Transcription
So, it took me over a decade to learn what I'm about to tell you in the next 10 minutes. If you're new here, my name is Will Johnson. I'm a former professional Call of Duty player who was in the 2013 Guinness Book of World Records as the winningest player of all time. And I've been trading full-time for the last 13 years.
So, one of the kickers about trading is that it's a game of probabilities. And there's an element of randomness to it, which means you take a big group of people, say you got a 100,000 people that start trading, it's inevitable that at least a handful of them or maybe a relatively large fraction will see some bit of success. They're going to get lucky. And this is actually a detriment to you in the long run because what ends up happening is this. So let's say you start off with a small account, maybe a large account, and you see an initial bout of success. You make a lot of money. Your confidence and your account grows in sync. Seems fantastic. But the problem is seeing as you just got started, there's a better than not chance that what you did and the way that you made that money is not actually going to be repeatable and scalable. You probably just got lucky. And this is where you run into problems because if you've ever made a lot of money really quickly, you know that can't nobody tell you once you do it. Especially somebody that's not making as much money as you. Just to give you a quick lore, I was able to turn $50,000 into $970,000 in about the span of two months. Come to find out, it wasn't due to skill in trading. It was due to being in the right place at the right time and having no idea what kind of risk I was actually taking. And so, I proceeded to spend the next 18 months losing all of my confidence and almost all of my money. You got to remember, Uncle Sam takes uh 30 to 40%. And of course, it's at this point where people decide maybe they want to quit or maybe they want to go on the actual journey of [snorts] learning how to trade and building their skill set back up.
Now, they call this the Dunning Krueger effect and it's applicable in a lot of different areas, but especially in in stock trading. So, this is one thing that if you're just starting out early on, you need to become aware of this from the get-go. That way if you find yourself in this position, you don't waste all of this time uh thinking that you were doing something special when in reality there was just a lot of luck.
So the second thing is that markets are very vast. There's over 5,000 listed stocks on the New York Stock Exchange. Uh there's futures, there's crypto, there's forex, there's a lot of different things that you can trade on a day-to-day basis and it can be very overwhelming and it's much more intuitive and it's much more to your advantage [music] to focus on a very specific area, a very specific niche. There's a quote that says, "Fear not the man that's practiced 10,000 kicks once. Fear the man that's practiced one kick [music] 10,000 times." And so early on, your time will be better spent focusing on a very particular uh asset class, a very particular strategy, a very particular setup, learning the ins and outs of that setup and scaling it once you become consistently profitable within that own setup. And then once you build a playbook that includes one setup, you can start to expand it and build more and more. But trying to attack [music] this thing from so many different angles at the start and be trading long, be trading short, be trading options, be in futures, be in crypto, it's just not a good use of your time and a lot of people are just it's going to be information overload and you're just going to get too caught up in everything and end up getting overwhelmed and and probably quit.
You also need to adopt a probabilistic mindset, especially on on social media. People are so caught up when they talk to traders or they hear traders or somebody's that that's selling a course and you know they they'll post a losing trade. I've traded over 10,000 times in my life, 6,000 in the last 5 years and my win rate is barely better than 50%. Which means flip a coin and that's how good I am at knowing whether the stock I'm about to trade is going to go up or down. The real magic in trading, if there is any magic at all, is structuring those trades in a way where you stand to make more money when you're right than you stand to lose when you're wrong. So, it's less about being right or wrong, and it's more about trade management, risk management, and making sure that the expectancy of your trades over time um lead to profitable outcomes.
Fourth thing would be to trade strategies that align with your skill set outside of trading. Not all of us are the same. When I think of myself, for example, in the way that I trade now, it really aligns with my career before this, which was in professional gaming. Because you think about what I did as a professional Call of Duty player. I was making quick decisions in high pressure environments without hesitating and relying a lot on instinct. That is very much how I trade in the stock market when I'm trading intraday. A lot of times I'm not actually thinking about all this stuff. I've internalized so many things about trading and pattern recognition and trade management that when it comes time to pull the trigger, I'm I'm not playing it all back in my head. I'm relying on instinct and intuition and experience in order to make trades in real time. Because in the market, especially if you're intraday trading, if you think too much, you're dead. And so you you really have to have some sort of of practice with that sort of decision-m in real time in order to succeed I think in intraday trading. Whereas a lot of people they might not like that and so they're probably better suited for something slower or something that expands their time horizon a little bit. Swing trading for example. You could be like a Christian Qua Mogley. [music] Christian Quaogley did not have a history as a professional video game player. I believe he was a security guard. Guy went on to make over $und00 million trading stocks. What is he good at? Well, he's good at a lot of things, but especially he's good at ruthlessly cutting losses and letting his winners run. Figure out what you're good at and then stick to that.
