Trading Psychology - Dr David Paul
Summary
TLDRIn this engaging presentation, Dr. David Paul shares his extensive experience in the financial markets, emphasizing the importance of a disciplined approach to trading. With a background in engineering, mathematics, and a former officer in the Royal Marines, Paul outlines a strategy that combines fundamental and technical analysis to identify undervalued stocks with strong growth potential. He stresses the significance of money management, advocating for risking no more than 1-2% of one's capital on any single trade to survive market volatility. Paul also addresses common trading fears and the psychological aspects of trading, such as the impact of winning trades on decision-making. He encourages the development of a robust trading system, adhering to it religiously for at least 20-30 trades to build the necessary discipline. His approach is about finding a consistent edge in the market, focusing on execution, and allowing the profits to follow. The talk is peppered with practical advice, including the recommendation of William O'Neil's book for further insights into stock trading strategies.
Takeaways
- 🎓 Dr. David Paul emphasizes the importance of a solid educational background in various fields, but also acknowledges that success in financial markets often requires practical experience and a unique approach beyond formal education.
- 💼 He suggests that creating a reliable income from the markets is similar to securing a regular salary, which requires a consistent and methodical approach to trading.
- 📈 Paul's trading philosophy involves combining fundamental analysis, which seeks to determine the true value of a share, with technical analysis, which studies trends and turning points.
- 🤔 He highlights the significance of having a mental framework for trading, which includes discipline, confidence, and a systematic approach to entering and exiting trades.
- 🧐 Paul shares his personal background, including his experience as an officer in the Royal Marines, which he credits for instilling in him the necessary confidence and discipline for trading.
- 📚 He recommends a three-day seminar to instill the necessary knowledge and skills for successful trading, condensed into a 40-minute presentation for the audience.
- 🤝 He discusses his long-standing business relationship with the founder of a company, indicating the value of experience and continuity in business partnerships.
- 🚫 Paul advises against taking margin calls, which can lead to forced liquidation of positions due to insufficient funds, highlighting the importance of financial management in trading.
- 🎰 He uses the analogy of a coin-toss game to explain the concept of 'edge' in trading, which involves having a positive expectancy system where winnings outweigh losses over time.
- ⚖️ He stresses the importance of risk-to-reward ratio and position sizing, encouraging traders to risk no more than 1-2% of their capital on any single trade to survive market volatility.
- 🏋️♂️ Paul draws a parallel between building physical discipline through regular exercise and developing the mental discipline required for consistent and successful trading.
- 🔄 He challenges the audience to create a simple, mechanical trading plan and to follow it for a set number of trades to build a habit and neural pathway that supports disciplined trading behavior.
Q & A
What is the main objective that Dr. David Paul wants to achieve for his audience?
-Dr. David Paul aims to provide a mental framework that allows individuals to consistently take money out of markets and rely on that income in the same way as a regular salary.
What is Dr. Paul's educational background?
-Dr. Paul has a degree in engineering, an MSC, and a PhD in mathematics.
How does Dr. Paul define fundamental analysis in the context of the stock market?
-Dr. Paul defines fundamental analysis as the search for the true value of a share.
What does Dr. Paul consider his 'edge' in trading?
-Dr. Paul's edge is combining fundamentals with technicals to find undervalued shares that are growing their earnings aggressively and are in a strong trend.
What is the significance of the coin-tossing game that Dr. Paul introduces?
-The coin-tossing game illustrates the concept of positive expectancy in trading. It shows that with a proper risk-reward ratio, even with a 50% success rate, one can achieve consistent profits.
What are the three key components of a trading system according to Dr. Paul?
-The three key components are the hit rate (percentage of successful trades), the risk-to-reward ratio, and the commissions.
Why is it advised not to take a margin call?
-Taking a margin call can lead to additional financial strain and potential loss. It's better to ignore it and stick to the trading plan that manages risk effectively.
What is the recommended maximum percentage of one's trading capital to risk on any single trade?
-Dr. Paul recommends not risking more than 1-2% of one's trading capital on any single trade to ensure financial safety.
