Line Your Own Pockets

Michael: 00:00

Okay, everyone. Welcome back to another episode of Line Your Own Pockets. Today, we're gonna talk about what it takes. Like, what are some innate qualities or learned qualities, I guess, to becoming a successful trader? What can kind of predict success?

Michael: 00:14

Dave, I think, had a good example to to get started here. So let's just dive into it.

Dave: 00:18

Yeah. So, you know, I've had this coaching business for a while. I coached a lot of traders. And one of the things I did right off the bat is I have a money back guarantee. So if if you get to the end of the month and you don't like the service, for any reason, give you your money back.

Dave: 00:38

So, like, a lot of the pressure's on me to make sure you do well. Mhmm. And so I have to have I'm totally incentivized to make sure the trader does really well and is really happy with what's going on. The other thing, I have another model where that I don't put on the website, and that's where I literally don't get paid unless you make money. So there's another big incentive.

Michael: 01:06

It's a huge incentive.

Dave: 01:07

There's no reason for me to take anybody on if I don't think, really think that they're gonna do really well.

Michael: 01:13

Mhmm. So

Dave: 01:16

I've talked to a lot of traders. I've worked with a lot of traders. I have a pretty good sense now because of these incentives I've given myself to really determine if somebody's gonna be good or not. And not just, you know, whether they can afford to pay my fees, you know, whether they can you know, whether they're gonna stay around a while. Like, that's that's not the incentive.

Dave: 01:40

The full incentive here is you do well and you make a lot of money. So I've so so like I said, I have a keen I have to have a keen insight into whether somebody's gonna do do well or not. Otherwise, it makes no sense for me to work with them. And I do like, that's I've gotten a lot more discerning about who I'll even take on because of this.

Michael: 02:01

Well, and we talked a lot about the, right, incentives just kind of control everything, especially in this game more than more than anything else. It's one of the things I actually like about trading is that there's no, there's no office politics about whether or not you're you know, it's not, oh, I believe the same weird stuff you believe, so you're gonna pay me more. It's none of that. It is pure if you were right more often than you're wrong or you're at risk reward or whatever, you make money, and if not, you you don't. So, so that's interesting.

Michael: 02:31

So you actually have a a motivation to disqualify people more than than anything else for some of these models because it's not worth your time just to go for the the money back guarantee thing. It's not worth your time to work for someone at the month. If you, you know, on day 29, they just go, nah. Because I'm sure you're not like fighting with them about it, so they literally could just be someone who just wants to take advantage of you and has no real interest at trading at all. And for really a lot of reasons that could be outside your control, maybe they just you're you're telling them all the things they need to do to be successful at this, and they've just decided they don't want to to go through it.

Michael: 03:09

Yeah. And you don't find that out till day 15, and then you've wasted kinda half a month on this person that you could have done on someone else to

Dave: 03:16

Yeah.

Michael: 03:16

That would actually pay you.

Dave: 03:17

Yeah. And one thing that I'm particularly proud of, nobody's ever asked for their money back. So I know that I'm doing a great job, and I know and part of that is identifying the people that can do well.

Michael: 03:30

I would say that's a huge part of it.

Dave: 03:32

Yeah. So I thought we would go over some of the qualities of the things I look for in a way that people can pick up on and, you know, apply to their own trading as a result of this. So I've got a few things here. I've got some notes here that I'm looking at that.

Michael: 03:51

Okay. So we'll I'm sure we'll go into the specific qualities, but, I'm I'm specifically now thinking of the the Turtle Traders book or, Trading Spaces. I guess you could also do the the movie there, in which the for those who don't know, just a quick summary. In the in the turtle traders, there was this very successful futures trader who had a partner, and they just kind of had a little bit of a disagreement whether or not some of the traits to become a successful trader were an eight or whether or not they could be Futures the successful futures trader said, no, I can grab a bunch of people from middle of nowhere. I can teach them my system, which is a basic trend following system, and they can do fine.

Michael: 04:29

Long story short, he was right. There's still Jerry Parker, who's in his seventies now, is still trading his style and runs a ETF and a hedge fund and has been is very successful his whole life running variations of the same systematic trend following approach. Which side of that do you land on based off your thing? Are these innate qualities? Are they learned qualities?

Michael: 04:51

A bit of both? What do you think?

Dave: 04:52

I think trading is not for everybody. Maybe so so another important thing to point out that I think is a really critical piece here. So the the turtle trading thing, they're teaching a specific strategy. I think you can be successful that way, but the way you're gonna be really successful and make a lot of money is have the ability to come up with your own strategies. That is the absolute pillar of real trading success, and that's I I that's one of the items here that I'll that I'll go over.

Michael: 05:24

Well and yes. So the the Jerry Parker and, again, you can look him up. He's very public as well. Who's done it has done just that. There are some it's variations of the same.

Michael: 05:35

It's trend following. Right? He sees a trend following purist. So in some respects, it's buying things that are going up and then holding them until they stop going up. Right?

