Line Your Own Pockets

Michael: 00:00

Hello, everyone, and welcome back to another episode of Line Your Own Pockets. Today, we're gonna go over mistakes, common mistakes that traders make. We're gonna try to split this up into two. I think that this might be split up into more. If you think we missed something through these two, definitely let us know.

Michael: 00:17

But we're gonna start with beginners. So specifically, what are the most common mistakes people make as a beginner trader? Probably would make sense, just to make sure we're on the same page, define beginner trader. Like, what are what are you thinking when you hear that, Dave?

Dave: 00:33

Yeah. I think the the way I think about it is, like, think about an entire trading career, and I think of this as like the first half of the career. So it might be, you know, it it it might be a little more advanced than just beginners. It probably is a bit more advanced than just beginners, but I wanna I've got it broken down for, like, the common mistakes I see across for all traders. And I honestly think that if if you if you listen to these episodes that we do on this, and you just don't make the mistakes we're talking about, which are not hard to avoid, you're gonna be better than like 95% of the traders that that try.

Michael: 01:16

Alright. And that's probably lines up. For me, I was thinking, I don't know, and you could almost separate, in my mind, beginning versus non beginning traders, was that first bit where you were just an information sponge. Like, that's how I kind of classify my beginning. That phase that you're in as a trader where you think, oh, I just gotta learn more.

Michael: 01:39

You If I just read that next book, if I listen to that next podcast, if I if I just learn about this new technical, and as soon as I learn that next thing, then I start making money. And then but it's I guess, you know, these are gonna be kind of nebulous in a in a way, but we'll just use that. We'll use your definition of just that first that first half.

Dave: 01:59

And k.

Michael: 02:00

For me, I always look at it and say, well, beginner trader, that's where probably most of the this is a very work wise. It's a very front end loaded type of thing, where I find, especially most beginner traders are fifty, sixty hours a week. All you think about. It's all you look at. It's all you do.

Michael: 02:18

It's like everything everything to you, and then you gotta get to a point where you're like, okay, I've got processes in place, and I've got things, you know, I'm always gonna be working, I'm always gonna be improving, but that that beginning part of the trading journey, I find, is the one that people are obsessive, I guess, for lack of a better word, and that that just kinda dies off a little bit over time.

Dave: 02:40

Yeah. And obsessive about the wrong things, you know. Yes. That they're wasting a lot of time. Alright.

Dave: 02:47

So the first mistake I see beginning traders make is and if you don't do this, like, it's it's very common to see this, but once you get over this milestone, you're gonna be way better off. You don't have a plan before you enter a trade. It's so common, and a lot of new traders just expect that they're gonna, you know, have some divining ride that's gonna tell them exactly what to do when they're in a trade, and that's just not gonna happen. I mean, it's human nature to do exactly the wrong thing. We're kind of hard wired to do the least profitable, thing when you're in a trade when money's on the line.

Dave: 03:28

So it's just so common, and just that one mindset shift really opens up a whole way for you to improve and to trade better.

Michael: 03:40

Yeah. And like we were talking earlier that most traders do way more work on the wrong things. I think that's just the best example of that. Because you're yeah. You're not gonna I had an old trading mentor who was an old military guy, and he always used to say, you don't get smarter when the bolts start flying.

Michael: 03:57

It was basically just his way in the military. They they train and prepare, and and, you know, you're about these are all the things that could happen, and this is the way you're gonna plan for all those things. And we don't want you making decisions on the fly unless you, like, absolutely have to. We want you just to, you know, step back and wait for wait for that thing to to happen, and then you do the thing that you have been trained in in every scenario. And it's just way easier.

Michael: 04:24

If you think about it just like mechanically, if you say I'm gonna buy the stock at x, and I'm gonna put on my stop loss, and I'm put on my profit target, and I'm gonna sell at the end of the day, and then you walk away. It's almost like I I don't know if it's, like, too much easier that people think that they're not doing enough that they could involve themselves more and therefore make more money on doing it. I don't know what that is. But, yeah, that that to me makes absolutely perfect sense where it's you're you're in this zone where you're trying to make work for yourself, where you would just be way better off in the long run just planning out the trades, setting out the orders, even alerts if they need to be fancier than that, and then just walking away.

Dave: 05:06

Yeah. I think I think new traders, they see other discretionary traders on YouTube, you know, making decisions on the fly. Mhmm. And, you know, they make it look easy, and it's just really hard to do that.