How does Dr. Paul suggest traders build discipline in following their trading plan?
-Dr. Paul suggests sticking to a simple, mechanical plan and following it without deviation for a batch of 20-30 trades, which helps in building a habit and neural pathway for discipline.
What is the importance of the general market trend when selecting a stock to trade?
-The general market trend is important because it's preferable to buy a stock when the overall market is rising, as this can increase the likelihood of a successful trade.
What is the one piece of advice Dr. Paul gives for managing risk in trading?
-The key advice is to never risk more than 1-2% of one's trading capital on any single trade to ensure survival through clusters of bad trades and to allow for long-term success.
Outlines
🎓 Introduction and Background
Dr. David Paul, an experienced professional with a diverse academic background in engineering, MSC, and a PhD in mathematics, introduces himself. He has been in London for a few years and aims to convey a consistent method for making money from the markets. His association with the company began when it was just starting, and he shares a personal anecdote about their early interactions. He emphasizes his military background in the Royal Marines as a source of confidence and discipline, which has been beneficial in his career. His only regret is not being a professional rugby player if he were 35 years younger, which reflects his passion for the sport.
📈 Market Analysis and Strategy
Dr. Paul discusses his approach to market analysis, combining fundamental and technical analysis to find undervalued stocks with strong growth potential. He defines fundamental analysis as determining the true value of a share and technical analysis as studying trends and turning points. He emphasizes the importance of having a method and managing money effectively. He also highlights the significance of the risk-to-reward ratio and the impact of commissions on trading profitability. The concept of 'edge' in trading is introduced, which is a combination of hit rate, risk-to-reward, and commissions.
🎲 The Coin Game and Trading Mindset
A thought experiment is presented where participants can bet on a coin toss, with a favorable payoff for correct predictions. This game illustrates the concept of a positive expectancy system in trading. Dr. Paul challenges the audience to consider their approach to risk and reward, and how they might apply this to trading. He also touches on common trading fears and the psychological aspects of trading, such as the fear of being wrong or losing money.
💰 Position Sizing and Risk Management
The importance of position sizing and risk management in trading is emphasized. Dr. Paul advises ignoring margin calls and not risking more than 1-2% of one's trading capital on any single trade. He uses a hypothetical scenario involving coins to illustrate the impact of bet size on the outcome of trades. The concept of 'clusters' of good or bad trades is introduced, and the need to survive these clusters is stressed. The discussion also covers the impact of emotions on trading decisions and the importance of discipline.
🧠 Euphoria and Emotional Trading
Dr. Paul talks about the emotional aspect of trading, particularly the euphoria that can follow a series of successful trades. He explains that this can lead to traders taking on larger risks, which can be detrimental. He advises traders to be aware of the emotional states that can influence their trading decisions and to maintain discipline in position sizing and risk management.
📊 Developing a Trading System
The process of developing a trading system is discussed, with an emphasis on finding a pattern that works consistently. Dr. Paul suggests that a simple system with good money management and discipline can lead to success. He challenges the audience to follow a mechanical plan for a set number of trades to build the necessary discipline. The importance of focusing on the process rather than the outcome is highlighted, as is the value of consistency in trading.
📉 Market Conditions and Entry Points
Dr. Paul discusses the importance of considering market conditions when entering trades. He prefers to buy stocks when the general market is positive and above a certain moving average. He also emphasizes the value of technical patterns, such as ascending triangles, for finding good entry points. The concept of a 'probability matrix' is introduced to help traders understand the likelihood of sequences of good or bad trades and the importance of incorporating both fundamental and technical analysis to improve the hit rate and manage emotional challenges.
🚀 Execution and Success in Trading
The final paragraph focuses on the importance of perfect execution of a trading plan. Dr. Paul advises traders to focus on the process of trading rather than the profit, suggesting that if the process is followed correctly, the financial rewards will follow. He encourages traders to stick with a system through thick and thin and to get past the initial challenges of the first few trades to build a 'neural pathway' that supports disciplined trading behavior. The talk concludes with well wishes for the audience's success in trading.
