Alright, hey friends. Welcome back to the trading book podcast.
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00:00:02,844 --> 00:00:06,947 I'm Rob Booker. Hey, the response to the atomic habits episode we did last
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00:00:06,948 --> 00:00:10,691 time was incredible. And I just want to say thank you very much.
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00:00:10,692 --> 00:00:14,095 I really appreciate that. So let's keep going. This is part two. This is
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00:00:14,096 --> 00:00:16,117 the final part to the atomic habits for traders podcast.
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My name is Rob Booker. You can find me at robbooker.com.
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Listen to the podcast from the homepage. I don't have anything to sell you.
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I'm not in it for that, right? I mean I could have a thing
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00:00:25,732 --> 00:00:28,891 to sell in the future, but I'm just producing a lot of content right
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00:00:28,892 --> 00:00:33,371 now to help all of you. I've been trading for 24 years and every
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00:00:33,372 --> 00:00:36,671 week I just pick a book and I and I study it and then
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00:00:36,672 --> 00:00:39,711 I apply the wisdom from that book to traders if applicable.
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So here we go, let's continue with the topic. Habits by James Clear,
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sold 15 million copies and it's just as applicable to traders,
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maybe more so than anybody else in any other profession.
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All right, um here let's talk about in the last episode we
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00:00:55,321 --> 00:00:59,540 finished off talking about identity and what you believe yourself to be will dictate
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00:00:59,541 --> 00:01:03,214 your habits. And so one of the fastest ways to get a lot of
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change is to identify yourself as the kind of person who gets those kind
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of results. I found this to be true even if you really don't actually,
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well let me give you an example. If you call yourself a risk manager
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who makes millions of dollars as a trader and you identify first as a
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risk manager. You will find yourself saying no to things that
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violate or contradict that identity.
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Even if you really don't even know what it takes.
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For example, it's easy to see that if you ten times your trade
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size, you're going to put yourself in a position where you're going to lose
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a lot of money potentially. And as a risk manager first,
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a risk manager and second as a trader,
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there are dividends that are going to be paid from that,
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pun intended. Now where do cravings come from?
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So we know that there's a cue and a trigger and the one that
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00:02:00,001 --> 00:02:04,104 But you could also use as a cue that triggers bad habits or good
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habits for traders. Something like chat room explodes with
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one stock. So if you're a member of a chat room or a discord
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and then everybody starts talking about that one stock.
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00:02:20,019 --> 00:02:22,571 And that's a cue. And that can lead to a craving.
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00:02:22,572 --> 00:02:25,413 The craving could be I want to be a part of the crowd.
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I want to be accepted socially. So I want to go along with the
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Also greed kind of takes over which is driven by this fundamental desire to
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take good care of ourselves or at least support others.
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Our families. And so that's the craving side of it.
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So the cue is the event that happens.
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And then that leads to this craving that we have.
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So I'm going to read to you from page 129. Page 27 in James
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Every behavior has a surface level craving and a deeper underlying motive.
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I often have a craving that goes something like this.
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I want to eat tacos. If you were to ask me why I want
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But the truth is somewhere deep down, I am motivated.
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The underlying motive is to obtain food and water,
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even if my specific craving is for a taco.
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00:03:28,468 --> 00:03:32,471 Now, this kind of makes me laugh just talking about tacos like this,
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but I often have a craving as a trader that goes something
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like this. I want tacos.
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but there's an underlying human need that is driving
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that. Some of our underlying motives from the book include conserving energy,
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obtaining food and water. We're going to come back to that one,
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finding love and reproducing. We're going to come back to that.
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00:04:00,281 --> 00:04:04,905 Connecting and bonding with others, winning social acceptance and approval,
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something that we really needed when society was made up of tribes and smaller
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00:04:09,030 --> 00:04:13,533 groups of people. Another motive would be to reduce uncertainty and achieve status
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and prestige. Trading checks off every single one
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think about it, a chat room explodes with one stock.
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You desire to obtain food and water and pay your mortgage.
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You want to survive. And in order to do that,
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you need money. And so one of the underlying motives for getting excited
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about a trade is this desire to obtain money.
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finding love and reproduction. We know that if we are in a more secure
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position financially, we will be better able to find and
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support a family or reproduce.
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and we do and we want to be seen as contributing to the group
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or being a part of the group. And so we might go along with
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a trade and it's based on and it's generated from this underlying motive.
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Or win social acceptance and approval. Now if you associate with people.
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a good risk manager or preserving your assets.
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Well, then absolutely you're gonna find that it becomes much easier
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to have good habits. A craving according to James Clear is just a specific
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manifestation of a deeper understanding. Underlying motive.
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00:05:40,930 --> 00:05:43,852 So every single thing that we do as traders good or bad habits or
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good or bad results It really does start with some kind of trigger or
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cue stock pops up stock is mentioned in a chat room We're watching television
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and they're talking about Tesla or we go to an annual meeting or receive
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arises But there's an underlying reason there's a motive
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underlying even that and you'll
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but rather latches on to underlying motives of human nature.
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00:06:16,196 --> 00:06:20,969 Hmm. So any behavior or any
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product that is habit forming like dating apps,
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right, finding love and reproduction,
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browsing Facebook, connecting and bonding with others,
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posting on Facebook, getting social acceptance and approval.
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So we can see that all most of what we do every day is
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actually motivated by some underlying human
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you're making your best guess of how to act given what you've just seen
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and what has worked for you in the past. You're endlessly predicting what will
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this is so true of us as traders.
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We see a stock popping up or mentioned in a chat room and we
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have this human need to have food and water,
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find love and reproduce, be accepted by others.
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And so we think, oh,
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if I do this trade and make a lot of money from it,
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I will have the potential to make all.
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So you're predicting what you will be able to accomplish by acting on
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that cue. So you've been sensing cues your whole life,
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triggers, you know, CNBC,
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watching television about stocks or getting in chat rooms.
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There's cues going on all around us all the time,
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appealing to those underlying motives.
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00:07:41,666 --> 00:07:45,092 So desire is the difference between where you are now and where you want
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he says, with the motivation to feel differently than you do in the moment.
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I can't emphasize this enough.
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Recently, I took an options trade on restoration hardware at earnings.
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in months, maybe even more than a year.
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I took an outsized position, I took a really big position size,
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and there's no good reason for it, at least initially.
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or made a really Big trading mistake, and there was quote-unquote no good reason
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for it. Well, sure there was. Sure there was.
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There was an underlying need to a,
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for me, look cool to my friends by taking this restoration hardware trade.
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That's an underlying need, human need,
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that maybe I was trying to meet, or maybe make a bunch of money,
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and this is where, as I was reading the, re-reading the book in preparation
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I wanted to make $9,000 from this restoration hardware trade so that I
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so, like, even a bad trade,
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or a stupid decision about a trade,
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came from a natural human need underlying
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it, and I thought, wow, I just need to reframe this.
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I need to reframe it next time around when a restoration happens.
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00:09:20,369 --> 00:09:23,241 trade comes along like that, and instead of saying,
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was saying, man, take this trade, you can pay off that other bad one,
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00:09:31,631 --> 00:09:34,933 and you could be in a better financial position, but I could have said,
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by reducing my risk on this trade, I have the potential to still make
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money, but if it goes wrong, I will conserve my account,
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and if I conserve my account, I will better be able to make money
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for me and my family in the future. So,
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Saving money is often associated with sacrifice,
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00:09:59,347 --> 00:10:03,740 says James Clinton. However, you can associate it with freedom rather than limitation if
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The money you save this month increases your purchasing power next month.