Michael: 05:26

Well, and, though, those discretionary traders making decisions on the fly, they're not really doing that. They just have a wider breadth of experience where they're kind of acting as their own system. They're like, oh, well, I know that, you know, if the stock does this, that it's probably the trend's probably over, it's time to go and all this. But they're not just, like, looking at the chart the way a new trader would and just saying, oh, it looks bad now. I'm gonna sell it.

Michael: 05:51

They they they have a system even if they wouldn't admit it, even if they wouldn't know it, but they've got a system that they're they're holding themselves to.

Dave: 06:00

Yeah. It it's you know, think about all the work that you do, that I do for creating systems, so so you do have a plan during the trade. I mean, we spend hours, more than hours, doing research. There's quants. Their whole lives are devoted to figuring out what to do in certain trades.

Dave: 06:24

What's the most profitable thing to do? What should you be doing in the trade? So to expect you, new traders, to, like, figure out on the fly and and make the right decision

Michael: 06:36

in the middle of

Dave: 06:37

a trade without having a plan is just totally absurd. So

Michael: 06:41

And the fastest way to burnout too is because, you know, it's you're trying to push your brain into making logical decisions at the time that you're the most illogical and emotional and and everything. And the more times you have to do that throughout the day, the more you're you're forcing, like, the zen kind of brain to turn on when it's really the the monkey lizard one that's that's in control. That's yeah. That, I think, is the quickest way to just completely burn out of of what it is that you're trying to do.

Dave: 07:16

Yeah. I know. So when new people sign up to my email list, I ask them a I ask them a question that they reply to, like, you know, what's your biggest trading challenge or something like that. A lot of traders would write back and say, yeah, my emotions just get in the way of, like, if I could just control my emotions better, I could I know it would be profitable. And they're like, well, when you dig down and like some of these people I've talked to, when you dig down, it's not emotions at all.

Dave: 07:46

You just don't have a plan. So it seems like your emotions, when you're in the trade, you just don't have a plan. And, yeah, it that's gonna be very emotional if you're in a trade without a plan. I know that for I mean, anybody, if you don't have a a plan when you're in a trade, that's gonna be emotional. It's just crazy to

Michael: 08:04

think that would do you have there's only two things that you can, as a person, make a decision off of, and it's either some sort of historical whatever or emotion. That's it. You go to the store and you wanna buy a cereal. You're either buying that one because you you know you like it. You've had it before as you're using historical data, or it's got, like, a really cool looking box, and it looks real, whatever, and then you get that kind of, emotional decision.

Michael: 08:33

So the only two ways you can go is emotionally deciding or or kind of logical, like, data driven decision. And, yeah, most people, I think like, there's a a meme that I saw on Twitter a few times from the the systematic trading community where there's, you know, just an equity curve pointing, like, straight down from a back test, and then they just captioned, I I just need more emotional control or whatever. It's like, well well, you know, what if you are what if you're doing is just a negative ED trade, and you're just blaming your emotions and the way you're thinking the entire time, but it just what you're gonna do, it doesn't matter if you're a Zen Buddhist monk. It's it's going to lose money over time. And if you just don't have that data, you're just shooting from the hip at that point.

Dave: 09:19

Yeah. It's it's hard to understate just how valuable it is once you change this mindset. I mean, I I don't make trades if I don't have a plan. Just haven't done that for decades now, so it's really it's kinda hard for me to think about. But once you turn that switch and say, okay, I am not gonna make any more trades if I don't have a plan for what I'm gonna do afterwards.

Dave: 09:47

And that plan, and what I really mean is, like, have a plan and stick to it. That is a complete, like, there's no, like, emotional tax with doing that is way less. Like, you're you're you have a plan, you're sticking with it. And but there's a certain kind of trader that enjoys the emotion. They really it's it's the thrill and of of watching the trade go up and down, and almost like not having a plan.

Dave: 10:18

Like, that is that's gambling, and that's you know, there's a big thrill in doing that. So but but So would you say that's important the part of traders to get over that hump.

Michael: 10:27

Will you say that's the gambler? Will you say that's the person that's trying to play a video game, or they're trying to get some release that they would from a gambling side of things as opposed to, you know, thinking logically. I I kind of think it's that way. The other the more charitable thing that I'll give is that true trading and true systematic trading feels lazy in a way. Right?

