Tricks Of The Trade – Hard-Learned Lessons From A Real Wall Street Veteran

As a weekend special, I’ve put together a couple of excerpts from my new book on the markets, which is bound to be an Accredited Times bestseller. The book, entitled “Tricks Of The Trade – Hard-Learned Lessons From A Real Wall Street Veteran”, covers how market wizards, who work for accredited investment banks like Goldman Sachs, are able to make money year after year in the markets. It covers the mindset, financial knowledge and cunning tricks that every trader needs to navigate today’s tumultuous market conditions, and come out on top, time and time again. So enjoy! Please leave a review in the comments section, and I’ll take your advice into consideration before publishing it.

Lesson 1 – Wait for the Market to Come Back

One of the most common questions I get as a trading coach is “where and how should I set my stop”. My answer is always the same – you shouldn’t. That is, if you truly believe in the position you are taking. In order to make it as a trader, you need to have conviction, and conviction means putting your money where your mouth is and being willing to risk it all. When I bought the S&P 500 in October of 2008, people thought I was mad. After the crash that began in June of 2007, everybody was terrified of the market, and those who dared to trade it, used tight stops that would inevitably get hit in the high volatility environment. Every time your stop gets hit, it’s demoralizing, and you lose confidence in both yourself and your strategy. I knew in late 2008 that stocks were grossly undervalued, and I wasn’t afraid to sit on a losing trade for as long as it took to pay off, and boy was I rewarded for that conviction! Since January of 2009, the S&P 500 has ascended from 800 to over 2000! I applied the same stead-fast conviction when I bought Greek 10 year bonds in early 2012, and Facebook stock at the IPO. The lesson here is that, when you know you’re right, don’t be afraid to sit on a losing position for as long as it takes. I firmly believe that one of the main reasons so many people struggle to make it as a trader, is that they lack conviction in their positions. As the great Jesse Livermore said, it’s always best to “be right and sit tight”.

Lesson 2 – Keep It Simple

For many, the complexity of the markets is simply overwhelming. Modern traders are expected to take into account an immense array of variables, from central bank rhetoric and government policy, to market technicals and economic reports. How is a single trader supposed to convert such a vast sum of information into informed trading decisions? The key here is to filter out only the most important indicators and use only these as your guiding star, and without a doubt the most important factors to consider when trading the markets are central bank policy and key economic reports. The good news is that modern markets are engineered by the science of economics, which actually makes them far more predictable than in the past, and by analyzing the motives and strategies of our economic officials, we are now able to gauge the direction of the market with incredible accuracy. The economic reports are only important insofar as they influence central bank policies, as depending on how the central bank reacts to the report, it could be either positive or negative for the markets. For example, consider a negative jobs report – although this may appear on the surface to be bad for equities, it is likely to motivate our Federal Reserve to ease monetary policy, which is actually positive for equities. Once people start to grasp the importance of central bank policy above all else, they begin to understand how professional traders can make money in the markets time and time again, despite often tumultuous and confusing economic conditions. The sheer beauty of modern markets is that they allow us to filter out the vast majority of economic data as noise, and adopt a singular focus on how the practitioners of the science of economics are thinking and acting.

Lesson 3 – Trust Your Gut

One thing that distinguishes professional traders from amateurs is that the pros have sixth sense for the markets. Unlike what many people believe, a pro trader’s decision making process is not simply guided by numbers and facts. In addition to the dry factual analysis, the most distinguished traders all have something in common – a deep instinct for the markets. This instinct guides them 24/7, and often means the difference between winning big or blowing up when the stakes are high and time is short. To the common man, charts and news feeds are simply informational and can only inform our analysis of the markets. However for a professional trader, these are literally ‘felt’ at a primal level, allowing them to make lightning fast decisions that often leave less professional traders dazed and confused. Among top traders, these instincts are so well honed that trading has become almost impossible for the novice, as trading opportunities are swept up by the pros before anyone else gets close to seeing them. Bedazzled traders often explain this phenomenon away by inventing conspiracy theories about ‘High Frequency Trading’ robots that front run their orders, target their stops and manipulate the market. In reality though, HFT robots only increase liquidity and make it easier for the little guy. The lesson here, is that in order to succeed as a trader, you need to trust and build your instinct for the markets, as without it you are simply swimming blind in a sea full of sharks.

Lesson 4 – Go in Big, or Don’t Go in at All

Fortune favors the bold . Those who have made it in trading know that you simply cannot succeed without taking large risks. It’s not sufficient just to have a consistently profitable trading strategy. No matter how profitable your strategy, if you trade with a meek amount of capital, you will never make it big. Professional traders are not afraid to risk it all in a split second, without even breaking a sweat. The pros are trained killers with nerves of steel – when they see an opportunity, they seize it with both hands and don’t look back. Risk really isn’t a factor when you know what you’re doing. Champion traders laugh when amateurs ask them about ‘risk management’ and ‘setting stops’ – elite traders never set stops. They trade in and out of the market using their laser sharp instinct and informed market analysis, and they never doubt themselves. Using stops is an indication that you lack conviction in your position. If you feel the need to ‘play it safe’ and have a fear of losing, you have already lost the battle. The hard reality is, most people are just not cut out to be top traders, and are doomed to failure or mediocrity. It is up to you to determine whether you truly have what it takes, and if so, to have the courage to risk it all.