[00:00:00] Today I want to talk about FOMO which comes up all the time but also just how to handle
[00:00:07] I've done some podcasts in the past on this about you're always missing something all
[00:00:12] the time because there's 8 billion people looking at so many things every day and you're
[00:00:17] just one person so in some ways you're always missing out on everything which if you think
[00:00:21] about it maybe makes you feel a little better about missing out on some stock but when
[00:00:25] you happen to pay attention to that stock or that thing where you invest energy in
[00:00:28] it you feel entitled to catch it and if you don't it pisses you off so handling
[00:00:32] that is kind of the first thing but today a little different twist on it is just in
[00:00:38] general thinking about good trading and a good trading process and kind of what
[00:00:43] that means and going through all the little steps along the way to understand
[00:00:47] like am I trading well and if I'm not trading well what can I do about it and
[00:00:51] is FOMO a part of that or when you're trading well you don't give a
[00:00:55] shit about FOMO because it's about the process of if I do this a thousand times
[00:01:01] is it gonna work out on balance and that's a process oriented approach
[00:01:04] versus like oh shit I knew the Nasdaq was gonna go up they came down to my area
[00:01:09] and my kid was sick so I was at home or whatever I wasn't able to trade it so
[00:01:13] then I'm gonna do something stupid instead and and that all gets us that
[00:01:18] we get hit by that once in a while and it's sometimes hard to manage but
[00:01:22] I'm gonna read to you something that the owner of my firm when I used to trade from
[00:01:27] a prop group in Chicago they sent this out to us in 2006 so it's an old one it's
[00:01:32] really good though actually this is from 2000 even older than that but it this is
[00:01:36] for day trading so if you're swing trading it it's very much the same but
[00:01:41] I'm just gonna read it right through to you because I feel like it's really
[00:01:43] good and I want to hopefully I can post this on my website or
[00:01:47] something but I want to just I want to just rattle it off because I think it'll
[00:01:51] help you kind of figure out where you are so first thing it's called roles roles
[00:01:56] mean like I'm on a roll or I'm not on a roll so number one what is a role and
[00:02:01] what does it feel like and what's it like to be on one so he says you're
[00:02:04] making money every day your losing days are small you have a few big winning
[00:02:08] days here and there that fall into that you fall into even though you're
[00:02:11] not trying to have one your trading seems to click even when you make a
[00:02:15] mistake it turns out that it's a profitable mistake you still make money
[00:02:18] when you make a bad trade or you're down money you are confident that you're
[00:02:22] gonna get it back by being patient and waiting for good opportunities even
[00:02:25] though you've had a bunch of average days when you look back over the month
[00:02:28] he made a lot of money because the big losers because without the big losing
[00:02:32] days it adds up very quickly you are varying your size according to market
[00:02:36] conditions when it is busy and you have a good feel for what you're doing
[00:02:39] you're trading larger when it is slow and you can't get a good read on
[00:02:43] what's going on you're happily trading smaller you're in a zone everything is
[00:02:46] going your way so that's kind of step one so I'm walking and trying to read so if
[00:02:51] I stumble sound like a goofball just that's why number point two how to get
[00:02:56] on a roll and how to stay there trade small enough when making decisions the
[00:03:01] size of your position does not make you hesitate or feel uncomfortable be patient
[00:03:05] pick your spots find good locations you only need to find a good a few good
[00:03:08] trades each day each week each month whatever whatever you guys are doing
[00:03:11] when you are wrong take your losses quickly do not think about money or ticks
[00:03:15] just get out be confident by doing the right things not thinking about money
[00:03:19] you will get yourself on a roll consider that doing the right things is a
[00:03:23] good day even if you do everything right and you lose money it's a good day
[00:03:26] that's fine and over time you'll make money be happy and content to take what
[00:03:29] the market gives you if there's nothing in the market stay on a roll by not
[00:03:33] losing if there's a great opportunity you will naturally take advantage of it
[00:03:37] be humble the markets are always right it is not your market predictions that
[00:03:41] get you on a roll it is by doing everything else right okay so now the
[00:03:45] third part of it what ends a rule you become overconfident and think that
[00:03:49] you're calling the market so well that you you can get in a bad location and
[00:03:53] still make money you start doubling up instead of taking losses no one goes
[00:03:57] broke by taking a loss every blowout story starts with someone doubling up
[00:04:01] you sit when you are wrong instead of taking a loss you are trading way
[00:04:06] too big for the market conditions you have one bad day and you press hard
[00:04:10] to make it back usually results in having another bad day
[00:04:13] nip it in the butt right away now that you've had a couple bad days you are