Michael: 10:58

Like, you you're either sitting and just waiting for an alert to come through, or you're sitting and just you've done all your planning the night before, and the bot just runs. And I think there's, I don't know, a certain amount of, like, guilt or something that can that can take place where you you aren't doing anything in the moment. You're just you're just sitting and waiting for one of your orders to get filled, or you're sitting and waiting for an alert to go off or or whatever. And you constantly feel that if you do more, you'll make more money, and that is true because that's how it works in most of the rest of the world. Right?

Michael: 11:32

The guy who shows up early for work and then leaves late and all that kind of stuff. But it's all of the work you did outside of it makes the work in the trade different. I I that would be my charitable outreach to these people. They're they're thinking, well, you know, instead of just leaving that order out there, if I start if I start messing with it and, like, trailing it up behind price or doing something like this, well, I am more active. Therefore, there's gonna be it's it's very hard, and I think especially if you're losing money and if you're trying to, you know, trade for a living or something, to do nothing and, you know, to not make any money from doing nothing, and then still kinda convince yourself that that's the right thing to do because it is, but it's it's, again, it's hard in that that moment.

Michael: 12:19

Yeah. It's either that or gambling. I don't know. It's probably different depending on the person.

Dave: 12:23

Yeah. I think you're right. I think it's they're they're all that comes into play. And but, you know, the moment you turn that switch off and say, okay, I'm not gonna get in another trade if I don't have a plan for every eventuality, no matter what it does. Mhmm.

Dave: 12:40

Once you make that switch, it really puts you in a very productive mindset because you there's all these questions you could be asking yourself, like, what what is the most profitable thing? How would I know? Mhmm. And all of a sudden, you like to really come up with a plan to answer the question of what should you be doing in a trade. You explore all different possibilities.

Dave: 13:09

You you look at what how often the situation has happened before. You look at and you start thinking about back testing. That's really where the confidence comes from, and what you know, figuring out what you should actually do. What what does actually make a difference when you're in a trade, and what are the most profitable things you can do in a trade?

Michael: 13:32

Well, and for for me, that was the big switch, and I'd say for most people, that's probably a good switch to have as well where because I was, I'd like to think, the guilt driven one where I just felt like I you know, I'm sitting there, and my account's in cash, and there's all this stuff moving all the time. And I'm not doing anything, and I have kids to feed, so I should be doing I should be hitting some button in order to try to make some money to then do the to then do the thing. But once you kind of realize or internalize that you there are things that you should be doing, that that fills out that time. Right? If you are feeling lazy because you're you're not trading because there's nothing that's hitting your alerts or there's nothing that's hitting your your orders or whatever, it doesn't mean that you're not doing anything.

Michael: 14:21

You should be back testing or reading about a new strategy or or flipping through charts to see if there's something that comes to you or listening to a podcast. And all of these things count as work because you're not gonna see that immediate benefit of p and l go up today. But by, you know, listening to that podcast, maybe you hear something from a guy, and then you test that thing, and that becomes part of your trading. So it might take months from now. But if you have that more longer term mindset, then you're just doing the same amount of work as the guy who's sitting there kinda pounding buttons all day.

Michael: 14:55

But you're like I was mentioning before, you're you're front loading that work. You're doing that work now so that eventually becomes a trading strategy. That trading strategy eventually turns into profits way down the road. And that I think that's just kinda hard in the moment, especially when a lot of people are coming at this game saying, you know, I I want to make I wanna do something now because I wanna make money now. And and you sit them down and say, no.

Michael: 15:18

Right? The effort free thing you're doing now is supposed to be trying to make you money six months to a year from now. It's the it's hard to pitch, but it's it's by far the right mindset.

Dave: 15:30

Yeah. And I mean, one thing I like to think about is, you know, what's the trading strategy you can do that has zero effort, and that's, you know, buy the spy and hold it forever. Mhmm. That's the trade, that's not bad. And I always tell people, it's not a bad strategy, and that's you need to be well ahead of that for the strategies you do trade Mhmm.

Dave: 15:55

For it to make sense. Because otherwise, you can literally do nothing except buy the spine holder forever. That is certainly a viable strategy.

Michael: 16:03

Yeah. It's it's funny the amount of people who they refuse to do something like paper trade or or any of these things, and they're continuously losing money. And, yeah, you're right. If they had just done nothing, if they put their money in the spy and then spent all of that time and energy paper training, coming up with strategies, you're making, what, on average, 8% a year depending on when you you start the test, and you're not having to do anything. So, yeah, you're a 100% right.