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I could have said, reducing my trade size actually
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makes me more money in the long run. These are the kinds of things
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we need to repeat to ourselves. We need to say,
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what's a good habit for traders? Reducing our trade size to protect our account.
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Okay, and then we need to associate that with an underlying human need.
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If I do that, I'll survive longer. If I survive longer,
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I'll make more money. If I make more money,
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I'll be able to have larger trade size.
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compound on top of itself. And we'll talk about compounding in just a minute.
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You never want to unnecessarily interrupt compounding.
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No one trade can ever destroy you. No single one trade can ever make
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you rich, but the compound effect of all those trades that you take is
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net positive and that really becomes something ultra,
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super, giantly profitable and successful.
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The amount of time, says James Clear, that you have been performing
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you've performed it. And this was a really big insight for me.
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I've been running for two years isn't really important as a phrase because that
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might mean you ran once two years ago and once this year.
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What matters is the number of times you instinctively run.
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00:11:41,121 --> 00:11:43,268 We're going to talk about this a little later on when I talk about
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00:11:43,269 --> 00:11:46,632 the big three habits of successful traders that I think that will make a
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do them even when you don't feel like it. Well, let's talk about the
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three habits right now. Number one habit is reducing one's trade size.
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00:11:56,383 --> 00:11:58,645 I'm not going to tell you what the optimal trade size is for you,
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but for me it's two. So small that there's no way for my maximum
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loss or my stop-loss ever to get hit. Some people will say,
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oh place your stop-loss really close to the blah blah blah,
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you know really tight stop-losses. Well, I'm of the opinion actually that you can
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die, you can, you can kill yourself as a trader and have a death
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by a thousand paper cuts. Lots of really,
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really small stop-outs can just die. You could drain your total account.
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Instead what I do is trade a high probability system and I have stop-losses
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oh, he's an idiot. I'm not an idiot. Look it up on YouTube,
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Warren Buffett doesn't use stop-losses. He buys quality companies at fair prices and
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then he holds them fairly. It's forever and doesn't stop out if they go
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wrong. He'll close trades, but he doesn't have some like really immediate day trader
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focused type stop-loss. Well, I do the opposite.
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00:12:48,887 --> 00:12:52,470 I short terrible companies that don't make money that are destined to fall to
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I will take such a small position size that the stock can go a
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hundred percent, two hundred percent. Three hundred percent against me and it's not even
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going to hit my maximum loss number. You would believe how
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much peace and comfort and happiness comes in my life.
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and the strategy can then just take care of itself. The stock might jump
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up a little bit and then crash. The stock might crash a immediately and
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I'm never gonna though, I'm never gonna drain my account or blow up my
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When I get to a hundred thousand dollars, my maximum loss would be about
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my stop loss dollar amount. This is so important and this habit,
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00:13:48,535 --> 00:13:51,557 this is habit number one and I want to make this habit easy.
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that it automatically enters my account. My minimum,
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my maximum, excuse me, small trade size automatically when I take the trade.
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So I'm not even entering my position size anymore.
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00:14:07,566 --> 00:14:13,330 So I can't even, I can't enter a position size larger
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than X. I can do one smaller than that. But imagine that,
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00:14:16,274 --> 00:14:20,334 it makes it easy. It prevents me from getting in my own way.
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00:14:20,335 --> 00:14:23,708 And it's so much better than having like automatic stop losses.
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I don't want to be automatically stopped out of a position.
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That's idiotic and stupid. I don't want,
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I don't want to have to worry about it when things go wrong.
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I want to think about it before things ever have a chance to go
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wrong. And so by doing that,
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00:14:37,423 --> 00:14:41,955 by implementing technology that puts me my trade size in there automatically,
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00:14:41,956 --> 00:14:45,275 I've made it easy to do that habit.
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And I think you see where I'm coming from here. You want to make
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00:14:47,996 --> 00:14:50,895 it as easy as possible. So the next best thing that I can do
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00:14:50,896 --> 00:14:55,055 is have an automatic, I can have a calculator spreadsheet on my computer that
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00:14:55,056 --> 00:14:59,035 says my maximum trade size based on the dollar value of the stock right
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00:14:59,036 --> 00:15:02,366 now. So if it's a $7 stock. That I'm shorting, my maximum trade size
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00:15:02,367 --> 00:15:05,906 is 120 shares and it's done for me.
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So I don't have to do the calculations in my head every single time.
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It's automatically done. So,
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how to achieve more with less effort. This is kind of on the same
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00:15:14,367 --> 00:15:17,506 topic. Imagine you're holding a garden hose that's bent in the middle.
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Some water can flow through, but not very much.
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00:15:19,856 --> 00:15:23,138 If you want to increase the rate at which water passes through the hose,
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you have two options. The first option is to crank up the valve and
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force more water out. The second option is to simply remove the bend
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in the hose and let water through naturally.
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This is what I'm talking about when I say I'm trying to build interfaces.
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00:15:39,767 --> 00:15:43,750 It's into my broker's platform. I'm just trying to make it easy to do
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the right thing and to make the right thing just naturally easy rather than
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struggling and efforting and working hard.
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00:15:50,718 --> 00:15:52,979 I'm just going to allow myself to make more money.
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James Clear refers to this strategy as addition by subtraction.
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The Japanese companies look for every point of friction.
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00:15:59,908 --> 00:16:02,640 In their manufacturing processes in the 1970s,
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as they subtracted wasted effort, they added customers and revenue.
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And as they added revenue, they could eliminate more and more things from the
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00:16:10,008 --> 00:16:14,011 production line that were causing problems. The better you become as a trader,
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the fewer things you're going to do, not the more things.
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You're not going to, in my opinion, you're not going to add more things.
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00:16:19,746 --> 00:16:22,708 You're more technology and add more systems and add more charts and add more
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00:16:22,709 --> 00:16:26,211 strategies. You're actually going to take away. Elon Musk is a big fan of
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this. If you read his biography by Walter Isaacson,
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he would tour the factory and say, let's eliminate this. Let's eliminate this.
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00:16:31,398 --> 00:16:34,179 Let's eliminate this. Let's eliminate this. And he keeps,
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keeps taking away. Nassim Taleb in Anti-Fragile and other places
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talks about similar. Success coming from eliminating the bad stuff.
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00:16:42,519 --> 00:16:46,462 So that's why I want to build a trading platform that has my trade
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00:16:46,463 --> 00:16:51,006 size automatically entered. I just want to eliminate steps from the process that are
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unnecessary for me to do or where I will typically screw myself up by
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doing something wrong in that step. All right.
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00:16:59,776 --> 00:17:04,350 So how can you design a world in which doing the right thing as
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a trader is easy to do?
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00:17:06,773 --> 00:17:10,396 I once upon a time met Mark Cook,
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yeah, Mark Cook in Ohio. He was featured in Stock Market Wizards by Jack
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Schwager. And I went out to visit him at his farmhouse in Ohio.
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00:17:20,025 --> 00:17:23,277 And he had a whole tractor museum that he built for his dad with
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00:17:23,278 --> 00:17:25,419 all of his bond trading profits.
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And he would sit in front of this amber colored monitor screen.
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And it would flash these numbers for this indicator that he used.
