The 30-Minute Stock Trader
Page 12
My clients always learn the most important lessons when they lose money, rather than make it, because of our natural bias toward risk aversion. If you’re up $50,000, your ego turns on and you tell yourself how great you are. You forget the important things. You don’t observe yourself. You just feel great. But when you’re losing $50,000, it sticks in your mind. You start to feel anxious and second-guess. You look at your strategy. Why isn’t it making money? Why isn’t it doing what it’s supposed to? You start to redefine and reanalyze your objectives. Were they set correctly?
You start to feel uncomfortable. Fortunately, that uncomfortable feeling will teach you if your strategy is truly right for you. You only know if you’re comfortable trading long and short together—if you’re comfortable with trend following or mean reversion—from real-world experience losing money. You don’t know if a strategy is right for you until you’ve seen it at its worst and experienced your emotional response. You don’t yet know if it’s a strategy you can follow for life.
When you’re up $50,000, you think about how great you are, and what you’re going to buy, and how you’re going to retire earlier with more money. You don’t analyze your trading; you just pump up your ego.
I can’t stress this enough. Your strategy will work and grant you financial freedom only if your objectives and beliefs have been clearly defined and tested based on real-world experience. You must know if you will be able to stomach your strategy and still follow instructions when you’re experiencing the inevitable, maximum drawdown.
Many people trade stocks because they want fast-paced excitement. Their personality likes excitement, and they think trading is the perfect hobby. This is terribly wrong. If you get excited when your strategy does well, I can guarantee your risk management sucks. Getting too excited about wins means that you are too attached to the money you’re making. That means sooner or later you’ll be in a drawdown, and you won’t be able to handle it.
To be profitable and successful in trading, you need to have a process-oriented approach to trading rather than a results-based approach. That’s not exciting. It’s quite boring. But good trading is supposed to be boring, because the objective is simply to execute your proven process. You can’t look for excitement in the markets; you’ll fail. Make your trading boring so you can find excitement in other areas of your life—love, travel, adventure, whatever you enjoy.
Take a long-term view of your trading. Be aware that you will always experience drawdowns, even with a proven strategy. In fact, most of the time your strategy will be in a drawdown. The S&P 500 has been in drawdowns for seven years straight, historically. That’s way too long, of course. Your strategies, though, will sometimes go through a period of a year or longer where you’re not making any money. That’s part of trading. In order to make this work, you can’t think that time period means anything. It’s just like running a business, or investing in real estate. You will have months when your business is losing money, or the housing market isn’t good. Trading is the same. You need to look at your results over a ten-year period. What results can you achieve in ten years? It doesn’t work if you look at just a couple of months. Trading is not a game where you can make money in a short time. Most who try that go out of business. There might be some lucky people who make a huge amount of money short term, and they’ll brag—but they’ll blow up eventually, and you’ll never hear from them again.
This process-oriented, long-term approach requires you to shut out the noise and go live the life you want. You need to ignore what the media tells you to buy, and what the newspaper says. It won’t help you if everyone says gold is going up or down. The only thing that counts is trading your strategy, which follows price action. It’s not prediction. The whole noise around investing must be ignored.
A client of mine is a busy executive who has a high-paced job that pays well, and he has significant equity on the side. I did four days of private consulting with him, and we developed a great strategy that consists of several substrategies, well defined according to his beliefs and objectives. He’s been trading for seven months and is up about 23 percent, including the big drop in the market in January 2016. He has made over 300,000 USD this year, and is outperforming the index significantly, because he’s executing his strategy the way it’s supposed to be executed.
He’s having such success because he basically acts like a robot now that the work is done. He focuses on his busy job and life. He travels a lot. He schedules thirty minutes a day to blindly enter his trades, and then goes on with his otherwise exciting life. Because of this, January’s drawdown had no effect on him, and now he’s up big. He understands the value of a robust strategy. This mind-set of understanding that his up-front hard work will gift him a tool he can use for life is unique, and the key to his success.
