The Key to Success

I was fortunate enough to attend and speak at TradersACause charity event in Las Vegas this month. This was my second time at the event and in my opinion it is one of the ‘must-do’s for anyone taking trading seriously especially if they would like to network with like-minded traders and industry experts. In the event you will find real people, real topics, no egos & just pure learning and sharing experience…the way I like it!

The title of my speech this year was: ‘The Path to Self-Motivation & Success’. I didn’t want to talk about just trading but self-motivation and & success in general terms. My speech started with one of my favourite stories, let me share it with you here:

In the middle ages there was a young man who was living in a mountain village. He was a perfectionist and was obsessed with being successful. He wanted to be very very successful. He asked: “What is the key to success?”. People in the village tried to answer but none of the answers satisfied the young man. One of the elders in the village told him about a wise man who was living at the top of the mountain, in a cave, and he might be able to answer his question. However, he also warned him about the dangers of the journey. It would take several weeks and he would need to face wild animals and snow storms on the way up. The young boy didn’t even think twice. He immediately decided to go and find the wise man who could finally answer his question…

1442995-1920x1080-desktopnexus-comThe journey took several weeks and finally the young man arrived at the cave. The wise man was inside. He looked at the young man said “Come inside, Boy! Tell me what is in your mind?”. The young man was very excited to see the wise man and asked him the question at once: “What is the key to success? Please tell me!”. Wise man smiled, looked at him in the eye and said “Come with me, boy!”. They left the cave, walked some distance and arrived at a mountain lake. The water was crystal clear. The wise man went in the lake, water reaching his knees and said “Come here boy, the key to success is right here” pointing under the water. The young boy was so excited; he went in the water immediately. He kneeled down to see and find the key but he couldn’t see anything. The old man said “It is right there, can’t you see it?”. The young boy still couldn’t see the key and put his head right near the edge of the water to be able to see better. Suddenly, the young man felt himself seized by a strong hand at the back of his neck. His head was forced down under the water, and held there firmly. He didn’t know what was happening but he needed to breath. Fast! Just as he was about to give up hope, thinking he is going to die there, the hand on his collar let go. Violently leaping onto the shore, the young man drew in his breath in heaving gasps. Oxygen flooded his lungs. His vision grew clearer, the hammering in his throat slowed down, his hands finally stopped trembling. The wise man looked at him and said ” What was the most important thing that you wanted when you were under water”. The young man answered “It was air!”. The Wise man continued: “You wanted to know the key to success. Now you found it… Do you remember, just a few minutes ago, how badly you wanted to take that next breath of air? When you want success that badly, you will have it. That’s the secret of success. The Success is WITHIN you – it is not somewhere to be found or told, you just needed to realise that you already have it..” and then the wise man left…

Young man sat down there for a few hours. He now realised the power of self and self-motivation and became successful in everything he did in his life….

Ask anyone if they want to succeed or not, and you’ll get a firm ‘Yes’. But ask them what they’re willing to give up, sacrifice, suffer, accept, tolerate and forego for that success, the answer is generally not as clear…

I then continued my presentation with Triangle of Success.

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To be successful in anything we do, we need to have 3 key ingredients: Skill, Attitude and domain knowledge. Due to time constraints, in my speech, I focused on the most important two sub-ingredients which are Goal Setting & Self Motivation…

I have written an article about importance of Goal Setting in the past. You can read it here. I sunmmarised that the most important things to do when we set goals are:

  • Writing them down (It is scientifically proven that you are much more likely to complete the goal if you write it down and make it tangible)
  • Visualising Yourself Completing That Goal Successfully
  • Setting Interim Goals (so you divide a big goal into digestible smaller goals)
  • Evaluating Your Goals (There are thousand ways to climb the same mountain, if one way is not working – find another way)
  • Achieving your goal and Rewarding Yourself (Part of your motivation)
  • Repeat

Setting Goals might be easy enough but how will you motivate yourself to complete that task? In my speech I mentioned about the Self Motivation Formula:

M = E x I x V

M = Motivation

E = Expectancy (Will my hard work result in measurable progress toward the goal?)