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00:17:32,308 --> 00:17:35,029 And there were no charts, just an, just a number that would flash on
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00:17:35,030 --> 00:17:37,872 his screen. And when the number got to a certain level,
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he knew it was time for a trade. And he would call out a
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00:17:41,207 --> 00:17:43,549 trade, and then Stacy,
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who sat next to him at the same desk,
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would input the trade. And I said,
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00:17:49,776 --> 00:17:51,957 why are you, why aren't you just taking your own trades?
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00:17:51,958 --> 00:17:54,440 And he said, I learned that if I took my own trades,
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I would lose money. But if I called the trade,
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her only job was to input it correctly with the right trade size.
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And then that was done.
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And I thought, wow, that is a really,
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really honest,
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self-aware individual. No wonder he was a market wizard,
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right? All right. This section from chapter 13 is so important.
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Chapter 13 is titled how to stop procrastinating by procrastinating by using the two-minute
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00:18:20,306 --> 00:18:25,105 rule. Twyla Tharp is widely regarded as one of the greatest dancers and choreographers
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00:18:25,106 --> 00:18:27,625 of the more modern era. In 1992,
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she was awarded a MacArthur Fellowship, often referred to as the Genius Grant.
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And she has spent the bulk of her career touring the globe to perform
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00:18:36,366 --> 00:18:40,995 her original works. She also credits much of her success to the world.
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I begin each day of my life with a ritual,
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she writes. I wake up at 5.30 a.m., put on my workout clothes,
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my leg warmers, my sweatshirt, and my hat. I walk outside my Manhattan home,
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hail a taxi, and tell the driver to take me to the Pumping Iron
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00:18:54,196 --> 00:18:56,835 Gym at 91st Street and First Avenue,
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where I work out for two hours. The rich will is not the stretching
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and weight training I put my body through each morning at the gym.
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The ritual is the taxi.
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The moment I tell the driver where to go, I've completed the ritual.
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So, what can you do first that then cascading down
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from that are all good? Good decisions.
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What decision can you make early in the day that
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branches off and makes more and more of your decisions better and better
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and better? You see, and I can't emphasize this enough,
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every day, James Clear says, there are a handful of moments that deliver an
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outsized result. I defer to these,
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I refer to these little choices as decisive moments.
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The moment you decide between ordering takeout or cooking dinner.
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The moment you choose between driving your car or riding your bike.
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00:19:50,897 --> 00:19:55,781 Decisive moments set the options available
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to your future self. A good choice and a another good choice
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followed by another good choice compound on each other,
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small choices until you get to a really good result or a good day
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of trading. A bad decision,
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too big of a trade size will then lead to emotions that creep in
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00:20:14,369 --> 00:20:17,891 when the trade is going wrong that can lead to doubling down because we
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don't want to realize the loss, which is an another bad choice,
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which can lead to turning off the computer and walking away from it and
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00:20:23,610 --> 00:20:27,813 avoiding it all together, which is another bad choice and another bad choice and
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another bad choice. If you start the whole thing off with an ultra small
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trade size, you put yourself in a position that your future
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self has good choices.
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00:20:39,844 --> 00:20:43,277 and positive in a positive environment to make those choices from.
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James Clear says, we're limited by where our habits lead us.
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00:20:47,362 --> 00:20:50,985 This is why mastering the decisive moments throughout your day is so important.
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Each day is made up of many moments,
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but it is really a few habitual choices that determine the path you take.
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These little choices stack up, each one setting the trajectory for how you spend
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00:21:03,665 --> 00:21:07,424 the next chunk of time. Isn't that really cool?
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I'm going to read more of this because it's so important for us.
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The two-minute rule. Even when you know you should start small,
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it's easy to start too big. When you dream about making a change,
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like making $100,000 a year from trading,
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00:21:19,755 --> 00:21:22,677 it inevitably takes over and you end up trying to do too much,
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too soon. The most effective way I know to counteract this tendency is to
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use the two-minute rule which states when you start a new habit,
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it should take less than two minutes to do. You'll find that nearly any
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00:21:34,630 --> 00:21:36,691 habit can be scaled down into a two-minute version.
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00:21:36,692 --> 00:21:39,514 Read before bed each night becomes read one page.
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Do 30 minutes of yoga becomes take out my yoga mat.
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Documenting my trades becomes save one chart every
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00:21:48,083 --> 00:21:50,282 day at 9 a.m.
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That's easy. It takes 10 seconds to do that.
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Sometimes we take on too much and then we become overwhelmed and that's what
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00:21:57,963 --> 00:22:00,714 we're trying to avoid. I just think that's so wrong. It's critically important.
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The three big habits by the way are number one,
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small trade size. Number two,
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documenting every trade you take with a chart marked up where your entry and
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exits were with a checklist that you filled in for the
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system that you trade and then observations about what you did wrong and where
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you can improve. Third habit is sharing those trades transparently with others
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the moment you take them and then reviewing those trades and sharing your performance
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publicly with your team,
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with an individual, with a group, or with the whole world.
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You can't underestimate how much better you can get at trading immediately if you're
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going to share everything you do with the world. Secretive traders are unsuccessful
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00:22:42,526 --> 00:22:45,147 traders in every single, every single instance.
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I've never seen, I've never seen an exception to that rule.
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The ultimate way to lock in future behavior is to automate your habits.
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So to the, to an extent possible, you want to automate as much of
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00:22:55,819 --> 00:22:57,840 this as possible. That's why I said trying to,
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in the process of building an interface into my broker that enters my trade
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size for me on the first trade and I can go no larger than
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that, although I can go smaller than that. That automates a step that has
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such a huge difference on down the line.
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All right. The cardinal rule of behavior change in the next chapter comes
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00:23:15,981 --> 00:23:18,883 from, well, let's just talk about the three laws of behavior change.
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Make it obvious. Make it attractive,
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and make it easy. Those increase the odds that a behavior will be performed.
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00:23:27,661 --> 00:23:30,264
The fourth law of behavior change, make it satisfying,
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increases the odds that a behavior will be repeated next time it completes the
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00:23:33,669 --> 00:23:35,730 habit loop. To summarize this point,
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00:23:35,731 --> 00:23:39,274 and it doesn't take long to do it, you take something as simple as
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trade sizing. My trade size should be no more than a $500 position
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00:23:44,843 --> 00:23:49,502 size, or whatever you've decided that it's going to be, and if you adhere
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00:23:49,503 --> 00:23:53,482 to that every day, you then do a couple of things maybe.
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00:23:53,682 --> 00:23:55,822
Maybe you have a jar of marbles,
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00:23:56,102 --> 00:23:59,964
and every day that you adhere to your risk management principles,
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00:23:59,965 --> 00:24:03,877 and trade sizing principles, you take a marble out of one jar,
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00:24:03,878 --> 00:24:06,119 and you put it in the other, and every day after that,
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00:24:06,139 --> 00:24:09,623
you keep transferring a marble, or for every trade you do that on,
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00:24:12,226 --> 00:24:13,962
you transfer a marble, and anytime you break the rule, you have to pour
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00:24:13,963 --> 00:24:16,930 all the marbles out of the jar into the other one,
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00:24:17,451 --> 00:24:19,761
and so you lose all the progress if you screw up one.
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00:24:19,762 --> 00:24:24,446 time, and over time, you you get motivated by the intrinsic
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inner desire to see one jar of marble transfer over to the next,
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00:24:28,551 --> 00:24:35,277 and maybe you reward yourself at the end of all of that with
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00:24:35,278 --> 00:24:37,518 a massage, or um uh out on the lake on the kayak, or going
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00:24:37,519 --> 00:24:40,513 for a run, or doing something with your friends, or binge drinking.