Michael: 16:33

It's it's also not to go off two topics so much. It's not it should also teach you that trading strategies work. Because the SPY, right, the S and P 500 is just basically saying, it's a good idea to own the largest 500 companies in the world and weight them by market cap and rebalance them quarterly. So it's just it's a trading strategy, and it's a systematic trading strategy. And I always use that as an example for people go, well, why not just passive event invest?

Michael: 17:04

It's like, no. You're not passively investing. You're just picking this particular trading strategy that has a really long back test to to tell you that it works. And Yeah. You're you're having that faith and confidence that in the future, it will continue to work.

Michael: 17:19

And as soon as you I think a lot of people make that connection, they go, well, shit. I could do the same thing. I could build a strategy that that has some sort of merits like that. Yeah. And and and build something out the same way.

Michael: 17:31

It's just a different different trading strategy.

Dave: 17:34

Yeah. So so that was a big milestone for me that I learned early on, and, yeah, that's I I I see traders doing that, and, yeah, just don't do it, and you're already well ahead of the game for most traders that even try this. So let's go on to the next mistake. And this is and in the grand scheme of things, this is a fairly advanced or serious trader who would be making this mistake, but it's really kinda earlier in your career once you get over that first threshold of not making the mistake of not having a plan. It's not keeping a journal.

Dave: 18:17

So it goes hand in hand with the first mistake. But I see traders even now, I'll see occasionally traders gonna be and they aren't keeping a journal. And I can tell just by that fact, like, of all the traders I've worked with, like, this is probably the most correlated with success or not success. Like, I can if you're not keeping a journal, I can tell you're probably losing money.

Michael: 18:44

Yes. So I with the people I've dealt with, it's it's the same. And I like that because my point was gonna be say it's hand in hand with the first one. Because if you don't if you don't know the trades that you've taken, how do you know if they had any sort of plan and whether or not the plan was followed and whether or not the plan's any good? And then you just have no just like the person in the moment is flying blind by not having a trading plan, I would say not having a journal is the same flying blind in the long run.

Michael: 19:16

Right? You just don't have that, you know, you don't have that more longer term edge because just yeah. You're doing the same thing as the other guy. You're just doing it much longer term. You think you have a plan, and maybe you're following your plan, but you don't really know if you can't look back and and say if you did.

Dave: 19:33

Yeah. That's that's that's a good that's a great way to put it there. So my basic rules for keeping a journal and when I I say journal, I have a very specific definition of it. It's not like, you know, dear diary, this is how I'm feeling today, and the trades I took, right, this is what I ate this morning. It's like, literally a database of your trades that you can query, that you can go back, and that you categorize by system, or by reason you took the trade, by this, you know, plan a is why I took this trade.

Dave: 20:09

That forces you to, you know, not have a plan for entering the trade, and then it didn't quite work out, so you switched it to another plan, like you it starts out as a trade, and then it goes against you, and you're like, well, I'm just gonna keep this as an investment. Right? It forces you not to do that.

Michael: 20:28

And I I bring this up every time we mention journal, but I I feel like I have to. The biggest excuse that people make, and I don't think it's the real reason, maybe I'll talk about that, but the biggest excuse I hear people make is it just takes so much time to do. Well, welcome to twenty twenty six, where there's AI, and you could literally export your trades once a day. You could dump them into an AI, and you could say, Apple was this set up, and, you know, I traded Google, and it was that set up, and I and then that's it. You don't have to do anything else.

Michael: 21:00

Everything is being stored in the back end, and you can you don't need to be able to do advanced data analysis. You don't have to do any of this stuff. You just ask you can go on a walk, and you can talk to the robot and say, well, why do I suck? And it will say, well, do you think about it it's just the the time excuse of, oh, I or or I don't understand, you know, how to set up my own spreadsheet, or I I don't wanna pay you for a service or what again, think I think these are all, like, bullshit excuses. But all of those are gone when it's literally export trades, paste it into Claude, and hit enter, and then walk away.

Michael: 21:37

Yeah. There's just absolutely no excuse not to not to do it.

Dave: 21:41

Yeah. I mean, it's

Michael: 21:43

Well, what I was gonna say why I I think people don't, it's like I I think it's one of those they don't wanna look at themselves in the mirror kind of thing.

Dave: 21:51

Of course.

Michael: 21:52

Yeah. Yeah. It's like if you're recording the dumb shit that you're doing, then you kind of have to, like which is the point? You you kinda have to come face to face with it. But that's the real reason I I think people don't do it is they just don't wanna look at themselves in the mirror and say, holy shit, how much money did you lose by doing just incredibly dumb stuff?