I – Instrumentality (How likely is that I will be rewarded or punished)

V = Valence (What is the size of my reward at the end?)

As it can be seen from the formula, Motivation multiplies with combination of the above. When setting goals, you need to think about the above ingredients and decide on the ambition of your goals.

And never forget, The only thing that will stop you from fulfilling your dreams is YOU. Believe you can & You are half way there…

I hope this helps.

Yours,

MT.

Some of my favorite Trading Quotes

“I think to be in the upper echelon of successful traders requires an innate skill, a gift. It`s just like being a great violinist. But to be a competent trader and make money is a skill you can learn”. – Michael Marcus, Trader

“Successful investing is anticipating the anticipations of others.” – John Maynard Keynes

“No profession requires more hard work, intelligence, patience, and mental discipline than successful speculation.” – Robert Rhea

“In bear markets, stocks usually open strong and close weak. In bull markets, they tend to open weak and close strong.” – William J. O’Neill

“The policy of being too cautious is the greatest risk of all.”– J. Nehru

“You don`t need to be a weatherman to know which way the wind blows” – Bob Dylan

“The market does not know if you are long or short and could not care less. You are the only one emotionally involved with your position. The market is just reacting to supply and demand and if you are cheering it one way, there is always somebody else cheering it just as hard that it will go the other way” – Marty Schwartz, Pit Bull

“More men have become great through practice than by nature.”– Democritus

“Volatility is greatest at turning points, diminishing as a new trend becomes established.” – George Soros

“I was seldom able to see an opportunity until it had ceased to be one.” – Mark Twain

“Panics do not destroy capital—they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works.”– John Stuart Mill (1806 – 1873)

“Superlative performance is really a confluence of dozens of small skills or activities, each one learned or stumbled upon, which have been carefully drilled into habit and then are fitted together in a synthesized whole. There is nothing extraordinary or superhuman in any one of those actions; only the fact that they are done consistently and correctly, and all together, produce excellence.” – Daniel F. Chambliss, Professor of Sociology

“Success consists of going from failure to failure without loss of enthusiasm.” – Winston Churchill

“Every trader has strengths and weakness. Some are good holders of winners, but may hold their losers a little too long. Others may cut their winners a little short, but are quick to take their losses. As long as you stick to your own style, you get the good and bad in your own approach.” – Michael Marcus

“The goal of a successful trader is to make the best trades. Money is secondary.” – Alexander Elder

“Vision without action is a daydream. Action without vision is a nightmare.” – Japanese proverb

“A great trader is like a great athlete . You have to have natural skills, but you have to train yourself how to use them.” – Marty Schwartz, Pit Bull

“One characteristic I’ve found among successful traders is that they function effectively when they’re not trading. When markets become very quiet and range bound, they occupy themselves with a variety of activities, from sharing ideas with peers to conducting research. Traders who do not tolerate inactivity well inevitably feel the need to trade, often when there is no objective edge present. For them, losing money is less onerous than experiencing boredom.” – in Trader Feed

“To be a super-trader, you’ll need an edge to overcome the laws of probability and the uncertainty of the marketplace. That edge comes from information flow, the ability to correct your habits in terms of the market’s characteristics, and being able to take risks, cut losses, expand your information network, ferret out ideas, and take recommendations.” – Trading to Win, Ari Kiev

Two rules for investing/trading:

Rule number one : most things will prove to be cyclical

Rule number two : some of the greatest opportunities for gain and loss come when other people forget rule number one

Howard Marks

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. If you want to have a better performance than the crowd, you must do things differently from the crowd.” – Sir John Templeton

“Money won’t buy happiness, but it will pay the salaries of a large research staff to study the problem.” – Bill Vaughan

“A lot of people get so enmeshed in the markets that they lose their perspective. Working longer does not necessarily equate with working smarter. In fact, sometimes is the other way around.” – Martin Schwartz, in Pit Bull