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00:24:40,493 --> 00:24:43,556
I'm just kidding, not binge drinking, but you get what I'm saying here.
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A reward that is certain right now is typically worth more than than one
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00:24:47,401 --> 00:24:50,303 that is mere possible in the future. This is why,
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00:24:50,383 --> 00:24:53,266
well, let me just read. Why would someone smoke if they know it increases
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00:24:53,326 --> 00:24:57,290
the risk of lung cancer? Why would someone have unsafe sex if they know
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00:24:57,291 --> 00:25:01,804 it can result in disease? Once you understand how the brain prioritizes rewards,
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00:25:01,784 --> 00:25:05,969
the answer becomes clear. The consequences of bad habits are delayed while the rewards
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are immediate. Hmm, so you want to have immediate rewards for
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00:25:10,855 --> 00:25:14,457 good behavior, as small as they are. You want to start doing that because
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00:25:14,938 --> 00:25:17,540
good habits don't generally,
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00:25:17,921 --> 00:25:22,255
good traits, trading habits don't generally produce riches quickly.
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00:25:22,916 --> 00:25:24,938
They produce riches over time,
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wealth over time. But because that's so far in the future,
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00:25:28,802 --> 00:25:31,565
traders will give up on good habits. They'll just stop.
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00:25:32,165 --> 00:25:35,649
They just won't continue to do the good habits because there's no payoff and
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00:25:35,629 --> 00:25:38,401
there's no excitement to it. It's actually quite boring.
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00:25:38,402 --> 00:25:42,165 So you've got to build in rewards every single time you complete a trade
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00:25:42,166 --> 00:25:45,828 or a day where you do the right thing. As a general rule,
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00:25:46,269 --> 00:25:49,853
says James Clear, the more immediate pleasure you get from an action,
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00:25:50,273 --> 00:25:54,858
the more strongly you should question whether it aligns with your long-term goals.
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00:25:55,959 --> 00:25:59,293
Think about it. If it's immediately pleasurable or exciting,
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00:25:59,294 --> 00:26:03,136 it's probably not a good thing. The cardinal rule of behavior change,
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00:26:04,157 --> 00:26:08,102
what is immediately rewarded is repeated. What is immediately punished is avoided.
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00:26:08,122 --> 00:26:10,184
This is why I'm such a huge fan.
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00:26:10,664 --> 00:26:13,027
If you break your trade sizing rules,
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00:26:13,527 --> 00:26:16,470
if I break my trade sizing rules, I can't trade for three days,
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00:26:16,631 --> 00:26:18,655
sometimes four, sometimes a week.
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00:26:18,656 --> 00:26:21,933 That's an immediate consequence.
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00:26:23,375 --> 00:26:25,557
And some traders just like, no, I'm not going to do that.
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00:26:25,577 --> 00:26:27,739
I got to make my money back. And what's the purpose of that?
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00:26:27,940 --> 00:26:31,523
Because there needs to be an immediate consequence to doing the wrong thing.
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00:26:31,524 --> 00:26:33,625 Because if you screw up a trade size,
448
00:26:33,986 --> 00:26:36,508
a lot of times because it didn't decimate your trading account,
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00:26:36,528 --> 00:26:38,781
maybe the trade came back and you got away with it.
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00:26:38,782 --> 00:26:43,456 It ingrains this bad habit and you got the reward
451
00:26:43,457 --> 00:26:45,658 of the excitement and no consequence.
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00:26:45,659 --> 00:26:48,701 And later on down the line, you end up just massively,
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00:26:49,082 --> 00:26:51,124
I've seen this happen. Traders tell me, well,
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00:26:51,125 --> 00:26:53,807 I, you know, I have really big position sizes, but it always turns out
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00:26:53,847 --> 00:26:58,432
okay. And then they make money for literally like two years.
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00:26:58,433 --> 00:27:00,784 And then they blow the whole thing up. I've seen this recently,
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00:27:00,825 --> 00:27:03,407
even this year with some traders, I just shocked at it.
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00:27:04,288 --> 00:27:07,111
All right. Incentives can start a habit and identity sustains it.
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00:27:07,112 --> 00:27:11,015 So give yourself incentives, like the jar of marbles or whatever you want to
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00:27:11,016 --> 00:27:14,718 do, to do the right thing on each trade or each day.
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00:27:15,719 --> 00:27:20,370
And then become, start doing identifying yourself as the
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00:27:20,371 --> 00:27:23,670 kind of person who documents your trades, the kind of person who trades with
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00:27:23,671 --> 00:27:26,010 a small trade size. Identify yourself in that way.
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00:27:26,990 --> 00:27:29,830
To keep a habit, you need to make some kind of,
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you need to build in some kind of immediate appropriate reward.
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00:27:34,190 --> 00:27:38,290
All right. How to stick with good habits every day. In 1997,
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00:27:38,320 --> 00:27:40,340
James Clear in chapter 16,
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00:27:40,560 --> 00:27:44,540
a bank in Abbotsford, Canada hired a 23-year-old stockbroker named Trent.
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00:27:45,680 --> 00:27:47,820
Dersmond. I can't say his name correctly.
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00:27:48,120 --> 00:27:51,420
Trent D. Abbotsford was a relatively small suburb,
471
00:27:51,740 --> 00:27:54,020
tucked away in the shadow of nearby Vancouver.
472
00:27:55,440 --> 00:27:57,900
Given the location and the fact that Trent was a rookie,
473
00:27:58,120 --> 00:28:01,550
nobody could expect too much of him, but he made brisk progress thanks to
474
00:28:01,551 --> 00:28:05,670 a simple daily habit. Trent began each morning with two jars on his desk.
475
00:28:06,130 --> 00:28:09,130
One was filled with 120 paperclips and the other was empty.
476
00:28:09,610 --> 00:28:12,030
As soon as he settled in each day, he would make a sales call.
477
00:28:12,150 --> 00:28:15,310
Immediately after, he would move one paperclip from the full jar to the empty
478
00:28:15,311 --> 00:28:18,720 jar and the process would begin again. Every morning I would start with 120
479
00:28:18,721 --> 00:28:22,960 paperclips in one jar and I would keep dialing the phone until I had
480
00:28:22,961 --> 00:28:26,820 moved them all to the second jar. He became a superstar at that company.
481
00:28:27,280 --> 00:28:32,060
Smart dude. Another man moved a marble from one bin to the next
482
00:28:32,061 --> 00:28:36,740 after each set of push-ups. I can imagine myself out here now
483
00:28:36,741 --> 00:28:40,613 having 47 jars of marbles. Marbles all over my house.
484
00:28:40,614 --> 00:28:44,457 Jerry Seinfeld reportedly uses a habit tracker to stick with his streak of writing
485
00:28:44,437 --> 00:28:46,579
jokes and the documentary comedian,
486
00:28:46,580 --> 00:28:49,782 he explains that his goal is to simply never break the chain of writing
487
00:28:49,783 --> 00:28:53,366
jokes every day. In other words, he's not focused on how good or bad
488
00:28:53,386 --> 00:28:56,009
a particular joke is or how inspired he feels.
489
00:28:56,029 --> 00:28:58,709
He's simply focused on showing up and adding to his streak.
490
00:28:58,710 --> 00:29:03,043 Don't break the chain is a powerful mantra.
