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In today’s episode, you’ll discover 6 powerful trading lessons that works in real life.
So listen to it now…
Lessons From A Decade of Trading
Hey, hey, what’s up my friend? In today’s episode, I want to share with you 6 powerful trading lessons that can be applied in real life.
Here’s the thing, trading teaches us many lessons, the layman on the street will never learn because they’re not involved in trading.
I find that some of these lessons are really powerful that even if you don’t trade the markets, they can still be applied to the real world where you’ll see an improvement to your everyday life.
Let’s get started.
1. You want to do things which are scalable
What do I mean by this? For instance, trading is a business that’s scalable. For example, let’s say, you earn 20% a year on average. Then with a $1,000 account, that’s about $200 a year.
That’s not a lot but if you scale up your account to let’s say $100,000, that’s about $20,000 a year. If you scale up further to a million-dollar account, that’s about $200,000 a year.
You can see that you’re still doing the same 20% a year, but because of the size of your account, because you are scaling up, you are making a lot more money.
And if you think about this, aside from the psychological impact of trading more money, the amount of effort and the amount of work that you put into to trade that account to make that 20% a year is largely the same as trading that $1,000 account.
There’s no extra work, time or energy that you need to put in because it’s pretty much scalable. This is what I mean by doing things which are scalable.
For example, me producing videos on YouTube, it is something that is scalable. Whenever I publish a video, if it goes viral, I get a million views. That video keeps churning out revenue for me through advertisements that YouTube places on my videos.
That’s something that is scalable as I don’t have to put in extra work. That video “works hard” for me behind the scenes. That is something that is scalable.
Or how about writing books? If you write books and you write it once, you can keep selling unlimited copies, be it physical or digital. You’ll get rewarded for years to come.
So in trading and life, do things which are scalable, because that’s how you get paid over and over again that will change your life completely.
2. Find favourable risk to reward trading opportunities
This is something that you hear all the time in trading, you want to find low risk, high reward trading opportunities. But when it comes to the real world, how do you find such opportunities?
Let’s imagine that you got retrenched and you’ve lost your job. And that is a fact that you can’t change. At this point, if you think about this, your risk is already out there, the risk that you can lose anything more than that is almost negligent.
Because you’ve already lost your job, there’s nothing else more you can lose. I mean, unless you go to the casino, you go into debt, etc. But let’s say you don’t go down that path. Let’s say you are someone who is logical.
You have lost your job, then at this point, you have pretty much lost as much as you could possibly have. Not the maximum but almost there. So let’s say for the next 6 to 12 months, you don’t find another job.
Let’s say you can survive anyway without working for the next 6 to 12 months because you have ample savings.
At this point of time, what if instead of looking for another job you decided to invest in yourself or maybe start a business to do something that you have been passionate about, but just didn’t have the opportunity to do?
But since now that you’re already retrenched, well guess what? Your risk is already limited, you already lost that job, there’s no more risk for you. But at the same time, if you go into something that is a new venture or a new business, your upside is pretty darn high.
The sky’s the limit. This is what I mean by finding low risk and high reward trading opportunities. This is one way to look at it.
Maybe it’s not the best example. But I hope you can see where I’m coming from, and that you should do something that limits your risk, but at the same time, your upside is almost unlimited.
3. No matter how sure you are, things can go wrong
For example, in trading, you can do all the technical analysis, the fundamental analysis, or the sentiment analysis in the world and all the stars, the moon, the asteroid can align, everything comes together. But guess what? That trade could still be a loser.
And this is important because just like in trading and life, all the stars can align this might seem like the opportunity of your lifetime but it doesn’t mean that it will definitely work out. Yes, the odds are behind it but it doesn’t mean that it will definitely work out.
I worked with a prop trading firm, but before that, there was a story that I’ve not really shared. Let me just share with you briefly what happened.
Back then, I wanted to get a job in prop trading. At that point, I got hired by Firm A, a prop trading firm. And I realized that firm wasn’t really for me because they are more towards algorithmic trading, writing programs to trade the markets and that’s not really for me.
I wanted to get out of from it before I sink any deeper. Then, Firm B was hiring traders I went for an interview, I passed it and they’re looking to hire me. I was very confident then to leave Firm A and join Firm B, what’s the issue?
But guess what, the bosses between Firm A and B they know each other and the boss in Firm A kind of felt that the boss in Firm B was poaching his trader away and these firms all work in a similar location.