“The markets are the same now as they were five or ten years ago because they keep changing-just like they did then.” – Ed Seykota

“I have been trading for decades and I am still standing. I have seen a lot of traders come and go. They have a system or a program that works in some specific environments and fails in others. In contrast, my strategy is dynamic and ever evolving. I constantly learn and change.” – Thomas Busby in Trade To Win

“Have no fear of perfection – you’ll never reach it.” – Salvador Dalí

“The ability to foresee that some things cannot be foreseen is a very important quality”. – Rousseau

“A handful of patience is worth a bushel of brains” –

Dutch Proverb

“Investing is no different. It is a game of repetition where hundreds of small actions result in one larger result. But most importantly, it is a game of risk management. It is not the home run hitter who wins in the long-run. Rather, it is that strategist who devises the best long-term plan who ultimately wins. While hitting home runs is sexy it is rarely a recipe for success in the investment world. Aim high, but play small. Over time, good risk management and patience wins. Power is no substitute for precision and patience. The same is true in the world of investing.” – in The Prag Cap

“The game taught me the game. And it didn’t spare me rod while teaching.”– Jesse Livermore

“I think it was a long step forward in my trading education when I realized at last that when old Mr. Partridge kept on telling other customers, “Well, you know this is a bull market!” he really meant to tell them that the big money was not in the individual fluctuations but in the main movements-that is, not in reading the tape but in sizing up the entire market and its trend.” – Jesse Livermore

Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.” – Bruce Kovner, hedge fund manager

“Losing money is the least of my troubles. A loss never troubles me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does the damage to the pocket book and to the soul.” – Jesse Livermore, Reminiscences Of A Stock Operator

“I have learned through the years that after a good run of profits in the markets, it`s very important to take a few days off as a reward. The natural tendency is to keep pushing until the streak ends. But experience has taught me that a rest in the middle of the streak can often extend it.”– Martin Schwartz, in Pit Bull

“It is not enough to have a good mind. The main thing is to use it well.” – Rene Descartes

“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business” – Van K Tharp

“If somebody had told me my method would not work I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.” – Jesse Livermore

“The most important organ in the body as far as the stock market is concerned is the guts, not the head. Anyone can acquire the know-how for analyzing stocks.” – Peter Lynch

 

“I discovered, from the analysis of over 25,000 people, that men who succeed in an outstanding way, seldom do so before the age of forty, and more often they do not strike their real pace until they are well beyond the age of fifty.” – Napoleon Hill, Think & Grow Rich

“Obviously the thing to do was to be bullish in a bull market and bearish in a bear market… I came to learn that even when one is properly bearish at the very beginning of a bear market it is not well to begin selling in bulk until there is no danger of the engine back-firing.” – Jesse Livermore

“Beginners focus on analysis, but professionals operate in a three dimensional space. They are aware of trading psychology their own feelings and the mass psychology of the markets.” – Alexander Elder
“Money doesn’t always bring happiness. People with ten million dollars are no happier than people with nine million dollars.” – Hobart Brown

“Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.” – Ed Seykota, trader

“To be a good trader, you need to trade with your eyes open, recognize real trends and turns, and not waste time or energy on regrets and wishful thinking.” – Alexander Elder

“Markets can remain irrational longer than you can remain solvent.” – John Maynard Keynes

“The markets are unforgiving, and emotional trading always results in losses.” – Alexander Elder

“When a falling stock becomes a screaming buy because it cannot conceivably drop further, try to buy it thirty percent lower.” – Al Rizzo

“Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.” – Peter Lynch

“There is only one side of the market and it is not the bull side or the bear side, but the right side.” – Jesse Livermore


“I know at last what distinguishes man from animals; financial worries.”

Romain Rolland

“Learning trading means living a few years of your life like most people won’t,so that you can spend rest of your life like most people can’t”

MonacoTrader

Trading Psychology and Emotions

Trading Psychology and emotions play the biggest role in your daily trading. Let me elaborate on this more in this article.