491
00:29:03,684 --> 00:29:07,968
One other interesting thing about Jerry Seinfeld is he uses the same legal yellow
492
00:29:07,988 --> 00:29:12,293
pads and the same regular cheap Bic ballpoint pens.
493
00:29:12,294 --> 00:29:14,796 Those blue ones, the blue caps that everybody chewed on in high school.
494
00:29:15,396 --> 00:29:18,390
He uses those and he has those nearby all the time.
495
00:29:18,391 --> 00:29:21,593 That makes it easy and he does it every single day.
496
00:29:21,633 --> 00:29:23,795
Even one joke, even if it's midnight,
497
00:29:23,796 --> 00:29:25,938 if it's 1am and he just got into a city or whatever,
498
00:29:26,318 --> 00:29:29,081
he's still going to do that habit every day.
499
00:29:29,701 --> 00:29:31,703
I love that. So habit tracking,
500
00:29:31,683 --> 00:29:34,566
that's keeping track of your habits. It's satisfying,
501
00:29:34,567 --> 00:29:37,709 it's rewarding to mark an X off on every day that you do your
502
00:29:37,729 --> 00:29:39,941
habits and work on that habit.
503
00:29:40,021 --> 00:29:43,685
So that's So you have a habit breakdown,
504
00:29:43,705 --> 00:29:46,708
you stop doing it. Whenever this happens to James Clear,
505
00:29:46,788 --> 00:29:49,731
I try to remind myself of a simple rule, never miss twice.
506
00:29:50,091 --> 00:29:52,134
So if you miss documenting your trades one day,
507
00:29:52,194 --> 00:29:54,216
don't miss twice. Do it the next day.
508
00:29:54,636 --> 00:29:58,160
If I'm on trading time out, the days that I'm on trading time out,
509
00:29:58,180 --> 00:30:02,732
I'm I'm just documenting the trades that day that I missed because I'm on
510
00:30:02,733 --> 00:30:06,676 time out. That is so powerful because I want to get right back at
511
00:30:06,696 --> 00:30:11,141
it. It makes me really, really regret making a mistake that took trading away
512
00:30:11,142 --> 00:30:14,284 from me. We live in a, in a world now where there are no
513
00:30:14,344 --> 00:30:16,967
consequences. The consequences are almost like,
514
00:30:17,047 --> 00:30:20,381
oh, don't punish your kids. Don't have consequences.
515
00:30:20,782 --> 00:30:22,784
It's a free country. You can do whatever you want.
516
00:30:22,984 --> 00:30:26,308
No, you can't do whatever you want. The laws of physics don't allow that.
517
00:30:26,768 --> 00:30:31,032
Anyway, as Charlie Munger says, the first rule of compounding is to never interrupt
518
00:30:31,033 --> 00:30:34,436
it unnecessarily. So your habits compound over time.
519
00:30:34,437 --> 00:30:37,359 The more you do simple, small things as a trader,
520
00:30:37,379 --> 00:30:39,710
the three habits are going Reducing your trade size,
521
00:30:39,950 --> 00:30:43,750
documenting every trade, and sharing your trades transparently with others.
522
00:30:43,930 --> 00:30:46,570
Those will compound over time. There's no immediate reward.
523
00:30:46,710 --> 00:30:49,370
Actually, there's a lot of shame and embarrassment that can come from it at
524
00:30:49,371 --> 00:30:52,550 the beginning when you're like hanging out with friends and they're like,
525
00:30:52,610 --> 00:30:55,810
I just made $2,200 today.
526
00:30:55,890 --> 00:30:58,529
How much did you make? And you're like $22.
527
00:30:58,530 --> 00:31:01,983 But you know what? They're going to blow up and you're not. It's crucial
528
00:31:01,984 --> 00:31:04,425 to show up when you don't feel like it. Going to the gym for
529
00:31:04,445 --> 00:31:07,588
five minutes may not improve your performance, but it reaffirms your identity.
530
00:31:07,589 --> 00:31:12,153 Showing up for your habits every single day doesn't make you feel
531
00:31:12,154 --> 00:31:15,536 good and some days you will hate it. James says,
532
00:31:15,576 --> 00:31:18,279
we focus on working long hours instead of getting meaningful work.
533
00:31:18,580 --> 00:31:23,160
I know traders who work 12 hours a day who blow up their accounts.
534
00:31:23,540 --> 00:31:25,780
I know, I know, we all know people like this.
535
00:31:25,900 --> 00:31:29,200
My friend Chad and I, who trades together with me now,
536
00:31:29,440 --> 00:31:32,620
we reinforce good habits by sending our account statements to each other.
537
00:31:32,700 --> 00:31:35,080
He's the first person that sees all the trades that I take every day
538
00:31:35,081 --> 00:31:38,240 and the same for me and him together. And this is like super important.
539
00:31:39,818 --> 00:31:42,618
Also, Chad and I,
540
00:31:42,638 --> 00:31:46,218
we try to make sure that we're not just like doing busy work as
541
00:31:46,219 --> 00:31:50,318 traders. Like if, if I notice that a stock is jumping,
542
00:31:50,319 --> 00:31:52,858 that other people are shorting and it,
543
00:31:53,158 --> 00:31:57,578
I immediately go through my, my checklist routine and I see within 30 seconds
544
00:31:57,579 --> 00:32:01,031 that it's a cashflow short. So, I'm positive company, I'm done with that.
545
00:32:01,032 --> 00:32:05,876 I don't, I'm not going to waste time trying to justify taking a trade.
546
00:32:05,877 --> 00:32:08,304 So, anyway, that's all I want to say.
547
00:32:08,305 --> 00:32:11,127 let's just move on to a couple of things here. Oh, the habit contract.
548
00:32:11,128 --> 00:32:13,309 So later on, in the chapter, he talks about a habit contract.
549
00:32:13,329 --> 00:32:17,064
A habit contract is a very verbal or written agreement in which you state
550
00:32:17,065 --> 00:32:20,507 your commitment to a particular habit and the punishment that will occur if you
551
00:32:20,508 --> 00:32:23,771 don't follow through. Then you find one or two people to act as your
552
00:32:23,791 --> 00:32:26,133
accountability partners and sign off on the contract.
553
00:32:26,574 --> 00:32:31,198
You can actually see an example of a habit contract at atomichabits.com slash contract.
554
00:32:31,218 --> 00:32:35,022
I actually once upon a time had a website called traderscontract.com.
555
00:32:36,610 --> 00:32:39,790
I don't think it exists anymore, but it was a contract you would write
556
00:32:39,791 --> 00:32:42,310 up and promises you would make about your performance.
557
00:32:42,430 --> 00:32:46,830
I should probably bring that back. You can even automate this process,
558
00:32:47,030 --> 00:32:49,390
says James Clear. Thomas Frank, an entrepreneur in Boulder,
559
00:32:49,530 --> 00:32:52,770
Colorado wakes up at 5.55 each morning and if he doesn't,
560
00:32:52,850 --> 00:32:54,970
he has a tweet automatically scheduled that says,
561
00:32:55,081 --> 00:32:57,921
It's 6.10 and I'm not up cuz I'm lazy.
562
00:32:58,481 --> 00:33:00,681
Reply to this for $5 via PayPal.
563
00:33:00,921 --> 00:33:03,761
Limit 5. Assuming my alarm didn't malfunction.
564
00:33:04,481 --> 00:33:07,381
What a guy, he gave himself an out. What a loser.
