today we have a very special opportunity to talk about the psychology of growing your trading business growing you as a trader as we shall see a key idea is that how you structure your Learning and Development process will determine the odds of your success you can take shortcuts and reduce your odds you can do it the right way and increase your odds and we will be discussing with you based on actual experience with actual developing traders in a proprietary trading firm and my own experience working with developing traders in hedge funds we will describe for you step-by-step the process that has worked best as far as creating expertise in trading if you want to learn 3 real world setups that our traders use including the simple setup that we teach all of our new traders and the setup that turned one of our traders into a seven-figure big money earner check out the free webinar that we're currently running just go ahead and click the link that should be appearing right now at the top right hand corner of your screen that's gonna open up this free registration page in the new window so don't worry you're not going to lose this video you're gonna learn more in a couple of hours from this trading workshop then from years of online education so let's begin with the idea of stages in performance development now I would argue that these stages occur in any performance field you could be a chess player you could be an athlete you could be a trader there are distinct stages and what you do is going to be different in each stage to further your development the first stage is a novice stage and that's where you're learning the basics how do financial markets operate what's a bid what's an offer what is volume mean when all you mean crease on the move what does that actually mean when we have levels price levels that are deemed to be significant what does that mean where does that come from these are all some of the basics of trading and we need to learn those basics before we really know what we are doing in financial markets it is at this stage that many people who offer quote-unquote trading education fail what they start with is what they call set ups they teach chart patterns or different kinds of relationships of variables and encourage young traders developing traders to trade off those so there'll be some very quick identification and sharing of these setups and right away the developing traders go into trading now think for a moment how absolutely crazy that is suppose I teach in a medical school suppose we had a medical student and we taught the medical student a few basic maneuvers about cutting a body open about taking vital signs and right away we show them those basics and send them in to do surgery what would happen of course they would fail and the patient would fail that's exactly what happens with many developing traders in fact research from Brad barber and his associates finds that the percentage of independent traders who succeed in day trading is in the low single digits that's really incredible 95 96 97 98 percent of all indepen individual traders who try to become successful end up losing money on a year over a year over year basis the reason is not because they're stupid and the reason is not because it is impossible to make money the reason is because they skip the novice stage they skip learning the basics and they start trying to trade without having a real grasp of what they're doing and as a result they lose money and they end up disappointed so the beginning part of performance development at novice stage the person is not trading they're learning they're learning they're learning about markets and how markets move and what makes markets unique and what movements and markets really mean now we get to the second stage which is a stage of competence here's where we start trying out trading and very often as at SMB this is in simulation mode in other words we're keeping score we're placing actual trades but not with real capital at work we're practicing so that we can learn and make all of our mistakes without drawing down our money the idea in the competence stage is to apply the knowledge the information that we obtained during our novice phase and develop some consistency a in identifying opportunity and B in actually trading that opportunity and we practice trade and practice trade and practice trade and we identify our mistakes and we identify what we do right and we figure out which markets work best for us which trading strategies work best for us which timeframes work best for us and when we identify our knit during this competence phase we begin to establish some consistency in our performance numbers all of this is before we are putting a single dollar at risk it is in the expertise phase where we are building our trading that we are going live and then growing our risk-taking doing the very things that made us consistent in that earlier phase so this is a real-time application of our learning and once again as here at SMB there's an emphasis on rapidly identifying what am I doing well so that I can keep doing it what am i doing that needs improvement and how can I set goals for the next day the next week the next month that will move me forward in my performance mike-mike well when I think about sages at SMB I think about a foundation so you know when I'm asked this question what are the stages in performance I'll say well first there's foundation for us that means there's two training programs that people take SME DNA and the winning trader and then the next stage that people go through is sampling which I think a lot of retail traders don't embrace fully so lots of independent retail traders want to go to one coach one educator one place learn a few setups absorb them apply them and go ahead and become rich and if that doesn't if that doesn't occur they make one of two conclusions one either the person they learned from is a fraud or the they themselves aren't good enough to be traders and what we see at our desk is different from that which is that people are exposed and trying and sampling lots of different types of setups so even though we are mostly active short-term traders there's lots of different types of ways to attack mark as a short term active traders and they sample with setups that traders on the desk have traded with edge and get experience with them and then for themselves figure out which ones they think are best for them and so they go through that stage and then as they're going through the sampling stage and there's a really good book about this idea written by David Epstein called range there's this myth out there