Michael: 05:44

So that, you know, the the premise always remains the same, but he's make he's made changes when it comes to hold times and instruments traded and all kinds of things, and that's kind of happened slowly throughout his career. And I think that might been what separated him from some of the people who had success under Richard Dennis and then maybe fell off because they they were dogmatic about I'm gonna continue to trade the same way. And we gotta remember, this is, I believe, the sixties that this started. Right? So, of course, there's been a lot of changes in the market.

Michael: 06:14

So, yes, although he's trading roughly the same idea, there's just so many nuance little little changes that have kind of happened throughout that Yeah. I think has separated him from a lot of the other people.

Dave: 06:25

Yeah. Alright. So let's talk about number one. And the way you should think about this is, you know, I will a lot of traders I will talk to and, like, figure out where they are on their journey. And there's different phases that you go through.

Dave: 06:40

And this is this comes directly from my journey as a trader and the things that the the inflection points that I went through. And when I started coaching, my thought was I'm pretty sure there wasn't anything real special about me that made me good at it, but I wasn't 100% sure about that. So the people I work with are typically, you know, they've had some success and they're trying to basically add a zero to their annual profits. So, you know, going from 5 figures to 6 figures a year, 6 figures to 7 figures a year, that's the change they're trying to go through. So if you're so to to get to the point where I think you really have a a sort of meteoric rise, you have to have had some success before with some strategy or some trading.

Dave: 07:34

So a lot of a lot of the traders I work with have one strategy that they're that are traded that they're trading, but they're looking for two and there's that's where they're struggling. So somebody that is you sort of have to have some experience just to understand what trading's about. It's it's hard. It's I'm gonna be Mhmm. Really good at this.

Dave: 07:57

It's gonna take some work. And if you don't have a good grasp of that, then you're not gonna be good at it.

Michael: 08:04

Well, and yeah. And I so that's it's I'd say it's the same with a lot of the clients that come to me. They've usually come into some of the get rich quick kind of stuff and the, you know, they've been there and they failed at that and they've, you know, had the guru that said they're gonna make a million dollars, and then at some point they realize that that's not how it works, and they have to get that that first strategy. But I would say that's quite a bit by the time they get to you, if they have that first strategy down, that's a lot of the the kind of hardest part. Right?

Michael: 08:36

If you look at this, like, I think, like, you know, a climb up a mountain, that's like that first big peak that you've you've gotten to, because we know that most traders will never get there. They'll never get to one iota of profit ever for anything across across anything. I also was wondering, when I know you're saying that, is the speed at which they got there a determining factor? Because I could see the same two people come to you and they've realized, okay, you don't just read the news and and buy what you you say in the news, whatever. And they both come to you with a a very basic strategy of a gap fade or whatever it is.

Michael: 09:12

One of them is like, yeah, I I figured all that stuff out that that was crap, like, in a month. The other one's like, I've been banging my head at the wall for five years, and then I finally figured out I should be systematic about it. Do you put any weight on the speed at which they got

Dave: 09:25

to that? That's a really good question. I've never quite thought about it that way. So a lot of what it reminds me of, though, is a lot of traders or a lot of people that come to me have had really good success maybe in another industry. Like, they've they've created a company on their own, and they've sold it.

Dave: 09:44

So then now they've got a lot of money. They think they believe they can use what they've learned there to become a good trader. So they've had this success in one area, in something that's really hard. Starting your own business, running that is really hard. So they have some sense of what it's gonna take.

Dave: 10:03

Like, it's not well, like you said, know this is not some get rich quick scheme. So, yeah, in that sense, I think maybe their learning curve like, they they haven't traded for a long time, but they have had some success that's really like, used to when I was a CTO of Trade Ideas, one of the things I would look for in hiring people, have you been have you put yourself in a position where you are the only one in the per in the world that can solve a particular problem? So you can't escalate to tier two. So that means, you know, you you're running a business, you're providing a service like a a web service online or something where you're the man. You can't

Michael: 10:46

Hey. You

Dave: 10:46

can't escalate to somebody. Right?

Michael: 10:48

Hey. You figure it out. And there there are those and I I know what you're getting at too because we all know those people who you can kind of task them to do anything, and you know if their motivation's big enough, they'll figure it out

Dave: 10:58

regardless.

Michael: 10:58

And then there's those people you know who will just stop. Right? They'll just quit as soon as they can't get help with something, they can't get whatever. So that's, you know, I guess grit or determination or whatever it is. But, yeah, that's I I see a lot of the same things, not just with trading, but just life in general.

Michael: 11:18

Like, the guy you can say, I need this done, and you know that come hell or high water, it's getting done. That's just a huge talent that, yeah, I think carries forward in trading, but you're right. It would be the same kind of trait you'd need to do your own business and the same kind of trait you need to really even be high performing in in kinda any career, I'd imagine.

Dave: 11:38

Yeah. And there are people that seek out that position. They they wanna be in that situation.

Michael: 11:45

Mhmm.

Dave: 11:45

And when you're in that situation, there's gonna be times where the pressure is on and you just have to get it done. You have to figure it out. Trading's a lot like that. Like, you're you're gonna be in a situation where you're in a drawdown and nobody's gonna be able to come and say tell you exactly what you should do. Mhmm.