Dr. Van Tharp, a leading psychologist, is very well known for breaking down the trading process into three categories that affect traders. He categorises them by importance as follows:

  • Trading strategy (10%)
  • Money management (30%)
  • Psychology (60%)

The fact that trading strategy is the least important factor in Dr. Van Tharp’s trading process above, this suggests that regardless of how successful your trading strategy is, your psychology is the key to being successful in trading.

In one of my previous articles we looked at Fear of Missing Out (FOMO) and how it can affect your trading. Fear & Greed are the two emotions that have a negative impact on your trading journey. Experienced traders know that the greed makes you to try to take too much profit (when it is not there) and you end up with less profit or loss. Similarly, fear causes you to cut your positions quickly in loss or less profit where you could make much more.

Another important psychological factor is the ‘Ego’. We all have an Ego. We all want to be right. A trader highly influenced by his own ego will never admit that he/she is wrong. This means that, he will never be able to learn from his/her mistakes as he is unable to see those mistakes in the first place. This will ultimately result on more losses and get him/her out of the game all together.

Another aspect of emotional trading can be summarised as ‘revenge trading’. In revenge trading, the focus of the trading shifts from finding the best trading setups (according to trader’s own strategy) to fastest way of recouping losses. The trader focuses on winning the losses back (very similar to a loser gambler attitude) and ends up losing more money.

The final aspect of emotional trading is over trading. This mainly happens after big wins and the trader greed kicks in for more profits. The whole situation ends up with losing the previous gains or accumulating big losses in the process. This is a Greed based human behaviour that can be seen in experienced and inexperienced traders. Difficult to control but not impossible.

So how can we cope with our own Psychology and Emotions? You heard the trading term: “be like a robot” that comes to mind. Easier said than done! The trading algos are much more profitable than humans (when they are using a profitable strategy) for one reason only, they cut out the emotion from the equation!

As a human trader, your only weapon is discipline. You might know about what to do but applying discipline to your trading will require time and experience. As good old Warren Buffet says: “You can’t make a baby in a month by getting 9 women pregnant”.

My personal advice is as follows:

  1. The start point should be working on your ego. When you are wrong, admit that you are wrong. This will be difficult at first, but in time you will see the benefits of doing so. You will be able to see your mistakes. What went right and what went wrong with that particular trade.
  2. Have a trading diary. We are humans, we forget! My suggestion to especially new traders is having an excel sheet and note down every single REAL trade that they have done (not interested in paper trades as they do not reflect the emotion of losing real money). Make sure to have a separate column for your notes, note down everything why you entered in that trade, why you exit? did you follow your initial plan (this is very important), if not why not? Take as much notes as possible so you can go back and see what happened to your trade. What went well and what went wrong. The pattern will start to emerge when you have at least 100 or more trades, you will be able to see the bigger picture. I Cannot stress this enough, HAVE A TRADING DIARY (even if you are an experienced trader).
  3. Be DISCIPLINED! Once you have a working strategy, follow it to the letter! It is not always easy to do so, but you will get better in time if you apply discipline. Also make sure to have some trading goals (my article on setting goals can be found here)
  4. Set your expectation accordingly! Trading is not easy, do not expect easy money. Know that you will have to work for your money. A lot of hard work needed to be a successful trader.
  5. Find out what works for you. Be honest with yourself. If you are overtrading, what is the best thing to do? Some people can control themselves in front of the PC, some simply cannot. After a successful trading session, I often take a coffee break to clean up my mind and more importantly my emotions. If it is a particularly good trading day, I go for a drive in my car. Whatever works for you. Perhaps go dip in the water, have a coffe, drive, call a friend, etc.
  6. Enjoy what you do! Yes, trading is hard work but there is nothing more satisfying then knowing your strategy works, you were disciplined and executed that trade according to the plan (or avoided that big loss successfully).

I hope it helps. Have a great weekend.

MT