🎵 Conclusion and Applause
The script concludes with the end of Dr. Paul's talk, followed by applause and music.
Mindmap
Keywords
💡Mental Framework
💡Fundamental Analysis
💡Technical Analysis
💡Money Management
💡Risk to Reward Ratio
💡Position Sizing
💡Discipline
💡Euphoria
💡MACD (Moving Average Convergence Divergence)
💡Hit Rate
💡Forex Market
Highlights
David Paul, with a background in engineering, MSC, and a PhD in mathematics, emphasizes the importance of a mental framework for consistent market success.
Paul's objective is to create a reliable income stream from the markets, similar to a salary.
He combines fundamental and technical analysis to find undervalued stocks with strong growth potential and safe trends.
Paul shares his experience as an officer in the Royal Marines, highlighting the benefits of discipline and confidence in trading.
The concept of 'edge' in trading is introduced, which includes hit rate, risk to reward ratio, and commissions.
A simple game illustrates the principle of positive expectancy in trading systems.
Managing fear in trading is crucial, with common fears including being wrong, losing money, missing opportunities, and leaving money on the table.
Paul advises against taking margin calls, suggesting to ignore them to maintain trading discipline.
He emphasizes the importance of position sizing, recommending not to risk more than 1-2% of one's capital on any single trade.
The impact of emotional states on trading decisions is discussed, particularly the effects of euphoria after a series of winning trades.
Paul suggests using a mechanical trading plan and focusing on perfect execution for the first 20-30 trades to build discipline.
The importance of not deviating from the trading plan is stressed, as consistency is key to building a neural pathway for discipline.
He recommends incorporating both fundamental and technical analysis to increase the hit rate and manage emotional clusters in trading.
Paul highlights the value of using simple technical patterns like triangles and wedges to refine entry points in trading.
The significance of the general market trend is discussed, with a preference for trading when the market is rising.
A reference to William O'Neil's book 'How to Make Money in Stocks' is made, suggesting it as a useful resource for new traders.
The final advice is to focus on the process of trading, with the assurance that profitability will follow from consistent and disciplined execution.
Transcripts
I'd like to introduce someone who's been
in the game for a very long time
and international guest professional dr.
David Paul it's a great great pleasure
to be here guests like playing a home
game I've been in London now for the
last couple of years
my background is checkered I've got a
degree in engineering I've got an MSC
and metallicky I've got a PhD in
mathematics all of which I assure you is
largely useless integrity money avid
markets regularly and consistent what I
want to try and get across in a few
minutes it's hard to go about putting
together the mental framework to be able
to take money out of markets
consistently and get this up to a point
where you can rely on that income in the
same way as you can rely on your salary
or the income that you draw from your
business that's the objective now when I
do the seminar at the banks and I've
done for all the local banks here and
I've done it for most of the banks in
London it takes three days and I'm going
to try and do it in the next 40 minutes
okay I've got a lot of slides and I
probably won't get through all of the
slides but I'm sure that the guys that
fun port will send you the presentation
if you wish okay so my association with
the company is that the founder will see
other than where he is but the founder
of Mercy and I have been doing business
together
since he was 30 minutes old
it doesn't seem that long since he was
shouting at me when I was actually going
to my office in Livonia I used to shout
at me and said KitKat because he wanted
me to bring a KitKat Oh naughty evening
so any of the fun for people listening
if you want to bribe the boss just
behind my cat the thing that stood me in
best standard markets is that then my
gift I was an officer in the Royal
Marines and that's giving me a level of
confidence and discipline that I've
drawn upon for a very long time I'm 42
years later I can still fit into the
uniform there's anybody who feels like
having a go
I've only got one regret in life and
that one regret is that I was
thirty-five years younger I'd be a
professional rugby player today because
I came to South Africa to play rugby
that's why I came here in the first
place got an injury from it but I think
if I was 35 years younger I'd be a
professional rugby player so I'm not
that good with contraption so I'll do my
best to make the slides work yes
so already talked about an edge I'm
gonna try and talk about an edge my edge
is very similar to what these gentlemen
have just presented I like to put the