Dave: 12:05

You have to have put in the work to understand how to trade through that drawdown and have the confidence to do that. And that's really hard. You're you're gonna be put in positions like that. I I think that to have been in that situation before is very valuable, and it's not quite a requirement probably, but it's close. Like, it's it's definitely gonna help you.

Michael: 12:29

So yeah. Then I guess there's you could debate all day long whether that's nature nurture. I guess it's not really our job, right, to figure out whether that's something that that is taught to you over time or or something that you're born with. But yeah. I'd that makes perfect sense to me.

Michael: 12:44

Right? That's that seems like something that, you know, whether I'm I'm hiring for something or whether I'm, you know, trying to determine whether to be a good trader, that has to be there. Like Yeah. You know, just absolutely because, yeah, there's no there's no world in which you're trading in sunshine and rosy all the time. Right?

Michael: 13:02

Even if it's just the the patience to sit through a drawdown, some of that is determination, just going and seeing that kind of p and l tick down every day and and continuing to do the correct thing throughout, which I think is is a hard thing to do for a lot of people. So even if it's just the determination to stay the course, I think that's that's a big one.

Dave: 13:22

Yeah. So number two, the next one is you're taking you you've taken full ownership of your trading. So there's this is an early phase you go through where you're in a trading room, you're following what somebody else is suggesting, you're looking over somebody else's shoulder, you haven't quite taken full you haven't at all taken full ownership of your trading. Like, what happens if the guru is on vacation or, you know, doesn't or or quits? You know?

Dave: 13:51

You have to be able to come up with your own ideas and just have full ownership of your trading. Nobody's gonna care about your trading more than you are. So you have to own that and that's a phase you go through. And it's a phase you have to go through if you wanna make a lot of money.

Michael: 14:10

Well, that's what I was gonna say. You can't not to poo poo the I initially got on board with the guru. We're not saying that that's and, you know, you can argue whether or it's a good place to start or not. But if you are then blaming that person for for everything bad that happens, then it's like, okay, well, you put yourself in that situation. And if that person is was a was a truthful person, they probably already told you that there's going to be drawdowns and and things like that.

Michael: 14:36

If they're one of the guys who say, you know, I turn them a $100 into a million dollars every six months, well, you probably have different problems to deal with. But yeah. And you gotta go there. And I see that all the time as someone who spent time in those rooms. There were the people who asked questions to learn.

Michael: 14:53

Like, why did you do that? Why what were you seeing here? What what was it that was happening versus the one who would come in and they would they would take a trade, and and often it would be maybe be different than the guru or the the leader or whatever said, then they're really mad about it. You could almost just split those people right away and say, okay, this guy's got a chance, he's because trying to figure out the why behind it, this other guy is just looking for someone to hand him a $100 bill.

Dave: 15:19

Yeah. Yeah. They're sort of, outsourcing the blame. Right? They they wanna they wanna blame somebody else for

Michael: 15:25

Well, and we could go back to the podcast we did about the people who think that as soon as they put out a stop loss that there's some organized being that comes and moves the price to their stop loss. That's the same thing. Though those people, they're not taking ownership of I put the stop loss here and it got triggered if I'm getting stopped out too much. There's that same idea of one will look inward and say, hey. Am I putting my stop in a stupid place?

Michael: 15:51

And then the other one will go, okay. No. There's some sort of Illuminati organization coming to get my stop loss. And those two, right, it's very much a split reality happening there as well.

Dave: 16:02

Yeah. It's a it's a great point. We should put the link to that episode in the show notes. That's a that'd a good one to look at there.

Michael: 16:09

On one.

Dave: 16:09

Yeah. Alright. So number three, you have a healthy attitude about risk. So, you know, people grow up with different feelings about money. They have different emotions about it.

Dave: 16:24

They have different upbringings with, you know, maybe had wealth, maybe they didn't have wealth. It's very important how you think about risk. And because, like I said before, trading is really easy when you trade small amounts of money. Yeah. I mean, it's I mean, it's not really easy, but it's it's it's one thing to trade with

Michael: 16:45

Mhmm.

Dave: 16:47

Trivial amounts of money. But we're in this to try to scale up a strategy and make lots of money. And to do that, you're gonna have to have a certain way of thinking about risk. Because a lot of times traders will you know, you'll hit a ceiling with the amount of risk you can take on. And so you have to have you have to have a unique way to think about it.

Dave: 17:11

So, you know, a lot of the traders that come to me for help are a lot of them come from the poker industry or the gambling industry. Mhmm. So they have a good very good sense of risk. They they understand risk really well. And though I I like working with those guys because that's not half the battle, but I can already tell that, okay, they have the right mindset to be really good at trading.

Dave: 17:39

They just need the foundation and the tool set to be able to do it well.

Michael: 17:44

Like like how you said a healthy because there's there's two extremes there. Right? There's the guy who will never risk anything. Right? He he'll never increase his risk size.

Michael: 17:56

He'll never, you know, really kind of go for the fences in things he has convictions or belief about. He'll never never develop a plan to size up his risk. And then you have the other guy who just he always is sizing up his risk regardless of whether or not he has the the data to back it up. So it is a it is a needle to thread, and it's probably the, I would say, the most personal part of trading. I think you could give the same trade trading strategy to to 10 people, and success or failure on that strategy would have to do with their their thinking of risk.