that's developed probably since Tiger Woods has become so great that you start doing something at age to focus on it that's how you become really great at something and the book is about how no actually the better course to get to expertise is if you want to be a great musician is to play a lot of different instruments and only when you're older should you focus on the one instrument that you think you become great at if you want to be a an elite athlete play lots of different sports and only when you're older focus on the one sport that you think you have talent in and are exceeding it and so we are we are doing that here as well we are sampling different types of setups the next stage is acclamation to technology we've got great technology here guys need to learn how to build filters they need to build scripts they need to build models so that they're supplementing their idea generation and their edge and then the next stage is being consistently profitable and then the next stage is breath and then the next stage is advance breath that's why we have dr. Steen barber - today we were talking about with two of our top traders the structuring particular options trades on trades but they were risking hundreds of thousand dollars in this month and had results on them and so you will notice that I'm sorry and then in between I skipped the stage in between consistently profitable and breath is sizing and and at each at each point along the the curve we want to be trying to win that stage and there is a different focus a different daily routine that goes into how you actually go about winning that stage if I could just jump in with one comment Mike that idea of sampling different strategies so important because that's how you're going to find out what your strengths are and how those sync up or don't sync up with the particular market particular time frame particular strategy that you're looking at but if you're going to sample different strategies that implies that you need to have multiple mentors you have to have people who are can show you these different strategies and so just to try to copy one person it's not optimal for your learning curve you want to see what many different people are doing successfully and then synthesize that ultimately into your own style let me follow up there so I think one of the things that I can offer from my seat in the trading community is to share hey who's doing well here at SMB and then we do work with some people outside the firm who are these elite traders why these elite traders doing particularly well and so I will on the topic that you raise dr. Steen barber fill in a story about the very last trader who earned a green shirt for the first time at our firm so at our firm if you make a million dollars net and P&L for the year you earn a green shirt and the trader who just owned a green shirt last year for the first time when he first started his trading career he was with a different coach then he has now and he was trading different strategies than he trades now and he was flailing super talented super tongue I still remember the first time I ever met him and the type of person who when you meet right away you just know this is a different level of intelligence and bandwidth and and Drve and then other people and he was flailing and it was you know a good 9 12 months into his trading career and we had to switch his coach we had to get him trading different types of setups that better met his skill set and when he did and only when he did did he start to get on the right track to be doing better and something else happened which was magical for the firm which is the coach who ended up helping him get on the right track that coach his trading completely started to improve as well he took that coach to a completely higher level so finding that right niche being being embracing the the need to sample that maybe you're not gonna get things right right away and then even when you get some things right the key building independent retail traders can do more of that would be wise to do more of that Hey so a couple of key ideas here the first one is that mentoring and coaching needs vary according to the stage of development that you are at so what you need from a mentor and coach in the very beginning phase that novice phase is very different from when you've developed some expertise what that implies is that success expertise consists of multiple learning curves you have a learning curve as a novice you have an inter mediate a learning curve when you're developing your competence and you have a new learning curve as an expert trader and so you want to think through where am I at in my trading career in my trading process and what are the needs that I have right here right now many many traders fail because they are not doing what they need to be doing at their particular juncture in their learning process often they're jumping ahead trying to learn many different things trying to bump up their sizing very quickly trying to take shortcuts to that expertise level when in fact they need to solidify their more basic skills the other reason that this is necessary is because unlike certain performance arenas markets financial markets are always changing if I'm a basketball player I know that the dimensions of the basketball court are going to stay the same from game to game in year to year the height of the rim is going to stay the same from game to game year to year but financial markets can differ tremendously from day to day week to week once a month year to year and so that also ensures that we are that we need time to go through each of our stages and it ensures that we will constantly go through a learning process I've worked with developing traders in professional trading firms of different kinds and I have never seen one who has developed both consistency and high profitability in a period of less than a year or even more than a year traders who are attempting to shortcut the learning process by trading putting their capital at risk within a few weeks or a few months of starting their learning are really shortchanging themselves we've taught one over the course of since 2005 we've taught one trader only one since 2005 who made over a million dollars in his first year super talented almost a prodigy but one and so I want to talk about your thought about being in certain stages and so we've got you can't see this but we actually have a lot of people in the room who are interns and newer traders and and guests and there are furiously taking notes for everything dr.