565
00:33:07,701 --> 00:33:09,761
I'm just kidding. It's a pretty good idea actually.
566
00:33:10,481 --> 00:33:14,201
Alright, so I'm gonna move forward here and tackle some of the last subjects.
567
00:33:14,202 --> 00:33:18,817 Thank you. I'm gonna in this book. The Goldilocks rule states that
568
00:33:18,818 --> 00:33:22,020 humans experience peak motivation when working on tasks that are right on the edge
569
00:33:22,000 --> 00:33:24,283
of their current abilities, not too hard, not too easy,
570
00:33:24,303 --> 00:33:28,247
just right. Reducing your trade size is pretty much easy to do.
571
00:33:28,647 --> 00:33:31,310
Documenting your trades, that can be difficult to do.
572
00:33:31,311 --> 00:33:37,292 And so you're gonna stretch yourself and I find that traders become excited
573
00:33:37,293 --> 00:33:40,775 about the flow state they get in from documenting their trades.
574
00:33:40,795 --> 00:33:45,541
It's difficult at first and it requires some adjustment
575
00:33:45,561 --> 00:33:48,084
to one's schedule and the work they're willing to do,
576
00:33:48,085 --> 00:33:50,466 but it doesn't take very much time and it can be really rewarding.
577
00:33:50,847 --> 00:33:55,361
Anyway, so you don't want it to be too easy or too difficult.
578
00:33:55,362 --> 00:33:57,553 At some point, says James Clear,
579
00:33:57,554 --> 00:34:02,098 it comes down to who can handle the boredom of training every day and
580
00:34:02,099 --> 00:34:05,662 doing the same lifts over and over and over again.
581
00:34:06,322 --> 00:34:10,947
As Machiavelli noted, men desire novelty to such an extent that those who
582
00:34:10,948 --> 00:34:14,971 are doing well wish for a change as much as those who are doing
583
00:34:14,991 --> 00:34:18,906
well. The greatest threat to success is not failure,
584
00:34:19,667 --> 00:34:23,270
it's boredom. We get bored with habits because they stop delighting us.
585
00:34:23,271 --> 00:34:27,154 The outcome becomes expected. And as our habits become ordinary,
586
00:34:27,155 --> 00:34:30,077 we start derailing our progress to seek novelty.
587
00:34:30,758 --> 00:34:32,900
Perhaps this is why, in my words,
588
00:34:33,360 --> 00:34:36,752
traders who are successful will seek novelty. Before they master,
589
00:34:36,772 --> 00:34:41,877
master, master it, they will move on to some other habit or
590
00:34:41,917 --> 00:34:46,842
some other strategy because they are no longer interested in the strategy
591
00:34:47,503 --> 00:34:49,805
that works. In psychology,
592
00:34:49,806 --> 00:34:52,247 says James Clear, this is known as a variable reward.
593
00:34:52,248 --> 00:34:55,121 Slot machines are the most common real-world example.
594
00:34:55,122 --> 00:34:58,785 A gambler hits the jackpot every now and then, but not at any predictable
595
00:35:01,487 --> 00:35:05,992
The pace of reward varies. This variance leads to the greatest spike of
596
00:35:06,092 --> 00:35:08,615
dopamine, enhances memory recall,
597
00:35:09,195 --> 00:35:11,858
and accelerates bad habit formation.
598
00:35:11,859 --> 00:35:15,080 Variable rewards won't create a pattern.
599
00:35:15,081 --> 00:35:19,675 A craving, but they're a powerful way to amplify the cravings we
600
00:35:19,715 --> 00:35:24,479
already experience. Doesn't trading sound exactly like a variable reward?
601
00:35:24,480 --> 00:35:28,043 Can you see now why traders take, losing traders take hundreds of trades a
602
00:35:28,023 --> 00:35:30,265
day. They over trade, they trade too big.
603
00:35:30,946 --> 00:35:33,929
Sometimes it pays off and sometimes it doesn't. It's like a slot machine for
604
00:35:33,949 --> 00:35:38,884
them. That's the that's why if you find yourself compulsively
605
00:35:39,545 --> 00:35:41,927
trading, you need to stop and get help.
606
00:35:42,908 --> 00:35:44,970
And I don't think you're quite, I think you, I don't think you can
607
00:35:44,971 --> 00:35:47,092 call 1-800-GAMBLERS or whatever it is,
608
00:35:47,412 --> 00:35:49,695
but I do think you can go to GAMBLERS ANONYMOUS.
609
00:35:50,135 --> 00:35:52,698
And I know some people like now I just was a big let down.
610
00:35:53,358 --> 00:35:56,672
If you find yourself compulsively trading. You have a gambling problem,
611
00:35:56,652 --> 00:36:01,457
you have an addiction, and you need to stop trading completely
612
00:36:01,997 --> 00:36:05,160
until you deal with that, period.
613
00:36:05,641 --> 00:36:08,063
It's a job. It's not entertainment.
614
00:36:08,064 --> 00:36:10,065 And this is a,
615
00:36:10,066 --> 00:36:13,329
maybe the, maybe this is the most important point that I've made in this
616
00:36:13,349 --> 00:36:16,982
entire podcast. If you find yourself compulsively trading,
617
00:36:16,962 --> 00:36:19,224
you wake up and there's pizza boxes all over the floor,
618
00:36:19,264 --> 00:36:22,848
and there's clothing all over the place,
619
00:36:22,868 --> 00:36:25,310
and it's like you just had a giant party, but it was with your
620
00:36:25,311 --> 00:36:27,813 trading account, and you realize you're out of money,
621
00:36:28,473 --> 00:36:30,756
and you wake up, and you're like, what happened?
622
00:36:32,277 --> 00:36:35,385
You don't want that, right? You don't ever want to experience that.
623
00:36:35,386 --> 00:36:37,422 That's because of variable rewards.
624
00:36:37,803 --> 00:36:41,066
Trading can become addictive for people because of those variable rewards,
625
00:36:41,727 --> 00:36:45,450
and when you institute good habits, like let's say you don't,
626
00:36:45,430 --> 00:36:48,273
you can't, you can't, slot machines for example,
627
00:36:48,654 --> 00:36:52,337
you can solve the entire problem of gambling with slot machines if you will
628
00:36:52,437 --> 00:36:55,081
only play the nickel slot machines, if they even exist.
629
00:36:55,082 --> 00:36:58,304 Because you can never run out of money one nickel at a time,
630
00:36:58,504 --> 00:37:02,969
at least it's very difficult to do so. So you build protections in to
631
00:37:02,989 --> 00:37:05,652
prevent that. But gambling is just entertainment,
632
00:37:05,653 --> 00:37:10,336 it's not a way to make money. Imagine trying to document your slot machine
633
00:37:10,356 --> 00:37:12,518
playing, like there's a strategy to it.
634
00:37:12,839 --> 00:37:15,999
I know there's three of you out there that think there's a strategy.
635
00:37:16,000 --> 00:37:18,452 Fine, go make a living from that, come back to me when you're done.
636
00:37:19,473 --> 00:37:23,517
You see what I'm saying here, right? We've got to turn trading away from
637
00:37:23,558 --> 00:37:25,920
gambling and into formulaic,
638
00:37:26,120 --> 00:37:28,963
systematic, good habits, repeated over and over,
639
00:37:29,544 --> 00:37:32,567
and implementing a strategy that has a predictable outcome.