Michael: 18:28

Right? Just go back to the turtle trader stuff. Right? These guys are trend followers, which by definition means you have to be in a massive winner at periods of time and have that come all the way back to cost you money. And that if you were someone who just immediately felt that need to take that risk off the table all the time, you will not win at the trend following game because you have to you have to have that where there's gonna be people out there who who look at that and just say, man, if I cash in right now, I'm gonna make x amount of money.

Michael: 18:57

And then they never get the full, you know, the the full amount from it, and then they can never succeed at that game. So, yeah, it's, I think, very personally. Like you mentioned, backgrounds and even current financial situation. It's why generally people that that trade well, they don't really need to as much because they they they can take that they can take that off themselves where they're they're not looking to pay the next month's rent with this trade. So there's a freeing aspect there that I think you need.

Dave: 19:29

Yeah. I think that's true. I'll allude that to that in one of the lighter bullet points here. But I like what you said about, you know, there's some people that you can tell they're trading for a high. They're they're they're looking for the risk.

Michael: 19:44

And that's Yeah.

Dave: 19:45

Not a healthy attitude about risk. Like, you you if you're doing this for gambling or for entertainment, you're not gonna be great. You're not gonna make a lot of money doing this, and you're not gonna have long term success doing it.

Michael: 19:57

Yeah. And that's it's you know, I one of my mentors always used to just tell me over and over and over again, his trading should be boring. Right? It should be it should be Yeah. Monotonous and and boring, and, you know, you shouldn't get too excited when a trade wins.

Michael: 20:11

You shouldn't get too bummed when a trade loses. It should be, you know, relatively boring, and you come in every day knowing you're gonna do the same thing you did yesterday. And for us, it's even, I guess, easier to come up with these routines because we're not actually pushing the buttons to make the trades. But yeah, it should be that kind of boring, repetitive kind of thing. And he did that for two reasons.

Michael: 20:32

One, so that you weed out the people who are there for excitement, but then the other to kinda let yourself be a little bit happy from time to time. He said, eventually, get to the point where you'll make a ton of money on a trade, and it just won't you won't give yourself two seconds to say, oh, that was fun. Right? And you shouldn't get too excited, but, yeah, you gotta remind yourself, I guess, to have some fun every now and then.

Dave: 20:53

Yeah. So I have gotten rid of people I'm coaching, you know, let some people go because I could tell they were doing this for gambling. They weren't, they were not going to be in this for the long term. So it's important to think about that. And I like what you said about general finances that a lot of times the the best thing a person can do is get their finances in order.

Dave: 21:17

That's gonna be by far the best ROI from them before they even start trading. So Mhmm. That there's a certain person like that.

Michael: 21:25

Yeah. Well, not just again, if you have to if you have to make a trade to live, then there's just so many bad incentives there. Right? Yeah. It all, you know, means it does some a, you're gonna just force trades.

Michael: 21:41

Right? And you're gonna intervene with your bot because maybe you look at your bot and it's noon and it hasn't done anything all day. Well, probably the correct answer is not to do any because there's nothing that met your criteria. We'll go, oh, well, nothing's going on, so I'm gonna take a little bit of of risk here or there because I have to. And, yeah, that just becomes a cycle.

Michael: 21:59

Because, of course, that trade's gonna lose, and then you're gonna have to make another one to make up for it, and that one's gonna lose, or it's just not it never works out of the the boredom trade or the trade for the need of income is just is never gonna be a

Dave: 22:11

profitable one for you. Yep.

Michael: 22:12

It doesn't work.

Dave: 22:13

I agree. Okay. Let's go to number four. I I think you'll like the first half of this and you you might take issue with the second half. We'll see.

Michael: 22:21

Alright. Let's

Dave: 22:22

go. You have to be open to automation and day trading. So one of the big inflection points in my career was moving from swing trading to day trading. I just made a lot more money doing that. So if you're that's the path and a lot of most of the traders almost I mean, all the traders I work with, a huge part of their income is day trading.

Dave: 22:46

And automation is a huge huge inflection point in my career, and I I I see it day in and day out with the traders I work with. The the more they're automating, the better they're gonna be, and the more they're day trading, the more money they're gonna make.

Michael: 23:02

Yeah. No. You nailed it. I I agree with the first one. Right?

Michael: 23:05

Automation is everything. Yeah. The day trading again, I day trade. Right? And I'm the thing I'm currently working on is more day trading things, so I'm not speaking so much for myself.

Michael: 23:15

I think there's plenty of money to be made for people who are swing traders out there swing traders. I think there's lots of examples from that Kuala Mare guy who's up to a 100,000,000 now from all swing trading. I think there's lots of examples out there. You know, again, I think our argument just resolves itself on this once twenty four hour markets become totally a thing and there is no such thing as as one or the other. But, yeah, I just don't I don't know if if time frame is necessarily the constraint to as many people as as kinda you think it is.

Dave: 23:48

Yeah. Well, I'll, give you a prediction here. I think that the vast majority of your trading income is gonna be day trading in the next year.