Steinberg are saying but one of the things that all the guys in the room need to be doing is having a daily routine that centers around how they're going to improve daily to figure out what kind of trades are going to be taking how they're gonna be building their play books second book I wrote is called the playbook and it's this idea of how you build your your trading business and so I mentioned before that one of the things that that I do is I and one of these I started doing in 2018 is working with some select people outside the firm dr. Steve Barger works with some of the more sophisticated traders in the world so on a significantly smaller scale there's there's a there's a handful of people that I work with outside the firm and I do that to grow I do that so I can offer our guys more and I can learn more and and and that's been a great decision and been very rewarding one of those particular people that I work with is a tremendous active trader north of for Melina four million dollars a year and you know I will come in two rooms that were sitting in right here and I will say to the newer guys one of the things that you have to learn how to do to be an active intraday trader is to learn how to read the tape and we will later today have a 12:30 meeting where we watch film back together of important tape from one of our junior guys and guys need to record their screens and you need to go back and watch the moments that are most important in the stocks you're trading to see the nuances that led to these big moves and so and I I say that and I can tell you recently that one of our junior guys was going over a big trade that he made I was sitting in the back trying not to say anything just observing and he's going over this big trade in Roku and it makes this huge move away from price and I've just got a chime in here and I say that the trader whoa whoa that's a perfect example right there of tape you need to be going back and watching and seeing why that actually moved away from price so aggressively and see if you can catch the nuances to that and if you do not believe me one of the people that I work with is this one terrific trader the very thing he's working on right now in his trading to get better from where he's at is watching back tape he slices it up of the very important moments in the stocks that he's trading and so you know when we talk about stages we need to be thinking about winning stages when we talk about winning stages we need to be doing things like that you want to be consistently profitable and one of the skills you need to learn is reading the tape part of your daily routine needs to be watching back more tape than just in just in real time because that's what other guys who are great are doing and they are we talked about this today the guys that are great they are different they burn differently than the average trader they get they take it more personally it upsets them more you said you said something today which I'll share with guys good is not good enough every day good is not good enough don't come in to a monthly meeting and say I did good that's not good enough these guys when they underperform it really bothers them and they immediately come up with solutions to get better and so that is and it stands out there they're drunk their their Drve and their commitment to solutions solutions just a quick addition to that two of the key skills involved in active short-term trading one is pattern recognition the other is speed and breadth of perception successful traders recognize patterns quickly and they are watching a number of different areas of opportunity for those patterns in any field pattern recognition is a function of exposure it's a function of repetition when medical students decide they're going to go into radiology how do they learn how to read the scans the the x-ray scans the cat scan so forth how do they learn to read it well they look at one after another after another after another and they pick up on patterns there's a huge amount of practice and repetition before they actually become experts and so that's what mike is talking about the successful traders aren't just viewing markets they are reviewing markets they are going back on tape and watching what happened in markets how its set up what they could have done differently they're getting many more reps than the average trader by viewing and reviewing and viewing and reviewing and they become expert how to recognition there's a really good book the sports gene that talks about this with with athletes and so they studied elite hitters and elite tennis players so if your tennis player and somebody's serving you've got to return a hundred and forty mile an hour serve and so how do you do that and if you're a baseball bat or somebody's 60 inch 60 feet six inches away is throwing a hundred miles an hour at you how do you Patti hit that and so when people were first studying these elite athletes the thought was well their reflexes must be superior to the average athlete and it turned out when they studied these elite athletes that that wasn't true at all their reflexes are actually no better than the average pretty good athlete it turned out that what they had learned to do is they learned how to decipher the pattern as to where the ball was going to go by watching the pitchers motion or the server's serve and if you take that same elite Major League Baseball a batter like Albert pull hoes who can hit back in the day a hundred mile an hour fastball when you put him in front of a softball pitcher like Jennie Finch and she throws underhand and she's not throwing any harder than me and she's throwing a ball that's bigger he literally can't hit it and it's because he doesn't have the pattern riki pattern recognition skills to hit and underhand softball and so you know as a trader sometimes you sit there and you're like how the markets moving too quickly or I didn't see this or I didn't see that important news from the tape that would have helped me get into a particular trade it's because you don't yet have the skills to be able to identify the information that's important but you can build it you can build it one last idea something I mentioned in one of my books in anything about it in any performance field expert performers spend more time practicing than they do actually performing think of Olympic athletes think of chess champions they spend more time practicing and that's what gives that pattern recognition they spend more time practicing than actually formally performing for many developing traders the reverse is the case they spend their time trading sitting in front of the screens and then when the market closes what do they do they