We’re in a new world as intraday traders. Low barriers to entry have increased the opportunity to jump into the markets.
In what could only be described as an effort to democratize the financial services industry as we know it, stock trading apps and commission-free brokers have transformed many into a hopeful trader with margin accounts readily available at their fingertips.
Most of these new traders are young and lack trading experience, skill, and discipline. Most have never even invested before.
Countless screenshots of nothing but wins and the occasional loss fill social media feeds.
Just search “day trading” on YouTube. You’ll see no shortage of twenty-year-olds with thousands of views and followers, catchy thumbnails promising $500, $1000+ a day, and let’s not forget, the amazing daily returns, some of which are $100k+.
Welcome to this new world that we’re living in.
It might be mind-boggling seeing all of the Twitter posts, YouTube videos, thinking that young adults are the ones kicking butt and making massive dollars in a volatile stock market.
We are used to the invest early (with an advisor) and save mantra, for the next few decades without any real purpose other than “because you need enough money to retire.” This no longer appears to be a path to a life with more time and freedom, at least not until much later on.
This plan is based on the assumption that saving consistently while you work until your golden years is more important than living a life with purpose on your terms because more savings now = a better life later.
It misses the part that there is a paradigm shift for how money can be “earned,” how much money is enough, and how little time it can take (if done well) when on your terms, all while living with time and freedom right now. It’s simple math when it comes to trading. But it’s also a red herring.
An important part of consistent positive performance in trading is purpose-driven (which I will reveal within this manifesto).
We do not need to hit homerun trades and grow accounts to “size up” and get to $1 Million as fast as possible to be successful traders. That’s the sure-fire way to lose all your money, and if not, requires luck and timing. That’s not an adaptable strategy, or everyone would be a rich trader.
A more realistic strategy is to think more long term. Trent Hamm’s Power of Long Term Thinking even translates long term thinking and it’s relevance in personal finance.
“Long term consistency trumps short term intensity.”
To get there requires a change in the way you think.
This manifesto will perhaps change how you think about trading, what you’ve done in the past, and how you trade going forward.
But I caution…
You can’t unread something that might go against your reality, especially if it makes you uncomfortable.
So: if you are comfortable with how you trade, and how much you make or don’t make consistently, do not read further.
Here is the thesis: having a defined purpose for trading matters. But traders are not always focused on the reason for why they want to trade, but on the possible results (as long as they are positive and don’t factor in losses). You get to decide upon the type of trader you want to be, what enough is, and what your “success” looks like.
Cause and effect exist with every trader; decisions made to get some profit from the market (cause), and the type of trades and amount of risk acquired from those actions (effect).
On a basic level, this makes sense. What is revealing is how a majority of traders are blind to the root cause of the trading results they see.
The trading world is often a place where a quick solution with another strategy or trade alert rules supreme for the next trade decision. No surprise that the ability to solve the lack of consistent profitability by going to the source usually doesn’t exist.
- Problem (effect): a few winning trades followed by bigger losing trades
- Solution (cause): trading smaller size, don’t add to losing positions, set stops, etc.
This thinking is flawed. Because traders are constantly misguided by the perceived positive performance of others, and how they supposedly did it, the solution (a better effect) has little chance of being created.
Success is not the result of going all-in on every trade, attempting to generate a grand slam homerun through following someone else’s trades; or the flavor of the week momentum strategy through the use of a short-sighted trading plan and weak rules that produce no long-term upside.
I believe successful trading is built on having a defined purpose for why you get up every day and choose to trade for a living. To get there requires understanding your strengths, weaknesses, and desires, not hoping for a get-rich-quick solution.
Long term trading success emerges when we know why we get up to trade every day and who we do it for, and we care about how the opportunity to make a full time living in a very short time is one to be taken with great care and appreciation for.
To demonstrate the idea that you should spend time internalizing a defined purpose (cause) – because long term consistent performance matters for the future (effect) – I’ll begin with principles to frame realities that exist for every trader.
Then I’ll define why over-investing in building a defined purpose will affect every trade decision you do going forward (trading plan, rules, strategy, how long to trade, what enough is, and contentment).
I start with that first reality.
Reality 1: Trading Is A System
For this point to stick, I’ll begin with a structure that is true for just about every trader.
This structure is useful to understand the flow of available trading capital to trade executions to profits or losses. So far this is nothing that you don’t already know.
Next, we can think of this structure as a system and express it as such.
Meaning: once this conceptual structure has been established (as an account you open at your brokerage), it can be identified as a system (things working together to make a more complex whole).
When we realize that our trading (the flow of trading capital to trades to profit and losses) and trading account (the asset we use to capture profit) are a system, something important happens. We realize that our trading, like most other business endeavors, is a system and subject to systems theory.
As we know the goal of any business is to maximize profits for its owners. And in the world of trading that is most certainly true.
By and large, trading is a solo endeavor, a company of one…you.
The total of a system is more than its parts. As it evolves, it can transform in positive ways, or negatively.
We can’t apply linear thinking in how we trade to generate profits, just because it seems straightforward.
James Clear, the author of the New York Times bestseller, Atomic Habits, encourages a systems-first mentality.
“A systems-first mentality provides the antidote. When you fall in love with the process rather than the product, you don’t have to wait to give yourself permission to be happy,” he said. “You can be satisfied anytime your system is running. And a system can be successful in many different forms, not just the one you first envision.”