Michael: 23:58

We'll see. We'll see. And my argument again will always be the same of why not both. Right? It's gonna be, you know, if you just like, I think you think that I'm leaving money on the table not being more active intraday, I think you're leaving money on the table not holding anything overnight.

Michael: 24:15

So so I think the best argument for the people out there is explore both. But, yes, I I think a lot of the for me, a lot of the issues with day trading goes away with the first thing, with automation. Right? The the complaints that people have from day trading are, I have a job. I can't sit here and and stare at six monitors and hit buttons all well, you don't have to.

Michael: 24:38

Or, you know, I don't think that fast or or my emotions don't regulate that quickly, so I can't be super active. Well, you don't need to. Right? So I think for me, that's what and I remember we had this conversation ages ago is that I'm like, I just kept saying I'm a shit day trader. And then eventually, when I got things automated, it's like, okay, I'm I'm still a shit day trader, but I'm not doing it.

Michael: 25:00

Right?

Dave: 25:00

Yeah. You're not the one day trader. Yeah.

Michael: 25:02

Right. So it ends up being being a different thing. So, again, I am not very much against you. I just don't think you have to go down that road if if you for whatever reason, don't. But I think everybody should.

Dave: 25:14

Yeah. Alright. Let's go to the next one. Do you like working with data? You're gonna have to work with a lot of data, a lot of spreadsheets, a lot of back tests to be really good at this.

Dave: 25:26

And so one of the litmus tests I ask people, do you like Excel? That's one of the exact questions I ask people when I am considering them for coaching is do you like Excel? Cause you're going to be spending a lot of time in spreadsheets. And if you're not the kind of person that likes that, then you're not gonna be good at trading. There's a guy that I, I have a running group that we run on Tuesday mornings.

Dave: 25:49

He is not a spreadsheet guy. He hires somebody to do his be the spreadsheet guy for him. So he's not gonna be good at trading.

Michael: 25:58

Yeah. No. I I agree there. And then, you know, I don't know if you saw was it Copilot or whatever came out with a new LM stuff for Excel that makes it so I would say I would say you chose the right words. Do you like data?

Michael: 26:13

Because I think a lot of people, that's their one barrier. Because I don't think the barrier anymore is are you good with Excel? Are you good with manipulating data? Because I think so much of that can be outsourced now. But, yeah, you have to like going through data.

Michael: 26:30

You you know, there has to be some amount of of reconciliation, all this. It's like we talk about all the time is that, yes, I'm not the one staring at the seven monitors and hitting the buttons to place the trades anymore, but it's not like you're not working. Right? You you have to do the reconciliations. You have to do to do all this.

Michael: 26:46

And, yes, exploring data, I think, is is the thing that that's more important than anything. It's not so much crunching the data because computers and and AIs can do that, but you have to be interpreting and reading and interpreting and and exploring that data when it comes out. Because when you're a systematic trader, it's all you got. There's no gut feel. There's no, you know, interpreting market moves or anything like that.

Michael: 27:09

It's it's the data or it's it's nothing.

Dave: 27:12

Yeah. Yeah. I agree. It's and there's never been a better time to start doing this. If if you're a data person

Michael: 27:20

Mhmm.

Dave: 27:22

Or even close to a data person, there's never been a better time to start trading. I mean, people think that, you know, edge erosion is happening and all this is gonna take the all the edges away. Man, I I just it's hard for me to believe that'd be the case. I see no evidence of that.

Michael: 27:38

No. And I don't it will be hopefully, like, it will be like the job market every time and every time there's been a technological change, some goes away and some gets added. And I think it's gonna be the same thing with the changes in the market structure, twenty four hour trading, and tokenization, all this stuff that's happening. And with the rise of AI, yeah, some stuff's gonna be degraded, and then there's probably gonna be more opening up in the meantime. So I think the people who are who are on it, who are active behind it will be will be totally fine.

Michael: 28:09

But Yeah. That's that's just the nature of it. If when if it's not AI, it's gonna be something else that comes along and and completely skews the market in some way, and and you'll need to kind of adapt and push forward. For sure. Nature of

Dave: 28:21

it. Alright. So the last thing on my list is the money is almost secondary. So, you know, if you're doing it exclusively for the money, I mean, I'm not gonna say that trading is not about money. Of course, it's about money.

Dave: 28:38

But there is something with really good traders where it's not it's it's it's almost secondary. It's not quite secondary, but it's almost. Like, they wanna be really, really good at what they do. So the focus is not actually I guess when they get to the end of the month and you're figuring out how if they traded well, it's not necessarily how much money in there is in their account. It's how did they execute their plan?

Dave: 29:04

How did they execute their strategies? And did they make mistakes? And if they didn't and they're on a constant path for improvement, the money's gonna come.

Michael: 29:13

Yeah. And I would agree agree with that. I would say that a lot of the technicians and everything I know, I'm thinking about JC, buddy of mine, he actually has his Twitter bio is just I solve puzzles. And that's the way I've looked at it with most people who are getting into the trading game that are successful is they're looking at it like a puzzle. It's not so much a, you know, I'm looking at this to make a bunch of money.

