Episode 072 – Part 2- Four pillars to Trading Success, why you can’t succeed with just three, unlocking quality feedback, trading under pressure, tackling recency bias and more – with Ali Crooks
In part one, we introduced you to the concept of trading thanks to expert trader – Alistair Crooks.
If you haven’t listened to part two, you can click here and do that now.
If you’re ready for part two, then you’ll know the reason we wanted to bring this subject to the forefront is – one of the most significant ways to create turning point in your life is to transform your wealth, your finances and your money situation.
One of the best ways to do that, a proven, tried and tested way to do that is trading.
In part one we learned more about Ali Crooks, Traders Support Club and his journey from where he started to becoming an expert trader and achieving 18,000 hours live trading hours.
In part two, Ali deep dives trading and introduces you to:
- Trading through systems
- His Four Pillars to trading success
- Why most experience traders fail (hint – they don’t have all four pillars in their arsenal)
- How to trade under pressure
- Overcoming recency bias (every traders kryptonite)
And much much more.
You can consider this episode a trading introduction masterclass.
Go ahead and listen to episode two now.
Learn more about Ali Crooks and Traders Support Club:
Get access to Free Traders Support Club membership site click here.
To learn more about Ali and Traders Support Club click here.
Please subscribe and review. For show notes, to become a supporter and get your perks go to https://seekardo.com/
Harms: Hello it’s Harms here and welcome to another episode of the Seekardo show and today we are talking part two trading.
If you tuned into part one, you would have met Alistair Crooks who is an expert trader and the reason we wanted to bring this to the forefront is out there at the moment one of the most significant ways to create turning point in your life is to transform your wealth, your finances and your money situation.
One of the best ways to do that, a proven, tried and tested way to do that is trading. In part one we learned more about Ali crooks himself and his journey from where he started to becoming an expert trader which he is now.
Dr Ro: Remind everybody what you do and a little bit of your history and what you do today in terms of the world of trading.
Not just from an educational perspective, just overall right.
Ali: Okay, thank you for having me back, good to be back. I’ve been trading for about 20 years. I didn’t have a grand plan to trade. A friend of mine said very often we trip up, stumble and fall into what it is we want to do.
All I wanted to do when I was younger was be wealthy but I actually wanted to be a PE teacher and back then they weren’t very wealthy. I’ve always had this pull to want to do something meaningful and helpful, but always wanted to have wealth and primarily choice.
I started out as an entrepreneur. I had a very successful initial business. My second business wasn’t successful and cutting a very long story short, I got into trading simply because my second business was going to the wall and my business partner at the time smartly wanted to be out of that scenario.
I wanted to keep going. I pledged to myself that I would never have a scenario where my future was dependent on somebody else and by chance I was in an investment club at the time and I learned a little bit about trading and back then trading was very different. It was much more US orientated.
For me it was something I was almost drawn to, because of the pain from something else I’ve experienced and I thought to myself like some of the guys I coach these days that if I can just get to a point where I can pay my bills, I can sit at home and I haven’t got a boss and I’m not responsible for all these things. I wanted to quit my job and if I could just get to the point where I could pay my bills then my life would shift so it wasn’t really trading. I wasn’t drawn to trading by the excitement of it.
I wasn’t a gambler, I didn’t have a passion for it, I saw it as a way out. I call myself a C grade student with an A great attitude. I do try and put 110% into everything I do, so for me I saw it as a way out or I saw it as a way to at least expand my opportunities and my choice.
Back then it was a very different game retail trading, it wasn’t 18-year-old kids doing it. There wasn’t this stuff on Instagram, so it was books or it was flights to Las Vegas. So essentially that’s what I did, but for me it was about getting that freedom.
It wasn’t about Ferraris. It wasn’t about mansions. It wasn’t about any of that and of course that’s what I would have loved to have got to at the time and things are very different now and I’ve got a lot more choice and I can choose what car I want, but back then it was actually more about the things that I value the most now, which is freedom, choice, I can live where I want.
I got into it for that reason, and then after a while I started to get hooked because to be a successful trader you’ve got to treat it like a professional athlete.
I think one thing a new trader should look at is it’s very easy to make money over the short-term. It is the hardest way to make easy money, that was one of the things my first mentor said to me, and that’s always stuck with me.
