Author: ANDREW

When we think about probabilities in trading, we think about a simple graph that shows Win Rate v Risk : Reward. We build a strategy with this in mind. When it fails to produce over time, traders find new “edge” or blame their “mental game”. The problem is that not only is there not enough edge in either of these two topics, they are simply not enough to believe you have edge or could be a profitable trader.

Don’t get me wrong, I don’t think trading is that difficult. I’m not trying to make a mountain out of a mole hill. In fact, quite the opposite. Most traders are making a mountain out of a mole hill. Creating some great big impossible task due to simple intimidation. I want to return that mountain back to it’s proper size.

The basic math works like this:

If Win Rate (WR) >= 50% then Risk : Reward (RR) only needs to be => 1:1 to create positive expectancy. Therefor, if a trader has a 60% win rate and a 1.5 profit factor, they then have a positive expectancy system. We fudge the numbers even more when we say that, if positive, there is a 100% likelihood of success when the system is followed as the system produces a positive expectancy.

What’s interesting in this brief example is that the trader is willing to make massive assumptions while considering the “big picture” and gloss over any meaningful details they may need in order to have the luxury of a “surely good system”.

Why your system doesn’t matter that much

Trading is not this basic. It’s not a single node with value of “Trading Strategy” where this node does all your edge production.

Trading is a chain of sequential nodes linked together and dependent on the success of each other. This is why your “strategy” or “edge” cannot do all the things people want it to do and PHD level traders spend YEARS in the Strategy Development phase without truly making any money.

They are asking one node on a network to do the work of all nodes.

This will never work.

It’s the Holy Grail search but perhaps from an angle you have not heard.

Instead, we have a series of nodes that require the function of one another to operate well and produce positive returns.

Perhaps a bit better math is : ANYTHING x 0 = 0.

Let’s say you have a great system. It has a 60% probability of success per trade. You aim for a 1.5 R return per winning trade. The likelihood that you get the desired result in a session is 70%. That means that in each session, with this system, in ten sessions you will have 7 winning sessions and 3 losing sessions.

Let’s add some values here. Every system has losing streaks. Perhaps this system is good but, an extended losing period may last as long as 6 sessions. (a coin flip of 50% can have trending streaks of 6-8). Let’s say the likelihood of this streak happening is 100% over a series of 4 months. Now, let’s also say that a trader will have a losing day where they take 6 trades and all trades lose. This happening in a 3 month period is also 100%.

Remember, I am making this up to make a point.

What is the trader’s likelihood of being able to maintain focus and executional rigor during such times as their system’s worse case scenario?

Maybe their likelihood of failure in one of these situations, either due to improper size adjustments to account for current stats data or timidity in execution post event is 50%. Both variable reduce your likelihood of success even with a clearly profitable system.

Let’s look at sizing.

If you trade a 50K account with max drawdown of 5,000 (the point you question your life choices) and trade a risk of 500$ per trade and your system has a 100% likelihood of producing an 11 loser streak over a period of 100 trades, you then have 100% likelihood of failure.

I have yet to meet a trader who doesn’t consider a 10% drawdown a “slump” and thus make some adjustments to system or mental game.

So what are the nodes?

You can’t look just at WR and RR. That is just one node on the network. You have to look at something more like :

WR > RR > Max Draw Down > Behavioral Randomness > Likelihood of System Adjustment > Lost Trade Count to Max Loss > And a few more…

What is my point?

My point is simply that you cannot depend on system alone to save you. Your trading process, system, risk management, mental preparedness and strategy for overcoming data variants all need to go into consideration if you want to be more than an average trader. Winning some, losing some and then, after years of trying and “scraping by” throwing in the towel as real success always remained just one “piece” of the puzzle away.

Our trading “strategy” functions much more like the image below. This is from the American Revolution and was meant to communicate to the colonies that, if they did not work together, the whole body would die.

So it is with your trading system.

Arguing about the most important part is not only a waste of time but fully incorrect thinking. No trader who considers the “head” only without considering the whole body will never last in a risk career. They will die. This is the root of the endless search for edge in markets.

Traders who understand this to be the case have oddly simple systems and the ability to enjoy the fruits of their effort in contrast.

Your system, your process, it’s all one functioning operation dependent on the success of the previous piece. This fact reduces your odds of success from 50/50 to nearly 0. Unless the body is tuned and well connected. Then, it’s almost effortless.

The beauty of adventure is two fold.

We’re often drawn in by the potential for a great experience. Perhaps to meet a challenge we’ve not yet met or accomplish a thing that has not been accomplished.

A great adventure, one where we’ve fully committed ourselves to it, should bring us to the very edge of life. It should put up against that perfect moment between success and failure. In the mountains, that failure is often fatal. This reality sharpens the senses and bring into view our primary intentions as well as priorities.

The second element of a great adventure is to view what is not often viewed. To see what not many see. Standing beneath a 2000ft granite slab with the intention of ascending it brings about feelings of intensity, owe and appreciation.

To most visitors, the walls of Yosemite are grand, beautiful, intimating. They can certainly be appreciated. But to the climber who’s spent season after season working the details, the minutia of those walls, the view takes on a whole new meaning. Depth.

So it is with charts.

For those of us who live and breathe and make our home on the one, five or fifteen minute chart, we see and understand it in a way that seems perhaps obsessive to the normal visitor. We’ve lived much of our lives in these charts. It’s not that we live our normal lives here, we live some kind of alternative life here. One where we are someone else for the time. One we leave behind once the day is done.

In the images below, you’ll find some notes about how I see the rock walls we climb each day.

Cheers to an epic 2023 trading session.

Onward and upward.

What is job #1?

Manage your risk, manage your risk, manage your risk.
Or, that’s what they say.

This is true but, it’s also a bit lacking. I think it reduces the general concept of “not getting killed” to too small a thing. I for one am not here to “manage my risk”. I want my risk to be as high as possible.

Risk is how we get paid. That is a fact. So that means that we need a more robust method of thinking about risk than simple to manage it or reduce it. Let’s introduce a variable “consequence” into the equation and see what we get.

Two issues with risk control

Issue #1:
Reward is tied to risk. No way around this. You can build a high R:R strategy and should (only way to go imo) but, you still have linked Risk : Reward metrics. For many, this is fine. For me, it is not. I am not willing to trade a 2:1 RR system because it does not offer enough edge. Why? Because I am far from perfect. I (you probably as well) can bugger up a 3:1 RR system and trim it down into a 1:1, am I right?

Which leads us to issue number 2.

Issue #2:
It is almost impossible for the human mind to wrap itself around the concept of risk in the aggregate. Meaning, we will (almost always) do anything we can to adjust our execution or system to offer us less risk and thus less reward.

Let me explain.

You put on a trade with 4 contracts.
It goes for you, then comes back. Almost hits your stop. Then, forward again. What happens?

Well, you’ve either added to the trade as it came against you or, if you have good discipline, you are in the same size but considering your current “risk”. The trade has gone against you. You consider this trade to be at high “risk” of stopping you out. What do you do? You de-risk the trade if you are really really good. You take 2 off at BE. “This trade is gonna lose” you say to yourself. “Better lose a bit less, turn down my risk”.

This is a mistake.

Why? It follows the logic of managing your risk. “I reduced my risk when the trade no longer looked good” you might say.

Let’s pretend now that this trade goes on to be the biggest winner of the week. After you close half you position size, your short trade turns out to have nailed a major swing high and price falls off without ever retesting your entry again. Kicking yourself. That is what you should be doing.

You need these wins to pay for all those losers. Trust me. We all know that.

In this example, you’ve reduced consequence by reducing exposure. You’ve also reduced reward by the same. Later, we’re going to talk about how to Mitigate Consequences while keeping Risk Exposure the same. Remember, Risk Exposure is what we want. (why I capitalized it improperly)

Another Example:

Same thing happens. You enter short on a signal. The trade goes against you. You add a bit. Feathering into positions is a fair method ( I do it often). The issue here is that, in the face of perceived risk, you increase consequence. Now, stop out consequences are higher and risk of being wrong is also higher. This is not good. If you’re going to make a mistake, make the first one above, not this one.

Losers average losers.

We all know this. Nothing new here. However, I want to take this risk vs consequence idea and flesh it out into some internal monolog that you can use actively in your trading.

Know what the hell you are doing.

In the face of risk, the mind needs concrete action and behavior expectations.

As I said in a previous post, I am often long LOD or short HOD. Remember, the worst looking trades are my jam. (fade the strong 5 or 15 min bar close is a fav)

How to make bad choices

I have traded with so many conservative “I told you so’s”. Really grinds my gears. There is no money in this. Not on the Naz anyway. You also can’t be a thrill seeking degen either. So, what do you do?

You create a method of excellence for making what seem like “bad choices”.

Mine is simple. I enter a trade. I talk to myself. Here is what I say:

“This trade is high risk. It is also low consequence”

What are the consequences for any trade I have on at any time? This is all I want to know. I don’t care how likely the trade is to work. I don’t care how much I might or might not make. I don’t care if the market is “looking really bullish”. None of that matters in any way to weather or not I will take a trade.

It’s because of this that I don’t believe in managing risk. I want as much RISK as I can get. I mitigate my consequences. I want as much risk as I can have with as little consequence as possible.