Dave: 22:09

Yeah. And that's you know, it's it's hard for a lot of people to be wrong. Right? And that's what the journal is telling you. Hey, you you you your idea was wrong here.

Dave: 22:21

All that work you put in, this strategy is not working. You you were wrong. And the quicker you can understand that and and come to grips with that, the better mindset you're gonna have. And you're right. You're just putting your head in the sand otherwise.

Dave: 22:37

And, yeah, I've seen the same thing with poker players. There's journals that'll keep all your your entire hand history, and, you know, keep track of your results very well. You can there there's software you can use to keep track of your live sessions, the results you've had.

Michael: 22:58

Mhmm.

Dave: 22:59

Same thing. If you if you're not keeping score, you're losing money, and you're not and I can just tell that. So the the more you could keep score, that that's how you imp that's literally how you improve. Keeping score and be having an honest look at what you're doing.

Michael: 23:16

And I like the, you know, the idea that you that you said that they're wrong about their their whole setup. And and I think the longer you go without starting this, and people who develop, like, an identity of, you know, I use this moving average or I I, you know, I use this as my guide or I trade this way and never facing the reality that even if you do have success, it might come from somewhere else. It might it might not be the thing that you are initially thinking that drives the success that comes from it. And it could also be that you are wrong, but you only need, like, a little tweak. And I think a lot of people I've talked to about journaling figured this out.

Michael: 23:54

They're like, man, I was losing so much money. And the most obvious example is I was talking to this day trader who hadn't journaled, like, I convinced him to journal. And he was like, I just need to stop at the first hour of the day. And he just went it was like the most obvious thing that you think you would have figured out of at at some point. But he just took all of he just asked the Claude, and he just said, listen.

Michael: 24:18

You make a ton of money in that first, like, hour of the day, and then you spend the whole day grinding commissions and and grinding it all the way back. It's like if you just left, you would have done more money. And so it wasn't that his system was bad. It's that his system was bad after the first hour, after that initial surge of volatility you you get throughout the day. And he's like, well, you know, I like trading.

Michael: 24:42

I wanna stay here. It's great. Develop another strategy for for the for the other period of time. And, you know, if something that obvious can go under the radar, imagine if it's just a little nuanced thing of, hey. You know, low relative volume stocks don't work with your strategy, or, you know, stocks over a certain price don't work with your strategy.

Michael: 25:02

And you you don't know these things, so you could be currently trading a strategy and currently losing in that strategy, and you are one tweak away from that becoming a decent strategy or even a a great strategy. You just don't know if you're not if you're not reporting them.

Dave: 25:18

Yeah. So so this when I first started trading, I traded off the thirty minute bars. And it was it was a good system. It was, you know, it wasn't making money every month, but it was it was profitable. And over time, I realized and we did a whole episode on this where I I went down.

Dave: 25:38

I started seeing these same opportunities off the fifteen minute bars. And when I made that change, like, the first two trades I made off the fifteen minute bars were winners. I was like, see, I knew it. I should have been doing this all along, so I would take some off the fifteen minute bars and some off the thirty minute bars still. And I was careful at that point.

Dave: 26:02

As soon as I did it, I would categorize those trades in my journal with a tag, fifty minute bars or thirty minute bars.

Michael: 26:09

Mhmm.

Dave: 26:10

And after a while, I looked at my results, and I was actually losing money on the fifty minute bars. So even though those first two trades I had, like, they were really big winners, I was like, yes. This so I would have never known that I was actually losing money off the fifteen minute bars if I had of it didn't have the journal and had that view of it. And to have that, like, it's you need to have this workflow, and it's like a feedback loop you can give yourself because you can wrestle with that. Like, maybe that maybe there weren't enough trades yet to really make a good conclusion about that, But it challenged the the assumption I had in my head from my real experience, and and it made me see in black and white, okay, maybe this is not as easy as I thought it was.

Dave: 27:01

Maybe there's some tweak I need to make, but at least I knew the data and knew what was going on. And when I made this change, I could see what how that change was affecting the strategy.

Michael: 27:13

Yeah. And, right, that's a way more nuanced nuanced thing where you wouldn't have you know, the guy who should've just stopped at noon, that's way easier. But if you hadn't kept the journal that specifically had a you know, that particular split, which I think is is kind of the main lesson there, the tagging of it, that's what really showed to you because it's the same setup. So if you just lump both those into the same setups, then that's fine. You you but you wouldn't have known which of those.

