Trader Mindset

You have to always manage risk with the odds in your favor. Even if you lose, if you're sticking to your rules, it could be a good trade that just had a bad outcome. Keep putting on trades with high expected values and over hundreds of trades you'll come out ahead. How you recover from a drawdown is more important that the duration or magnitude of the drawdown. Everyone has drawdowns. Therefore, focus on your rules and play superior defense and allocations such as Peter will respect your process. If you bail on your rules, like amateurs do, you relegate yourself back to amateurville. How you behave around drawdowns will show allocators how you will behave when you lose their money.

Michael Martin answers the question "How would you trade X commodity or stock?" Also, he discusses how he trades laggards.

Energy analyst Brynne Kelly discusses term structure in crude oil and natural gas, as well as what happens when markets invert.

We all run two systems: our trading rules and our emotional rules. I think making money over the long term is about being a master of both systems. In the short run, your trading rules can benefit from luck. Our habits or paradigms really tell us what we are feeling on a deep level and steer our behavior, and our behavior predicts where we end up in life. I think this is why you can know some really smart people but they can't trade. Two, it can be tied to why some can make money but can't keep it. It's absolutely why anyone can learn to trade, but few can actually do it. They aren't built the right way emotionally for the profession. Bull markets reward even the worst systems with net long exposure, but when the markets turn is really where the money is made so to speak. How does your trading serve you in that regard, because sometimes people trade for more than the money. They think they want the lifestyle because they see the outward expression of the results without fully understanding what it takes to get there. If you're not getting results that you'd like, you're likely going to have to change your behavior, perhaps more than your thought process. If you believe that humans are pleasure seekers, you might believe that we do what feels good. Therefore, changing might not feel good until it becomes ingrained and habitual. In order to develop new habits, you have to subscribe to massive repetition and consistency. What are you willing to NOT do to improve your trading results? Sometimes it's removing a factor or parameter that helps you get the outcomes that you want more consistently in a probabilistic endeavor such as trading. Here are some good questions to ask yourself: Can you stop daytrading or short term trading to make room for longer-term winning trades? Do you feel like you're in greater control by trading more frequently? If that's your belief system, and you're not making money, would you say that your need for the feeling of control is greater than your need to become a successful trader? That is true for many an aspiring trader because they haven't felt the feelings around what being a successful trader is, so they have no after-the-fact or "a posteriori" knowledge. Are you willing to let go of those feelings around control to evolve into something more than you are now? This is what I mean when I speak about 'surrender' - I'm not talking about giving up, but pivoting. What does it feel like to make decisions with uncertain outcomes based upon short-term random data? The more you can live with the uncertainty, the more money you'll make. Think in terms of increasing the odds or probabilities.

Sometimes the best trades are the ones that you don't enter. I know this might sound cute, but entering orders around big announcements can be a big gamble. Consider how you feel around trading the EIA, API, NOPA Crush numbers, quarterly earning announcements, and the FOMC announcements. Are you keeping orders on the book or do you lift them? Is part of the payoff the excitement around the trade ? Lift the orders around these moments of uncertainly. If you're trading options, that's a different story. I don't think it's a good idea to make your bones trying to trade announcements as a strategy. Allocators won't know how you can model this in a way that has high expected values, and in today's world, low daily volatility. Cancel existing orders around the releasing of key data points. I'm not saying to offset existing positions.

Advisors to HNW clients are in the business of gathering assets and wrapping them up in a "fee for service" asset management program built around an asset allocation model. I know they like to call themselves "money managers" but they don't know their asses from a hole in the ground about portfolio management. Their sole focus is to get in front of money in motion. That's why they have as many as 5 securities licenses, in addition to the health and life insurance licenses. You can bet that if their clients are considering an alternative investment or managed futures, that the Financial Advisor will have a product in-house to allocate their client funds into (and get the fees too). This isn't altruism. Your best leads - the Glengarry leads - will be the people you already know who deal with commodities as part of their business. They understand the cyclical nature of commodities, they have superior fundamental knowledge of the business, and they understand basis risk. These are the perfect candidates for you to market your services to. The less you have to explain to someone about how commodities work, the easier it will be to get your message across. If you run a long/short equity fund, these are good candidates for you too as they inherently understand the nature of shorting / short selling.

You typically need to register when you are going to be marketing a great deal and holding yourself out to the general public. You can hold off from registration and take advantage of what are called "de minimus" exemptions and avoid paying the fees and doing all the paperwork until you have a certain number of clients over any 12-month period of time. On the RIA side, you can register by state or with the SEC. There are asset levels that would mandate your registering with the SEC regardless of the number of clients. One thing I'd like to stress is that most potential clients are not going to understand anything about registration. Two, being registered will not make raising assets any easier. Clients are not going to show up just because you are registered. I think many new traders go and register because it will give them a sense of security or clout. IMHO, it doesn't do that. All it does do is create busy work for you so that you can avoid the rejection you get from having to ask people for money. I'd save the registration fees in that regard, find some clients, and then go register using some of the management fees you've earned. If you have a trading grubstake, and enough money to pay your expenses at the beginning of your career, spend the time and money raising assets. Everything else is a distraction from what will get you to where you want to be. Getting assets to manage is the key to your success and growth. Focus on that process. Your track record will come over time. If you want to grow your business, double your asset base. For example, if you're running $1,000,000 right now and you want to grow, go get 4 new clients at $250,000 each. That's the fastest way to double your asset base and increase your fees. If you achieve 12% RoR, it will take you more than 6 years via internal growth because your fees would come out of the account. You can get 4 new clients in a few months or less. Save your money and don't buy shit you don't need like computer monitors, a fancy office, or registration fees. You can't buy your way into success - you have to trade up to it and gather net new assets.