If you start thinking this way, it will change how you trade. Most people put on a “safe” trade and then ride it as long as they must in order to be right. Don’t do this.

Adding

Let me tell you how to add to a trade.
If you are long and showing a positive PnL… hit the buy button again.
If you are short and showing a positive PnL….. hit the sell button again.

In reality, why is adding harder than this?

It’s harder because “If I add, I am adding to my risk and I don’t want to be over exposed if it turns around”.

This is wrong. Sorry, I don’t mean to be pushy here. It just is.

What you should say instead is: “What are the negative consequences of adding?” Once price moves away from your entry enough and the setup warrants the add, adding is doable without adding to the negative consequence. You may still get stopped out but, well managed and you get stopped out for BE or near. Certainly less than you would have if you had put on this size first and the position went wrong. The payoff? You were able to increase risk exposure in the case that the other side didn’t’ handle their consequences well. Beauty!

When Tom Hoggard talks in his book about “Flipping the Switch”. This is the switch.

Remember, clarity is confidence and confidence in markets is talent.
(so is the ability to think as said by Pencil_Trading, and we need to think and then act our way to confidence.)

To wrap up this idea.

If you are trading at your limit, you will feel fear. You can use rational thinking to override your emotional/ego brain. You can do this in the same way we do as climbers.

I get scared.

4 pitches up on a flat frickin finger crack and my palms are sweating. How do we manage this? We do not consider the “risk”. “What if I fall and die!”. That would be bad. We override the perceived risk with actual consequence. “I am safe in my harness. My knots are tight. My belay is good. We are game on. I am good to go here even though I am emotionally uncomfortable”. (maybe it’s not that robust of a thought but you get it)

We actively work to re-enforce mental stability by seeing the real consequences of our actions.

Now, if at any time the consequences increase to a place that is not tolerable, we pull.

So important. It’s not about risk. It’s about consequences.

So next time you look at a trade that fits your system, instead of asking yourself something subjective like “Is this a good trade?” or “Is this really the best place to buy/sell?”.

Ask yourself another question ” Can I accept the consequences of this trade?” and “How, if I am right, can I increase my risk exposure without increasing my consequences?”.

This is the mental gateway to trading size.

I want to try to unwrap a simple but important concept in hopes that it might change not only the way you look at risk in your own trades/ideas but also the risk of others as you look to take advantage of their positioning.

I’ll be honest, part of me wants to just be dumb and trade my system. I have a great system and I love trading it every single day. However, in the interest of maintaining more than a gorillas intellect, I will try to expand upon a topic I find interesting. I will also show some trade examples that help make my point.

To understand the level of “risk” we are dealing with, we must agree that…

Markets are random.

This is true in the sense that what appears to be happening often is not and that we, not matter how hard we try, can never know what the next price will be. Understand that I believe that we can build some logic to what is more or less likely to happen yet, we can never know before hand. It’s only in hindsight that market appear non-random.

Therefor, every position has risk of loss.

I am not some options guru, I trade futures and thus cannot mitigate my risk with Greeks, Romans or Babylonians. It’s all raw, straight forward positional risk. I can however take a concept from a previous post to illustrate my view of Risk vs Consequence in markets and attempt to give you a sense of how I see exposure in intraday trading.

I will reference this previous post, read it to follow along: Rethinking Failure

In the post above, I reference a free solo climb I did vs a multi-pitch climb. The two are very different from one another and for our purposes, generalizations will suffice.

In the instance of a free solo climb, the climber chooses a reasonably easy grade, one very much within their skill level and climbs it without protection. Meaning, no bolts, nuts of cams in the rock to catch them. If they fall, they fall to the deck below and become… jelly.

In the second story, I am on a multi-pitch climb of much harder grade. Pressing the limit of my climbing abilities and requiring protection to avoid death.

Climbing has some but not much randomness. Therefor, you can do a reasonable job knowing which grade you can solo and which you cannot. Add earth quacks or random fast moving storms and you have something more like markets.

Difficulty

The free solo climb is 5.5. It’s a very easy grade to climb and pleasant if not a bit boring without rope removal. Many would likely choose this as a route to climb if it was a bit shorter. (1600 ft or so) It can be a bit of a grind. The multi-pitch climb was a 5.11a finger crack. Much harder.

Let’s say these two climbs represent twos strategies. There is a hard one and there is an easy one.

Consequence

It might be lost in text but I will try.

In the solo climb, despite it being easier (much) it is of much higher consequence. What is on the line, death. While the other multi-pitch climb, although scarier has much lower consequence.

Risk

In the solo climb, you are very unlikely to fall. At this grade, it’s almost a sure thing that, with solid experience and a cool head, you will be just fine. However, if you fall, you are dead. In the multi-pitch, you are sure to fall but, that fall should only result in some lost height and likely not your flattened corpse 400 ft below.

The Math

Really quickly, let’s take these three ideas and make a bit of a risk map.

Option #1
Easy objective = High Consequence and LOW Risk of Occurrence.

Option #2
Hard Objective = Low Consequence and HIGH Risk of Occurrence.

If these two are your choices, people choose option 1. Think, selling naked options. high win rate, deadly loss risk.

But we see this happen intra day too!

People are constantly choosing to be in trades like option 1. They choose the easy trade, which looks high probability and ignore the fact that they are interacting with is as high consequence.

I want to be the person who chooses the trade that is low probability, low consequence.

Why?

Because the kinds of people who choose the high probability/high consequence trades will be the ones who fall to their death before giving up on the idea that they are falling. See, attachment is also a common human behavior. Rarely do people lose with grace and therefor, once they begin to lose, we can count on them to keep losing. All the way to the ground below.

Let’s keep moving – CHARTS!

With this concept in mind, let me show you some charts from the past few days. I will not show my fills but I will show you examples I did take.

Perceived Risk vs Actual Risk

In the chart below, you can see that we filled the gap, built a nice base rear prev day close and are now moving higher. We are in a strong uptrend, had a gap up and it would seem, the drift higher has begun. The easy trade here is to start buying dips if you are not long from the gap.

The real question isn’t about trend. The real question is, who’s not wearing a seat belt?

OOPS…

I was in this short before it broke.

To go back to our climbing analogy, it was clearly longs who were over exposed without a rope.

The easy trade was long. A mellow day in markets you might think. Perceived risk was low but due to the complacency of longs, even here at ATH’s, the realized risk was fairly high. Especially as it applies to intraday trades.

Let’s look at another, less dramatic.

Here we have double gap up days and a breakout from prev day high.
This looks about as good as a long can look if you ask me. Maybe the 5 min bar pulled back a bit far before the strong closing bar but there is no reason to think this is a high probability short right here.

I took this short.

Why?

Maybe because I am addicted to pain and only trade for the thrill.
Maybe because I understand that while this trade may be unlikely to be a winner, if we do turn, the guys and gals under are likely to be caught off-guard. That is all I need.

It did so happen to be the case that we offered back into range here after a look above.

We’ve all seen a false breakout. I get that. Nothing special here.
What is special is that many traders look for what is happening right now without understanding how people are emotionally positioned into those locations.

Risk

Risk alters the minds normal thinking operations. It changes what you will do and why you will do it. When people look for “Low Risk” they are willing to take on “High Consequence” in order to do so. This is why markets prey on so many people. It’s not because they are difficult but because people struggle to understand the complexities of risk and what your mind will do to avoid it.

What I aim to do:

I aim to take on the worst looking trades in order to Increase Risk and Reduce Consequence.

I say it this way because I want you to understand that I am not fading moves. Much of the time, I am in line with the trend. However, I do try to find the group who is most likely to be both offsides AND unwilling to admit it.

Increase Risk

When I say increase risk, what I mean is not increase the amount of potential loss. I trade with a 10pt stop on NQ. My aim is to increase risk in the way a protected climber increases risk. The likelihood that I fall is high. The likelihood I am here to try again tomorrow is 100%.

Nuance

For me, price action patterns are a lost cause. So is Auction Market Theory and many other more complex strategies. However, people are fairly easy.

You should be able to look at price and see where the potential for one side to become offsides is high BEFORE it is represented in price. Be a visionary for what could be before others have yet to get it in view.

Then, understand that you have plenty of equipment to protect you as you climb through your capabilities.

I trade the absolute ugliest things I can find because I believe that markets are random and people can’t handle the unplanned risk.

That is how I read charts. I want to be climbing at my max effort, fingers pealing off the wall and a rope to catch me below. I want the guy on the other side of my trade to be having a relaxed day at the crag, enjoying himself, climbing well within his skill level. Then I want some random fluke storm to blow in and test us both.

It was an early summer morning. Warm air flushed down the gully as we scrabbled over boulders in the early morning darkness.

The plan was to free solo a classic slab outside the city in a massive loop that took us full circle, up and over then back around to the Dan’s super market parking lot we started in.

You probably already know this but, a free solo climb requires you leave the rope behind. In this particular climb, we had decided to scale it as such because of the easy grade. 5.5 is all and part of what makes this climb so enjoyable is the massive exposure with little risk.

Well, the consequences are the same I suppose. Death. The likelihood however was fairly low.

The climb was a success, as you can tell by my writing this now, some years later. What stuck with me, however was the uniqueness of this climb.