Michael: 27:49

You would have just saw, like, a degradation in the whole setup, but splitting the setup is the thing that that showed you, which, again, is so easy. Right? Unless you're taking thousands of trades a day, and even even so, you should be able to, you know, still classify those in a fairly short period of time. But that type of of tagging and everything and people were doing this by hand back in the day, and now you guys gotta do it with AI. Well

Dave: 28:18

so once you start trading with a robot, like the the one that comes with Mabe kit, it it assigns like, the the strategy name flows all the way through to the log. When you import your trades, like, that's the that's the hardest part of of trading with multiple systems, is categorizing the trades with the system that you took it from. That's the hard part when you get to the end of the day if you don't have a good system for doing that. So the fact that it flows through makes it just super easy. The whole the the entire process from building a strategy, you know, defining it, all the way through the trades that you make and are automatically categorized, that's such a it makes journaling just way more way easier.

Michael: 29:04

Yeah. And again, the if if you are hearing this and you're still not gonna journal, then you have to figure out why it's not why you're not doing it. Because now that we've described that it's it's 30 of work and you don't even need to build your own spreadsheet anymore, then there's you know, we're not we're not doctor Phil or anything here, but there's there's certainly another reason why you don't wanna do it and why you you've gotta you've gotta figure that out in some way because it's not it's for no reason that you think it is. It's some other reason that you don't wanna you don't wanna pull the trigger and take five seconds a day to make your trading infinitely better.

Dave: 29:46

Yes. Alright. So let's go on to one more mistake, I think, for this episode. And I I hesitate to bring it up because we could spend we have spent multiple episodes talking about this exact thing. And this one is for systematic traders.

Dave: 30:05

So they go, they understand the power of backtesting, but they're almost everybody is backtesting completely wrong. That is, they're not using custom columns for their backtest, so you're stuck in this backtest loop where you're guessing and checking, which is gonna make you run backtest after backtest after backtest. You're never gonna get anywhere, and that's the that's a big mistake I see traders make, is they're just not they're not backtesting with columns, and if you're in that workflow, you're basically if you come up with a profitable strategy, it's probably gonna be by accident.

Michael: 30:49

Yeah. I would say. Right? The or just to be a little bit more charitable, the if you do land on the correct thing, you're probably still only halfway there. Right?

Michael: 31:05

So say you, you know, you come up with a strategy, and it's it's a great strategy, and and you didn't take a long period of time to figure that out. You're you know, there's probably much more to go that you're you're not seeing. And and this has been a, you know, something I'll credit Dave to, but it has been a big way to to go back and to look at a lot of my existing strategies that were fine on their own, but was able to make so much better. And but I did I do think you jumped a lot of steps there. I would say most people are backtesting even worse than that.

Michael: 31:40

The amount of people I see single stock backtesting. Yeah. And, you know, just, oh, what does the MACD cross mean for NVIDIA? Or, you know, with all of the biases that go in there, the amount of people that are are not doing any portfolio level back test, they're just doing a single instrument at a time. That I would say is is more egregious.

Michael: 32:02

But, yeah, once you get past that, then you you get into more it's more of a nuanced thing. But I would say step one, are you back testing well at all, or are you just either visually back testing or using trading view to back test a single symbol or or something like that. So, yeah, definitely back testing wrong. I just think most people are maybe not the people listening to this podcast. Most people are way more egregious than than a column library so far.

Dave: 32:31

Yeah. You're you're right. Like, I was gonna mention, as you're talking, was I was thinking TradingView, because a lot of people come to me and they say, that's the that's the back quote unquote back tester I'm using. And, yeah, it's just not very good for precisely the reasons you just said, but the main reason in that case is you're backtesting one symbol. Like, you're never gonna get well, I see some traders that can make progress that way and do make progress that way, but you're trading the hard way.

Dave: 33:08

You're doing it the hard way. Mhmm. And as soon as you can switch from that mindset, and I mean, if you have had success trading one instrument, you're gonna have a lot more success when you spread that overall US equities. It's just the math. I mean, just think about the math.

Dave: 33:26

It's just way easier.

