Transcription
All right, we are back. So, we're going to talk a little bit more and expand on this idea of scenario planning and a little bit more about how, uh, how you progress as a level five, because it's easy to think at this level it's all done. And if you are at level five or you're aspiring to be there, one of the goals you might have is just simply, I want to get to that level of consistency and then I'm actually just going to run my trades, keep an eye, do everything that you've said, keep an eye on my data, keep an eye on the market conditions, and I'm just going to keep going. And there's nothing wrong with that. There's nothing wrong with just saying, "Right, this is what I'm going to do."
However, you've still got to be strategic in that approach because market conditions can change. However, a lot of the traders that I work with at this level, the things that they want to do involve expanding where they are because now they feel that they're consistent in how they apply what they do. They've got their emotions in check, and as a result of that, they want to do more. But before we do that, let's, let's highlight what I mean by having your emotions in check. Because in the previous video, I was talking about the fact, and I've talked about this in previous levels, that the first marker from a mindset point of view is what I call your disciplinary marker. So, from a mindset point of view, are you able to execute with flawless execution and do that consistently, which I talked about earlier? So, if I've got flawless execution, what that means is regardless of what is going on with me emotionally, I'm able to create a gap between that and what I actually do. So, I don't, even if I'm feeling fearful because I've had three losing trades and I'm sitting there going, "Right, minus, I've had three losing trades on the bounce. Um, it's not been a great month." I'm thinking, "Oh, or as a, as a day trader, I've had three losing trades that day. It's not been, it's not been a great week. Yeah, I'm feeling a little bit under pressure, but I'm still able to take the next trade." So, despite the fear that I'm feeling in that scenario, I'm still able to take the next trade. Or you've had those three losers, you've got your target that's at three R away, price has come all the way up, got really close to that target, fallen back, and despite the frustration or the fear that you're feeling there, you still don't react. You don't get out of the trade early, and you hold the trade to target.
So you can look at two traders, one at level, level four, and you can look at the performance marker we talked about, the conscious rule breaking. Now, usually what happens between level four and level five is that that conscious rule breaking will go from maybe 5% of the total trades at level four. As you move into level five, that will almost go to zero. So you've got no conscious rule breaks. But let's assume that we've got a level four trader and a level five trader, and both of them are not making any rule breaks. They're highly disciplined. The difference between the level four and the level five trader is the level four trader, they might have the same level of discipline, zero CRB trades, they might have the same level of execution, so they're not making mistakes. They're, they're, they're extremely consistent. But what happens is level four, these guys' emotions are more up and down and more reactive to the current scenario that's going on. So they're more affected by recency bias. So even though both of these traders maintain the same discipline and from the outside, if you were looking at their performance, it looks the same, this trader, it's like the swan that's swimming along, but the, the, the feet underneath are going round and round and round and around. They look all calm on top, or they're, they're not, you're not seeing an issue in terms of their trades, but emotionally they're up and down. Whereas these traders, what's happening is they will experience some emotion because we're all human, but the emotional fluctuations are much less, and they are not in direct correlation between what's going on. So if they're on a winning run, they don't start feeling cocky, or they don't start feeling relief, or they don't start feeling happy. They are just doing what they are doing. So that's fundamentally the difference here.