fundamentals on the technicals together
in the stock market
my definition of fundamental analysis is
the search with true value of a share my
definition of technical analysis is the
study of trends and turning points
ladies and gentlemen I want to try and
find a share that's undervalued the
share this growing its earnings
aggressively reasonably safe flight
that's rising that's in the throes of a
strong trend and ladies and gentlemen I
want to buy that when the general market
is rising okay and that's what I've been
doing for a very long time I do my best
to stick to that those of you a little
bit training for a while will know that
sticking to simple sentence training
rules is enough a little easier to talk
about them to do am I correct
yeah okay I'm just if there's local
Devils and you're sure
they're shouting at you to do the wrong
thing so to make some money and markets
folks we need some form of a method yes
we need to manage your money really well
only to manage yourselves really well
the three animals so I'm going to talk
I've got a methodology so I'm going to
ask you a question did they put that
chart in there we go there's the Aussie
forty I think I asked them to put in and
my question to you that's a MACD I know
the the guy who put the MACD together a
good friend about a guy called Gerry
Appel and he said that when he designed
the MACD an axiom of investment
education is the more complicated it
sounds the more you can sell it for and
he thought that MACD was suitably
complicated that's why it's called the
moving average converging-diverging
Gerry upheld those two sons have got
more money under management than a nest
egg just the three of them a little room
in a place called Derry Maine Stephen
King rates and Rex's books just across
the room is the JC Coonan whopper died
on Monday my question to you what do you
think done young man says done any other
Bradley what do you think you're the
expert up well folks in my pocket I have
the secret but you find them - I have
the secret it's a five round coin now
one side there's a pretty little animal
you see that and they were certain good
a coat of arms
clearly the coat of arms is going up and
the pretty little animal is going down
see if I can get this right
you were right my head it's going up
okay
would you trade like that no okay but I
assure you most of you are trading like
that already there's a great deal of
site where I assure you but I wouldn't
like to trade like I'd either so my next
question to you let's play and think
about a special game so here's the game
if you can successfully predict heads or
tails and you're correct
if you bet five runs and you're correct
I'll give you ten back clearly if you're
really correct in your prognosis I'm
going to take the five now you've
already said that you wouldn't trade
with the coin but would you play that
game ladies and gentlemen that's my
question to you would you play that game
yes or no well folks I have no one to
play this out
it's a creaky game to play and it's the
basis of how you can become consistent
and take money from somebody else
because that's what you're doing because
and ten Chuck's of the coin would you
agree that you should be right 50% of
the time yeah no when you're right I'm
going to pay you twice as much as when
you're wrong so in ten throws of the
coin when you're right I'm gonna pay you
5 times 2 which is 10 yes
and when you're wrong I'm gonna remove 5
times 1 which is 5 less you make 10 you
make 5 profit if you bet around on every
time you chuck the coin in the air on
average you're gonna make 50 cents you
have no
signed a positive expectancy system so
if you can find somebody to underwrite
that then bury that your edge okay and
that is the objective folks now with the
Finn port guys with GT you should be
able to get your hit rate above 50% but
if you can be right 50 percent of the
time and you can make twice as much when
you're right as you lose when you're
wrong then you've got a method of making
money for the rest of your days and that
is the challenge to learn how to play
the game over and over and over again
without fear or hesitation okay so it's
a cracking game to play would you play
the game now in trading the number of
times that you write is called the hit
rate and Lord only knows we're all
paranoid about the hit rate we want to
be right at all costs there are four
trading fears one is being wrong twos
losing money three is missing art and
forest leaving money on the table those
of you that are under fifty are probably
in a safe place because I know for a
fact that most man over 50 are more
scared of being wrong and losing money
than they are of death
okay am I correct
we've got the death thing I saw the
doctor well it must be handled okay but
to be wrong or lose money it's an issue
so that other thing that's important in
trading is the risk to reward ratio so
the money that you make is a function of
both the hip break and the risk to
reward and most of us just think about
the hit rate so three things know if you