[00:04:16] really chasing it and you're starting to lose your confidence when a trader
[00:04:20] becomes frustrated and melts down it's always just it's always justified by
[00:04:23] statements like I know I'm sitting with losers and doubling up and I'm already
[00:04:27] stuck so much I'll just do the right thing when this is over don't
[00:04:30] justify that do the right thing right now a few bad days and you start
[00:04:34] doubting your skills you start thinking well it was all luck maybe
[00:04:37] it was a good market maybe it was a bull and I was on the right side the good
[00:04:41] news is after three or four days of doing all this if you just do the right
[00:04:44] things your confidence comes back and you're on a roll again okay so I'm
[00:04:48] done reading it so couple things stand out that I want to talk about in
[00:04:52] there first of all we can all relate to this 100% the big thing is you
[00:05:00] you seem to think that when you're in a bad position you have to once
[00:05:03] this is done I promise I won't do it again and the better thing is just
[00:05:06] slice it and get out just cut cut your hand off and start over don't or else
[00:05:11] you're cutting your arm off and you're cutting here you know your torso off by
[00:05:13] the end of it and just gets worse and worse usually a lot of times you can
[00:05:16] manage it and it'll come back but then when you can't you really can so the
[00:05:20] best thing is just to do the right move right now and start the other
[00:05:24] thing I've noticed is is if you want to add to a loser do it in advance
[00:05:30] with a very small position so let's say that you want to buy an uptrend
[00:05:34] you find the areas you like you say okay I want to get on let's just say my
[00:05:38] size I want to get on 2x or 3x 3x will say okay and this is the zone I want to
[00:05:43] buy so I'm gonna do one here one there and three here and then my stop is here
[00:05:48] so you're in an area and you're stopping out of the area but you know
[00:05:51] that if you get in and those waves like that with size you can handle it if
[00:05:54] it doesn't work so in a sense you're adding to a loser but it's with a
[00:05:56] plan and it's with the trend that's very different than going unconscious and
[00:06:00] adding to a loser especially when you're not going with the trend or something
[00:06:03] even if you are fading something because you have a good reason for it you think
[00:06:06] it's stupid news or it's a trend in a bigger time frame the idea of like
[00:06:11] pre-planning and having that risk measured out is really the only
[00:06:14] responsible way to do that if you're gonna do that so oftentimes I've had
[00:06:17] a lot of success when it's busy especially I often trade much larger
[00:06:20] when it's busy but I do it very small so what I what I mean is if we're in
[00:06:24] a hundred handle range in the S&P 500 I might be trading a fifth or an
[00:06:29] eighth of my size but I've saw I'm always starting the day small because I do
[00:06:33] not want to go down mentally and emotionally in the morning with a bunch
[00:06:35] of losers so I'll start small and I do this a lot with my longer term
[00:06:40] trades too and I get in and it wiggles around a little bit and if it comes
[00:06:43] off and I still like it I put some more on and then but ideally I want to
[00:06:47] add to my winners not my losers and then when it comes back up and
[00:06:50] starts firming up or has one last squeeze I can handle it because I'm
[00:06:53] not too big and I have my eventually have my risk still in the I know
[00:06:56] I'm wrong right and it starts to work I add more and then it goes maybe it
[00:07:00] really works out and I get out of some that comes back and then I add more
[00:07:03] and it goes up to the high and I had more and that's how I trade it
[00:07:06] doesn't mean that's the right way and not every trade is like that but if I
[00:07:09] see an explosive move that's the way I like to play it and that way I'm
[00:07:13] right with a lot on and I'm wrong with less on and it's worked for me
[00:07:17] and I like to feel the market that way I think when it gets busy it's you
[00:07:24] know you it's you want to trade smaller because you know if you start
[00:07:28] big in the morning good hit is just devastating so but you're also can
[00:07:32] make a lot more money when it's busy so I like this idea of getting of
[00:07:35] being smaller to get bigger when it's busy and that and that what I
[00:07:38] just described is how I do that the other thing he talks about is when
[00:07:41] you're trading well and it doesn't work out you just sometimes you take
[00:07:44] a loser when you're making money you get in and it starts working and
[00:07:47] you're like this does not feel right you just get out does something's
[00:07:50] not right or something that that you thought should happen is not
[00:07:53] happening and I'm just like this it's not right I get out and then it
[00:07:58] ends up being a loser and I'm just feeling it I'm very attuned to all
[00:08:01] the things I'm watching whereas when you're not trading well everything's
[00:08:04] a max loser it's like it's going to go to your stop and you're kind
[00:08:07] of unconsciously going to a number like wherever your max risk is it's
[00:08:11] funny how how that happens so don't be afraid to get out when things
[00:08:15] don't feel well when you're trading when you're when you're seeing
[00:08:17] things I think that's an important one.