Michael: 33:29

Yeah. And but it's weird, and I know you probably don't get them nearly as much because you're just in a different different realm than from a lot of these people. But on a lot of people think that's the only way you do it is that they they'll they'll identify themselves as people who trade, like, a certain stock or certain couple of stocks. Like, oh, I like to trade Nvidia, or I like to trade Apple, or I like to trade whatever. And then they try to look for very specific strategies on that particular instrument, and that's all they do.

Michael: 34:01

And that's their whole their whole kind of trading. And that becomes, like, super problematic where everyone's taught that that's the way it goes, and it turns out it's, like, absolutely not the way it goes. And by expanding that out, that is the like you mentioned, that's the first thing. Because not even you get more instances of your trade and all that kind of stuff, but nobody cherry picks, I'm gonna be a Bed Bath and Beyond trader. Right?

Michael: 34:31

It's it's always the the highest flying name that has had the most success. It's always recency bias where you're, hey. This is the thing that's been so good for so long. And, you know, going back and just saying, okay, well, I want to trade everything, ends up doing a ton of things for you. But, yeah, most people, they're just stuck in that that kind of single lane mentality, and, you know, that's that would be the biggest thing.

Michael: 34:55

If you're hearing this and you're a beginning trader, it just don't. NVIDIA wasn't the thing to trade, what, five years ago, and it probably won't be the thing to trade five years from now. So don't kinda pigeonhole yourself that like that. Be a a setup driven trader as opposed to a security driven trader. And the amount of security driven traders out there, I think, are absolutely huge.

Michael: 35:17

Like, people who will put in, like, their bio, I'm a growth stock investor. It's like, why? Like, just wanna be a I invest in the stuff going up. That seems like a better you know, who cares if it's real estate, or who cares if it's if it's something boring at the time? So when you kinda change that mentality of, I look at an instrument, and I try to predict what that instrument is gonna do next, which is where I think most people start trading and start back testing to, I'm going to create a a setup, and I'm then going to look for things that fit that setup, that switch, I think, is the biggest thing people do in in back testing.

Dave: 35:55

Yeah. That's good. I like that. So, yeah, I mean, they the spirit is there. They have the right idea.

Dave: 36:01

They understand that backtesting is really powerful, but Mhmm. They're just they're just wasting their time doing lots of things that they shouldn't be, and I could just way more efficient ways to do it. I mean, I have to plug my backtesting course, betterbacktesting.com. It's like, it tells you the exact softwares that you can choose from that make sense, that have all the features you need, and exactly how to back test in a way that is actually gonna end up with a profitable strategy. So, yeah, I I I'd be negligent not to include that.

Michael: 36:36

Yeah. No. It's anything you can do to get you away from that that mentality of of single stock is is huge. Now can we think of of anything else? Because I know the next one we're gonna we I don't wanna preview too much here, but the next one, we're gonna talk a little bit more advanced and expert kind of thinking.

Michael: 36:58

But what is it that you're looking at initially to say, yeah, this is this is something that a very new person does? Because I I think I've got one or two.

Dave: 37:10

Okay. Yeah. I've those were all that come to mind. It's been so long that I'm sure I'm gonna recognize once, and and there's gonna be some moments here for me when you mention yours. Yeah.

Dave: 37:21

Go ahead.

Michael: 37:22

Well, I think the and this is the one that always stood out that I wanted to get before we wrapped up here, was just blindly following other people, I thought was one of the biggest things. And I think that's where everyone starts, and I don't think it's it's necessarily a bad thing. And I don't think it's necessarily a bad thing to follow other traders, but it's the blindly part that I think does so much of the the caring there. The people who join and say, okay. I wanna buy this because someone said so, and I want to sell this because someone said so.

Michael: 37:52

As opposed to, let me learn the methodology behind it. And then as soon as I agree with it, then I'm gonna buy something because he said so, because I understand why he's doing it. And maybe he's doing, like, the scanning and the analysis work or whatever for me. And then do that for a period of time till you kinda develop your own process to to to do you know, take your own spin on it. But just because I know that most traders kind of start with this, then it's just a huge a huge a huge issue that a lot of people do.

Michael: 38:28

I'm really trying not to name any names, but you probably see there's a there's a lot of them out there in which, yeah, you've got this this moment in which there's people out there who will flaunt how good they are, and you say, well, if I can just follow him and and do one percent of of what he does, then I will be equally as good. Where if that person is legitimate, and they could be, they could not be, that's, you know, up to you and them to decide, you're way better off approaching that to, okay. Let me figure out what's happening here. And then maybe that's a trading community that makes sense. Maybe it is a good group of people.

