Two Ideas from Podcasts that Have Really Improved my Trading

Most trading podcasts are regurgitated platitudes from wannabe gurus, who started trading last Wednesday. But occasionally you come across some real traders - people who have been in the trenches for years and even decades and the perls the wisdom that they dispense makes all those wasted hours of walking the dogs well worth it. 

Recently I’ve heard two ideas that profoundly changed my trading for the better. The first comes from Denise Shull who was a prop trader herself for many years and now is a performance coach. Denise defines trading as  the ability to read OTHER market participants. This may not be a novel concept as John Maynard Keynes back in the 1930’s compared markets to a beauty contest in which the speculator has to figure out who the other judges would find the most beautiful. But Denise’s framing of the issue is extremely helpful because if you truly accept this construct you  can eliminate the issue of ego which haunts so many of our bad trades. 

After all if trading is just the art of getting paid for figuring how other will act then it is idiotic to believe that you personally can have any meaninginful impact on the market. Arguing with the market becomes akin to arguing with your relatives at Thanksgiving dinner. Not only is it stupid but it is as we all know utterly futile. By understanding that it is NOT YOU, but rather your ability to figure out what OTHERS will do that creates winning trades you can accept being wrong much faster and with far less resistance.  After all we can all agree that it's very difficult to figure  out what the crowd is thinking, especially when the crowd changes every second of every day. Once you accept the idea that you weren’t necessarily wrong in your analysis but simply misread the crowd then it becomes much easier to take a stop.  

Macro podcasts which I also listen to avidly, are full of guests who think that trading is all about their analytical models rather than reading the crowd. There are some guests who have been screaming about inflation for more than a decade. They have temporarily been proven right and are now strutting their stuff on every show because they actually believe that it was their  great analytical abilities that make them correct when in fact it’s just that their thesis has finally aligned with the crowd view. If you followed their advice for ten years prior you would have no money left to take advantage of the current change of regime.

Which brings me to my second great podcast takeaway which comes from my friend Anthony Crudele. Anthony has been trading longer than many of the YouTubers have been alive and recently he shared this gem during a podcast interview. Somewhere in the stream of the conversation Anthony recalled that a mentor from his early days on the CME floor taught him the idea of “Second trade first”. This is basically trader shorthand for stating that you need  to put your stop before you place a target. It’s the simplest of to do lists yet after watching thousands of traders (including yours truly) over the years I am convinced that this is the single biggest reason almost everyone blows up.

A lot of times we don’t put a stop in because of carelessness or because we “want to see where the market is going” (usually it’s going right after your position). Remembering “Second trade First” will  help you reduce carelessness and sloppiness but I think that is just a small part of the problem. The reason most traders do not place a stop or lift it in the middle of the trade is due to fear. The fear of a stop being hit is the single biggest reason why almost every trader blows up. That’s totally understandable and frankly I don’t have any brilliant solutions as to how to overcome that fear. All I can offer is the way I’ve been able to overcome it myself, which was to create a system of trade cycles rather than individual stand alone trades. When we live trade my scalp setups in my room we get stopped out multiple times before my  trades resolve. But since this all programmed into my trading plan we don’t think twice about it. I do “Second Trade First” as automatically as I make coffee in the morning. It’s become a reflex and because of that we’ve  never lost more than 20 ticks on a trade since we started and haven’t even come close to blowing up the account.

Taking stops is like any other activity in life. The more you do it the easier it gets. One of the  traders in my room described what we do as the three B’s- bounce, bank and balls - all of which is true but that approach has become much more profitable because I’ve been able to incorporate the trading insights  from Anthony and Denise.

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

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