Because it is fairly easy, you take on the full risk of the event. This is optimal because it gives you the best experience and while you could die, you probably won’t.

This is in stark contrast to another climb we had done a month prior.

The second climb in this story sits just outside of Vegas. Was a 4 pitch crack on a sandstone wall. It followed a perfect finger crack that from time to time flared open to fist size.

This climb was done in trad style. That means we placed protection (pro) in the crack as we went up. The difficulty of this climb was at the limits of what my partner and I could do.

We took a few whippers.

A whipper is a protected fall where you extend above your last piece of pro (10 feet perhaps, sometimes more) and in the fall, you then pivot around the last bit of pro until your belay catches you and you (hopefully) spring to a stop.

What’s important to understand is that, in the face of risk, we take on tools that allow us to interact with it in a way that benefits us. This doesn’t mean we enjoy the experience of a big whipper. From time to time, the fall is so terrifying that it takes the nerve right out of you and the last thing you want to do is give it anther go.

However, it is also often the case that a solid whipper precedes a good send!

In the case of our big wall climb, the whippers were solid but only served to reinforce our ability to protect ourselves and we continued on completing the route.

In my career as a trader, I’ve traded with many other traders. Both good and bad.

What I often see is what I consider a strange response to stops. In fact, stop outs seem to be the single greatest triggering mechanism for tilt.

Why?

Early on, I too would be a bit annoyed by a stop out. Sure, I get that. (I have also yelled loudly when I have taken a big whipper, nothing wrong with that!) However, fundamentally, stops are thought about incorrectly in markets. Most traders think of them as perhaps a slap on the wrist. Often as an unjust action cause by “terrible price action” or some such thing.

A flawed understanding of risk.

Go to a climbing gym. What do you see? If you look at the lead wall, you should find at least one pair of new climbers trying their hand out at lead.

Typical behaviors are:
– Shaking legs as they move above the last clip.
– Over-gripping as they fear the idea of taking a fall
– Shouting at their partner (take!)

What about the more seasoned?

A more seasoned climber will climb through the fall point. You have to build up to this but, knowing you trust your gear, you climb beyond what your mental limit is in order to allow the wall to tell you your limit. The fall should be a surprise.

These are the best falls anyway. The most fun and most productive. But what do they take? Well, they take time. They take a fair amount of time falling intentionally. You take a lot of “oh man, a can’t get this one” short whippers before you upgrade to the big ones. Those top of route, trying to clip the last bolt, fingers pealing off the wall, beauties!

How about in trading?

Do we not often see the same thing?
Fear grips the positions of the new trader, and many more seasoned as well.

Each tick for or against brings about intensity that alters the view of the trader. Behavior is altered, action is taken. Stops are moved out and profit targets are inched in.

This is the main problem facing retail traders managing their own money.

How do you fix it?
I have no idea.

On one hand, I think there are those who are meant to handle risk and those who are not. That being said, I did not come here just to tell a story. I want to try to help.

1. You should take up climbing. It’s great.

2. Consider actively changing what it means to “fail”.

When climbing, you would never think of taking a fall as failure. You would look at it as the last place you got to in the route. Too many falls on a spot of climb and you will need to come down out of shear exhaustion. While this is a failure, we don’t consider it that. We consider it a “project”. Every climber has a handful or “projects”. These are climbs they have not done successfully yet although they have tried. They have failed, for now.

There is not more to trading well than stop taking.

People talk about positive expectancy systems and having a business plan. While I have both of those, and I believe they are important, what I see ruin them both is the inability to manage stops. It’s that simple. I wish it was more complex.

Markets are random enough and, in most cases, move enough that if you get involved reasonably well enough times you will do fine, if and only if you manage those losses. Like climbing, the more times you are able to return to the route, the more likely you are to eventually climb it. You’ll just get stronger. That is a fact.

Taking stops.

Lets rethink what it means to take a stop.

What if taking a stop simply means, in this moment, the hold you were on didn’t hold? You simply lost your grip on that one. No sweat.

What if taking a nice big stop heightened your senses, dialed you into the present moment? Made you more focused on what you need to do to trade well in this environment? Maybe that means save your energy, maybe it means re-engage in a different way.

What if taking your stops was the single most powerful thing you could do as a trader. What if this is the single thing that would set you on a new path of enjoyment in markets. What if you came to terms with the fact that a stop is simply a mechanism for you to try again, to continue to enjoy the artform you enjoy?

I love stops. I love taking them.

This will sounds strange but, I like taking stops more than winning a trade.

Why?

Anyone can win a trade in a random set of data. Not everyone can enjoy taking a good stop.
It makes me special and it can make you special too.

In climbing, the difficulty of the route you can climb (particularly in trad/mountaineering) is determined by fitness levels divided by nerve. Nerve being the amount of exposure you can take and the size/intensity of the fall you muster.

Trading is the same.

Trading size equals account value divided by max stop size you can handle without loss of nerve.

Let’s not make this a macho-chaco competition however. We are all in different places and need to account for that in how we trade. My point is not “grow some balls”. My point is “Trading success is linked to ones ability to handle intensity”.

My hope, in writing this is that you would consider than this factor plays a big role in who walks away from markets a “winner” and who doesn’t.

Before the market opens tomorrow, forget looking at the currency pairs or vix or whatever macro thing people say is important. Instead, visualize yourself getting stopped out hard. Imagine a good short trade you get squeezed in. Imagine massive stop outs.

This way, when it happens, you’ll keep climbing.

In 1944, C.S. Lewis wrote the following lecture for King’s College, University of London.

From a creative perspective, it’s possible that these words function as the cornerstone to genuine expression.

They certainly have for me.

I share this possibly to help you break through your own social constructs that may be holding you back, possibly some creative existence remains in front of you that has not yet been tapped.

Either way, I find the concept to be both simple and insightful and hope you enjoy it as well.

An excerpt:

---

“My main purpose in this address is simply to convince you that this desire is one of the great permanent mainsprings of human action. It is one of the factors which go to make up the world as we know it—this whole pell-mell of struggle, competition, confusion, graft, disappointment and advertisement, and if it is one of the permanent mainsprings then you may be quite sure of this. Unless you take measures to prevent it, this desire is going to be one of the chief motives of your life, from the first day on which you enter your profession until the day when you are too old to care. That will be the natural thing—the life that will come to you of its own accord. Any other kind of life, if you lead it, will be the result of conscious and continuous effort. If you do nothing about it, if you drift with the stream, you will in fact be an “inner ringer.” I don’t say you’ll be a successful one; that’s as may be. But whether by pining and moping outside Rings that you can never enter, or by passing triumphantly further and further in—one way or the other you will be that kind of man.

I have already made it fairly clear that I think it better for you not to be that kind of man. But you may have an open mind on the question. I will therefore suggest two reasons for thinking as I do. It would be polite and charitable, and in view of your age reasonable too, to suppose that none of you is yet a scoundrel. On the other hand, by the mere law of averages (I am saying nothing against free will) it is almost certain that at least two or three of you before you die will have become something very like scoundrels. There must be in this room the makings of at least that number of unscrupulous, treacherous, ruthless egotists. The choice is still before you: and I hope you will not take my hard words about your possible future characters as a token of disrespect to your present characters.

And the prophecy I make is this. To nine out of ten of you the choice which could lead to scoundrelism will come, when it does come, in no very dramatic colours. Obviously bad men, obviously threatening or bribing, will almost certainly not appear. Over a drink, or a cup of coffee, disguised as triviality and sandwiched between two jokes, from the lips of a man, or woman, whom you have recently been getting to know rather better and whom you hope to know better still—just at the moment when you are most anxious not to appear crude, or naïf or a prig—the hint will come. It will be the hint of something which the public, the ignorant, romantic public, would never understand: something which even the outsiders in your own profession are apt to make a fuss about: but something, says your new friend, which “we”—and at the word “we” you try not to blush for mere pleasure—something “we always do.”

And you will be drawn in, if you are drawn in, not by desire for gain or ease, but simply because at that moment, when the cup was so near your lips, you cannot bear to be thrust back again into the cold outer world. It would be so terrible to see the other man’s face—that genial, confidential, delightfully sophisticated face—turn suddenly cold and contemptuous, to know that you had been tried for the Inner Ring and rejected. And then, if you are drawn in, next week it will be something a little further from the rules, and next year something further still, but all in the jolliest, friendliest spirit. It may end in a crash, a scandal, and penal servitude; it may end in millions, a peerage and giving the prizes at your old school. But you will be a scoundrel.

That is my first reason. Of all the passions, the passion for the Inner Ring is most skillful in making a man who is not yet a very bad man do very bad things. My second reason is this. The torture allotted to the Danaids in the classical underworld, that of attempting to fill sieves with water, is the symbol not of one vice, but of all vices. It is the very mark of a perverse desire that it seeks what is not to be had. The desire to be inside the invisible line illustrates this rule. As long as you are governed by that desire you will never get what you want. You are trying to peel an onion: if you succeed there will be nothing left. Until you conquer the fear of being an outsider, an outsider you will remain.