Michael: 39:05

Maybe it is a good leader of that group or whatever it is. Because I've had some good successes learning to trade in in groups like that. But it it's it was never a, I'm gonna buy it because you told me to. It's like, I'm gonna figure out why Yeah. You decided to buy it.

Michael: 39:20

And then if I agree with it, then, yeah, when you when you tell me to buy something, maybe I'll I'll pull the trigger on it on it then. I think that's that's huge for new new traders.

Dave: 39:29

Yeah. Well, I mean, you have to learn somehow. I mean, people aren't

Michael: 39:33

Mhmm.

Dave: 39:33

Born great traders. Right? You don't have this innate ability suddenly to just be a great trader right from from the very beginning. So, yeah, you have to learn somewhere. So, yeah, that's that's a very common path, and yeah, I think probably, I would I would guess every trader has started out that way.

Dave: 39:52

And yeah, that's definitely a milestone you have to break through, and that's, you know, not doing what other people say, or using that as sources for your own ideas and your own path.

Michael: 40:07

Yeah. And again, not to poo poo anyone, and I do I do think mentoring as a way to learn and a way to get into it is a is a great, and I'm a huge fan of the whole mentor thing. But, yeah, just the amount of people out there that either do it the wrong way or they just they've they've decided that that's all they need to do. And then it's like, okay. Well, what what if you're in the room with that guy, and he is a great trader, and he is doing very well, and then you get he gets hit by a bus.

Michael: 40:39

Like, that that would be, like, the most charitable, like, un scammy kind of way to word it. He is doing great jobs at doing that, and then something bad happens. So just make sure you have your own plan for that, you're like, okay, well, while I'm here working with this person and trading with him and doing all this stuff, I'm asking questions and learning things and writing things down so that I have a a kind of a plan. And maybe you're there for years, and then you develop your own kind of system and and go from there. Because that is one of the ways that I started trading is I was in a room, and the guy was a day trader, he had a certain style.

Michael: 41:12

And I was doing a lot of the same things. And I was that annoying dude going, why? Why did you do that here? Why did you do that there? Why why did that make sense?

Michael: 41:21

And, you know, those I wouldn't trade that learning for anything in the world, but that was, like, fifteen years ago. I would hope I'm I'm still not there. Right?

Dave: 41:31

I thought you were gonna say, yeah, he got hit by a bus, just like you said. That's good.

Michael: 41:35

Hopefully, I it makes me wanna reach out to him to make sure he's still I see him post on Twitter every now and then. Hopefully, that's still him. It's not a not someone's stake in his account. But, yeah, you know, it could happen.

Dave: 41:46

I I remember having the same realization. He didn't get hit by a bus, but this was, like, twenty five years ago. Was in this on this trading list.

Michael: 41:54

Mhmm.

Dave: 41:55

And he went on vacation. Okay. Well, no picks are coming. Like, what am I gonna do? Like, it it becomes really clear that, okay, this is not sustainable.

Dave: 42:05

I need to figure out how to do this myself so I'm not relying on anybody else for this.

Michael: 42:09

Yeah. So take that as a way to learn and a way to get started, and then constantly work on your own thing. And then, I don't know, maybe do both. Right? Maybe you've, you know, you've got your own ideas and styles, and then you you you're doing a bit of that as well, and and, you know, maybe do both.

Michael: 42:25

But just always have a plan out because I know a Tau 90% of people I would I'm assuming. I don't have any data on this, but I'm assuming there's a very few people who sit there and open up a broker account to start randomly hitting buttons. They've either gotten some education from somewhere or they're they're following someone or something like that, and that's how they're getting into it. And, hopefully, they've picked the right person and they find some success, and and that success lasts for a while. Yeah, having that kind of in the back of your mind of, okay, well, if I can make a couple bucks and learn, great.

Michael: 42:59

You know?

Dave: 43:00

Yeah. Well, I think this is a good place to stop. The I'm excited about the next episode and the mistakes, because those are those will be more applicable to people in our audience. Nerdier. Yeah.

Dave: 43:15

And people that have had success, people that are 7 figure traders, I see mistakes that they make. So, yeah, this will be this is a good one, but I think next one's gonna be even better.

Michael: 43:28

Cool. Well, stay tuned for that one. Right? If you've experienced any of these, let me know. And as always, I'm Michael Nauss.

Dave: 43:37

And I'm Dave Mabe. Talk to you next week on Line Your Own Pockets.