. I'm d I'm actually dealing it right now as as as kinda as we speak. So why do you think that October was your worst month? Is there any anything you can pinpoint that to? I started trading these OTC names again. You know, they used to be so so um so lucrative for me.

I hadn't been trading them for what feels like two years because the order flow just died and people moved on. And then they started trading again. And they were just unf they just became like I mean, they were such they the the way they traded it was just so crazy, like The market makers take away all these routes And you can only route through ARCA and it's like

It's just so hard to get in and out of the stocks. I s whereas like filling executing on the OTC used to be a strength. It just became a sudden liability. I would get into the size and I couldn't get out of it. And so if I thought I was risking X, I ended up realizing a loss of three X. And that just kept happening and that got to me emotionally and I started revenge training and it just became like this terrible spiral and uh Yeah, so there are structural reasons why

I lost the money. I feel like I kind of ran into a buzzsaw in some kents. But in all it but in another sense, there's some indeterminate percentage of my losses that I would attribute to myself. It just I took existing losses. I probably made them a little worse.

Now, last of all, I'm tacking on to the end here another clip from episode 86 with mental game coach Jared Tendler. Jared was also included in part one, but whereas in part one, Jared spoke about various types of tilt In this clip he speaks more so about emotion in decision making. And you know, we're starting to get into the emotional aspect of it. So, you know, this is one of the things you're an expert in is removing emotion from decision making. Um

Talk to us a little bit about that. Like why would you want to remove the emotion and what's the benefits of doing so? I I guess I should qualify it and say negative emotion or I s in a in a sense, uh excessive emotion, you know, because you can be excessively positive as well, you know, uh almost too happy. uh too overconfident, too excited, uh can be problematic. Uh and the reason is because uh it's gonna impair your decision making. Uh that is not just a

a an opinion of mine. It's it's sort of a neurological reality. Uh and this comes from something some from a uh uh uh some research on on the brain and also a pattern that's been uh was was realized about a hundred years ago uh in something called the performance stress curve. Uh and so putting those two uh concepts together, uh, you have

uh a process in the brain that many people many people think of as the fight or flight mechanism. But that really only really only kind of like uh oversimplifies what this reaction is doing. But the basic idea is that when your emotions o rise too high, They actually have the power to shut down higher brain function. So people often think about their decision making, right? The the thoughts that go on in their head. They think about that space in their mind in a way that is inaccurate.

uh that that when your emotions rise, it actually starts to eat away at the number of things that you can think about and the strength of those thoughts to turn into action. So if you've ever if you've ever had a situation where Like you know that you shouldn't not be exiting this trader. You should you know that you should not.

be forcing, you know, a mediocre trade uh and and yet your hand still moves over and clicks uh you know exit or enter. And and and you're wondering like how the heck that can happen? Well it's happening because the emotional system has become overactive and it's decreased the strength of your mind to take that thought and turn it into action. And and so that is the main sort of reason why we want to remove the emotion uh is is to be able to retain sort of full conscious control.

uh clarity of mind uh and then obviously you know precision in terms of execution. Uh so this performance stress curve basically shows the relationship between it kind of looks like an upside down U. Right. If you st if you kinda think in that bottom left hand corner of this of this graph. Uh in that scenario, you have uh very little emotion um and your performance is also very low.

Right. So you could think about that as a scenario where you're super bored or you're just really tired. Right. Your performance is gonna be poor. Well, your performance is gonna be equally poor on the other side where your emotions are super high and your performance is also gonna be really bad. There you're you're very excited, right? You've made a ton of money and now you're gonna keep trading, right? Or you're you're super angry, uh, really fearful or or you know, greed has taken over.

Uh so in that scenario you're you're sort of equally as bad because the emotional system has done roughly the equal thing to your decision making process.

Now as you kind of climb the hill in a sense to the peak in the middle, that's where your emotions are most balanced and that's what we're after. That's the point where you're in the zone, where you're in that flow state or in peak performance. That is where there's almost no friction from you being able to access The technical expertise that you have acquired over the years.

matching it with your senses of the market and being able to create those intuitive reactions where you you kind of just know what's going on and you're able to make lightning fast decisions without any hesitation, right? As I said, without any friction. And so really what my job is about is uh in essence removing those points of friction, I kind of liken the mental game or what I'm doing in my job to like the oil in an engine. Right? The engine is really what makes

uh, you know, you profit. That's your skill. And and and if you don't have enough oil, right, too little or too much emotion, then then the engine's either gonna overheat or it's gonna seize and uh and and obviously not perform well. But but when you have uh things just kind of humming, uh that that's where you're making the most money because your decision making process is at its peak.

