Trader Mindset

Philip Shaw is a farmer in Western Ontario. In this episode, you'll here someone on the physical side of the commodity business discuss how he thinks about what commodities to grow, how he manages risk, and his thoughts from several decades in the commodity business.

Thanks to everyone who wrote in about September 11. Here are some of my memories from growing up in Manhattan and spending a great deal of time near WTC 1 & 2.

Don't build it so they will come. There is no connection to spending money you don't have in order to cast a bigger shadow when you have zero potential clients. Start small. Nothing wrong with it. Grow as your defined needs grow.

If the instrument you're looking at has a daily volatility measurement that is greater in dollars than you are willing to risk, you must pass on the trade.

Money you don't spend when you're starting out is money that you don't need to earn. And that's important when you don't fully understand what you're doing.

The trading world has changed since I began, but the tenets of good trading are still in tact. Here's how I would counsel myself at the beginning of my career based upon what I know now and the experiences I've had - both good and bad.

Focus on one style of trading. Build a system for client communications also. Else, your business is going to run you.

Cannabis Green Book partners with Equifax and Matt and Michael revisit the High Times IPO.

Michael Martin and Peter Borish discuss the current environment and when it looked like this before. We also speak about what inspired him to develop his analog model that anticipated the market crash in 1987. Peter is on the faculty at MartinKronicle and also joins the "live" Mastermind to answer our students questions.

Hari Krishnan returns to the show to discuss how the VIX can play a role in portfolio diversification, not unlike Managed Futures. [Sorry about some of the audio. Hari's schedule is very tight and he was overseas at the time of our recording. No matter how many times we hung up and retried getting a better connection, nothing worked.]

Shareholders of GWPH need two approvals in order for their investment to pay off, one of which they have - the FDA approval. Trickier to understand is the DEA approval which needs to happen by the end of September or 3 months after the FDA approval.

Check out their videos at YouTube also.

If you're wrong 60% of the time in good markets, why lose on your optimal bet size right away? Cut that in half for your first entry and then add the second half to your winning trade...

You don't have more control over an instrument by downtiming to 10 minute bars? Trader smaller if you're afraid to lose and trade off of weekly charts, then daily.

Jeff Dorman is a Portfolio Manager and Head Trader at Arca Funds in Los Angeles.

Tape readers have had to evolve their process with the proliferation of HFT. This is just one example of what you'll face over the course of your career.

Matt Dula is an expert in the marijuana investment space. You can find out more about what he's doing at Cannabis Green Book.

Trim the hedges or not?

When directional momentum stalls after you've established your position, here's what to do.

All trades have a beginning, a middle, and an end. Most traders focus too much IMHO on the entry (beginning) and the exit (the end). Mismanage the "middle" and it can mean all the difference between a winning trade and losing one.

Revert to more simplicity when you get in a rut.

Great traders focus on their behavior all the time. Consistency Perseverance Persistance Determination When you're starting out you won't have the luxury of having these feelings if you blow up two months into your trading career. Keep your frequency of trading to a minimum until you learn to trade one style and own it. Limit yourself to initiating two trades a day, else you might find yourself chasing everything that's up $2 / share because you feel you're missing out on many trades.

Most traders fail to reach their true optimum ability and optimal performance because they have no sense of imagination and the don't challenge themselves.

The biggest problem with being a chart-reader only trader, is that finding names for your watchlist is terribly inefficient.

Don't plan to get tasks done, else you'll be stuck in blue collar despair. Make goals that include increasing assets under management, revenue, net income, and consistent behavior around following your rules. That's how you'll grow your business and your wealth.

When I set personal goals alongside my business goals, I tend to hit both. When that happens, life is good! Already hit your goals? Set new ones that are realistic and attainable. Don't forget to set your "FU" or stretch goals also. You might not hit them, but you get your subconscious mind thinking about them even when your conscious mind is working on the attainable ones. You just never know...