640
00:37:32,568 --> 00:37:35,820 You kind of have to fall in line love with boredom,
641
00:37:36,060 --> 00:37:39,400
as James Clear says. If you only do the work when it's convenient or
642
00:37:39,401 --> 00:37:42,640 exciting then you'll never be consistent enough to achieve remarkable results.
643
00:37:42,780 --> 00:37:45,640
If you only document your trades when you feel like it.
644
00:37:45,820 --> 00:37:49,120
I, I won't go to bed at night until I've documented my trades for
645
00:37:49,121 --> 00:37:52,400 the day, and if I don't document my trades for the day, I can't
646
00:37:52,401 --> 00:37:54,660 trade for 2,
647
00:37:54,760 --> 00:37:58,510
3, 4, 4 days depending on what other mistakes I made in combination with
648
00:37:58,511 --> 00:38:00,850 that. I can't, I know this sounds weird,
649
00:38:01,150 --> 00:38:03,510
I guess I'm telling you more than you need to know, I can't sleep
650
00:38:03,511 --> 00:38:07,150 with my favorite pillow, and I can't watch TV before bed.
651
00:38:07,430 --> 00:38:09,990
And the minute I take those things away from myself, I'm like,
652
00:38:10,030 --> 00:38:12,330
I don't want to make any more mistakes. I don't want to,
653
00:38:12,410 --> 00:38:16,300
I don't want to make those mistakes anymore. The only way to become excellent,
654
00:38:16,420 --> 00:38:20,140
says James Clear, is to be endlessly fascinated by doing the same thing over
655
00:38:20,141 --> 00:38:23,040 and over. You have to fall in love with boredom.
656
00:38:23,940 --> 00:38:28,000
Pretty great, right? Alright, one last concept I want to bring out of the
657
00:38:28,001 --> 00:38:31,780 book, and it's going to be a more extensive conversation here for the last
658
00:38:31,781 --> 00:38:35,610 5 minutes or so. How do we review your habits and make them adjustments?
659
00:38:36,090 --> 00:38:39,950
In 1986, the Los Angeles Lakers had one of the most talented basketball teams
660
00:38:39,951 --> 00:38:42,910 ever assembled, but they're rarely remembered that way.
661
00:38:43,030 --> 00:38:47,970
The team started the 1985-86 season with an astounding 29-5
662
00:38:47,971 --> 00:38:51,670 record. All the pundits were saying that we might be the best team in
663
00:38:51,671 --> 00:38:54,950 the history of basketball, head coach Pat Riley said after the season.
664
00:38:55,451 --> 00:39:00,111
Surprisingly, the Lakers stumbled in the 1986 playoffs and suffered
665
00:39:00,112 --> 00:39:03,291 a season-ending defeat in the Western Conference Finals.
666
00:39:04,171 --> 00:39:08,691
The best team in the history of basketball didn't even play for the
667
00:39:08,692 --> 00:39:11,871 NBA championship. And so they weren't the best team ever.
668
00:39:13,191 --> 00:39:16,849
After that blow, Riley was just tired of hearing about how much talent his
669
00:39:16,850 --> 00:39:19,989 players had. And how much promise his team held.
670
00:39:20,709 --> 00:39:24,209
He didn't want to see flashes of brilliance followed by a gradual fade in
671
00:39:24,210 --> 00:39:28,189 performance. He wanted the Lakers to play up to their potential night after night.
672
00:39:28,909 --> 00:39:32,709
In the summer of 1986, he created a plan to do exactly that.
673
00:39:33,129 --> 00:39:38,043
A system that he called the- the career best effort program
674
00:39:38,323 --> 00:39:42,027
or CBE. It's pretty awesome.
675
00:39:42,387 --> 00:39:45,911
When players first joined the Lakers he explained, we track their basketball stats all
676
00:39:45,891 --> 00:39:48,574
the way back to high school. I call this tracking their number.
677
00:39:49,114 --> 00:39:51,697
We look for an accurate gauge of what a player can do then build
678
00:39:51,737 --> 00:39:54,680
him into our plan for the team based on the notion that he'll maintain
679
00:39:54,660 --> 00:39:56,968
and then- improve- improve upon his averages.
680
00:39:58,068 --> 00:40:01,868
And then he said, this is- this is so awesome.
681
00:40:02,108 --> 00:40:06,388
Here we go. After determining a player's baseline level of performance,
682
00:40:06,728 --> 00:40:11,388
Riley added a key step. He asked each player to improve their
683
00:40:11,389 --> 00:40:16,181 output by at least 1% over the- course of the season.
684
00:40:17,182 --> 00:40:19,585
If they succeeded, it would be a career best effort.
685
00:40:20,946 --> 00:40:23,969
The teams went on to win not just the championship the next year,
686
00:40:24,610 --> 00:40:27,513
but the next year after that, back to back.
687
00:40:28,433 --> 00:40:32,457
Now the most important element of this is that he turned it into a
688
00:40:32,598 --> 00:40:36,991
number. Riley was careful to point- out that the career best effort was not
689
00:40:37,011 --> 00:40:41,415
merely about points or stats, but about giving your best effort spiritually and mentally
690
00:40:41,495 --> 00:40:44,979
and physically. Players got credit for allowing an opponent to run into you when
691
00:40:44,999 --> 00:40:48,583
you knew that a foul would be called against him. Diving for loose balls,
692
00:40:49,063 --> 00:40:51,746
going after rebounds, whether you're likely to get them or not.
693
00:40:51,966 --> 00:40:55,237
Helping a teammate when the player is guarding a surged past him in- other
694
00:40:55,238 --> 00:40:57,257 unsung hero deeds. As an example,
695
00:40:58,057 --> 00:41:00,917
let's say Magic Johnson the Lakers star player at the time had 11 points,
696
00:41:01,177 --> 00:41:03,517
8 rebounds, 12 assists, 2 steals and 5 turnovers.
697
00:41:04,817 --> 00:41:08,937
Magic also got credit for an unsung hero deed by diving after a loose
698
00:41:08,938 --> 00:41:12,597 ball plus 1. Finally he played a total of 33 minutes in this game.
699
00:41:13,417 --> 00:41:16,229
The positive numbers add up to 34. before. 7 7 then we subtract the
700
00:41:16,230 --> 00:41:20,309 5 turnovers to get 29 and then we divide 29 by the 33 minutes
701
00:41:20,310 --> 00:41:23,889 played and get 0.879. Why do I say all that?
702
00:41:24,289 --> 00:41:27,849
I think you can do something like this with trading. I think you can
703
00:41:27,850 --> 00:41:31,969 take give yourself a point for trade size.
704
00:41:32,769 --> 00:41:37,622
A point for documenting your trade size. A point for transparently showing everybody
705
00:41:37,642 --> 00:41:40,005
your trade before you take it telling them that you're going to take it
706
00:41:40,025 --> 00:41:44,309
and then afterwards publishing your trading account and doing whatever it is during the
707
00:41:44,329 --> 00:41:48,153
day. I think you can add up those numbers,
708
00:41:48,393 --> 00:41:52,446
subtract what you didn't do and divide it by the number of trades.
709
00:41:52,447 --> 00:41:55,349 As you took or whatever, there's a way to turn this into a number
710
00:41:55,350 --> 00:41:57,471 for yourself. It doesn't have to be complicated.