How do we get into a state where we're, as you called it, humming? Like what are some of the some of the exercises that you run through with the the players and the traders that you work with to kind of help them keep their emotions balanced? Yeah. So It i to be fair to like like what I'm trying to accomplish with players, i it's not a simple thing, but it's also not overly complex.

And I say it's not a simple thing because part of what I've tried to do with my with my work has been not to take the sort of traditional sports psychology stuff and just kind of plug it into poker or trading or even golf. And and the reason I say that is because a lot of sports psychology will say block out the emotion or try to use previous experiences where you've been humming or been in the zone as a sort of a reference point to try to recreate it today.

And I don't think that works long term. It might work temporarily in the short term, uh, but something that we might not be able to prove is more than a placebo, right? Like a sugar pill that isn't really producing anything of real effect. It's just a temporary, you know, manipulation of the mind. Um and so so really what I'm after is isolating all of the specific reasons why your emotions are either going to be too high or too low.

Right. And so we look at at anger, for example, as as a cause of too high, or you know, a lack of focus or a lack of motivation as a cause of of it dropping too low. And we actually try to systematically go in and and and and understand why it is that you're getting angry in those spots, why it is that you're losing motivation or focus in other spots and and and put in specific corrections for those things.

And as a byproduct of making those corrections, you are automatically more emotionally balanced. It doesn't make doesn't mean that you're gonna be permanently emotionally balanced and and humming. Because there's a constant evolution that exists within your skill set, within your mental game. And so there's a constant need to be improving all aspects of your trading. Uh but at a at a minimum, right? Anybody that's listening right now, the first thing that you can do.

Uh and I think the most important thing to do is to start to study uh your own uh emotional reactions that you have throughout the day. Right. So often when I start working with new traders, uh not new traders, but new clients, uh their knowledge about their skill set uh or about their emotional skill set is really poor.

Right. They they they'll come in saying, uh, you know, I'm losing a bunch of money here. Um, I feel myself, you know, kind of hesitating, you know, I I'm forcing trades here, I'm uh losing focus here. But but when you actually start to break it apart, they don't really understand why. They don't know the specific situations in which it's occurring. They can't recognize the the thoughts or the reactions that they're having in those spots.

And and I'm not saying that what they're coming to is is not something I can work with, right? It's a start, right? So so the the easiest way you can start doing this is to start by identifying the specific trading errors that you have. Okay. may give you an indication that there's some emotional reaction, whether too high or too low, that's present. And and when I say may, right, it's it's really important to know that sometimes

A trading error is simply a tactical one, right? I'm not gonna over uh overprioritize the importance of the mental game. But but here is where I can almost guarantee that a trading error is caused by a mental one. When you have continually made the same trading error year after year after year, and and you keep trying to learn more about the markets.

or learn more about the the stocks or the uh the companies that you're following, you you think that the solution to that trading error is more technical knowledge. then you know that it's mental, right? Then you know that there is some anger, some hesitation, some lack of discipline that is present in that spot. So basically, uh you your C game, right? In in poker

uh people uh really just in sports, people think about their A game, right? But they don't often think about their C game, the the the the worst aspects of their decision making. That's a really important thing for people to begin paying more attention about. What are the what are the situations in which you suck?

Right. It's very easy to just say, oh, you know, that was just uh, you know, the market went crazy, you know, yada yada yada, I lost a bunch of money. Or To say, oh, you know, that only happens once a month, not a big deal, right?

But the problem is that that by not fixing those mistakes, you are limiting your ability to continue to progress as a trader, not to mention the amount of money that's being lost there. So I know I I know I haven't gotten into really specific nuances about how to actually fix this stuff, but Hopefully this framework is at least helpful to get started. the end of this episode of Chat with Traders. But rest assured there are more episodes. if you'd leave a rating.