This is surely very clear when you come to think of it. If you want to be made free of a certain circle for some wholesome reason—if, say, you want to join a musical society because you really like music—then there is a possibility of satisfaction. You may find yourself playing in a quartet and you may enjoy it. But if all you want is to be in the know, your pleasure will be short lived. The circle cannot have from within the charm it had from outside. By the very act of admitting you it has lost its magic.

Once the first novelty is worn off, the members of this circle will be no more interesting than your old friends. Why should they be? You were not looking for virtue or kindness or loyalty or humor or learning or wit or any of the things that can really be enjoyed. You merely wanted to be “in.” And that is a pleasure that cannot last. As soon as your new associates have been staled to you by custom, you will be looking for another Ring. The rainbow’s end will still be ahead of you. The old ring will now be only the drab background for your endeavor to enter the new one.

And you will always find them hard to enter, for a reason you very well know. You yourself, once you are in, want to make it hard for the next entrant, just as those who are already in made it hard for you. Naturally. In any wholesome group of people which holds together for a good purpose, the exclusions are in a sense accidental. Three or four people who are together for the sake of some piece of work exclude others because there is work only for so many or because the others can’t in fact do it. Your little musical group limits its numbers because the rooms they meet in are only so big. But your genuine Inner Ring exists for exclusion. There’d be no fun if there were no outsiders. The invisible line would have no meaning unless most people were on the wrong side of it. Exclusion is no accident; it is the essence.

The quest of the Inner Ring will break your hearts unless you break it. But if you break it, a surprising result will follow. If in your working hours you make the work your end, you will presently find yourself all unawares inside the only circle in your profession that really matters. You will be one of the sound craftsmen, and other sound craftsmen will know it. This group of craftsmen will by no means coincide with the Inner Ring or the Important People or the People in the Know. It will not shape that professional policy or work up that professional influence which fights for the profession as a whole against the public: nor will it lead to those periodic scandals and crises which the Inner Ring produces. But it will do those things which that profession exists to do and will in the long run be responsible for all the respect which that profession in fact enjoys and which the speeches and advertisements cannot maintain.

And if in your spare time you consort simply with the people you like, you will again find that you have come unawares to a real inside: that you are indeed snug and safe at the centre of something which, seen from without, would look exactly like an Inner Ring. But the difference is that the secrecy is accidental, and its exclusiveness a by-product, and no one was led thither by the lure of the esoteric: for it is only four or five people who like one another meeting to do things that they like. This is friendship. Aristotle placed it among the virtues. It causes perhaps half of all the happiness in the world, and no Inner Ring can ever have it.

We are told in Scripture that those who ask get. That is true, in senses I can’t now explore. But in another sense there is much truth in the schoolboy’s principle “them as asks shan’t have.” To a young person, just entering on adult life, the world seems full of “insides,” full of delightful intimacies and confidentialities, and he desires to enter them. But if he follows that desire he will reach no “inside” that is worth reaching. The true road lies in quite another direction. It is like the house in Alice Through the Looking Glass.“

You can find the full article here: https://www.lewissociety.org/innerring/

pt. 3

Forget Athletics

The market opens, news drops at the 30 min turn. It’s a big news report this morning. He’s been on the short side for a few weeks, taking quick drops but they’ve stopped paying and the bid seems to be coming in as the new quarter starts. ‘Maybe the mood is changing here‘ he thinks to himself.

Price pumps around, he can hear the stops getting run on both sides, nobody knows what’s going on yet and bigger players seem to be flattening before the news drops. ‘Typical‘, he thinks to himself. Better sit tight until this hits the tape.

Sure enough, the news hits and after a quick surge higher, the bid disappears and price plummets. We’re down 50 pts in what feels like a second.

Here we go

He says under his breath. ‘Let’s do this‘. That surge of adrenaline runs through his veins. He’s done his work, he’s ready for action.

He hits it short. Price drops out underneath his position and he’s quickly in profit. Knowing he needs to scalp this price action, he pulls a few contracts back off, banking in this quick move.

A slight pop takes the rest of his stops out as they trail price lower. He’s flat and up on the day. News moves like this are his bread and butter.

Price pops through stops in low liquidity. He’s seen this so many times, he acts on instinct.

Short 1/3.

Another pop, he adds as it pushes against him.

His P/L goes sharply red digging into the profits. It all happens pretty fast and despite his time in this environment, he struggles to regain clarity.

A cool head, he holds his position. In his earlier years, this may have sent panic through him but now, he quickly calculates his position size and risk. He can take this stop if he has to.

The market soon remembers it’s self and price drops again, knowing he is on the right side of this move, he adds the final piece. ‘Let’s see if this can retest yesterday’s lows‘, he thinks.

The Reversal

It comes out of nowhere.

After a sharp move down and a heavy 5 minute candle close, the move reverses as fast as it had appeared. His position is ripped out of his hands as price rockets past his entries.

He glances at his P/L, He’s red on the day now. Shit.
He’s traded perfectly so far this morning. Punching those shorts early, taking those exits where he should.

He knows he’s damn good.

---

The Choice.

This is the moment. What is he here do to?

Did he take those trades because it was a clear opportunity to scape some points or, to feel his skill and strength?

In this moment, is he an athlete or an opportunist?

If he’s an athlete, he needs to re-engage. He’s on the short side and he needs to show these bids who’s boss. He knows he’s good. He’ll go up against anybody in this game. ANYBODY.

If he is an opportunist, he knows that this move was just one moment. A chance. Sure, he’s a little buzzed from the work of it but he lets it go. He knows he has what it takes to take advantage. Nothing to prove here. When a moment comes, his job is to simply see it and interact with it the best he can.

High Performance Opportunist.

Why did I start this series with Ansel Adams?

Seems an obscure reference perhaps. The truth is, he embodies the full qualities of a great opportunist.

Prepared. Skilled. Patient.

Then, he leaves it to simply being in the right place at the right time.

Trust the process.

---

I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.

Jim Rogers

My Mountains

Yes, these are my mountains. While others may see them, I consider them mine. This picture was taken from my office window. I’m not a photographer. I don’t claim any skill in the art of photography. I pushed a button.

What did it take for me to be able to see this view? Sure, I have positioned myself to enjoy this view, when it happens. That’s key. However, I can do nothing to produce this view. It is fully up to the mountain. I am powerless.

I’ve taken risks. Made some decisions that were hard to defend in the moment. I am fully responsible for where my feet are in this world. I am just a pair of legs and a pair of eyes. Even those things I did not obtain by my own will. A gift.

I have no control over the leaves or the snow or the sun. I am just a man after-all. My life, no matter how much I deny it, is moved by forces much greater than I.

So it is with markets. So it is with all great opportunity. In fact, I would say that any opportunity you have the power to bring about is not an opportunity big enough.

Me?

I only want to interact with opportunities too big for me to manifest… chances so great, I can only sit back and watch. The rest of it is just work.

You.

Consider this; consider the idea that perhaps chance plays a role. Perhaps there is a mystery in it all and perhaps, if you are facing the right direction when it happens you might take part in it’s occurrence.

In a world of distracted drivers, be an intentional passenger.

pt. 2

I woke up at 5.

Today is Monday. It’s the first trading day of the month. I make my way downstairs to the coffee pot. A few sips in and I head out to the cold dark garage. It’s time to load the plates and put in some work before I look at charts.

45 minutes. Bleary eyed, weighted dips serve as a reminder that I am here to work today. I am here to suffer, to take productive pain as I look to build what I intend to build.

I pull my sweatshirt back over my head, refill the tin coffee cup and make my way to the desk to check the overnight action and see if we filled that open gap from Sunday night. Sure enough, we’re opening with a gap down. Time to do some work before I step out again to make breakfast for three hungry birds.

I Visualize.

I close my eyes, I take some stops in my mind. Every day is a fight in markets but the first day of the month can be special. I add to a few winners, one comes back and stops me out breakeven. I do everything I can to feel this moment, to be there mentally before it goes down for real.

A few more morning rituals and my prep is done. We open in 15 minutes but I’ve got cinnamon toast to make for those three hungry birds. Although I am ready to put in work, I have other priorities to serve first.

This morning is special for a few reasons. Not only do we have an interesting open, the temps just dropped outside. The mountain outside my front door has been frosted with snow while the trees still hold their color.

It’s easy, for grinders to be fully capable of an opportunity and miss it. Grinding out base hits and miss the chance at a homer.

Market Open

I’m not there.

I’ve done my prep, I’ve got my mind right. But I have other things taking my attention.

Not only do those three birds take priority before they go to school, we’re in the front yard looking at that fresh frosting of snow that’s fallen 5,000 feet over our heads, covering the granite peaks with a soft sugar.

A few moments later and the carpool arrives. I love you’s and see you soons are important for everyone before we all roll our sleeves up and do stuff that sucks.

At the Desk.

The first 15 min bar closes at the high, potentially bullish.

I wait. The pullback comes, I hit it long. I am immediately green on this position. +8/10 pts per contract. I inch my stop up looking for a quick move here I can hold all day.

It’s not meant to be and I get stopped out for -8.

The next 5 min bar closes and I hit it again, same idea. Again, clean first move here and I am +20 pts within a minute of entry. I have a choice, I can take the trade off and be plus a few on the day or move the stop up. Stop get’s moved because the idea of a run-away move without me on it sounds far worse than being a few points in the hole. Three more minutes pass and on the fourth, I am stopped out break even.