Michael: 29:35

It's more about I like there's a there's a problem here to be solved, and if I solve it, I make a bunch of money. So Mhmm. You know, there's a good motivation to solve the puzzle, but they're looking at it just like that and saying, okay, how do I get, you know, better at all this? And and that's that's the thing that I think draws me to it, is I'm looking for I look at every time I have free buying power is there's there's a puzzle piece missing. I have to find something that fits in there well that generates me income each each.

Michael: 30:03

And yeah. So I think if you look at it, I'm trying to avoid saying a little like a game, because you shouldn't treat trading like a game. Right? It's it's serious. We're we're looking to make money.

Michael: 30:11

You know, it's it. And I would say it's the same as with any job. Right? If you were a developer and you didn't like, you know, solving bugs and building new things and and going through that stuff, the money is only gonna take you so far. Right?

Michael: 30:25

And then eventually, you're gonna either lose motivation if you make enough money, or you're just gonna be kinda shit from it in general. But having that zoom in ability of, you know, no. I really like coding, and I really like solving these problems, and I really like doing this, then it'll be great. And you'll probably make a bunch of money because you enjoy doing the thing anyway. Right?

Michael: 30:45

So that'll just make you good at it.

Dave: 30:47

Yeah. It's that's totally true. I like the the the puzzle analogy. I mean, that's exactly I I think that hits the nail on the head. That's you know, you're you're solving it with a systematic approach and, you know, create enough systems.

Dave: 31:08

They're uncorrelated enough, and your equity curve gets really, really smooth.

Michael: 31:14

Absolutely. Yeah. And is that all is all you got? Because I got one if that's your

Dave: 31:18

Yeah. Yeah. I've got a I've I've had some thoughts as we were going through this, but, yeah, what you got?

Michael: 31:24

Well, I think, I think discipline outside of trading has to be part of it as well. You know, this is just someone if you are you can't stick to any sort of like exercise plan or

Dave: 31:35

you

Michael: 31:35

can't stick to, you know, you call it motivation or I hate motivation. It's discipline. It's, you know, it's doing the things that you have to do even when you don't wanna do it. If you don't have that anywhere else in your life, I think it's gonna be very hard to have that in in trading. I think one of the books I read from Bella at SMB, they talked a lot about how they like to hire athletes, and that was part of it as well.

Michael: 31:59

You know, it shows that they can get up at six in the morning even if they don't want to, and do the things even if they don't want to, and that kind of thing. I think that's a huge part of it because people who are undisciplined everywhere are probably undisciplined everywhere. I'm not saying you have to be like a Buddhist monk and all this stuff, but if you can't if you can't do the things that you tell yourself you're gonna do, then it's gonna be really hard to do those correct things in, like, really high stress situations, which is what trading is. Right? Again, like we talked about coming in every day, you're in a you're in a big drawdown, but you don't think there's anything wrong with your systems.

Michael: 32:37

You gotta come in the next day, and you set up all the bots and and, you know, do all the things correctly even if you're making money. And, yeah, I think that gets hard to some people out there who don't have that discipline.

Dave: 32:47

Yeah. I really like that. And I think, yeah, I think sports and athletes really have a keen sense of that. I mean, anytime you wanna be really good at something outside, you know, trading or otherwise, you have to be putting in the work. And a lot of times, that work is you're not gonna see the payoff from that work until months or maybe years later.

Dave: 33:08

So to be able to do that day in and day out when you're not maybe getting positive reinforcement each day as you do it. That's that's a really hard thing to do to be able to to postpone the the benefits like that and to keep doing it every day is really that's I I totally agree. That's very important.

Michael: 33:28

Yeah. And that's I think you could you know, and you're you're probably doing this subconsciously anyway, but it also be a pretty easy thing to suss out. Right? If the person's you know, you had a couple calls with them and they're late to every call and, you know, things like that, think you can pick up on and say, oh, this is just not a disciplined human being. Yeah.

Michael: 33:46

Yeah. So, you know, it's it's and it's easy to be disciplined to show up for a Zoom meeting. Right? It's hard to be disciplined to, you know, to continue to hit the right button when you're down $20,000 after over the last couple weeks because things just aren't working out.

Dave: 34:03

Yeah. Yeah. So it reminds me of so I used to coach high school cross country with my wife, And one of the things we would tell the kids is you race hard in the woods when nobody's looking. Like, it's easy to be running hard in front of a crowd when everybody's cheering. But when you're out in the middle of the woods, you're by yourself, nobody's looking, that's when like, we encourage them.

Dave: 34:28

That's when our team runs hard then. When nobody's looking and, you know, you're only doing it for yourself, that's I think it's a great quality to have. And, yeah, you're gonna you know, I can't be on the Zoom call with you every time, so you're gonna be a lot of the time alone doing a lot of work.

Michael: 34:44

Yeah. And, you know, it I just think it it carries itself through everything. If you're disciplined in one thing, you've kind of there's actually been a lot of studies about discipline as a as a muscle. It's why, you know, people binge eat and things at night mostly is because you right? Every time you exercise discipline, it kinda tires out for that day.