You need two variations of your marketing message: one for individuals and high-net-worth families, and another for institutional investors and allocators. These two segments speak different languages and their concerns are very different. For example, if you launch into your pitch loaded with industry jargon to a HNW family, they won't understand a thing you're saying, whereas the allocator will. If you waver too much, you'll inadvertently end up trying to be everything to everybody. That tactic doesn't work. Learn to speak to your audience and be mindful of the subtle variations that will make you a success speaking to both segments.

Write out a short list for some of the things that you're grateful for. This is your Gratitude List and it can help you feel a little bit better about things when you think nothing is going right. You can try this just when you think you're gas tank is empty and you don't know where your next source of motivation might come from. Do everything you can to remain persistent and determined.

If you have no trading edge, where you execute your business doesn't matter.

Putting space between yourself and the market can be refreshing. You don't have to do this only when you're losing.

You can learn trading faster intellectually rather than emotionally. That's why it's easy to understand, but hard to do. Your emotions can get the best of you, stop you cold in your tracks, kill your confidence, and keep you at the level of a very knowledgable spectator.

Just like professional athletes and competitors prepare mentally for a match, so can you. In fact, you have to. You can't just wing it. Intentions equal results. Put it in your mind that you are going to achieve your goals then go and do it.

Here's a great example of how to combine your passion for one area of your life that can potentially benefit your business.

Michael Martin discusses how you can get potential clients to come to you.

People do business with people they like - so be likable. If you're a fly fishing nut and know all the best spots to fish, you can find like-minded people to cohort with by joining a group or association that is passionate about fly fishing. Or even better, you can start a weekenders fly fishing getaway for which you are the guide. Successful businessmen like to fish and be outdoors, so it's a good group to affiliate with. They have the success, the business acumen, and the capital to risk to either back your company or become clients.

Setting personal goals in parallel with you trading goals can have a 1+1=3 type of payoff. For one, achieving personal goals can give you a boost of confidence and raise your self-esteem. I generally believe that it's impossible to do anything well if you lack confidence. Trading is a game of failure and learning to succeed in the face of low accuracy and high expected values can help you develop the mental stamina necessary to survive periods of time where you have no evidence of any trading skill. Two, having personal goals keeps your brain in a mode of "figure-out-ability" that is critical for trading success. Your trading tactics and methodology is going to come from much trial and error. When your brain is conditioned to figure things out, you're in a natural state of "curiosity leads to revelation leads to eventual solution." When I have had to come to the trading whiteboard "cold" so to speak, it took me much longer (days and weeks) to get my brain in gear to figure out a solution. Lastly, you'll meet new people along the way when you have similar interests. People tend to like and become friends with other people who share experiences. Maybe some of these people would be interested in learning about your trading process and hiring you to manage the money?

Position sizing has the most impact on your P&L, so make sure you get it right. In strongly trending markets, you can throw a dart to pick your entry and make a ton of cash. The position size is the part of your trading algo where the sword cuts both ways. It's also the part of your trading that goes to the core of any self-doubt you might have about your ability. Trade to big and bad news and bad luck can hurt you badly and destabilize you for weeks or months. Trade to small and never get anywhere for all your efforts (it's possible to trade too small and not have enough risk to meet your financial goals). In this episode, Michael Martin discusses several things to consider as you carve out your methodology for position sizing.

Some options trades require you to complete the structure in two steps. Whereas you don't want to "leg" into intra-commodity spreads, you might consider that a strategy for your butterfly or condor trades. Instead of putting on a long butterfly all at once, many traders we've worked with are buying call spreads, for example, and then after the market moves selling the call spread above it to complete the butterfly. This doesn't work 100% of the time, and sometimes you just offset the vertical spread. However, sometimes is does work and you can take advantage of the flexible nature of options to carve out your Reward to risk profiles.

Michael Martin discusses how it's appropriate for some traders to focus on one market or sector for professional purposes.

Both winning and losing streaks are "user-defined" so make sure you understand what your trading results are telling you. Here's one way to know.