The Move.

The move comes, I’m not on it. Price surges up while I am flat. What can I do?

Nothing.

Fill up my coffee and see how this reacts. Trend day or rotation?

10 min later, I am sipping this coffee and watching price rip to a level. Worth a shot I figure. I hit it short. Again, the move instantly produces a positive P/L. A bit to my surprise. A moment later, I add, and again.

I am now, for the first time in a full sized position on the day. We drop an easy 30 pts in a few minutes with no look-back. I flatten the full clip.

My day is done. 66% win rate. One loss, one break-even and a nice full sized short that paid quick. What more do I need to do?

Nothing

Here’s the magic:

The work is done in waking up early. In setting the mind right. In having the equipment to engage in the moment.

Who does the real work?
Not me. It’s the market.

The market makes the move, I am just a passenger.

pt. 3

pt. 1

“Sometimes I do get to places just when God’s ready to have somebody click the shutter.”

– Ansel Adams

Friday morning, before the sun broke, I was making my way down a dirt road, pot holes rocking the truck back and forth, yellow aspens still gray in the early morning darkness.

The Destination?

A small creek that flows down from the meadows surrounding King’s Peak in eastern Utah’s Uinta Mountains.

The Objective?

Hike in 5-6 miles to some of the most enjoyable small stream fishing I know and enjoy a weekend in the presence of the glory of fall in the Mountain West.

The beauty of fly fishing lies in location choice, patience, and the ability to listen.

As I approached the location we had chosen to fish for the day, I settled into my typical routine. I strung a new leader, picked a fly, and decided what method of fishing I might use to start. This might sound complex or nuanced, but it’s really not. I typically fish with the same caddis fly floater; it’s light tan and medium-sized. Then, I look to the stream and decide if I should be in the current or simply cast to the slower-moving pockets on the sides of the current. Do I want the fly to roll over the rocks and into the swirling bubbly water, or do I want to toss my fly into the eddy swirling off to the left or right?

I cast.

Time moves slowly in these moments. The wind blows upstream, rustling the leaves of the trees that reach over the river. That same wind also takes my fly to places I am not intending, making it a strange struggle for intention amidst a gloriously peaceful, calm river scene. I often find the struggle oddly difficult in these little moments, as my efforts to enjoy the beauty of the moment are thwarted by the very environment that I’ve come to enjoy.

It’s an odd mix of patience and force.

I must use force upon my will to remain patient and still while keeping focused on the ultimate goal of enjoying this brief moment of serenity.

Throughout the day, I fish a number of small holes. I catch cutthroat and brookies from behind rocks and pull them out of the calmer eddies surrounding these pockets. The day passes with a cool wind and bright light. Yellow aspen leaves sprinkle the nearby pines with gold coins, as if the forest is self-decorating. What it is decorating for, I’m not sure. Perhaps the end of the summer season. Perhaps this is the final release of life before a wall of snow falls from the sky. No matter, the summer in these mountains has passed with green and life and living and dying, and this final act of the mountain feels divinely appropriate. It feels both grand and final, and this is why I love it. This is why I am here. The fishing is simply the excuse, the action, the thing to keep my reptile mind engaged. It’s the final celebration of the season that truly draws my attention.

While a skilled fisherman may perhaps deceive himself into thinking that what he caught was of his own accord, giving credit to his choices of fly and location, the true glory goes to the creator of the mountains and trees. In this display, he has had no part. Only a pair of legs to move through the rocks and trees and a pair of eyes to take in the spectacle. If he is honest with himself, even the success he’s had in catching a few small trout simply goes to the conditions in which he has found himself. This, perhaps, is the most beautiful part.

“Some photographers take reality… and impose the domination of their own thought and spirit. Others come before reality more tenderly and a photograph to them is an instrument of love and revelation.”

-Ansel Adams

If you’ve been around the Mountain West, places like The Tetons and Yosemite, you’ve seen the great exhibitions built to display the work of Ansel Adams. For many of us in the modern age, it can be easy to overlook the lessons in Ansel’s work. We’ve now seen many photographs of the places he is famous for. We’ve likely seen many with our own eyes.

There is a powerful lesson in Ansel’s work .

There are two qualities of Ansel Adams that I believe set his work far apart from anyone of his time and many since.

The stories of Ansel tell of a man willing to stand for days, even weeks, in a location to capture that perfect moment. In this, Ansel knew that it was not his photography that made a photograph but his patience. While there are many photographs of the same locations, none of them seem to capture the moments he captured. It’s not simply his scenes but his moments.

Secondly, he ventured into the most intense places during their most intense times. Looking at Ansel’s work, you must see the boldness of both his locations and when he found himself there. Many more average photographers shrink back when they see the degree of glory looking back at them through the lens.

Ansel leaned in.

He leaned in and listened. He heard what the space had to tell him. He didn’t seek to display his own significance but to simply capture the significance of the places around him.

pt. 2

I’ve met a lot of traders. I’ve met a lot of good traders. I traded with a lot of good traders.

Let’s get honest for a few moments.
I don’t consider myself a good trader. Probably never will.

There are a handful of attributes that I believe each of these traders shares, in their own way. They all have my full respect.

Why I don’t consider myself a good trader?

It’s not for me to say and it would make no difference if I did.

There is an ethos out there that you have to be the biggest, the best, a monster in this game. I think that is untrue. I believe that you are what you are and you may have qualities that produce positive outcomes when opportunity is presented. I believe that you can implement processes to change behavior, belief and discipline.

“A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That’s the kind of thing winning traders do.”

-Ed Seykota

While I don’t know if I am a good trader, I do know that I am not a losing trader. That is more than enough.

---

“I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happened to them all.”

Ecclesiastes 9.11

What if it truly is up to chance?

What if all of life is just chance?
See, we have this sense that we are in some kind of control. I think that is untrue. Especially in this digital age, we are told that we can control all qualities of our life and that we should. At your fingers, you can know anything, see anything, track/manage all our life’s details.

Has it helped?

I don’t think it has. I think it’s made people lose their minds.

So, what is the common thread?

Above all else, above strategy, above mindset or financial position or personal history, being a winner or being a loser, their common thread is this:

They were and are, willing to watch the odds play out.

Each one of the good traders I know made a choice at some point. They would either quit or they would change. Whatever that change meant, however painful it was. They positioned themselves to be able to sit at the table long enough to find out if they were a winning trader or a losing trader.

Let me tell you, each one of them went through extensive pain to find out.

Now, the clock is not stopped yet. The trick with trading is it’s never over until it’s over. Chance continues to run on.

Embrace the mystery

One of the things I like about trading is that you never know what will happen next. People pretend like they know but they only know in hindsight. The future moment is the only frontier. Where price has not yet been, this is the only place anything new ever happens. It won’t be truly new, it will only be new in this moment, new to it’s context.

Another great place this happens?

It happens in relationships. It happens with kids. It happens when you get over your skis a bit, when you find yourself over extended.

I’m not in markets to win. I’m certainly not in them to lose. I am in them simply to see what happens next.

We’re running some simulators today. Probability simulators.

I find there are three levels of trader progress in this area.

LEVEL 1:
They believe that once they find a good system they will be able to come into the market and be absolute killers every day. They just need to find that system!

LEVEL 2:
They have a system but know it’s not the full answer. Most days are good but trading is a mental disaster. It’s hard, it’s stressful and they are living their lives from one trade to the next.

LEVEL 3:
This group has stopped caring. It is what it is. They understand that probabilities work out over time and if today isn’t the day, they bugger off.

The point of this post is to help you find the level you are in and perhaps, play a role in guiding you to the next level.

In the following images, I have run a little test. I have 10 days with about ten trades each. My trade stats are the same for each day. We’re running a 30% win rate and a 4:1 Risk Reward. Pretty good right!

Well, even in this high potency system, you will see that, in the day to day work of it all, it’s not perfect.

---

So far so good. With a killer Risk to Reward, like we have, one would expect to be pulling in killer days with little draw down. While these charts don’t fully encompass the stress of trading, having put out many of your own trades and reviewing them, I am sure you can ride the emotional waves to some degree.

Then it shifts.

Here we are, Day 4. This would be a Thursday. LEVEL 1 can’t make it this far. LEVEL 2 can put up three good days but the day below is a disaster. It absolutely should not be. This is what it looks like to let the odds play out. Understand this on a deep level. I find MANY traders beat themselves up for things when in reality, it’s just the probabilities. They go on endless searches of self and meaning (while I also enjoy those, they should not be because of odds) and find more problems, never solving the issue they face.

This day below is a blow up day for LEVEL 2.

Here we are, back on track again. Life is good.
The professional is happy this day has happened but they could generally care less. They know that it could have just as easily gone the other way.

---

Here we are again:

LEVEL 1 traders ditch their system and continue their endless search.
LEVEL 2 traders feel lost and hopeless. They call their mom, they call their therapist, they kick the dog and punch a hole in the wall.
LEVEL 3 traders could honestly care less. We came in, we took our swing and it didn’t work out. It’s another fine chance to display our resolve.

Unless you are LEVEL 3, you don’t see these next few days below. That is the real gift of solid mental resolve aligned with the expectations of your edge.