do a search on the internet and that's a
margin call don't take it okay don't
take it just ignore it completely the
margin goes what happens folks when you
run out of loot from GTR gonna phone you
here and say more money or we close the
whole bloody lot okay so if you get a
call just don't take it so if you do a
search in the internet you're gonna find
lots and lots of systems where the
vendor says that he you're right
92% of the time and they all sound
wonderful
but the problem in those systems is if
they've got open up their stock losses
so wide in relation to their targets
that they don't make any money and this
was brought home to me a few weeks ago
and this is a chap in London who was
advertising a Forex system somebody
spoke about Forex and he said he's right
90% of the time so I was wonderful
business but when he was writing his own
literature he said this when it was
right he makes 10 ticks
and when he's wrong in losses 90 what's
the expectancy of that system 9 times 10
when he's right minus 1 times 91 is
wrong and that means the system actually
loses money signs wonderful 90% of the
time but he loses money so folks just
remember that that edge that edge is a
mixture of three things
it's a mixture of one the hit rate it's
a mixture of the risk to reward and the
Commission's and there's no doubt that
if you're trying to scalp a 1-minute
chart you need to be really really good
because those Commission's mind up every
time you press the read button those
three or four texts to be paid soap and
that's hit write rest reward and
commissions so that suddenly
mentioned the forex market if you by the
pound against the dog with a 50 point
stop and the targets a hundred points if
you can get that right fifty percent of
the time you've got it made and the only
thing remaining is to learn how to play
the game and it is a game that we play
with ourselves and playing the game is a
tough bet no I want you to use your
wonderful imagination because in this
vessel we have 101 round coins yeah see
them right now on every decision on
every trade those two decisions one it's
the damn thing going to go upwards the
darn thing gonna go down I've already
alluded to the concept of going short
which might be new to some of you but
you can take a bet that the markets
gonna fall and if it does fall you're
gonna make some money so
what's the first decision so the man in
the green heads or tails tails markets
gonna fall the bear and the green we've
got a hundred coins the second decision
ladies and gentlemen is how much do you
wanna bet you can bet one coin you can
bet five coins or in the parlance of the
commodity futures market you can bet the
farm the whole bloody lot farmers love
betting the farm okay so the man in the
green says the mom it's going to fall
tails
how many would you like to bet madam one
five twenty 75 20 okay so let's trade
what we're doing this is we're
simulating a trading system that's right
fifty percent of the time that makes us
twice as much when it's right as it
loses when it's wrong I assure you that
if you are a day trader in the forex
market you would sell your granny for
that system okay your granny
because most intraday systems will risk
30 to make 50 and if the vendor is
honest does not write that much more
than 50 percent of the time
so come on the green are you feeling
lucky like okay don't take it to
persuader
that's not a great throw
pong coined is much easier sorry mate
it's going up
you lost sorry
the only bhakti to Debbie that was going
good I'm so 20 gone and we've good 80
left the man in the red heads or tails
you sir
never wear that red pull of hurt again
your tails pardon heads
we've got 80 coins left the man with a
cold head with a capital one remember
John Wayne's last movie he says a guy
coming any set as your head cold we'll
get 80 coins left how many would you
like to bet pardon would 40 says okay
this trade is totally independent of any
other trade that you're ever going to
take in your life this is the first of
the 10,000 trades that you're gonna take
between nine and death you said head
Taemin let's see if I can get this right
after awful through pond is much easier
that's better
heads is correct
we get 18 18 and 80 s 160 we're ahead of
the game
hi folks the man in the red was lucky
unfortunate what's the probability of a
bad one aha
No what's the probability of two bad
ones in a row a quarter 1/2 times 1/2
which is 1/4 now in a 50% system
unfortunately you get two bad ones every
four trends ladies and gentlemen if you
were to bet 50 percent of your coins on
any one trade you go bankrupt every four
do you understand that gets worse what's
the probability of three bad losses in a
row and a 50% gain 1/2 times 1/2 times
1/2 would you want to rate that means
through a few cones when you get home
that means that 1/8 throws of the coin
or 8 trades and a 50% system you have a
cluster of 3 bad ones in a row that
means ladies and gentlemen that if you
were to bet 1/3 of your coins on any one