meet me at the bar but they're not practicing they're not spending the time practicing and that is a main reason they don't pick up the patterns it's a main reason they don't pick up the expertise shall we jump ahead yes let me let me just quickly mention here with this one you know I teach at a medical school I see how physicians develop physicians go through a novice competence at expertise stage just like traders but with physicians they rotate to different services so they'll spend a certain amount of time and internal medicine a certain amount of time in Pediatrics certain amount of time in psychiatry and so forth and they're learning in groups the senior medical students are teaching the junior medical students the junior residents are teaching the senior medical students the seat the attending physicians are teaching the senior residents and so the slogan becomes each one teach one it turns out that learning curves are steep and are hastened we go through our learning curve much more quickly and effectively when we learn from multiple sources and we improve our learning not only when we absorb from others but when we teach others and so all of this is profit Ori to the point that some of the best learning and development occurs in team settings think about Olympic teams think about sports teams because each one teach what everyone is giving everyone else feedback everyone is learning from each other's experience this is something that we can do by connecting with other trainers by operating within trading communities a major point here is that a great way to sabotage our development is to take too much risk too quickly an important part of the psychology of development is the cultivation of confidence as we're learning we need to feel competent we need to feel in control we need to feel that we are moving forward and it's that internalized sense of competence that helps us eventually take the significant levels of risk to make meaningful amounts of money what that means is we have to be very very very good at risk management because if we don't avoid blow-ups we end up traumatizing ourselves setting ourselves back psychologically and we don't develop that competence and so risk management keeps us in the game and allows us to develop and internalize a sense of mastery that eventually helps us with risk-taking what that also means is that failures trades that don't work out have to be planned in other words we know in advance how much we're risking and we normalize failure we know that many many many successful traders don't have much different from a 50/50 win rate and so we want to expect that we're going to make mistakes we expect that trades won't work out we normalize that so that it doesn't throw us psychologically in any learning process first we observe something being done then we have others observe us doing it and trying it and finally we try it independently on our own the purpose of observing it and having others observe us before we do it on our own is to build the sense of mastery so I think we've both written about this so well how do you build confidence and we've both written about the idea of small wins people who have won in the past get used to winning and so good thing to do is set a small goal for yourself that you can accomplish an accomplishment and then and then go from there small win small win small wins we were sitting in a meeting today where and I think sometimes people think professional experienced traders always get things right always guess things right always predict things right man if I could just be that senior experienced trader who has a house in the Hamptons and a beautiful family and a Ferrari I don't know what people drive these days I Drve a Honda Pilot myself which we love and our family with my two kids smart car but they feel like that's gonna make them happy and that's the that's the place that they want to get with their life the experience traders that we work with yes they have a lot of those things but their training often times is met with challenges with bumps we were talking to you know one of our best traders if not our best trader here this morning who was at $400,000 this month walked in on kind of a bad break and was down $200,000 on a swing position and was talking about how he could have handled that position better overall and you know dr. Steen Berger said look next time that happens to you give me a call and let's let's have a reset let's let's talk you through that but those things happen to people who are really succeeding and growing we had a conversation with a junior trader who doubled his risk you know certainly succeeding as a trader overall one of the one of the people who is making it and doubled his risk overall and this month was flat and was talking about how he was making more on his best days but losing too much and we were talking through and and he had made some corrections to his trading system from smaller size that he realized he had to get rid of and then we're talking to another trader who we were I was trying to push to risk a different amount on a plus plus trades and so that he could maybe accelerate his learning curve and get used to risk a little bit more and and dr.
Steinberg er you know chimed in a sometimes certain people aren't wired to take on lots more risk but the trader sort of said I don't know if I'm really ready for that and you know independently wanted to sort of take a step back so there's a real process to how experienced traders are trading bigger and a lot of that is making mistakes going through the experience feeling as you I've written about feeling the heavier weights getting used to the heavier weights it hurting it hurts at first to live lifts the heavier weights sometimes they fall on you sometimes you need somebody like dr. steam Berger to pick them off off you to take that next step so why does teamwork work in the learning process why should you not be isolated as a developing trader one is the power of social learning which means that we learn not only from our experience but the experience of others Mike and Steve an SMB have been instrumental in having the traders share their report cards share their monthly reviews and their goals so everyone has the opportunity particularly within teams to learn with each other and from each other teams also offer the power of social support there are always setbacks and learning they're always setbacks in trading when you have teammates that you're close to who you care about you offer them support they offer you support you're learning from them they're learning from you and that keeps you going that