However, when that trader potentially wants to grow to the next point and they want to start doing things in terms of progressing, that progression will usually involve increasing the profitability in terms of how much they make on a monthly basis, on a, on a, a quarterly basis, on a yearly basis, or it's just pure increasing the amount. So they might say, "Yeah, I want to stay at an average of 50% a year, but what I want to do is I want to do that on 100,000 or 200,000 or whatever it is rather than on the 10,000 I've been trading at now." Okay, so we've got these two scenarios going on. They want to make more in terms of percentage return, or they want to make more in terms of money, or the last scenario is they want to do both. So I work with a trader, he's one of our, he's one of our best traders, and he'd had a period of two years. Now get this. He came in, he came into us on, I think, a seven-trade losing run. Then he came into us, started executing correctly, and we had a seven-trade losing run, which is exactly what happens. That's that lag time that I've talked about. You got to be wary of that at level four. They got through that, and then two years later, Tommy was at 150% return. So he'd actually, in two years, managed to make 150% return. He actually said that if he'd walked away at that point, if he'd been trading on his own, he probably would have walked away at that point because he'd been through a losing period before he came to us, and then we went through a losing period as well. And that's that lag time that I've talked about. Now, he's doing extremely well, extremely consistent, not breaking his rules, doing everything right. And what he wanted to do was add a significant amount of money to his account. And that was his plan. He said, "Right, I'm going to add more money into my account." And what he imagined, if we use the example of that trade earlier, and we use the example of the trend line break setup that I've been using through here, because this was one of the strategies that he was trading. So what he imagined, he said, "Right, well, this is going to be great because I'm now going to be taking the same trade. I'm going to be going for the same 2:1 target. So a two R value trade. But now instead of the amount being, for sake of argument, I'm risking, uh, I'm risking 1% of 5,000, let's say, so risking 50 quid and that trade making me £100. If I'm risking 1% of £100,000, I've now increased the amount. So now the risk on the trade goes from 50 pounds to a thousand. And his first thought in this scenario was, "Wow, that's going to mean that every single trade is now worth a significant amount more to me. Each trade is going to be worth 2,000." He was thinking, "Wow." And initially, he, remember him saying to me that this, this is going to, this might be quite tricky, or wow, this is going to be a big step up. So, we worked through it very, very carefully. Built him up. We didn't just go from 5,000 to 100,000. Again, I'm using the numbers hypothetically, but it was a big jump that he wanted to make. But what was interesting, and what he didn't account for, because again, he was an early level five, what he didn't account for is now when the trade started to run on, he found himself going, "Ah, but if I'd been able to hold for a 6:1, a 6,000 return, or if it had held it on for a 12 to one on the random trades that did that big move like you can see here, that would have been 12,000." And what was interesting, he said, when I was only making a smaller amount, same percentage in terms of the total account, but a smaller amount, it never bothered me that trades ran on. But now, I thought I was just going to be happy with the fact that I was going to make significantly more for the same price movement. But what I found myself doing was hyper-focusing on the fact that trades ran on for f, for, for much longer. But I was never bothered before because the amount of money was less consequential. And these are the subtle things that can happen that you don't realize as you start to go from this really strong consistent level and you're now moving into that strategic operator phase, but you want to do more. So he was in that scenario where he was blindsided by that, and he found himself becoming extremely greed-oriented.
Now, what's interesting is at that point, I was like, I expected something similar like this to happen, or some sort of greed to come in, because I knew that Tommy was a greed-based trader, and Tommy knew that as well. But as I said in the previous video, because he'd been acting so consistently for such a long period of time, he'd almost forgotten that those emotions still were there. So, as soon as you change the variable, that emotion started creeping in. Now, the good thing is he was able to manage that and then focus on a combination of remembering that the consistency was key, but then looking at ways to potentially run some of those trades for longer. So, for example, adding in half a percent and, and letting that half a percent run on the trades that were there, looking at a divergence filter that meant the trades were more likely to run on off the back of that. So there's lots of little things that he did, and lots of little things you can do at this level. Now, I'm just giving you an example. Obviously, what you do at this point will be determined on what you test and what you see. But the key acceptance to have at this level is whatever you choose to do, if it's adding in money, so you want to add in money to your account, you want to go for a bigger percent return, which could be adding in another strategy. It could be that you want to run trades for longer so you're able to get some of these bigger R values, which in turn gives you a bigger percent return, because why would you do it otherwise? You might want to leg into your trade. You might want to leg out of your trade. You want to might, you might want to do partial fills. There's lots of things that you might want to do at this point. The key thing is to understand that there will always be a consequence to that. The simple rule to have here is if you are going to run trades for longer, yes, this trade's great because what does it do? It does that. But there'll be examples of trades that you try and run on and they flip back, and then you're suddenly faced with a new psychological issue of the 2:1 target that you had been running, which was working perfectly. You're now looking back going, "I could have had two one, I've ended up with a loser," or "I could have had two to one, I've ended up with a break even." And suddenly the way that you trade the system and the process by only changing one element of that thinking, "I want to run my trades to for longer because overall it's more profitable." What the trader forgets at this point is the consequence of that is their win-loss ratio is going to drop because the key things to remember when you're at this level is you've got various different levers you can pull. Trade frequency, the number of trades that you trade. If you trade more trades at the same win-loss ratio, same risk-to-reward, you'll make more money. But if you go from trading a 100 trades a year to 150, you are going to have more winners, but you're also going to have more losers. The other level, you lever you can pull is your win-loss ratio, which is usually directly linked to your risk-to-reward. So yes, you might have a little bit of, um, confirmation bias and the greed and the focus and the, "Oh, I could have made 12 grand," or "I could have made an extra 12R," is on the trades that do that, and you don't see the ones that go to 3R and flip back the other way. So again, all of these things can crop up, and just because you've got really good at running the core system and core strategies and you're really successful at that, don't underestimate if you change something, the consequence that you may have to deal with. You might have habitually got used to trading at a 60% win-loss ratio, which means on every 100 trades you're winning on 60, and you're taking the 2:1 on that, and it's all going great, but then suddenly it flips the other way. It's now a 40% win-loss ratio, but you're aiming for 4 to one. Yes, on paper that's going to be more profitable, but you've now got to cope with an additional 20 losing trades out of every 100 trades you place. And you won't really know how you cope with that until you actually do it. So, if you are at this stage and you're wanting to optimize, it's critical that you do it in a very, very strategic way. So, everything about this level is about being strategic.