Where do we go from here?

If you got this far, you might end up at level three one day. Seems likely. In my opinion, 90% of this job is about understanding how the probabilities work out and building mental skill in handling that reality.

A few things to do before you start each day trading:

1. Visualize yourself being stopped out a few times in a row.

2. If your system requires a 3:1 or 4:1 trade after a few stops, visualize yourself being stopped out and holding the winner to target, or adding.

3. Set yourself up for a fight. This means you role up those sleeves and get ready to lose some money. You’re gonna do it with strength and power.

4. Make a plan for slowing down your mind. The reptile mind will kill you here. Learn to slow it down and be fully present in the pain of the moment. That’s the fun part after all!

You are welcome to run the simulator yourself and see what happens. Put in you own edge stats and see if what you expect each day from the market aligns with reality:
https://longwintertradingco.com/coinFlip.html


Good luck and godspeed,

In all areas of life, doing the right thing at the right time is critical. Certainly a hallmark of good trading.

In this article, I want to argue that the the “Right thing” isn’t what you think it is.

Mark Douglas is quoted as saying :

"Trade to trade well, not to make money. Money is a by-product of trading well."

What does it mean to trade well?
What actually makes your PnL curve move the right direction?

Most people who enter markets feel as if they must do “smart” things. They must move in the market as an elite setup chooser and cunning competitor.

I disagree.

I think having a “clever” system is the high on the list of meaningless endeavors. While you need to know when one thing is more likely than another, you do not need that to be complex or “cutting edge”. Imagine Harrison Ford shooting the swordsman in Raiders of the Lost Ark.

“You choose your fancy tools, trades and methods. I just double up when I’m right”.

So, the “Right thing” isn’t taking trades at levels you can defend to your friends or trading setups that make for good screen shots. Doing the right thing is being as right as you can the few times you are right and, most of the time when you are wrong, being wrong as little as possible, all while holding your mental in check, above all else.

In the above image, I have posted the hypothetical results of a positive expectancy program. I thought this was an ideal display for a few reasons.

This system has a 60% win rate and a I varied between 1:1 and 2:1 Risk Reward. If you look at the points, you can see this.

On paper we would all take a 60% win rate and a 1.5/2:1 risk reward.

You may look at this graph and be excited about the lower left to upper right quality of the trades, however, I want you to look into to the pattern here a bit more.
Notice two things:

1. The system immediately produces a negative PnL.
2. After a major run up, it posts 6 losses in a row.

THIS GAME IS ALL MENTAL.

Almost everyone can find a “winning” strategy.
Almost no-one can trade that strategy.

Winning trades are a dime a dozen. I could care less about how cool, interesting or clever a trader’s system is. This quality has little, if nothing to do with being a great trader.

Set your math aside for a moment. Set aside how clever you are or how well you done in other areas of your life. I have the same resume. It means nothing.

Let me say that again. IT MEANS NOTHING.

What does matter?

"There is a random distribution of wins and losses in any given set of edges".

In any set of random outcomes a few things will happen. The most important is “trend”.

Trend will happen in any given set of random outcomes. In a 50/50 bet of a coin, there will be trend. You will see multiple tails in a row.

In a 50/50 bet, the trend distance only last about 3-4 flips. I’ve had more in a row but, consistently you can’t expect more than this.
How do you win? When you win, double the bet size.

Ideally, you would have a product that trends more than a 50/50 quarter toss. In this case, you should be adding MORE as you find that trend.

Understand me here. The worst thing you can do in a market is not take a loss, the second is take profits.

Let profits run.

Meaningful data:
You need to be realistic about how far the trend can run. If, in a coin flip, you double up every time looking for a 5-7 heads run, you will lose.

This is the most meaningful data you can get ahold of for a product. How long can it trend? How long can I keep hitting double size before it reverses?
Forget everything else you know. If you focus on this one thing AND taking those loses fast without irritation, you can win with any strategy.

The Mental Game

This, as you can imagine, is not done easily. It’s done only with a specific mental quality. It’s not just toughness or resolve. It’s about speed and control of thought. About building habits. About full rational thinking in the midst of high pressure situations. You have to find this for yourself. Some will, and some won’t. That is a fact.

Can you guess with your hard earned capital?

Most people cannot. I can. That’s my edge.
I can guess with my capital and I can guess harder than most. If I guess right, I double up. If I guess wrong, or get a sense that I have guessed wrong, I bail fast.

It’s truly as simple and as complex as that.

Learn to think in probabilities
There are a lot of ways to do this. A few games can help.
Let me toss this link out: https://longwintertradingco.com/coinFlip.html

This is a simple coin flip game exercise. As you flip, think of these as trades. Visualize the drawdown.
Let the pain sink in. Then trust the probabilities.

Let’s take a lap around the grim reality that nothing ends up being what we hoped it would be. We are sold and endless dream of better, of more. Yet, when we get there, we find that we are not better or more.

Society is plagued by the mad pursuit of a better life. It’s perhaps the easiest thing to sell in today’s digital economy. The beauty of selling this idea is that “everyone can have it”. But also, that no-one can. An endless supply of hungry customers consuming and never eating.

It’s perfect.

I can tell you this because, I have both nothing to sell you. Not a damn thing, and
I too have spent years consuming the endless nothingness of status and station.

I have had many dreams in my life. Big dreams. Dreams most people wouldn’t consider to peruse for fear of failure. Having started this life as what I already considered a failure, I felt I had nowhere to go but up. So, pursuit it has been.

The great problem with this is not that life is worse having reached a dream. I would not trade my position now with a mouth full of ash for the position I had ten years ago. Simply because, as we grow and pursue, our lives do improve. The problem is that in seeking the dream, we consider the start and not the end.

Why is it that actors and musicians hang themselves on hotel rooms?
Why, once status is achieved, must a person continue to drive forward on an unending journey of self aggrandizement?

I know a man who lives in a beautiful mountain home.
He wanted to get his son into skiing, so he bought a helicopter. The helicopter needed a place to park so he built a helipad. The helipad sits in the middle of his home, surrounded by glass. The house built around the helipad in a beautiful display of his ability, accomplishments and generosity towards his son.

He is alone.

His wife filed for divorce not long ago and his son and daughter won’t speak to him.
Can you imagine the hell it must be to look at that helicopter every day as you wake up in your empty home knowing that, while you’ve achieved great financial success, the people you love most hate you? They can’t stand him.

Tell me that is not ash in the mouth of a successful man.

Learn to love the ash.

Perhaps I am not alone in this experience. Perhaps the man in the story above isn’t either. Perhaps some you have also met face to face with your asperations and felt them lacking. You want to be truly depressed? Search reddit for the topic and read miles of posts about this very thing.

It is not an uncommon human experience. Deep, overwhelming lack of satisfaction.

In most cases, this leads to aimlessness. Perhaps sociopath tendencies. “If I feel nothing, why should anyone else?”. I know, it’s dark.

For many however, it is not an end but a beginning. They ask a different question. “If the pursuit of my own self and good has been meaningless and my own life even feels empty, what do I have to lose in the pursuit of good for others?”.

We all desire to experience some satisfaction. A deep hunger for real validation and fullness. What if that is simply misguided?

To find the answer, you have to look in a different place.

I don’t believe you will find great satisfaction in free time, or freedom or living a great adventure.

Let me throw out something really radical. Something that may be so simple, and accessible that mentioning it after such a walk in the depths feels trivial. What if gratitude is the antidote?

What if gratitude in your situation, your moment, your life and it’s details but also the reception of gratitude from others you serve or provide service to is the savory meal you seek?

Too simple. Too humble. Not thrilling enough or grand enough or worth a real story.

This idea grinds at our ego. It grinds at the story we tell ourselves about how significant we are. For anyone here who’s not truly tired of the taste of ash, it will be an answer that is lacking. For those of us who have truly met an end, met a true end of effort. Met the darkness there in those last inches of reality. It will ring true.

If you have not been there. You have not reached the full depth of suffering that comes from the ash, I’m happy for you. Continue on your way.

For those of us who have looked in the eyes of desperation, seen the depth of our own emptiness, let me challenge you.

You have something special.

The gift that is the end is a better gift than can be found anywhere else. To reach it and still have time left, think of the power of what you can now do. An empty vessel.

From here, from this place, you can move into great affect to the world around you.

Return here often.

I don’t write this because I am in some terrible situation. I write this to remember who I am. I encourage any of you reading this to do the same. Don’t just “fix” the things around you. Let them change you. This hollow feeling should be your greatest strength.

You have nothing to lose. Unlike all the sorry saps around you who cling to some meaningless hope of “being something”. You are free. Use it.

This is a famous quote most of us have probably heard.

Is it true?

Likely.

Is it helpful? Absolutely.
What if we can nudge this idea a little further? Most of the time we say something like ” but I want to win! Why am I not winning?”

Well, this is the complexity of the market. We have no choice about what we get, only what we want. If I want to win, but I lose, I will likely create in myself behavior and mindset that repels what I want. The reason is, because I cannot control what I get from the market.

Therefor, I must turn what I want from a desire where I cannot control the outcome, to a more sophisticated want. One where I always get what I want from the market because it is in line with how the market works. In this way, I can create in myself a set of actions and behaviors that are in line with both what I want AND what I can get.