trade you go bankrupt every eight okay
and most people go bankrupt because they
bet far too much on any one single trade
not the bet size is the difference
between your entry point and your stop
loss right so if you buy a share a
10-round and you've got a stop loss at
850 if it falls from 10 to 850 that's
the bet sighs okay
am I correct duty gentlemen I think I'm
so
unfortunately there's massive paradox
here because you do the fundamental
analysis you do the technical analysis
and you're sure the damn thing is going
to go up yet that's why you're putting
the trailer in the first place so if
you're sure it's going to go up why not
have a big bet let's accelerate the
process of wealth accumulation so you
decide to trade far far too baby and
then all of a sudden you're gonna run of
these bad ones now if you don't believe
me
here's what I want you to do tonight go
to Monte Cassino who goes to Monte
kissing up anybody all right you get to
the casino tonight glance you go to the
roulette wheel it's a 50% game equal
number of blacks and reds and there's a
little white ball which is gt's cut
that's the whole thing okay and you look
at the scoreboard down at the end and
you're gonna see long runs of red and
long runs of black those custer's are
real and it's this clustering effect
that makes playing the game so difficult
because you get long runs of good trades
where you think you're God and wrong
runs unfortunately a bad ones where you
feel like something that's under your
shoe okay now the first objective ladies
and gentlemen is to live through the
clusters arithmetic that you don't go
broke in them okay because you can quite
easily have a Custer of five bad trades
am I correct sure
five by trades happen on
50 percent system every 32 all right so
have you ready bet 20 percent with your
looked on any one particular trade you
go bankrupt every five and there is a
big problem here so there's a chap
called Ralph Vince and he's written a
long series of books called effective
portfolio manager for traders thick
thick thick thick books they've got them
in and they stick they've got them at
Absa but not bedtime reading I assure
you the gist of all of this is that you
should not risk any more than one to two
percent of your kitty on any one trade
so if you've got a hundred thousand rand
in your account and you're you to us you
should not bet you should not risk any
more than one to two percent of our in
any one trade so the maximum loss ladies
and gentlemen that you ever have on any
one trade should never be more than
2,000 grams and that will keep you alive
okay
that will keep your life but there's a
big problem because we have runs of good
ones and runs of bad ones
not between your ears there's a thing
called the pituitary gland and that
patoot you can pumps out muti when I'm
in England I have to fill them with
multi means that pumps out all sorts of
hormones into your bloodstream and there
those hormones are actually responsible
for every emotional state that you have
so when you fail in love without young
lady of yours those hormones were just
pumping around your system all right
when I leave the gym Fox I'm no longer
63 I'm 17 again and back in the raw
bearings and as I say can be quite
strong when I leave the gym okay
now similarly when you have one good
trade
- good trades 30 good trades that
pituitary gland is hard at work okay and
it's pumping this muti into your
bloodstream and you change completely
I know people but after one good trade
they're a different person okay
certainly after turning after 3 willing
trades there in the bar flying drinks
and the souls of narrow boat rowing to
their life what happens is that after a
series of winning trades we become
euphoric and if you look in the oxford
dictionary the definition of euphoria is
invincible
so what happens is that you say so
little at position sizing let's have a
big bet and risk managers in the City of
London are actually taught these days by
the FCA - in fact that's the equivalent
of the FSB here to actually look at the
traders under control and assess their
susceptibility to euphoria now you're
going to find
that once you get the one or two percent
into your head it's in fact not the runs
of bad trades that cause you to go broke
it's a run of good trends because in a
run of good trends you actually trade
far far too big so just be careful about
you for it
none our job is to find an edge in
markets burries analysis of all he
leaves one pattern that's all you just
need one pattern to be successful they
haven't shoulders pattern could be your
pattern he couldn't chart up of lots and
lots and lots of patterns I love my
wages falling wages and rising wages
those of you who are trading Forex
there's a textbook falling wedge in the
Europe one daily chart the moment I also
I'm very fond of my third levels and
harmonic patterns which are my own
personal edge in both the stock market
and the forex market but you need one
level pattern you need to practice