keeps your energy high even when things aren't going well ultimately that helps make learning fun now this is a very important point because it turns out that our positive emotional experience what's called our well being in the psychology research is linked to a our creativity B our productivity and see our learning when we are in a positive mindset we absorb more information when we're at a negative mindset we become self preoccupied and we don't take in information and so in a team setting if we can make learning fun if we structure processes in engaging ways ultimately we're going to learn more and we're going to learn faster so one of the teams we've been talking a lot about internally is team Dan and we have been recognizing their potential I think before a lot of other people so we have other partners of the firm and I've been saying watch team Dan watch team Dan team Dan's gonna be one of the top teams and I could I can see in here the other partners at the firm in principle at the firm kind of scoffing at me like it's just not in the P&L Mike like what are you talking about and I can I'm actually to myself thinking they just don't understand and like I know where there's I know where this team's gonna be in a year and I know they're gonna be at the top and I guess I just we'll wait till they actually get there and and they can sort of recognize that we've been right all along and so and this month was was a month where they were at the top and they still have lots of side to go from there each of those individual traders are better because they work together the junior traders are better because they have a role model who has edge who is pushing them and exposing them to edge and that senior trader is doing better because he's getting access to more ideas he's getting access to junior traders and there's some junior traders in the room so listen up the junior traders are helping build technology to help dan be able to express his edge bigger and broader and when they're working together and kicking around ideas they're coming up with new ways to make money so what ways that they actually got to a new level is by doing very specific things to find new edge and so that that idea we're together one thing I want to ask you so there are retail independent traders out there listening to us here and one of the things I've always noticed about you is that you're constantly reaching out to people and so and one of the things that I do wherever I go is I leave time where I say I'm gonna be in the city reach out to me I'm happy to meet and I think lots of times people like you really did have time to me and I'm like that's why I wrote that tweet and made that imitation and and so I think independent and retail traders sit there and they're like well I don't have the resources of a prop firm and I can't work with all these really great ambitious traders together in the same room and and they kind of just stop whereas what you role model really well is that you can create virtual teams or you can reach out to other people and really build your network your network yes yes and you know there are so many trading communities that are forming there are so many ways to link with people online who are really good people people who have strengths similar to ours interests skills similar to ours we can create virtual teams we can create online teams just like we have teams internally at SMB and that can create the social support and that can make the learning fun I'll just mention really quickly that at hedge funds talent grows at the desk beginning traders start as assistants helping the hedge fund portfolio manager do what they're doing and then grow in gradually into becoming a partner a huge part of the learning process is talking aloud every day what you're doing why you're doing it have the portfolio manager the mentor talk aloud what they're doing why they're doing it and review at the end of the day at the end of the week what we did why we did it what worked what didn't work every single day that talking out loud and learning from a mentor absorbs and creates an enhanced learning environment so that Brad Barbara's research as I mentioned is that only one two three four percent of independent raters succeed at hedge funds why work that number is easily closer to 5050 it's a massive difference between learning in a structured environment with the right kind of teamwork the right kind of practice versus just winging it on one's own our challenge as independent trainers is to create as much of that kind of environment as possible ultimately when we act as a mentor we're creating a win-win because we are learning from the people we are mentoring and we are also reinforcing our own learning at those funds they separate what I would call coaching from mentoring so that mentors are not bogged down by the day-to-day kind of needs of the developing trader and so a lot of that is the work that I do more on the psychological side and also to help their learning process so that you're not always needing to go to a mentor to get the help that you would want that integration of the coaching and mentoring which is a big part of what we do here at SMB again can very much accelerate the learning curve increase the odds of success but it's back to that same point how we structure our learning process will determine the odds of our success and I want to focus on our slides here a little bit right now and make couple of points so this is a slide a picture of shark receiving his black shirt from last year you get a black shirt for making two million dollars net in a year in trading profits and he actually made much more than that and this is a picture of swang receiving his his first black shirt and you can see how happy is he is the way that the guys have grown here is for them to understand measure and build from their strengths and so you know the swang is a really good example of that and the way that he became a standout trader was by doing something that lots of people will tell you is not the way that you can make a lot of money scalping if you ever have an edge in trading markets no matter what it is don't let anyone minimise that here we want to build from what we're doing well and and swang just happens to be somebody who is a very quick thinker you know off the charts processing power and we were sitting in a monthly review with swang going over his month and he was doing a bunch of longer-term type of trading excuse me as he's growing his trader which is which is fine and we encouraged that we were also saying that you know let's not forget why you're so good and I remember dr.