Usually, the other one that comes up at this level is, is prop firms. So people have been trading consistently with their own money, and now they want to get involved in either prop firms or funds. And usually, what it means at this level is they're going to have to review their trades in a very different way. So there may be, again, various consequences to what happens. So it might be that their strategy on paper works very, very well. They're delivering on it, and it's giving them a consistent result. But if they wanted to run with X prop firm, that prop firm, the criteria around that prop firm means that they would actually blow up or they wouldn't actually get past maybe one or two of the phases. So the consequence there is they may have to trade the same setup that they're doing, but minimize the risk. So instead of trading 1% per trade, they trade half a percent per trade or 3% per trade, and they have to work that in a different way. So they almost have to run the same strategy with a different set of risk management tools behind it. So, it's a tweak in the system. Now, the consequence to that is the same profitability that they're used to to getting in their own account is going to take much longer on the prop firm account because they've got to trade at a lower risk, but it's a different setup. It's a different process. So, that's the skill at this level is being able to separate and compartmentalize. And that's a much easier process to do if you've got that emotion in check, like I was talking about earlier. You will make more strategic decisions, and you will be able to live with those strategic decisions because your emotions aren't all over the place, and you've been used to doing that since coming into level four and doing everything right through level four into level five.
Okay, let's summarize with some key things here. Signs you're doing well. Number one, the gap between your perfect and actual performance is small. So regardless of what the result is doing, let's say you've had a 10% month on paper, the strategy's performed at 10%, then the next month it's down at minus two, and then the next month it's up plus five. The gap between that and what you do is small. So even if the strategy is having a losing month, you're actually in the same boat. Now, you might get lucky and you might have two missed trades that month because you weren't around, and they were the two trades that took you into a drawdown for that month. Well, fine. That's okay. But as long as it's in terms of the execution, there is no gap between the performance of the strategy on paper and what you are actually getting. The process of doing this, the analysis and strategy section just feel automatic. Managing your risk feels automatic. And even to the point of filling out your spreadsheet, that feels automatic as well. And then here, you're completely focused on the process, not the outcome. Now, that doesn't mean if you go through a five-trade winning run or a three-trade losing run, there won't be some emotional fluctuation, but it'll be very minimal, but your focus stays on the process, not the outcome, and you are not trading through gritted teeth or trying to suppress too much excitement because of the result. You are 100% focused on the process, not the outcome, and your emot, your emotions, I should say here, not in your emotion, your emotions stay balanced regardless of the result, which is exactly what I've said. And those two link together. The more you stay focused on the process, the more your emotions stay balanced as a result. And then last one here, it says, "I am calm and not reactive, and I love this phrase, I trust the process." You've gone from knowing it works to believing it works, and it sits in here, and that's, that's the big difference. And then as a result, you're less impacted by the short-term result that week, that month, or sometimes even that year.