really really good money management and
that just means not losing any more than
1% of your looked or at the very most 2
percent of your look and anyone trade
and then the third thing is to build the
discipline to just do it over and over
and over again many of you will see
those ghastly adverts of Alan gray put
up you know slow and boring adverts Alan
gray are great they've got a process
that Alan gray was taught by oak
Templeton a lifetime ago and they do the
same thing over and over and over and
over again I went to one of their
lectures the other night in London where
it's all of us across there where they
actually put on the case very simple
similar to your case where they
justified fundamentally based on value
that Honda was a much better buy than
Tesla okay wonderful presently but
they've got a process and they stick to
that over and over and over and over
again and your process doesn't your
trailing edge does not have to be
complicated at all
finding a share that's undervalued
that's growing growing earnings
aggressively and safely that's in the
throes of a good trend I like always for
a share to be above an 80 90 day moving
average really nine works for me and
then you need some little pattern to
finesse the end there could be a
triangle
it could be an ascending triangle
there's a heap of and that simple book
of charting will get you most of the way
and then don't lose any more than 1 or 2
percent of any one trade and then you
need to build the discipline that ladies
and gentlemen can discipline the belt or
is it god-given course you can why does
it little man like me in the gym this
morning at half past six
why twice a day okay
did it take any discipline to get me to
the gym this morning none none
whatsoever
the paradox isn't when you've got it you
don't need it okay alright that's the
paradox so to build discipline folks
you're going to have to grit your teeth
and stick to the process so the first
step would be to sit down with one of
these guys sit down or put
together your training plan a simple
mechanical plan the more mechanical the
better and then my challenge to you
folks is to follow that plan without
deviation for a batch of somewhere
between 20 and 30 trades that's going to
take quite a bit of doing it is a rite
of passage no I'm not a psychologist
I've had psychologists in my classes and
they still don't know why this happens
but to build a habit okay any habit
you've got to grit your teeth and do it
and then all of a sudden you actually
build this neural pathway between your
years by doing it you will find that
sticking to the rules for the first few
threads is difficult but I've done this
with many many people over the years
when I used to do one another one-on-one
mentoring I don't do it anymore
somewhere between 5 and 13 trades you
build the pathway and you'll find that
the discipline to stick to the rules
it's no longer required because that's
what you do so my challenge to you is
all of this get busy making nuisance of
yourself get yourself to a point where
you've got a written plan that suit suit
you did not be more than one page think
about position sizing there's a good
book on it by a guy called van thought
it's called trade your way to financial
freedom on position sizing and then the
real exercise is to focus on perfect
execution of that plan for somewhere
between 5 and 20 trades now I personally
build a habit very easily and many of
you will say that's great but it also
means that you can call the bad habit
very easily so the one thing that I can
say what were just possible that
everybody in this room is 8 to 13 trades
away from the trainer you want to be
that's all but very few people get there
because they don't adhere to the one
system until that neural pathway is
built so that's the process and you want
to be successful folks sit down put
together a fairly simple system adhere
to one to two percent position sizing
and then the real work starts
being able to follow that system through
thick and thin and you're only about 8
to 13 trades away from being able to do
that that's all thank you very much any
questions in that process of my home
after time I still have 15 okay any
questions on that process yeah you
certainly can have more than one running
I would suggest in the stop comment that
we don't have any more than two from the
one sector of the market okay I'm trying
to spread yourself across the market a
little bit I think that another thing
which is quite useful is this
probability matrix because this these
are the runs of bad trades that I talked
about there's a 50/50 system now if
you're a pure trend follower with no
fundamentals at all just a pure trend
follower you're going to be right about
50 percent of the time that's all in
fact probably less and there is the run
of for bad trades in a row every 16 now
by incorporating the fundamentals folks
and pushing your head rate up so that
your right two times
I have a three but trust you'll have to
handle for every 81 trades and if you
