Characteristics of a Great Trader. Trading BIG!

Before we talk about this, I want to revisit what we talked about last week, we talked about the characteristics of a losing trader and I love this quote, or this table, this table is from the book, The best loser wins: Why normal thinking never wins a trading game by Tom Hougaard. This is a great book by the way, to check out. It's a pretty quick read and he puts in some really thought provoking material. What this table shows is this is the failure rate. This is the percentage of clients that lose money and this is some of the biggest FCM, some of the biggest brokerages in the world. IG markets, markets.com CMC markets, Saxo Bank and FX Pro and what's interesting is one thing they all have in common is they have all kinds of supporting educational material, to educate their traders. Because, remember, the broker is actually they want you to win, they really do. Now, they'll make money either way, which people don't like, right, they're going to make money, if you lose, they want you to trade. That's the bottom line, they want you to trade, they make money when you trade. Now, if you win, you'll trade a lot longer, you'll be a client of theirs a lot longer. This is interesting for all the support that they give you. They give the average trader this is the failure rate. So Tom talks about is normal is a loser. Normal does not work. So I shared with you last week, a lot of the characteristics of losing traders. So hopefully you watched that Trader Tip Tuesday, and then you evaluated yourself to see if you see yourself with any of those characteristics, but today, we're going to flip it and we're going to look at it from a different angle. 

So first of all, let's talk about six things that great traders do differently than losing traders. Six aspects that make them profitable. Put them in that 20 to 25% and the reality is, they're not in a 20 to 25%. They're in like the 1%. Okay, great traders are like 1% to 2%, more like 1%. So great traders have superior psychology. What does this mean? This means that everybody starts to get scared, they get on alert. They're ready to jump in and take risk when everyone else wants to get rid of risk and when everybody's getting really greedy, they get out. They have a great sense, they have a great awareness of themselves, and what their objectives are and they can operate independent of the crowd, they can go against the crowd. The second thing is they have superior trading plans. They have great contingencies, they think out things in advance. One of the things I'm so fascinated about is we can look at sports as a great analogy. Think of your favorite sports team. Think of the coach of your favorite sports team. Just imagine if the coach of your favorite sports team, in my case, a big Green Bay Packer fan. So Matt LaFleur is the coach of the Green Bay Packers. Now imagine if Matt LaFleur went into the game like yesterday, the Packers played the Bears. Imagine if Matt LaFleur went into the game and just said you know what? We'll figure it out when we get to the game. We got good players. We put in our work, we'll figure it out when we get there. He'd be fired. Like he would be gone. There would be outrage on public radio. Never happened, yet people trade all the time with no plan. No contingency plans. Great traders have contingency plans, they've thought through what's the best thing that can happen? What's the worst thing that can happen? What are annoying things that can happen? What am I going to do? If that happens? What are my adjustments I will make during the game? During the trading day? 

Number three great traders follow their trading rules and they follow trading plans. This means they have rules and they have plans and they evaluate themselves. They evaluate their success as not whether they made or lost money, but did they follow their plan? If they follow their plan they pat themselves on the back, great job today. They didn't follow their plan, well then we go back to number one. Do they have superior psychology because people with superior psychology will follow their plan. Okay then we move on to number four, great traders are patient for the best opportunities. They don't feel the need to trade all the time. They wait and they wait and they wait. I was talking about traders fall into two camps, you're either in the overtraining camp or you're in the afraid to trade camp. Over traders need to slow down. They don't need to trade so much. They need to wait for the best opportunities, not every opportunity, the best opportunities. People in the afraid to trade camp, well when the opportunity comes, they need to step up. They need to step up to the fucking plate and need to make the trade. 