[00:08:22] Just idea of just like thinking in terms of bigger picture process
[00:08:26] oriented approach of trying you try a lot of things and you
[00:08:29] figure out eventually what you're kind of good at or what your
[00:08:32] personality fits and you start working that whole process and
[00:08:35] everything's in everything is geared towards that process and
[00:08:38] how do you how do you do that a thousand times and be good at it
[00:08:41] and even if you're looking at thematic ideas and you're and
[00:08:44] you're doing eight to ten trades a year I still think it all fits
[00:08:47] into that bucket versus just I'm you know when I tried to move
[00:08:51] from from short term trading to swing trading to position
[00:08:54] trading I made so many mistakes along the way thinking that I
[00:08:57] could just do the same approach and ideally with like adding
[00:09:00] to winners and the process I described you I stick to that
[00:09:04] for the most part but it's just a different game and the way
[00:09:07] I figured out was just lots of experimenting into what works
[00:09:10] and what doesn't work and I'm still I'm still doing that
[00:09:13] and this idea of of going with the flow and the whole surfer I've
[00:09:18] given you the surfer analogy before with you want to go surf
[00:09:23] so you show up when the waves might be there and when the
[00:09:25] waves come you just simply go ride the waves and it looks
[00:09:28] really easy to everybody else look at this guy riding the
[00:09:30] wave you're not doing anything you're just doing you're
[00:09:32] riding the wave that already existed and you're just
[00:09:35] there because you knew it might come that's like showing up
[00:09:37] for the market when it's busy and you know there's going
[00:09:39] to be waves and you ride them when they come versus
[00:09:41] showing up because you think you want to make money and
[00:09:43] you're going to put trades on you're going to make waves
[00:09:46] and that does not work well because we don't make the
[00:09:48] waves we ride the waves and it's just so simple but you can
[00:09:51] really just get out of your own way when you think that
[00:09:53] way it's like I don't have to do anything but I might do
[00:09:56] something and it's it's like that's I feel like that's a
[00:09:59] great thing for life in general is just I don't know
[00:10:03] dating anything or just forcing forcing things that
[00:10:06] just don't fit forcing relationships forcing you
[00:10:09] to be the clean person who wants everyone to like them and
[00:10:12] it's just it fits so well for trading too I feel like so
[00:10:16] there's some of that in here but another point I want to
[00:10:18] point out in this is the idea that when you're trading
[00:10:21] well it's amazing how you think you can trade every move
[00:10:23] so it starts off with like I'm so beaten down I'm
[00:10:26] never going to figure this out all of a sudden like
[00:10:28] there's a quiet place of like okay I'm just going to
[00:10:31] go in I used to do the one page trading journal
[00:10:34] talked about this in the past too you put down like
[00:10:36] I'm going to wait for one or two scenarios today and
[00:10:38] that's it can I just obey that can I actually do what I
[00:10:41] say you know this is when you're at your bottom when
[00:10:43] you're struggling and you do it okay you build a little
[00:10:45] confidence you can honor yourself and all of a sudden
[00:10:48] a couple days of that you start you find one or two
[00:10:49] winning trades you feel good again confidence comes
[00:10:52] back and then at that point you're maybe maybe you're
[00:10:55] a little bit bored and just being bored is a good
[00:10:58] thing like you're you're awake and you're
[00:11:01] conscious but you're kind of whatever right maybe I
[00:11:04] trade maybe I don't great place to be and then
[00:11:07] a couple more winners come all of a sudden you nail a big one
[00:11:10] maybe add to it and let's go all the way to the top of the
[00:11:13] cycle now you can trade every move it's really busy and
[00:11:17] you're going to get long real quick because it's going to
[00:11:19] go up one more time but then ultimately you think it's
[00:11:21] going to go down but you're going to sneak in a long
[00:11:23] trade first then you're going to flip short yada yada yada
[00:11:26] and all of a sudden you get stuck and you get
[00:11:29] blown out it goes down early then it goes up then it
[00:11:31] goes down you get caught on every side you end up
[00:11:34] being right with your thesis but you get wrecked you
[00:11:36] get back a whole bunch of money maybe 40 50% of what
[00:11:39] you made really quickly and then you say to yourself well
[00:11:41] it's okay because I did so well and you justify it but it's
[00:11:45] actually the most you're the most vulnerable after a