That last sentence is probably why the majority of traders spend a majority of their efforts, trying to make money every day, and end up losing more than they make in the long run.
To further emphasize, James Clear revealed that the way to make progress is through having a system in the first place:
“The purpose of building systems is to continue playing the game. True long-term thinking is goal-less thinking. It’s not about any single accomplishment. It is about the cycle of endless refinement and continuous improvement. Ultimately, it is your commitment to the process that will determine your progress.”
As an analogy, if you’re a coach, your goal might be to win the championship. Your system is the way you recruit players, manage your assistant coaches, and conduct practice.
So as a trader, your goal might be to be consistently profitable over the long term. Your system is the purpose of why you trade, the mindset you approach trading with, and the way you apply rules and to your trade executions.
Reality 2: Trading Is An Infinite Game
Once we are clear about where our purpose fits in the system, we learn more about how we can start to change cause and effect from the source.
Purpose can be defined as our journey, the central motivating aim of our life that guides our decisions, influences behavior, lies in our responsibilities, and offers a sense of meaning and direction in the world.
When we go back and look at the structure I shared earlier, purpose commands everything below it.
Because we now know that our trading is a system, the structure can be viewed like this:
Because trading is an expression of our purpose and mindset how we see and understand trading will affect what we do. Cause and effect. Decisions produce the succeeding effect that we desire.
Thinking of just purpose or mindset independently may be difficult to consider or unrelatable concepts. So let’s establish a mental model to orientate.
There is the notion of infinite and finite games, this short video by Simon Sinek sums up the idea:
(This video will give you more context when you reflect and apply the concepts to your trading and the type of trader you are.)
So you just heard Simon discuss the two types of games – infinite and finite.
A finite game has fixed rules, known players, and an objective. In the case of baseball, for example, there are winners and losers.
But in an infinite game, there are both known players and unknown players. The rules can be changed and the objective is to keep playing.
The mindset you choose affects everything you do. The “game of trading” is an infinite one.
When you add these two mindsets to the structure it will add even more clarity.
At this point let’s represent each of these mindsets as a couple of traders. We will call one trader Frank and the other Tom.
Now let’s look at the structure with all the parts I’ve shared so far:
When we embody the finite mindset, we focus on winning, our approach becomes about making as much money as we can on every trade. Ramifications will include losses and poor trading performance.
You can often identify this behavior in traders like Tom who believe they’re playing a finite game, all they see is winning traders or losing traders. The winning traders are growing their accounts, sizing up on trades, getting huge returns that they can post on Twitter, and share via videos on YouTube.
The trader with an infinite mindset who is thereby playing the infinite game sees trading differently. They have a goal not to make huge sums of money now but to keep trading profitability for the long-term.
Because Frank’s main objective is to keep trading long-term, he defines a purpose and reason for deciding to make trading his way of making a living. He understands that having a defined purpose matters because he is establishing the ability to trade consistently profitable for his future (to gain the time and freedom that Frank chooses to have more of).
When we adopt the infinite mindset, our focus becomes centered on improving our ability to be content and understand what is enough. Consequences are the ability to think long-term and long-term thinking and improving upon what we care about (for example: having more time and freedom).
Frank & Tom help to give a sense of emotion to this concept. They both start their trading journey in similar environments, and for the most part on the same playing field.
How Frank & Tom behave within the same field is far different. Tom represents what a lot of traders who play the finite game think, that they need to win and conquer trading as fast and as large as possible. This is not very effective when it comes to building a trading business that will be profitable for the long-term. Tom no doubt feels like he is on a rollercoaster. The size of his account goes up, but then comes down hard…two steps forward…three steps back.
Tom seeks the quick-fix, short-term win, what’s the next trade idea to try. He finds it hard to be diligent and content with a simpler, repeatable strategy and rule framework.
Frank has discovered that Tom’s actions do not produce the long-term success and results that he wants.
Since Frank thinks infinitely, he doesn’t see trading as something that needs to be won and he can happily slowly maintain consistent small base hit wins daily, in a fraction of his time.
Frank’s primary objective is to keep trading long-term, he does the work upfront to define his purpose and establish his mindset because he understands that having a defined purpose matters, because a stronger mindset is built from a having a strong purpose.
Both finite and infinite mindsets shape Frank and Tom’s worldview, as well as the trading decisions they make, and the long-term results that they obtain.
Making money consistently in trading requires a purpose with a longer shelf life than an open carton of milk.
Short-term profitability can be obtained. But earning consistent positive returns over the long term, enough for a good living, with more time and freedom than any other line of work can bring, is why it matters.
What is revealed in short-term thinking is that the ability to trade successfully and profitability requires commitment, and cannot be haphazardly stumbled into. Believing that more capital, more risk, more size equals more money is certainly a flawed belief.
When you concentrate on short-term results (because of fear of missing out or to try and hit a homerun winning trade), the future consequences will be negative. Just because negative future effects seem easy to avoid, doesn’t mean everyone does or they’ll never occur.
When we focus on our purpose and long-term perspective, we build contentment, and with contentment comes satisfaction and a very successful trading career.
That is what it takes to become a trader with more time, energy, and freedom, who doesn’t give a crap about the image everyone else is selling. When our trading leads with purpose and contentment, we win because we’ve already achieved what will drive all else into place.
Remember the new reality you are in; you can accept it and try your luck following someone else’s plan, or define and then play by your own rules. Reality won’t change for the masses – but, based on your purpose and behavior, the outcome you will experience will certainly be different.