Because he’s so busy, he often does his thirty minutes of trading at 10:00 p.m. We had to make some concessions. We were realistic with what his energy level would be like after work, and so we created a strategy that requires him to enter fewer trades. He wasn’t realistically going to put in forty orders at 10:00 p.m., so we sacrificed some potential return. It was better to ensure he would follow the strategy rather than try to maximize profits. He’ll still do exceptionally well, and he can be sure he’ll follow his strategy.
With your strategy set up to grant you financial freedom, you can start shutting out the annoying noise, so you can live your life. You don’t need to look for excitement in the markets, because you can wake up and swim in the ocean, take your kids to school, stay in bed with your wife, go skiing, hiking, skydiving, or do whatever it is that excites you. The strategies in this book have been proven, not only based on back testing, but based on the real-world results of my experience and that of my clients.
Now, the strategies in this book are outstanding, but they’re not optimized and personalized for you. If you’re a truly committed trader looking for the best results, visit TradingMasterySchool.com to design your own strategy, step by step. We have various programs—from a video course to my popular, competitive Elite Mentoring program—in which you’ll learn together with a group of highly skilled and committed people.
When the back test shows one thing and real-time results show the same thing, that is as scientifically proven as trading can get. This isn’t high-frequency trading, with fancy computers that you can’t compete with—it’s simple, proven trading that has worked for decades, and will continue to do so as long as you do the work I’ve outlined. Work hard, be honest with yourself, trust your strategy, and enjoy your freedom.
The final step is the most important: You need to take action!
The key to success in the markets is to put this information to work, and to actually apply it to your own trading, based on your preferences.
The best way to implement what you’ve learned into your trading so that you can reach the next level—financial freedom—is to join my Trading Mastery School’s Elite Mentoring program.
Alongside a group of ultra committed traders, you’ll build your own suite of noncorrelated trading strategies, perfectly suited to your personality, lifestyle, and risk tolerance. We’ll take you through everything, step by step, and you’ll graduate the program with a perfect strategy you can use for life.
Whether you like day trading, swing trading, trend following, a combination, or anything else, we’ll find what’s best for you and design a solution, together.
You’ll have access to our Trading Mastery School Elite software—the same software I use to develop my strategies—exclusively available to Elite Mentoring students.
For more information, visit:
https://tradingmasteryschool.com/elite-mentoring.
Laurens Bensdorp is the founder and CEO of Trading Mastery School.
In his younger years, he traveled the world instructing white-water rafting guides—growing their guiding skills and general performance, and developing contingency plans. Laurens’s training was highly demanded, and he
has worked in Germany, Austria, Turkey, Israel, Dominican Republic, Costa Rica, and Chile.
In 1998, Laurens started his own adventure tourism company in Mexico and successfully sold his shares in 2000.
In 2000, Laurens was hired to manage a small boutique venture capital company in the Netherlands. This started his career in finance and helped him discover his real passion—trading and beating the markets. He began managing all of the company’s investments, first lowering its risk profile. It was a great learning experience, but Laurens disliked the corporate environment.
From then on, Laurens devoted a large portion of his nonworking hours to educating himself about trading and risk management. After years of endless studying, Laurens created a trading style that suited his personality, lifestyle, and beliefs.
He then devoted a decade of his life to developing automated, algorithm-driven trading platforms to maximize profit, while limiting risk, and keeping management time to virtually zero. From 2006 on, he had vast success trading his family’s accounts.
Laurens was featured in Van Tharp’s book Trading Beyond the Matrix, in which he explains how he transformed himself from a losing trader into a winner.
Outside of trading, Laurens enjoys spending time with his family, traveling, wine collecting, skiing, and taking long walks on the beach.
Through his personal foundation, “Fundación Albenco,” Laurens and his wife help disadvantaged children in Colombia gain an empowering education.
As a stock trader who only needs his software and an Internet connection, Laurens has the freedom to choose his dream location. Laurens has lived in eleven countries, speaks five languages, and currently lives with his family in southern Spain.
As a thank-you for reading my book, I’d like to offer you free access to a video course in which I dive deeper into the settings and parameters of each of the strategies, discussing the charts and statistics in more depth.
Simply visit:
https://tradingmasteryschool.com/book-offer