Michael: 35:08

Yeah. And just like a muscle, people who are have a very strong disciplined muscle can make correct decisions more throughout the day, then and they'll that will tire out later than someone who just wakes up and is undisciplined right off the bat. So, yeah, I think that's a big one. It's a nebulous. A lot of these are, I guess, nebulous, kinda concepts, but, yeah, I think that's one that just kinda carries through everything.

Dave: 35:31

Yeah. I think that's true. And, you know, it is a little bit easier when you have automation that's, quote, unquote, making these decisions for you. I mean, you're you've really designed the system to and you've made the decisions ahead of time so you don't have to make the decisions during the trading day. I mean, that's where real that's it almost seems impossible to me to trade discretionarily because you're essentially just think about all the work you do to create a backtest and create something that works, where discretionary trading is you're basically doing that all on the fly.

Dave: 36:02

Like, how is that ever gonna work, really? How are you ever gonna be good at that for a long period of time?

Michael: 36:06

No. And I I like to use some examples of of traders that we know that, like, guys like Brian Shannon is a good example of where he would never, I think, have a robot necessarily do anything for him. But if you go back and you look at his videos twenty years ago, it's the same thing. So these discretionary traders, I think, are just systematic traders who haven't admitted it to themselves yet. Right?

Michael: 36:29

They they have a I look for this, and then I look for this, and then and then I hit the button. It's like, okay. Well, that's the system. Right? You could, in theory, get pretty close to either automating that system or automating some of it or most of it.

Michael: 36:42

And I had this this debate, just go back with JC over beers. He was just getting mad when I called him a systematic trader. And I'm like I'm like, so you're gonna wake up Saturday. What are gonna do? He's like, well, I open up my chartbook and it has these ETFs in them, and I do this intermarket macro analysis.

Michael: 36:57

And I'm like, okay. That's the system. Right? Yeah. We're gonna look for the same.

Michael: 37:00

So, yeah, I think a lot of these people are just in denial, and they just think they have some sort of intuition, but all they've done is they've developed systems that that give them some edge pointing in in some direction. And the same with day traders. You go, okay. Well, why do you take that trade? Like, It's oh, well, this is, you know, it's an earnings gap, and and the earnings were better than expected, and now it's breaking out of this range.

Michael: 37:21

Like, that's a system. Right?

Dave: 37:23

Yeah.

Michael: 37:24

Yeah. You just think you know, and I just think that's how. So no. I I wish I don't think there is such a thing as discretionary traders. There's just people who have put the system for a robot to do it or people who just keep it in their brain and it's the same same thing.

Dave: 37:38

Yeah. Yeah. I agree. I think let me think back about all the bullet points you've mentioned here. I think what you mentioned at some point during our conversation here is the ability to adapt.

Dave: 37:51

And that's really ultimately what you're gonna have to do. That's sort of the undercurrent of everything we've said here and why it's so hard. Because a lot of traders will have some success doing something, but the problem is at some point, you're gonna have to completely reinvent yourself as a trader. And that's what that's really ultimately the hard part. You you're some people just aren't gonna be able to do that quickly.

Dave: 38:16

They aren't gonna be able to adapt. They aren't gonna have the tools to be able to do that. And that's where they're gonna quit just because they can adapt. The more flexible you are, the more more open to new ideas you are without looking over somebody else's shoulder and, you know, not taking full responsibility for your trading. Those are the kind of traders that are gonna do well.

Michael: 38:39

Well, I think that comes back to you. This is gonna be the second one that I was gonna bring up on top of my discipline, and that is intellectual curiosity. And I think that's another one just for life. Like, people and you can just tell. People who think they know everything

Dave: 38:53

Yeah.

Michael: 38:53

And they they're not interested in learning anything else, and they, you know, they think they figured it out. They're, a, not really interesting people, I don't think, and and, b, they're at some point, even if they do know everything, everything changes all the time, so eventually, it'll get to the point where they don't. And the yeah. The people who are just curious all the time. The I I a, they're the the most interesting people to talk to when you're talking trading or whatever, and they're asking questions.

Michael: 39:21

And even if they're probably better traders than you, they're still trying to figure it out. And I think that comes down to it is if you're always if you're always curious, then I think you're gonna be way easier at adapting than the person who thinks that they've figured it out. Yeah. Because if you're curious, it means you think that there's something better out there that you can you can kinda grab and learn some and take some away from. So, yeah, I would definitely put that in the whole, in the whole

Dave: 39:49

Yeah. I think so. It's sort of like, you have to have humility. And a lot of people that have had success in other areas of life, they're not humble. So it does there is a specific kind of person that that is humble enough to realize they don't have all the answers.

Dave: 40:07

You know, there's a you you see a lot of people have an attitude of, you know, not invented here, where if it's not their idea, then they don't think it's gonna work. So Mhmm. You know, a lot of times with those kind of people, I'll have a strategy for giving them the idea and making them think it was their own.

Michael: 40:26

Yeah. Well, I I think there's part of it too where there's two kinds of people that become really good at something. And there's one that they get really good at something, so therefore, they think they should be good at everything else, like, automatically. Mhmm. And then there's other people who get really good at something and realize all the work it took to get good at that thing and realize they're gonna have to put the same work in to get good good at something else.