can get to a point where you're right
80% of the time you've only going to
handle a cluster of for every 625 trades
so my advice to you is that when you're
formulating your system is that you do
your best not to be training all the
time but to be waiting to get three or
four good trades in a month so that you
eliminate the clusters and you can do
that with these gentlemen safe by
putting together the fundamentals and
the technicals I think that training
technically alone is very difficult
indeed not because you can't make
another lot of money but because these
clusters are really difficult to handle
emotionally okay after you've been wrong
five times in a row how good do you
think you're going to be putting your
trading systems into practice without
fear or hesitation it's going to be
difficult so by adding the technicals
and the fundamentals together you can
certainly push your hit right up to this
area where the clusters go away and
largely that's going to mean that you
trade less and for me as I say I want to
share to be undervalued I want to share
to be growing earnings and going running
strongly and safely just rising and I
don't like to buy into share that's in
fact under an 89 day moving average okay
when I'm looking for a little pattern
triangles are great ascending triangles
and great falling wages are great to
finesse a good entry and I look to be
buying in when the general market is
positive that normally means that I like
the general market to be above a 21 day
moving average okay
but it's rising that's a very simple
little edge that I've been using for a
very very very very long time that gets
my hips right up to around this area I
think that there's a book out there that
you could be interested as a dealer new
it's a book by no friend of mine called
William O'Neal William James O'Neill
it's called how to make money in stocks
the book is 20 20 25 years old when your
needle is gonna has to be very similar
to here in that he started in
the stock market as a junior and New
York stock market and he then started
his own brokerage company and he's not
gonna some newspaper called investors
business daily you can buy at any
newsstand in the US so I think that you
would find that book very useful for
formulating your range in markets it's
cool how to make money and stocks by
William James O'Neill will lead you on a
meal right closer
he's about 90 no don't don't complicate
it
really good fundamentals and a trend
lots and lots of people in my do the
Alan gray methodology of deep value is
wonderful if you're Alan gray and you're
buying a massive amount of shares you've
got no choice but to be buying in when
the old football stadium full of small
people running away that generates the
quiddity for you to get in but for most
of us we can get in just by pressing the
button okay
so great fundamentals but the share must
be going away and then a simple one
technical pattern such as some of the
ones that Barry presented in that slide
to try and get you in and
place so the pockets going to go your
way fairly quickly and I also want the
general market to be positive indeed
certainly for the last month it's now
time to divide stocks when the general
market is falling unless you want to
short stocks it's not a time to be
buying stocks when the general market is
born so try and get those good
fundamentals a trend little pattern to
finish your entry and then you want the
general market to be going or where the
most important thing folks is don't rest
don't lose any more than 2% of your
kitty on any one trade that will keep
you alive long enough to get good at
this focus on perfect execution of the
system if you focus on the process of
trading that cash will take care of
itself
you know I think you know that rich
dentist that lives at the corner of your
suburb he's got a nest 500 and the
wife's got a Porsche Cayenne right he's
successful because he focuses on perfect
execution of each and every red canal
each procedure if he focuses on perfect
execution of each procedure his waiting
room will be full and the cash will take
care of itself
and similarly your job folks is to have
a plan and focus on the process of
executing that plan over and over and
over again and if you focus on the
process the look will take care of
itself the big biggest hurdle that you
have is to get over the first eight
trades if you can grit your teeth and
stick to the process for eight trades
something mystical happens between your
ears I don't understand it but you build
that neural pathway and all of a sudden
one that you required is no longer
required because that's just what you do
the same as I assure you that when I get
back to Long Hill this afternoon the
first thing I'm going to do is to dust
off the suit and go back to the gym I
have no idea why I hope that you enjoyed
the talk folks it's as close I want
everybody to be successful I wish
Fairport all the very best of luck
[Applause]
[Music]
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