Warning signs to watch out for. Boredom and stagnation is the first one. That's really critical because at this point, trading, and if you're doing everything right, should be a little bit boring. That's okay. Um, you just got to be aware of that, and that doesn't impact what you do from a performance point of view. Getting frustrated more than normal if the results dip. This is important because you might have gone through a lovely period of getting used to five months, six months, eight months, nine months of winning months or consistent performance. It might have dipped a little bit, got a bit quiet, and then suddenly you have a bad performing month. Be wary that the fact that you're not used to that. Suddenly the old emotions come back. Then here, ignoring data or strategy boundaries to chase more of the move. We've talked about that earlier in this video. Don't start bringing in things. You must test them first. Don't bring in and, um, ignore the boundaries of the strategy. If anything comes in, it has to fit in line with everything that you're doing. And then here, expecting top-tier results all the time. I'm actually working with somebody at the moment. I'm helping him with his day trading. He's come through. He's learned our entire process. And in his first winning month, he had a 6% return. In his second month, he had over a 22% return. So I said to him immediately, "Do you realize that you won't get that every single month because I can look back at the data and know that's not how that strategy works?" And he immediately said to me straight back, "Yes, yes, I know. I understand that." And as a coach, I'm very aware that he understands that logically, but what if in his brain he's thinking, "Yeah, but maybe if I have a 15% month, which is somewhere in the middle, then I've had a 15% month, a 6% month, and a 22% month." And they start adding the numbers up. So, it can be even more subtle than just expecting to hit the top tier every single time. It could be, well, what if I have another 22 months in a couple of months, and you're starting to hallucinate about results in the future rather than just going, "That was what the strategy delivered that month. Did I execute and follow my process?" And he did. Okay, well, that's what the market was willing to give me that month. I'm not expecting that every single month, and I can use the data sheet as a reference point to see what is the norm around that. Is that 22% way outside the norm? Well, the answer is yes. What's the average over a two, three-year period? And he's able to look at the data to do that and look at his back testing. And then he can say, "Okay, right, the month was that because I executed, and that's what the market's willing to give me. If next month it's only 2% because that's what the market's willing to give me, as long as I executed correctly, I'm doing everything right. And if that month comes round again in five months, six months, two, two years, whenever it is, if he is executing correctly and following the process regardless of the result, he's then guaranteed to get that result when it happens again rather than chase it because you expect it all the time." So that's key.
So keys to success. Number one here, keep doing what you're doing, what got you here. So don't forget that it's all the good things that got you to level five. Keep doing that. It cannot be underestimated how much just maintaining that and doing that will keep you successful. Maintain a long-term view. Yes, you might be looking at bringing new things in and doing things, but keep maintaining a long-term view. Don't start reacting to short-term results, especially if they're a little bit different. As it says here, stay focused, stay process-focused, as we've already said, and remember to still test new ideas first. So, if you've got a new idea, test it first. It's the testing and the data that got you to this point. Maintain that.
Then some key action points to finish. Number one, revisit long-term goals. You may be ahead of those. You might be slightly behind those. You might have had slightly unrealistic goals coming in. A lot of the people I work with, we make sure we really make sure the goals are dialed in relative to the results that they can get, the strategy performance, the time they have available. All of these things play a role. But it might be time that you want to expand these, as I've already talked about in this video. So, this is a really good time to do that and, uh, revisit those long-term goals. Then here, stay on top of your data. I cannot emphasize this enough. Staying on top of your data is the lynchpin so that you can start to build more and more data and set new goals. If your personality dictates or your desire dictates, you might be, as I've said, at this level and you're happy just to tick along. That's fine. As long as you're strategic in the way that you operate, that's good. But it might be that now is the time for you to expand into other areas. And that's where coaching and feedback can still be really valuable because that can be the next step for you. And the risk here is still, don't think you've got it licked and suddenly set something crazy like, "I'm going to trade a whole new set of strategies," or "I'm going to go from swing trading to day trading without being careful in that approach." There's nothing wrong with saying you want to do that, but you got to make sure that you can deliver on it. And just because you're delivering very well on this doesn't mean a whole new discipline won't require you stepping back down the levels. You'll get through them more quickly, but don't expect you to, don't expect to come in at a level five automatically when you start something new. You may well get there very, very quickly, but don't expect it. And lastly, remember to check the level above and to check the level below because you may have come in here and you might be teetering on the early point of level five, and you will really benefit from learning what I go through at the level four, and you can pick up on what I'm saying about the focus refiner, and also see what happens at the next level. So, you might be thinking, what's next? Well, feel free to follow me here for more trading insights. But if you're looking for an even more clear, specific, and proven route to your own trading success, then check out the links in the description, and they'll show you exactly how we can.