Trading is one of the hardest ways to make easy money and really what that means is so much of it is what goes on in your head.
So for me, I very quickly realised after losing money very quickly that I needed to treat it like I was a professional sports person and as a failed professional sports person, I could relate to the mindset of it, and that’s what got me into it.
It was that was the mental challenge and the ability alongside to have something that didn’t require me to get a job because even at saw 22 I was pretty much unemployable because I’d come straight out of University and I thought I wanted to get into corporate marketing and when I actually got placement on my degree, I realised that just wasn’t me.
This was very much a way out and a way to create freedom. It wasn’t some master plan to be a trader and then for me I just found it very liberating because it gave me that choice. It gave me the challenge and very quickly I realised that a lot of what was being sold out there at the time by the Americans was not how it worked.
You don’t have to be a mathematician, you don’t have to be an Einstein to be a retail trader but it is mentally taxing and I think that’s a very important point. It’s a rewarding journey but a very challenging journey. You can make easy money, you can make a month’s money in two days, you can make a three-month’s money in a week and some weeks that’s not going to happen.
So those are the weeks that you become a trader. It’s not the weeks you make money it’s the weeks you lose money.
Teaching trading came a lot later. So essentially I was in a position where I was very consistent with my trading, that doesn’t mean I made money every day or every week but I was consistently doing the right things and consistently making money.
And at the time I was a little bit bored as this wasn’t the thing that I dreamt of I kind of fell into it and I think it’s important for listeners to realise that trading isn’t a people person’s pursuit.
You are essentially on your own at home and so for me there was actually quite a big void once I got good at trading because the excitement got less because I was getting better at it, the better you get at trading the less exciting it is.
For me being a driver expressive you know about personality styles there was an element of my life from my kind of vocation that was missing.
Dr Ro: So you jumped into teaching if we fast forward now having taught thousands if I think about over the years take us to the last few years, as there has been some big shifts in what you are doing.
Ali: I would say obviously with Covid big stage stuff and any kind of face-to-face training stopped and that wasn’t something that was something I strategically planned, I just got various different opportunities after coming to learn from you.
I got opportunities to speak quote on quote onstage and do face-to-face teaching which I love. I got a chance to share a stage with Robert Kiyosaki and got to spend time with him, which was hugely insightful and not that I agree with everything that he says, but my God, that guy operates at a level that just blows your mind.
I also got to see the bad side of the industry from financial trading, property investing, online marketing all of that so I’ve seen both sides of it. I get thrown in on Instagram in the same boat as these guys.
So for me one of the things I did a couple years ago and I prioritised this prior to Covid was to really push an online model that was not just watching and learning stuff online because a lot of people were coming to me go, I’ve just spent the last six months trawling through YouTube and I’m no further on, I’m no better off. I’ve lost more money so I was like, how can I create something that is a combination of knowledge, proven strategies and an actual support service that gives you the support you need?
Because I think the challenge is a lot of people are drawn to trading from the intellectual pursuit element and those people tend to and I’m generalising a little bit, but they tend to be the people that like acquiring knowledge for knowledge’s sake.
I say trading is not an intellectual or knowledge pursuit, it’s a performance pursuit that doesn’t mean you have to have knowledge and you have to have a certain level of intellect to be able to do it, but that’s not the driving factor.
The driving factor is your ability to perform one under pressure and two in varying conditions.
Dr Ro: There’s so much information out there I think people become overwhelmed with the free stuff.
Ali: The biggest shock people have and my daughter says keeping it real. I don’t know what the cool kids say anymore but I think most people are a little bit shocked about what I don’t know, especially the guys that have been in the game for three or four years and are not making money.
They seem to think that I’m going to be this fountain of knowledge of all things trading all things the market all things stocks, people say to me know what do you think will happen to Apple?
I don’t give a shit, it’s not part of my system and that shocks a large group within the trading community because I think they expect me to be like Jim Cramer on CNBC and I’ve got an opinion on everything and what you’ll actually find is a lot of traders that are very consistent, especially in the retail game I’m not talking about fund managers and hedge fund managers and people in that game, but in the retail game they’re very systematic in their approach and it’s actually about exactly about what information you filter out as much as what information you filter in.