Okay, then number five, great traders hunt superior reward to risk ratio trades, big R winners, jackpots. In the 10 Irrefutable Laws of trading success, this is number one. Hunting big wins solves all your problems, jackpots solve all your problems and this is something that great traders do a great job of. At number six, great traders trade bigger when the best opportunities come along. They don't trade the same bed size every time. When the best trades come along day trade bigger. So that's our focus today. Let's talk about this. One thing is interesting is a clearing firm went through and did a study of 25,000 client accounts and one of the things they found that the common characteristic of their most successful traders was that their most successful traders added to their winners. Now, in my experience as a trading coach, and I've been doing this now I was talking with somebody about this today, I've been doing this for 35 years, I have been training traders since I was 19. I often forget about that and I've trained traders on every level. Trained traders have made nine figures, haven't had one and made 10 figures yet, but it's coming, we'll get there. I've got traders that have made $100 million in a year, $10 million in a year, all ages, you name it. So like I've got a lot of experience with this and this is one of the things I find that the majority of traders, and I'm talking like 95 to 98 99% of all traders, struggle with the idea of managing their winners. They struggle with the idea of managing their winners, most traders I deal with because they they're not psychologically crazy, least when it comes to trading, they're good about taking their losses, they don't have an issue with that. What they're horrible with, is holding on to their wins. So as soon as the trade is profitable, they start asking the question of where am I going to peel? How am I going to hold these profits? In some cases, the trade will be profitable and maybe they're not sweating at that point, but soon as the trade starts to turn, they start to freak because their profits might turn to losses. They don't want that. 

Okay, so 99% of all traders, as soon as they get into a trade are thinking about how they're going to get out of it. It's very, very rare that I come across a trader who, once he gets into a trade and it starts working for him or her, starts asking the question of how do I make it bigger? How do I add? Those traders are the traders that are the best. In general, not all cases, but in general. Those are the traders that are the best. So let's step back for a moment, let's talk about three ways that you could trade bigger and it works for you. Number one, you could use what we would van Tharp use to call markets money, your profit capital to increase the size on subsequent positions when you're profitable. So maybe you bet a half a percent of your account. So if you have $100,000 account, you'll bet $500 on a trading idea, and every idea your better half a percent, but if you get profitable, you might bet 3% of your profit capital. So if you think about it, if I have $100,000 account, I risk a half a percent, so I risk $500, but if I'm up $10,000, I'll risk 3% of $10,000. That means I'll risk another $300 in my position size. So my risk will be 800 instead of 500. If I'm 50,000, 3% is 1500. So I'm betting half a percent 500 plus 3% 1500 and now my bet size is $2,000, it's now four times bigger than what it was initially. So if you have decent reliability and good reward to risk in your system, that can cause your profits to explode. So that's one way to do it. 

Second way to do it, is you take your best ideas, ideas, that you have high conviction that they're going to work, and you trade them bigger. So maybe you bet half a percent on your standard idea. So $100,000 account, you bet $500 on your standard ideas, but you have a way of grading your conviction, ranking your conviction around a trade and if you have really high conviction, instead of betting 500, you might bet 1500 or 2000. Betting bigger on your best ideas. I had a friend that worked for Paul Tudor Jones, and I know Paul too, but he talked about Paul had this rigorous money management method that he used to calibrate his positions to the optimal size. He was really good about trading positions at that size, but he said, every now and then he'd have a trade that he would like and he just say, well, we're going big on this one and he throw the whole position sizing algorithm out the window. Instead of betting, let's say 35 basis points, he might bet one and a half percent, two percent because he loved the idea. 

The third way you can do this is pyramiding or we also call it campaign trading. In pyramiding, what we do and this is essentially what they talked about that they saw the behavior in their best clients, is that when you have a winner, and the trade begins to go your way, when you have a trading idea, and it starts to go your way and become a winner, you add to it, making it bigger. Adding to the position as it goes your way, making the position size bigger and bigger. The general idea of this is that you take an initial risk and then as that trade unfolds, you might be able to eliminate your initial risk, or you might just be willing to embrace more risk because the trade is working for you. Giving you positive feedback. It's so crazy. It's something so simple. This escapes people in trading, something so simple as feedback. The idea that if I put a trade on it goes against me, I probably should be assuming I'm wrong and figuring out how to be smaller and when a trade goes my way, I'm getting feedback telling me I'm right and I should be starting to think about how I'm going to get bigger. Just this idea alone can be enormously helpful for the profitability of your trading. 