Let’s follow this out for a minute.

If I want failure, I find failure.
If I want pain, I find pain.
If I want self-flagellation, well, there is plenty of room for that in the market as well.

None of us want those things. Maybe we do, in some way but we’re unaware.
I think, we likely need to uncover those things but we may not be able to change them in ourselves. We will need to uncover them and find a new expression for them. Then, while in the market, replace them with a better, more aligned want.

What needs to happen, instead of solving all your problems is to work with them.

I like work.

I like the hard work markets bring about. The hard problems are very interesting. The issue with this is, I want to solve problems in the market. I want to work at those problems. So, I do. It typically goes very poorly when I do this. It’s my biggest downfall.

Seems like a fine trait, right?

It’s not. Not in a world where problems always exist. In a world where consistent action is best, where creativity is a weakness. Markets will eat the “hard worker”. Problems are solved outside of market hours. Once the market opens, you must simply execute on the idea/strategy/plan you created. Win or lose, you’ve got to take what you get from what you made before the open.

What if I change what I want?

What if, to better serve my desire to work, and to win, I change my active trading want to ” I want information so I can act correctly”?

We can all do this, no matter what the want is we bring each day.

Transition your want and you transition your actions.

If I want information, I can no longer lose. I always get paid.
In information. This information can, over time, be turned into money.
The funny thing about that, I don’t even want money.

I want freedom.

But, I can want information, which will get me money. That money can then be turned into freedom.

So, it’s not uncommon to want one thing in order to get another. We don’t need to change what we really want, potentially. We simple need to figure out what wants will bring about the most productive results for our true desires.

The wants clash.

The wants clash. What is that?
This is an idea I consider often. It’s when you have two wants, likely unknown, that fight one another.

For instance, you want to make money in the market but you don’t want to lose money.

Well, that sucks. You’ll never win if you can’t lose. You have to find a way to reconcile those two ideas to one another.

What is my wants clash?

I want to work, but I also want freedom of time.
They clash when, I work and don’t get results, taking from my time.
The two wants clash in a big way.

I don’t have the answers.

I only put this out as a potential thought stirring exercise.
I have no real desire to teach this to anyone or to find a solution to your problems. I simply say it as an expression of my own searching for understanding.

Right now, I want to go ride my bike. So that is what I will do.
While I didn’t get paid from my interaction in the market today, I got paid in information. Very valuable information. Not just about the market but about my system, myself and the platform I trade with. I did that without offering up what I really want, my freedom.

Life is fast.
Markets are fast.

But are they really?

I wonder if they are or if we only experience them that way to avoid the pain of how slow life actually is.

I’m a thrill seeker by nature.
I love to bank deeply on tight mountain trails and roads on a fast bike.
I love a good whipper while sending a route I’ve never climbed before.
A deep powder day? Does it get better? I don’t think it does.

I spent 20 years in film and VFX. Want to take about pressure?
There are few places with more chaos and need to perform well in it than in Hollywood.

That might seem strange for many people, thriving in stress, chaos and the constant pressure of life. We want it easy, right?

But do we really?

I think we do not actually want the easy life. I think we want to be overwhelmed. I think we want to be stressed. We want to be challenged and pushed and on the very edge of keeping it all together, Why?

We need the RUSH.

I don’t know if you’ve noticed but, this modern world is driven by how you “feel”. We are creatures driven by our inner emotions. That’s the truth. Coca-Cola knows it, Nike knows it, your realtor knows it!

All day long, America sells feelings. We do not sell products. We sell a sense of security, of contentment, of joy. In most cases, an emotional escape from this current, moment.

You want to know why?

Life kind of sucks.

Most of the time anyway.
Even if it’s good, humans struggle to enjoy it.

What do people like more than a beautiful day at the beach? Looking at someone else’s day at the beach and wondering why they can’t have it.

This is so clearly true if you look around. Constantly, people choose their phones over their life. They choose to feel something artificial over something real.

I sat on the shore of Jackson Lake, in Grand Teton last week.

What did I see?
Next to me on that shore, as I looked out at what I think it one of the most beautiful views on this planet.

People on their phones.
Here, they have the chance to live the life they want to and instead, they choose the artificial life.

I don’t really care about the science behind why this is the case. We can assume it’s due to the dopamine addictions we all experience. It may be out of our control. In fact, I think it likely is. I think we’re all just helplessly following our feelings each and every day.

Unless we interrupt the pathway.

This is very hard to do!
It’s not simple. It’s not about less screen time or “doing stuff that sucks” or some B.S. like that.

It’s about admitting we all have an addiction to negativity in order to keep us from realizing how terrible life actually is most of the time!

Paul Tudor Jones is know for saying “Take the PAIN. Take the PAIN, take the PAIN” as one of his trading tenants. What does he mean? I think many think he is saying to do the hard thing in trading. Buy/sell the scary candle and all that. I agree. Work those edges.

There is a lot more to this than simply, do the hard thing.

In order to live a life you can be proud of, I think you have to take the pain of facing life in it’s rawest form. See deeply and truly who you are. Yeah, it sucks. I don’t like it either. But it must be done. We must see our failures, our disappointments. We must learn to live with them in a deep way. Otherwise, we risk living an artificial life where, at the end of our useless run, we return to ash and most people are glad we’re gone.

Take a minute to consider that for many people, when they leave this world, the people around them are glad to be relived of the burden.

This is not new in our modern time. This is how humanity has always been.

So, is it worth it?

Is it worth it to do the hard work of living in the pain of “real life”? Is it worth it to take on the suffering of presence in each moment in order to have some chance at meaning?

Flip that beautiful switch.

Let me tell you, it is worth it!
Not only is it worth it, it’s better!

Life is so much better without all the nonsense of artificial living, of addiction driven striving for the next thrill. The trouble is, we have to start it as a journey. No gimmicks. No tricks. Just start stopping. Start to burn out your habits that bring you back into that place of choosing the lesser life.

Think of it like this, do you truly enjoy sitting still with your own thoughts?
Probably not, if you are like most people. Meditation can be wildly helpful here. Maybe that strikes you, maybe it doesn’t.

Let me tell you what I do. I do two things to see where I am at with real life.

I fast.

Remove food for a day, maybe two.
Don’t get this wrong. It’s not to “see if you can” or to “feel more able”. This is not a feat of strength.

It is a feat of weakness.
I fast to show myself my weakest self, my truest form. My base. Where am I coming from in this moment?

It is very unpleasant, let me tell you. There is nothing fun about not eating. NOTHING. I hate it. But the thing I want to get from it, I want so much more. DEPTH.

The second thing I do. I sit and look at a tree.
Maybe this is just my thing. I don’t know. I promise you, there is, in my opinion, no way to sit and look at a tree for an extended period of time and not think good thoughts.

With this, I look at my watch. I sit. I watch the leaves blow around and let whatever thoughts into my mind. I try to avoid “productive” thoughts as best as I can. No problem solving. Just being. Then, when I get uncomfortable, when I feel the need to move, I look at my watch and check the time.

Whatever time has passed, maybe 15 min, maybe 30. That is the halfway mark. I know have to double the time. Another 15 min, another 30. Whatever it is.

This simple exercise will help you begin to change your view of time, effort, mental twitchiness.

In trading, slow down. There is not rush.
In life, slow down. You’ll be here a while maybe. if not, rushing won’t add anything.

Open yourself up to the beauty of what life is in it’s true form. it is a mess. It’s ugly, uncomfortable, unpleasant and yet beautiful and all we truly have. Learn to speak with life, sit with it and enjoy it as it is. Let it bring you to your knees, let if lift you high.

It’s worth it.

MAKING BETS

There are a lot of comparisons of trading and poker. Working with probabilities, managing bankroll, being aggressive when you have the upper hand and the reality that even a good play can lose. While there are MANY great things to take from poker into trading, I believe the foundation of the game is a bit different. Once we understand those differences, we can talk about the similarity.

What’s different:

In poker, you all play the same game. it is equally difficult for each player and they compete linearly against one another. There are hands that are good, hands that are bad, pot size, Bankroll size, You know the rules and you have the same rules. You simply work to leverage luck and skill together to make the game work in your favor. We can assume, even with luck at play, you must be in the top ten percent to win over time. In trading, much of this is the same. HOWEVER – a very big difference is, trading is not poker. It is a deck of cards.

Trading is not poker. It is simply a deck of cards.

You are given the market. The market is a deck of cards in which many are playing a game. You however, can determine what game you will play, how complex it will be AND what the odds of winning are.

YOU MAKE THE RULES

This is the most important concept I have seen since starting to trade.
YOU DECIDE HOW HARD A GAME YOU WANT TO PLAY. PERIOD.

You can play a game with spreads where, you have fixed risk and fixed reward. It’s up to you to build a game that results in positive EV.

You can play a game with futures where a small risk is taken and a target is not defined. You then have the opportunity to play for bigger winners but must accept BE trades often.

You can play a game where you enter long at the sweep of a low.

You can play a game where, every day you enter at market at the open with a 1 pt TP.

You can play a game where you enter at wild times when other people do weird things.