The next one, I'll bust out the whiteboard again for this. It's that momentum in the stock market precedes momentum. Meaning, it's very common when you go out, everybody wants to find the stock that's going to double next. What What can I buy and it's going to double? and they like to go dumpster diving and finding well what's down the most and I'll hope that I can buy it down here somewhere and eventually it will bounce back and I'll sell it up here. Buy low, sell high. You've heard it a lot. Um unfortunately this doesn't really work. It works more so in investing. It doesn't really work in trading. If you're trying to find the stock that's going to double next, the best thing to do is go find out what stock just doubled. Because many times in the stock market, a stock will double, it will consolidate, and then it will double again, and then it will consolidate [music] and so on and so forth until the trend reverses. And this also works in reverse when stocks are going down, and then they go lower, and then they consolidate, and then they go lower. There's also some very common sayings, the trend is your friend here. Um, and you just need to come up with ways to structure your trades so that again, you make more when you're right than you lose when you're wrong.
One of the biggest pieces of advice I could give somebody is you need to find inefficiencies to trade. Meaning, if you're going out there as a retail day trader and you're just going to draw some lines on a chart and go trade S&P futures or you're going to trade some currency pair solely based off technicals and and nothing else and you're trading an opening range break strategy and they've got stupid simple in the YouTube title that you were watching, it's probably not going to work. If most people are hoping to find any edge or any alpha in the market, it's going to be in these very specific situations like parabolic trends, capitulatory trends, episodic pivots, breaking news trades, uh earnings, anything where markets tend to repric securities and assets really quickly because there's some sort of inefficiency there. And so when you're trading very efficient markets like futures and forex and the S&P 500 and things like that, th those opportunities just don't come around super often.
Next thing is that it's inevitable at some point that you're going to start losing some money even after you become profitable. And so you need to have a draw down protocol. Meaning, how do you trade whenever you start losing money? An example for me is I cut my trading frequency by about 80%. I cut out all of the fluff. All of the 50/50 trades, all of the experimental trades that I'm taking, uh, new setups that I am testing and trying to optimize, I cut those out and I go back to the breadandbut setups that I know and understand and I I know for a fact based off my own performance that I have an edge in those trades and I only trade those and I also size down and risk less money. That way I can execute them flawlessly without worrying about whether or not I'm going to win or lose. And then as I start to build consistency back, then I can start to increase my bet size a little bit, start to expand once again. But you'll find many times that by cutting your trade frequency and waiting for your breadand butter setups, you make money, and then you realize that that's probably what you should have been doing all along.
Anyway, this one I went into a lot of detail about in the first trading video that I uploaded about building a trading process, but you really need a framework for every trade that you take. You need to systemize your entries, systemize your exits. You need to name your setups. You need to understand all of your setups. You need to understand your trade management plan. You need to treat your trading like a business because that's what it is. And businesses have strategies and they have expenses and they have profits and they have uh some framework for how to operate [music] because markets again very vast and you can do anything. You can turn this thing into a gambling machine if you want. You can just go nuts. You you can bet your entire account on anything you want. You can do whatever you want. Nobody cares. The broker least of which they they really don't care. But by trading the same setups and trading them in very similar ways in terms of your entries and your exits and how you stop out of trades and how you take profits. When you do all of this consistently, then you are able to track your statistics and start to tweak for what's working, what's not, and you can actually optimize and cut out everything that's not working and leave everything that [music] is.
Which leads me to my next point. Track everything. Get a journaling software. Uh there's plenty of them. just go to Google and and you can find some, but you'll have no idea what you need to optimize for and what you need to change about your trading unless you're tracking it. If you're just going out and firing from the hip and you're trying to figure out what strategy works for you, it's just not going to work. You need to know [music] what your win rate is. You need to know what your average winner versus your average loser is. You need to know, do you make money from 9:30 to 11 and you lose money later in the day, or is it vice versa? Do you make money on stocks that are under $10 and lose money on stocks that are above $10? You need to gain some sort of understanding of what you're doing day in and day out because then you can go in and make tweaks and yeah, actually figure out what your problem is. If you can't figure out what the problem is, then you're not going to know what to fix or even worse, you're going to go out and try to fix the wrong thing and optimize for the wrong thing. So track everything. Get some journaling software.
So the last thing, but certainly an important one is beware of the black swan. Beware of unprecedented things happening in the market because the funny thing about markets is things that have never happened before tend to happen all the time and those are the ones that can really get you. And this tends to happen when you're trading outside of your process and outside of your core competency. Some of my biggest losses ever have come from these black swan type moments where you don't think something can happen because it's never happened before or at least it's never happened to you before. For example, I lost $85,000 in about two hours trying to buy SVXY and XIV after hours in February 2018. I didn't realize at the time that because the VIX had gone up over 100% that day, that meant that these levered ETNs that I was trading were essentially worthless. They blew up. And so I see the thing down after hours and it's down like 60%. So, I buy some and then it goes down even further and I think, "Oh my gosh, this is a great opportunity." Now, it's down 70%. I buy more. It continues to fall and now it's down 85% and I really buy a lot because this is absurd. It can't go any lower. And before I know it, the thing's down 90% and I've lost $85,000. Of course, buying some random levered volatility product after hours on a random day in February was not a part of my process or my niche or my core competency. But I got caught up thinking that something that insane couldn't happen. And of course, it happened. That's my spiel. Thank you for listening and I'll catch you right back here next time. Peace out.