Now, quick story I'll share with you Stanley Druckenmiller. Stanley is one of the greatest traders of all time, one of the wealthiest men in America. So Stanley was a fund manager, he was a successful fund manager and George Soros was looking for somebody to help him run the quantum fund and he'd heard great things about Stanley. So he went out and he talked to Stanley, he really liked him and he recruited Stanley to come be this head trader at Quantum, at the Quantum fund. So you recruited Stanley and Stan is like, I don't think I want to do that. No, I'm good where I'm at. George came out and again, came at him again. Stanley did not say yes, the first time. I believe it took George three times to get Stanley to finally agree to come trade with George and George was a big name at the time. He was well known at least in financial circles. So Stanley goes to work for George and he's so excited because here he is, he's gonna go trade with one of the greatest traders of his era and he's so excited about what he's going to learn. You know, what does George know that Stanley doesn't know? He said when he got there and he started working for George and he started seeing what they had a quantum and how George did things. He said he was honestly pretty disappointed. It's like I thought this guy was super smart. He goes but actually, when I look at his models versus my models and his methods versus my method and his research versus my research. They're about the same. They really weren't any different. You know, he said was the big thing he got from George? He said when he started trading for George, he said he had an idea and he put it on. George came and asked him some questions about it and said, I like what you're thinking. You need to do it bigger. Stanley said why he goes yeah, this position is way too small. You need to get bigger now. He said sometimes Stanley would fight him. because I don't I don't feel comfortable trading is bigger. Georgia be okay. Georgia is sneak off in the other room and he put it on for the firm when Stanley wasn't looking. He'd make it bigger himself, and then give Stanley the position. Stanley said the greatest thing he got from George Soros, by far was understanding how to trade big and that one thing, just the idea of trading big change everything for Stanley Druckenmiller. It took him from a trader who was very good to a trader who is a legend, a legend, a trader who anybody will listen to a trader who can go on CNBC right now and people will turn up the volume just to hear what he would say. Just by trading bigger, nothing else different. So I've shared with you three ways that you can do this. All three work.

Now I want to make sure, I want you to be ware, I want you to be careful. Trading bigger is the road to riches for the great trader. Trading bigger is the road to ruin for a gambler. I'll say that again, trading bigger is the road to riches for great trader, trading bigger is the road to ruin for gambler. How do we know who's a great trader and who's a gambler. One of the reasons I don't talk about this very often with students, when we first start, is you have to learn how to make money first. You have to learn how to be profitable. If you cannot be profitable, doing this will destroy you. That's right, it'll be the end of you. You'll take massive hits your account, because you don't know what the fuck you're doing and just gonna lose a lot of money and you're going to be one of those stats we saw in the beginning, you're going to be one of those 80% lose it. You need to develop your skills. You need to learn my number one rule that I teach my traders, my number one rule is come back tomorrow. That's it, come back tomorrow. What do you need to do today to make sure you can come back tomorrow and trade? What do you need to do today to keep the money in your account? To learn not to lose? To be able to pay your expenses and if you can do that thing, and you can come back tomorrow and you can come back the next day and you can come back the next day, you will get struck by lightning and you will make it. Tt's a matter of time, but if you don't come back tomorrow, it's over. If you trade big, when you don't know what you're doing, you will not come back tomorrow. Period. It'll be the end of you. 

So you need to be disciplined and develop your skills become profitable, then you can do all this cool stuff and to be able to do this cool stuff. Remember I said this is like 1% You're going to psychologically, we're gonna go back. First thing a great traders have great psychology, you're going to have to retrain your brain to when you have a position on and it's working not to think about how you're going to get out of it, not to think how you're going to keep it, but how are you going to add to it? Then you'll be in a 1%, then you'll be in the running to be a great trader. Remember, some of these trades won't work. You have fantastic trades that will evaporate into nothing in front of you. Doesn't matter. You're not here to be right. You're here to get paid and a handful of these, every year, every month will make you rich. So a lot to think about, but as usual, this is a Trader Tip Tuesday that is designed to help you take your performance to an elite level. We did that this week. We'll do it again next week. So I'll see you next Tuesday. Bye