711
00:41:57,952 --> 00:42:01,375
It can be, I get a point for keeping my trade size at the
712
00:42:01,376 --> 00:42:04,878 trade level, the size that I said, documenting my trade as I do it
713
00:42:05,279 --> 00:42:09,043
and completing that after it's done and sharing it with the group before I
714
00:42:09,044 --> 00:42:12,366 take it and after it's done. A three out of three.
715
00:42:14,077 --> 00:42:16,437
And the more three out of three days you get, the better.
716
00:42:17,157 --> 00:42:21,357
Do you see where I'm going with this, right? Okay. You can give yourself
717
00:42:21,358 --> 00:42:23,797 one out of three, two out of three,
718
00:42:23,977 --> 00:42:26,537
three out of three, zero out of three for every trade you take for
719
00:42:26,538 --> 00:42:29,917 the day. And then you can add up those points and divide them by
720
00:42:29,918 --> 00:42:31,997 the number of trades that you took and get a score. 4.
721
00:42:32,197 --> 00:42:34,809
. 8 This is a really, see, and not,
722
00:42:34,909 --> 00:42:38,213
nowhere in that did I include a win or a loss.
723
00:42:39,094 --> 00:42:43,818
The score will take care of itself. Traders are always measuring the wrong
724
00:42:43,819 --> 00:42:46,601 thing. We're famous for measuring the wrong thing.
725
00:42:47,002 --> 00:42:49,844
We, we judge a trader by his overall,
726
00:42:49,864 --> 00:42:52,427
his or her overall profits and we brag about it.
727
00:42:53,117 --> 00:42:56,597
When that's practically irrelevant because you don't know if they got there by being
728
00:42:56,598 --> 00:43:01,237 a degenerate gambler who's gonna lose everything. We should track traders
729
00:43:01,238 --> 00:43:05,917 and judge them by their consistent implementation of good habits and the money
730
00:43:05,918 --> 00:43:10,477 will just take care of itself. I mean you could add a point in
731
00:43:10,478 --> 00:43:13,147 there for a win versus a loss. P s $9. 8% You get- you
732
00:43:13,148 --> 00:43:16,807 get one point for a win .5 for a loss if you followed your
733
00:43:16,808 --> 00:43:20,467 rules. Sustaining an effort said Pat Riley,
734
00:43:20,747 --> 00:43:24,027
coach of the Lakers back then. Sustaining an effort is the most important thing
735
00:43:24,028 --> 00:43:26,947 for any enterprise. The way to be successful is to learn how to do
736
00:43:26,948 --> 00:43:31,047 things right and then do them the same way every time.
737
00:43:31,847 --> 00:43:35,038
Now what you can- add in here as we conclude this episode.
738
00:43:36,319 --> 00:43:40,003
You can include a review process at the end of the week to a
739
00:43:40,023 --> 00:43:44,227
weekend review and write about your worst trade and your best trade and write
740
00:43:44,247 --> 00:43:47,430
about your habits and how well you did and what your end of week
741
00:43:48,331 --> 00:43:51,114
trading best effort TBE score is.
742
00:43:51,574 --> 00:43:54,607
You get a point for- trade size correct,
743
00:43:54,608 --> 00:43:59,733 you get a point for documenting your trades after the fact and transparently
744
00:43:59,734 --> 00:44:05,339 sharing your trades with others and then you get a point for- I don't
745
00:44:05,319 --> 00:44:07,881
want to give any points for profits or losses.
746
00:44:07,861 --> 00:44:11,725
I don't even want to do that. Then you add up all that for
747
00:44:11,765 --> 00:44:15,820
all the trades you took. That day and then divide that by the number
748
00:44:15,821 --> 00:44:18,683 of trades you took and you get a score and you can track that
749
00:44:18,723 --> 00:44:22,327
week to week. You don't want to try to at the end of each
750
00:44:22,407 --> 00:44:26,411
day, you don't want to say I learned today that I shouldn't use the
751
00:44:26,412 --> 00:44:30,075 volume weighted average price. One day of trading isn't going to tell you anything.
752
00:44:31,356 --> 00:44:33,467
One day of trading isn't going to- give you enough information.
753
00:44:33,827 --> 00:44:35,829
So you can review your trades at the end of the week.
754
00:44:36,350 --> 00:44:41,255
I think then doing a month end review is particularly helpful.
755
00:44:42,336 --> 00:44:47,121
That's the one. I think the month in review gives you enough
756
00:44:47,161 --> 00:44:51,845
perspective to start saying I've noticed all month long that my best trades
757
00:44:51,846 --> 00:44:55,360 had this in common- so you might think about that.
758
00:44:55,800 --> 00:45:00,445
James Clear talks about doing an end of year annual review
759
00:45:01,366 --> 00:45:03,768
and a mid-year integrity review,
760
00:45:04,269 --> 00:45:07,112
and the Android review is how did I do overall this year,
761
00:45:07,452 --> 00:45:09,934
and the integrity review mid-year says,
762
00:45:10,235 --> 00:45:12,926
how am I doing mid-year on the stuff that I've- I said it was
763
00:45:12,947 --> 00:45:15,209
very important. He says,
764
00:45:15,210 --> 00:45:18,612 I know of executives and investors who keep a decision journal in which they
765
00:45:18,592 --> 00:45:21,075
record the major decisions they make each week,
766
00:45:21,076 --> 00:45:23,237 why they made them, and what they expect the outcome to be.
767
00:45:23,537 --> 00:45:26,160
I don't want you to become a professional journal maker,
768
00:45:26,260 --> 00:45:29,443
okay? That's not what I'm trying to say here. You could- you could lose
769
00:45:29,483 --> 00:45:32,126
track of the big picture. You just want to do a little bit of-
770
00:45:32,435 --> 00:45:36,099
Documentation every day and then review it at the end of the week.
771
00:45:36,920 --> 00:45:39,642
Okay. that's all I want to say about atomic habits. You can find the
772
00:45:39,662 --> 00:45:42,365
book of course anywhere that books are sold. It's probably one of the most
773
00:45:42,405 --> 00:45:45,628
famous books written in the last five years. Ten years,
774
00:45:45,648 --> 00:45:49,312
whatever it is. It's still published in hardcover because it hasn't even had to
775
00:45:49,332 --> 00:45:52,044
go to paperback yet. Thank you for listening.
776
00:45:52,124 --> 00:45:55,548
Thanks for being here together with me. If this helped you in any way
777
00:45:55,549 --> 00:45:59,131 shape or form, please go to your favorite podcast provider,
778
00:45:59,271 --> 00:46:03,916
Apple or Spotify or whatever and subscribe to the podcast and leave a review.
779
00:46:04,336 --> 00:46:06,979
It's a great way to let other people know about the show.
780
00:46:07,319 --> 00:46:09,442
And like I said, I don't have any ulterior motive here.
781
00:46:09,443 --> 00:46:12,074 At least when I ha- I have something for sale,
782
00:46:12,254 --> 00:46:15,798
I will tell you and I will shake you awake in the middle of
783
00:46:15,799 --> 00:46:19,402 the night and say this is very important. But I don't have anything for
784
00:46:19,422 --> 00:46:22,304
sale right now. So I'm not here doing this to try to sell you
785
00:46:22,305 --> 00:46:25,368
anything. I just want you to succeed as a trader and I want you
786
00:46:25,348 --> 00:46:28,491
to be your best self. And I think when you become a better human,
787
00:46:29,252 --> 00:46:32,270
you become a better trader. Later. Not the other way around.
788
00:46:32,290 --> 00:46:33,979
Alright, I'll see you in the next one. Bye for now.