You can play a game where you act in each moment like a fighter pilot playing back and forth in the flow of orders.

You get the point. Where profitability begins is at the moment you play a game, any game, in such a way that you win more of bigger than you lose. That’s all.

Why is this important

This is critical because, we often enter the market thinking we need to play the game the market plays. We need to figure out the best way to trade and then trade up to the top 10% skill level.

This is NOT TRUE

Here is an example. We can play a range game. Let’s say there is a range in price. When we get the to the edge of that range, you enter long with a 3 pts stop. For this to work, you need a range that is bigger than 5 pts. So, you take every range edge with a single entry and exit of -3 or + 5.

You have a game

This game is simple. What if you now want to play this game with a higher win rate? You take only the first and second touches of the range. Then, you also take stop runs and re-entries into the range.

This is a game you can play. What if you like this game but you also see that a lot of ranges break down. and give greater R. Maybe, you add to your game the idea that on a break down, you either flip OR add. What pattern do you need to see to take this action?

Finally, can you sit and only play this game?

This is the hardest part of trading. You have a deck of cards. At any time, you can be tempted to start playing a different game. One that looks sexier, seems to be happening today or, just seems fun right now.

STOP

This is how you lose the game of trading. To win at trading, you can play a super simple game, but you must stick to that game and that game only.

ONCE YOU HAVE A GAME

First, you need to come up with a simple game you can play. It doesn’t need to be the best game. Simply a game that is profitable and can be played easily every day. Now, you look to play that game on bigger and smaller timeframes. The more you can play, the more you can make. This is why a simple easy game is better than a hard one. Play your range game on the 5 min, 15 min and 30 min charts. Then, play it on the 60 min. Find out what you need to bet in order to make those TF’s work and play!

Once you have a game that you can win 60% of the time OR have greater than 1:1 bets (ideally both) you will want to play your market game all the time. Trading will begin to take care of itself.

This is how you make trading a coin flip and not a complex, winner take all poker game where you typically lose your ass.

It is in this way, I believe trading to be a much easier game to play and win over time than poker.

This is why a losing trader will remain a losing trader. No different than how a smoker remains a smoker.

Most losing traders don’t see themselves as losing traders. Sure, they are losing over time or are break even over time but their mind highlights the times they were right. The times it worked.

This in an effort to maintain the status quo.

You’re lying to yourself. Not because your a bad person but because it’s how the mind works. We do this about all kinds of things. Lifestyle changes, job changes, relationship changes. Our minds lie to us to keep things how they are.

You know what we do? We believe it!

Jim is overweight. Losing weight will be hard. He believes he can lose some weight sure, but he’ll still be fat and he’ll surly never feel confident with himself anyway. He’ll have to worry about what he eats or the weight will come right back.

Steve believes that if he sees negative on his PnL that he must defend himself from this negativity by either adding to the trade or cutting before it has time to work.

Sarah believes that is she turns down a friends invitation the won’t ask again and she’ll be sad and alone.

All of these thought patterns hold us back from challenging our current reality. As long as the mind can hold us in place with these lies, it won’t need to face a new and uncertain future.

We don’t create beliefs based on reality. That’s not how humans work. Not in science, not in religion and certainly not in markets.

We create beliefs as a form of protection. Protection from change, protection from harm, protection (sadly) from reaching your full and terrifying potential. You know what happens to a lot of people who reach their full potential? They die. That’s the truth. Your brain knows it. The trouble is, you are specifically trying to be something MORE than what most people attempt.

Those sad souls who settle for average. That’s not who you are. That’s not who you intend to be!

Your mind doesn’t understand this. You will have to turn around, face your thoughts, your beliefs, and challenge what you know is true in order to overcome this current moment.

How do you do this?

I want to get downright practical here. You need to first create a space to let your mind wander. Give it room to be honest with you. Let it say what it needs to say. Without judgement, without criticism. Than pause. Ask yourself if that thing you just thought is true. Sounds simple. It is. These beliefs are weak and scared and they don’t want to be faced. If you face a weak belief, if will disappear. No need to counter it, simply face it and ask it if it’s true. I know, this all sounds a bit “woo-woo” but trust me, there is power here. More power than you might imagine. This small and simple idea can move you to new places of thought and belief. Our lives are simply a physical representation of what we believe. It’s worth understanding what those beliefs are.

We, as humans, exist in a moment between what we know has happened and what we think will happen. Most people enjoy the luxury of ignorance or assumption. Ignorance that, at any moment, their perceived reality can change and assumption that what has happened will continue to happen. While there is some kind of persistence to normal life and what has happened has the highest likely hood of being what continues to happen, those of us who live life nearer the to the edge know that the current moment and the next moment may be in vast contrast to one another. We also know that it is up against that edge that all real living is done. Despite it’s constant stress, we wouldn’t give it up for a second. As an intraday futures trader, it’s actually those moments when we make our money. It’s the moment expectation of future outcomes fails. Despite the obvious change, market participants refuse to accept their new paradigm. Because of this, we eat.

Predetermined Outcomes Those of us who are not ignorant to the possibility of a surprise next moment are not likely to be truly “ready for anything”. In fact, the truth of “anything can happen” is typically more of a burden then a gift. We wonder how we might respond if X actually did happen or, what would it be like if Y become true? If we’re being honest with ourselves and the world around us, we know that the worst may actually happen. The vast majority of people avoid confronting this degree of massive uncertainly by hiding behind conspiracy or ignoring the possibility. The conscious person, while burdened by this reality, has a high potential to take advantage of it IF they can begin to change they way they confront each potential reality shift that their mind presents.

Move from Responding to Creating Instead of looking at the world as something that is happening to you, look at the world as something that you are happening to. You are not meant to bounce between life circumstances, reacting “as best you can” to each new event. You are meant to speak a new reality into each of these new moments. To create inside this space of the present your own reality. You have a tremendous effect on the reality around you, the people around you. You can be, you are a force of nature. You can move from wondering what will happen to determining what will happen. You are able to move beyond “but what if” to “I will”. You are able to set in stone who you are and what you will be before a thing becomes.

Certainty inside Uncertainty While there is no way to know what may or may not happen next, you are able to know who you will be in each new moment you find yourself. In fact, this is what you were meant to do. You are meant to exist as constant among inconstant. You are to be who you’ve determined yourself to be while the moments around you swirl in chaos.

It’s for this reason that I find financial markets to be so interesting. Sure, the pay can be good but more over, there is not another space of work that presents the opportunity to test yourself and your constancy of self more often and more frequently than this. As a trader, you cannot ask yourself the open ended question “I wonder what I’ll do if” or “What will I do when”. Instead, you must set yourself before hand to be what you will be in each of those moments. You must not only know what to do in each of these new moments, you must actually do it. You must do it despite the pain of doing it.

The future, despite it being unknown, must in some way be predetermined.

When a baby zebra is born, it arrives in a sea of white and black stripes. It has one mother mixed in with 100 or so other identical animals. Subtle pattern differences differentiate each animal. Like a finger print. Because of this, and because the new mother loves her child, she shields her new babies eyes from seeing the other animals in the herd. She does this for those first impressionable moments of the child’s life. Very careful not to allow the baby to see another animal but her. By doing this, she forces her pattern into the mind of the new child. They will know her in the crowd for the rest of their lives despite the mass of the herd and their similarity.


In the same way, we must build a list of executable patterns in our own minds that correlate to our own strategy. To be able to do this, we must know where we interact with the market. From there, we simply memorize the ways the market also interacts with those areas. We can then better understand how we should act based on those areas and those patterns. We infer probabilistic meaning.

Show yourself the patterns

Friday – a day people love to lose. I may trade today, I may not. But what I know I will do is capture the past weeks patterns at my areas of interest. If you’ve had a good week or a bad week doesn’t matter. Now we start planning for next week. Go back and capture the patterns from the week. Memorize them. See what happened and visualize what you will do the next time you see those patterns. Build a robust library of motion. You must be like the mother zebra, showing your subconscious mind the patterns it needs to know. In doing so, you’ll find yourself acting on instinct and reflex, not over thinking each moment and not being guided by impulse.

Why is this?
Why does the market seem to love it’s own trauma?

We see a big move and it always seems like the market can’t help but go back.
It’s not so much a retest. That seems to indicate a move back and out. What does the market do? It get’s fixated on it.

I think this is because those who trade it are victims. They are victims of the market. They are fighting. Fighting for their dignity, their money, their ego.
And the market moves in turn.

But she doesn’t just move in turn, she calls that victim in like a siren. Gives them just enough to grip them tighter.
In doing this, she pulls in more helpless victims. Men and women with dignity in regular life. She pulls them in and set’s her hooks.

So where is the EDGE?

There is only one real edge in the market.
You will have the same entries as some of these victims. You will have some of the same exits. You will win, you will lose, just as they do.
So where is the edge?

The edge is in your mind. In your dignity. In you word. In your ability to act without passion.
To enter, to exit and have it mean nothing.

Your only aim should be this: To enter, to exit, to be exposed to big losses and big wins without it entering your heart.
You are to be cold. Distant.

The market hates a kind lover. She needs your distance.
She needs your cold, rational distance.
But she also needs your love. She needs you to play. To test, to try.
Without being swept up into her.

This is the edge.