[00:11:47] winning streak like you just are because you're
[00:11:50] going to think you can do everything but you got to go
[00:11:53] back to like the beginning of this document where he
[00:11:56] talks about how do you get on a roll you go in there
[00:11:59] you wait for opportunities you find a spot where if
[00:12:01] you're wrong hey it won't hurt much so what does
[00:12:04] that mean well I mean there's a lot of little things
[00:12:06] that there's a lot of important things I could do a full
[00:12:08] podcast on and these things that I'm rattling off like what
[00:12:10] does it mean to I'm not wrong by much well I really want to
[00:12:14] buy but other people might want to buy too so where are
[00:12:17] they going to be wrong where their stops going to be
[00:12:19] let's maybe get in maybe we get in where we would get
[00:12:22] out because that's where everyone else is probably
[00:12:24] going to get out so if we're wrong there it's not
[00:12:26] that painful you know what I mean everyone's looking
[00:12:28] at the same support resistance levels what if I get
[00:12:30] out where everyone else what if I get in where
[00:12:32] everyone else is probably getting out that's worked
[00:12:34] very well for me in a busy market because it always
[00:12:36] overshoots that I'm at that real like crazy extreme
[00:12:40] area where that's where I put my first position on if
[00:12:43] I'm trading small I can do that right I can handle
[00:12:45] that and then when it comes to snaps back up
[00:12:47] everyone got screwed maybe I rebuild my position
[00:12:49] bigger but putting myself in that position well when
[00:12:52] I think I can call every move I'm certainly not
[00:12:54] doing that trade because I'm so smart that I'm
[00:12:56] already in I'm predicting things I'm not waiting
[00:12:59] and not thinking about what everyone else is
[00:13:00] doing which is an important aspect of trading so
[00:13:04] there's no second order thinking there's just like
[00:13:06] we're going to go up you know if I'm holding stuff
[00:13:08] against me it worked out so I'm feeling even more
[00:13:11] emboldened my P&L went up I'm not thinking about the
[00:13:13] process anymore though I'm gone I've lost it
[00:13:16] so I'll kind of leave it there but I just think that
[00:13:20] these are all things that are you never don't need to
[00:13:23] hear these things no matter how long you do it
[00:13:24] these are always important things to hear because
[00:13:27] it's just a natural cycle of things and eventually
[00:13:30] you do it for a long time and you get better and better
[00:13:34] no one's perfect like a 30 year like I've been doing it in 27 years but
[00:13:38] with a 30 40 year veteran I would imagine still makes these mistakes
[00:13:42] just not as much they don't dip down as low they stay up more
[00:13:46] they spend most of their time consciously operating and very little
[00:13:50] time unconsciously operating outside the process still of course they're
[00:13:54] going to slip that's going to happen but it's just less
[00:13:58] so when I first started there's guys who at the prop firm who were great at making
[00:14:01] money but they would always lose it all the boom and bust cycles which I'm sure
[00:14:04] some of you are going through and then you evolve past that where you
[00:14:07] you get so beaten down you forget how to make money and
[00:14:10] you rediscover your risk taking you make the money and then you're like okay
[00:14:13] can I maybe I make a little less but I don't lose near as much
[00:14:16] that's a better plan because now I can trade bigger because I can I know
[00:14:20] that I can count on my risk management well if you can count on your risk
[00:14:23] management you can trade bigger because you know you're not going to slip and
[00:14:27] break your legs you're gonna roll your ankle and walk it off
[00:14:30] so that's the old saying right if I fall off I fall down a couple steps I try
[00:14:34] to run okay maybe i'm okay I walk it off I fall at the
[00:14:38] window I bust my leg I try to run uh-oh major
[00:14:42] injury that's the same thing with your trading account
[00:14:45] and I've given Pog if you go back a few years I've had some dark moments
[00:14:48] where I've given some you get probably tell when you hear my voice
[00:14:51] and I've I tried to run on a broken leg a couple times and didn't didn't go so well
[00:14:55] and I had to do the slow rebuild I've done so many slow rebuilds
[00:14:59] that I don't know how you and how you don't do that if you're going to survive
[00:15:02] it's just part of it so anyways um I don't leave it there for today but I
[00:15:06] just thought that was fun because it's an old document I
[00:15:10] had that super valuable and I want to just I should probably do this
[00:15:14] podcast every year just talk to myself because it's
[00:15:17] never too many times to hear it