Why do you want to be a trader?
Why do most traders fail in the stock market? Is it due to wrong asset allocation, wrong tactics, and wrong strategy selection?
Could be. But, more importantly, the reason why most people either succeed or fail at something is dependent on whether they have a clear and strong ‘Why’.
In this article, Coach Tim Justice discusses the topic in great details and provide useful insights into the importance of having a clear and strong ‘Why’ as the starting point of your trading career.
Watch the video: Start With Why
In this video, you are going to learn the importance of having a clear and strong ‘Why’ as the starting point of your trading career.
Start With Why
Why do you want to be a trader?
I received an email from one of my mentor students a few years ago that has stayed with me to this day. His name is Christian Sisson, and he’s now a contributor and coach for Tackle Trading. When he wrote the original email he was just a new trading student and it had a few questions that were very smart and important for any trader to get the answer to.
Here’s the email:
Here’s my question that hopefully will become a video.
You are a PRO, an inspiring individual, seasoned investor. Got a solid background behind you. I like to see people like you as a benchmark. You do your investments a certain way, for example, Matt does his way, Gino his, Steve Huang his and so on.
Many videos out there focus on one strategy, another strategy and then another one. They get to the fine details and the big picture is lost. At least for me. Maybe to other beginners out there as well. Where do these strategies connect? Do they indeed connect at a certain point? How and when in space and time?
I really miss the big picture sometimes.
I’ve read lots about Diversification vs Focus. Buffet and Kiyosaki both believe in focus. They are a benchmark for me too. Others believe in diversification.
So here’s is something that I’d LOVE to see a video about: Asset allocation strategy.
(Maybe it can turn into a series at Tackle Trading? How PROs tackle their investments. Pros would share their asset allocation strategies explaining why they focus or diversify if they consider themselves conservatives, bold traders, etc.)
Would you share your asset allocation strategy? With all the disclaimers and stuff, like this is not an investment suggestion it is for x and y purposes; no amount detailed, all precautions taken, etc.
1. 80% of my portfolio is invested in cashflow strategies. Of the total:
– 10% strategy A
– 30% strategy B
– 60% strategy C
2. The 20% left I invest in long-term stocks. Of the total:
– 70% stocks that pay dividends
– 30% stocks + strategy A, B and C.
Did I make myself clear?
This is the one thing I’m always thinking about: the big picture. All the classes and readings never pointed me a direction so far.
Thanks for this opportunity!
Have a nice week!
First off, there is a lot to unwrap in this email. It’s loaded with great questions and curiosity. It’s a great topic and an important topic to discuss.
Asset allocation, tactics and strategy selection are the ‘what’s’ and the ‘hows’ in trading. There’s a great book by Simon Sinek called ‘Start with Why’. In the book he describes a concept called the golden circle.
Essentially, the reason why most people either succeed or fail at something is dependent on whether they have a clear and strong ‘Why’.
In trading, we can answer the question, where should I put my money? That’s not complex. Which strategies should I use? That can also be answered simply. But, why do you want to be a trader? You better have an answer to that question because if you don’t have a strong why then you will be challenged and you’re more likely to give up at some point in your journey.
We must first answer this key question: Why are you starting a trading business?
How or What is less important than Why. Never forget that.
Are you looking for more control of your life? Time? Do you want more peace of mind to know what’s happening with your money? Do you want more income? What will your life look like once you’ve achieved your goals?
There’s are four clear steps in the process you will go through as you develop as a trader.
This is the general process that a new student to trading must go through to develop as a trader. Your first bedrock is your commitment to learning. You must have a strong commitment to learning this skill because it’s going to take some time.
After you have established your clear commitment to learning, you then need to learn theory and terms. This is where structured education can help, but you might also learn the theory and terms from a reading list, other traders, online in trading communities like Tackle Trading or self-paced courses.
Next, you need to build your skills and execution. Skills might include chart reading, order entry, software use, trade management skills, journaling and the other components of your daily routine.
Last, you will build a trading system, implement your strategies and perfect your tactics over time through practice, backtesting, system development and through trading in the market.
This is the process. There aren’t really shortcuts to the process. If you skip right to using someone else’s system, without the first 3 steps, you’ll most likely fail at some point. It might be due to a lack of understanding, mistakes in your application, or possibly a loss of faith in the process if you weren’t committed in the first place. The reality is this, you can’t skip the steps in development. You must go through all of them for yourself, in your own way.
The ‘why’ exists outside of the process
The whole process of developing as a trader can be defined, mapped out, built into a clear step by step. But you must have a strong why outside and separate from the process to make sure you don’t ever waiver in your commitment.
You can master a system (how) a product (what) and start to succeed in the markets. But, what will you do when those systems are tested? How committed are you to work through challenges, drawdowns (losses), random news, emotions, negativity from people in your life, stress, a lack of time, or any other problem that might come up? Most of all those things will probably become an obstacle for you at some point. With a strong why you can overcome these challenges and keep pushing. Without a strong why, you probably will allow them to defeat you, break your spirit and let you give in and quit.
‘How’ is still vital
There a few other things you need to decide on. Which products will you trade?
In the capital markets, you can trade equities, forex, futures, options, crypto, and other products. Which product will you trade? Why? Once you’ve determined which product you’ll trade, what time frame will you trade? Are you going to develop your skills as a day trader? Swing trader? Position trader? Investor? You can trade different time frames, and they require different skill sets and understanding of how those time frames work.
Learn to exploit theta and delta in your trading. Those options greeks are some of the first I recommend a trader build their trading edge around. Theta measures the impact of time decay. Positive theta trading is a great way to build your trading plan and one of the most common forms of trading systems that traders use.
When deciding exactly what relationship you should have between some techniques and other techniques, I rely on the 80/20 rule.
80% of the time you should rely on your Bread and Butter strategies. Those are the strategies that you rely on. They should be the ones you’re most confident in. Your bread and butter strategies should be the core of your trading business.
20% of the time you can use strategies that I call ‘Bag of Tricks’ strategies. These are techniques that you’re trained on and have learned how to execute, but they may be more complex or not traded every single day.
For most traders, Bread and Butter will most likely be Delta and Theta strategies. Vega and Gamma are more likely to be Bag of Tricks strategies. On some accounts, with certain risk tolerances, you might rely on Vega as a Bread and Butter strategy. You should build your system and select your strategies once you have enough of your trading skills developed so that you can select them confidently.
If you don’t have the strategies down well enough to trade them consistently, you may need to revisit where you are in the process of learning how to trade and develop as a trader. New traders want the system right away. But, have you learned the Theory and Terms? Have you built your skills? You can’t just skip to the system/strategy level right away. You must build the other components out one at a time to develop in this business. This might take 6 months, 1 year, more, less, it is all dependent on you. Whatever it takes to build the proper skill set is important.
Remember your ‘WHY’
That is what will keep you working consistently towards your goals. Trust the Process. Don’t let confusion, frustration or bumps in the road stop you from achieving your goals.
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