Michael: 40:50

And, yeah, those are completely different. And, you know, one of those people will probably just never get good at anything else again, and the other one will. Because they're like, oh, man, you know, I I'm like the greatest surgeon out there. Then they look back and it's like, man, I've been working a long time to become a really good surgeon. So if I wanna invest well, I'm gonna have to give some amount of the same amount of effort and the same amount of patience where the other one will be like, no.

Michael: 41:13

I'm the greatest surgeon out there, so I'm gonna know more about the market than right? Which intellectually makes no sense, but we all know those those people exist.

Dave: 41:22

Totally. Yeah. And, you know, the people that are humble, what I see in them is a lot of times they are most times, they they're better than they think they are. So that those are the kind of people that I really like working with because I can tell that you're very close to being a really good trader. And that that those are the people that are really fun to work with because they have a lot of skills, but they don't have they don't have the confidence yet to understand what to do.

Dave: 41:50

They don't have the basics down or they're they've had some success, but they're hitting foul balls. So, yeah, those are the kind of people that I I really enjoy working with.

Michael: 42:00

Well, and it was funny. So Renaissance Capital, which is, like, the greatest hedge fund of all time, pure quant firm. Right? Just everything was math based. He, by for this very same reason of of a lot of this, would not hire anybody with any knowledge about Wall Street whatsoever.

Michael: 42:19

Because he wanted to bring in people and go back to the humble and everything. He wanted to bring people who kind of knew they had no idea about any of this stuff because then they would be asking questions and exploring and and looking for data. And so everything he hired was, like, computer scientists and mathematics and physics and all of this kind of stuff. Because, yeah, he's like, as soon as they think they know that this thing should move because someone said that, they're out of the firm. And, you know, again, you can look up.

Michael: 42:48

It's a man who beat the market or a man who solved the market. It's a great book by him.

Dave: 42:53

Mhmm.

Michael: 42:53

Or for or about him. And, yeah, it was the same thing. He's like, want people who have who understand they know nothing so that they can just get into the data and start to to try to figure it out as opposed to the people who think they know something and right? There's there's no hope for them.

Dave: 43:07

Yeah. It is tricky because if you had success with something else, you do think, oh, okay. Maybe I figured this out. But a lot of times, I I've worked with a lot of those guys, and a lot of times, there's a lot they have to unlearn. A lot of the that they think they know that they literally have to unlearn.

Dave: 43:22

I've worked worked worked with PhDs in data science, and they've had some they've worked in another domain, and they're now they're coming to trading and think that it can just all all that they've learned can apply to finance and trading and Yeah. A lot of what they learn. And in the other domain, they have to literally unlearn to be good at trading.

Michael: 43:42

Yeah. And, you know, you could you could say the same thing too about about people who are, people who are, like, Wall Street guys, right, or or, economists would probably be really bad traders, things like that, who believe that they understand that these relationships exist and he's like, okay. Well, show me. I mean, test it. Like, give me give me a model that says if you do this, then that happens, then I go right ahead.

Michael: 44:13

And yeah. So it's a lot of I think it's a lot of that in which you have to reprogram from both sides. I could see the the data scientists, and I could also see, like, the Wall Street guys both having to reprogram to say, no. Okay. I just think going in and I and, you know, I I host a livestream, and I say this all the time is that I don't know anything.

Michael: 44:31

I intentionally try to know as little about news or or anything like that as possible because I wanna just keep myself as a mind of just gonna let the data tell me what to do and just leave leave the rest of it behind.

Dave: 44:44

Yeah. I love that. Well, hopefully, the listeners have gotten something here that they can actually apply to their trading or, you know, move their selves further down the, in their trading journey further along. Well, let's just leave them with so if you what would you

Michael: 44:59

say if there's someone who listened to this and they didn't tech tick any of the boxes at all? Like, are are you screwed? Go do something else or work on yourself? Or what do you what do you think?

Dave: 45:11

Yeah. I would say I would say if you don't like data, you're gonna have trouble. But let's assume that they do like data, but they haven't had success at trading yet. What I would say is, you know, you really need to take full ownership of what you're doing. That's probably where they're getting stuck.

Dave: 45:29

And that's probably the biggest thing they can do is take full ownership of what you're doing. You're probably looking over somebody else's shoulder. You're probably looking on Twitter and seeing people being successful, trading a certain strategy, trying to emulate them. Stop doing that. Stop looking at like, look at inside yourself.

Dave: 45:44

A lot of the ideas that that you've had in your head are probably profitable if you just apply them in the right way. Right. So that's what I would suggest.

Michael: 45:53

Yeah. I was gonna I was gonna say the same thing. As long as you are interested enough or passionate enough or whatever you want and and you can see yourself doing the boring parts, which is, you know, the the data and the reconciliation, all that. And the rest of it, you just gotta you just gotta figure out, you know, you'll get you'll get to it. If if you've got don't you have the discipline, you don't have the passion behind it, then just find something else to do.

Michael: 46:15

But, you know, everything else I think you can figure out. But, yeah. No. That was a that was a great one. We're using a new recording software, so I didn't know where the clock was, but with we've been going for some time.

Michael: 46:27

As always, I'm Michael Daughs.

Dave: 46:29

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