They call it a trading arcade so they all work in the same place. And it would be weird if you see the boss of another company that poaches your trader. It’s not gonna feel nice.
So then, Firm B decided not to hire me just yet. They wanted to make peace with Firm A and make sure that all the arrangement goes smoothly before they hire me. I waited for a few days, a few days turned to a few weeks, a few weeks turned into a few months and eventually, I didn’t get hired. And that sucks.
That hit me really hard because I really wanted the job badly. I find that Firm B was the firm for me, I really resonated with its culture, the way they trade the market but I wasn’t hired. I was sure that I’m going to get hired, that I end up didn’t getting hired.
That’s the thing I want to share with you, is that all the stars can align, but no matter how sure you think things could turn out, sometimes things just don’t play out the way you want it to be. That’s the third lesson – no matter how sure you are, things can still go wrong.
4. A good outcome doesn’t mean that it’s the right choice
Just like in trading, you might be able to average into your losses, widen your stop loss, and the market could go back in your favour and maybe give you a profit. But a good outcome doesn’t mean it’s the choice.
For example, drink driving. Let’s say you drank alcohol, you drove back home after a clubbing session. Just because you didn’t get into an accident, just because you didn’t get caught by the police, it’s a good outcome, doesn’t mean that it’s the right choice.
If you keep doing that same set of actions consistently over time, it’s a matter of time before you meet with an accident, or you get caught by the police and lose your license. That’s what I’m trying to say. A good outcome doesn’t mean it’s the right choice.
In life, when you’re making decisions, you might end up with a favourable outcome, but allow you to take a step back and ask yourself, is that a good decision? Because the outcome is independent of the decision.
A good outcome can be due to bad decisions, so do think about that.
5. A bad outcome doesn’t mean that it’s the wrong choice
Back to my prop trading days. Clearly, once upon a time, I might think, man, I shouldn’t have left Firm A because I was left without a job. No trading firm will hire me and that’s a bad outcome. But is that a bad choice? Is that a bad decision?
Well, I persevered, I chose to believe that what I did was the right thing to do, because then I am pretty much in a clean slate and I didn’t know what the politics were, I didn’t know how the real world worked.
And if that were to happen to me again, I will probably make the same decision. Yes, the outcome didn’t work in my favour, but was it a bad decision? To me I persevered, I took that as a lesson and I continued to find a prop trading job and eventually, I got hired by Firm C.
Then how did the politics of the poaching of traders work out? Well, guess what? Because the bosses of Firm C hated the boss of Firm A and he didn’t care whether he’s putting his trader.
And at that point, he wasn’t poaching because I’ve already left the firm they just hired me. If it upsets the boss of Firm A, so be it, he doesn’t care. I eventually got hired at Firm C and that’s how pretty much my prop trading journey began.
Again, just because the outcome is bad doesn’t mean it’s the wrong decision. You’ll have time to make things work out for you. You can always make things work out for you. Don’t give up just yet.
6. Never go all in
No matter how sure you are of an opportunity, never go all in. This means you don’t put 100% of your wealth into something, whatever venture that you might have. Because, as I’ve mentioned earlier, no matter how sure you are, things can go wrong.
Imagine if you went all in, all your wealth, all your money, all your cash into this business venture and you lose everything, because 1% of the time, things don’t work out. Guess what? You’ll be at zero.
When you lose all your chips, you can’t play the game any further. When you blow up your trading account, guess what? It’s game over. When you go to a casino and you lose all your chips, it’s game over.
When you lose all your money in life, it’s not game over, you can still earn it back, but you can see that you are going to set yourself back by many years. So don’t go all in.
You might want to set a general guideline of maybe not risking more than 5% or 10% of your money into one particular idea, or venture or whatsoever.
Never go all in because you’ll never know what could happen. And if things really don’t turn out your way, you can see that you’re going to set yourself back to zero. And that’s many years of hard work. Your life is kind of wasted because you made one wrong decision.
Here’s a quick recap…
- Do things which are scalable
- Find favourable risk to reward opportunities
- No matter how sure you are, things can go wrong
- A good outcome doesn’t mean it’s the right decision
- A bad outcome doesn’t mean it’s the wrong decision
- Never go all in
I hope you’ve got value out of today’s episode. I wish you good luck and a good life. I’ll talk to you soon.