Because the tendency is to over consume information, especially with what’s going on at the moment in Ukraine even I found myself tapping into the news even without realising it is subconsciously just paying a little bit more attention to the news because the market conditions change slightly. I think the first thing I would say is you don’t have to know everything.
You just have to have a proven system that you can apply and you have the ability and the awareness to be a little bit flexible with that system because market conditions will change, nothing is ever the same.
And if you’re listening to somebody who’s tried trading and failed or somebody that has been doing it a long while and still can’t get the results, invariably you are either too gung Ho and you want to trade too much, or you’re somebody that is supplementing the lack of fear of loss with too much information.
In summary these last two years have been about really distilling what it is I do over and over again, trying to re-evaluate the system and how I can make it better.
How can I help more people? How can I get make it more simple, more effective and this is something I’ve really honed in on and about two years ago myself and one of my ex-students who does some teaching for me we sat down and we went through and said how can we create a system, a program that would allow traders who have never traded before to essentially see what it’s actually all about?
Then we also went but how could that training work for the guys who are what we call sitting around breakeven they make money, lose money, make money, lose money?
Then personally for me it was also to start my own fund, so a couple years ago some guys I knew the city very well respected wanted to put together as asset managers a fund that was essentially for retail traders.
So rather than investing into say BlackRock a big hedge fund or somewhere like fidelity you could choose to invest into a retail trader. A retail trader will have a different approach. Their results will work differently but it will give you the guy on the street the chance to invest in someone like me.
For me it was not something I had to do. Yes, there is a financial incentive for me to do it, but it was more about really just proving that there are a few trainers out there in the world where a lot of people think those who can do those who can’t teach that actually do both.
Harms: It answers the question which I think is an important approach if you’re a consumer and you want to go and learn and you’re deciding who do I invest my time my resources with to go and learn how to trade, I think it’s a really important question to be slightly sceptical in the sense that ask that question, is this person teaching this a trader?
Do they actually trade?
I think what you’ve done there highlights exactly what you do, which is your trade and teaching is a supplement to that.
Ali: Yeah, I didn’t come into this to learn to teach people how to trade but also Harms what’s really important from the other side of it is to say, my students pay my rent, they pay my bills and the reason they do that is every single penny that I make from trading I reinvest into my trading pot and all that means is that I’m going to hit a certain goal I’ve got when I’m 50 way quicker than if I had to take the money out.
I also think it’s really important because a lot of these guys are pitching the lifestyle.
The only reason they have that lifestyle is because they’ve got £1,000 people paying them 50 quid a month, so I’m very upfront, I’m like here are my results. I can’t put results up, I can’t put statements up that aren’t real because that’s part of the agreement with being regulated all my fund figures are regulated.
When people say do you have a job, I’m like yeah I have a job I coach people.
I’m so tired of this slapping down a job, there’s nothing wrong with jobs and as a trader having a job is one of the best vehicles you can have because trading is a time efficient income and it allows you to build wealth alongside your job.
If you don’t like the job fine you can use it as a vehicle eventually to get out of your job, or if your finances allow you it’s something you can do straight away and I think this is what I really wanted to push is this get away from these guys who are 20 years old pushing lifestyle and their lifestyle is not based on the trading performance but also not hide away from the fact coaches and trainers make money from coaching and training people.
Dr Ro: Same thing when we teach people on property. I have people that say to me I have to give up my job to build the portfolio in your case, just give up my job to trade the market and I can say I’m still putting time in and getting paid for that time as a speaker you as a trainer and coach.
It just shows that you can do both.
Ironically, by doing it you’re showing people that are coming through that it is doable to have something else you’re doing and trade the stock market and currency markets.
What is the system that you trade with yourself and these four pillars I’ve heard you refer to, can we start to delve into that?
Ali: I think what is really important is certainly for me as a trader I’ve had different aspirations the older I’ve got.
When I was 25 I was fortunate the interest rates were a lot higher, there was more liquidity in the currency markets. I enjoyed day trading. I wanted the hustle for one of a better word. Whereas now the thought of day trading every day doesn’t appeal because then that would be another job on top of the job I’ve got coaching people.
There isn’t an age restriction saying if you’re 25 you’re better suited to day trading or it doesn’t have to be the same.
Dr Ro: To give you some context I used to trade pretty consistently for years and I taught it. Ali and I crossed paths as I’d been teaching for a while and he and I crossed paths, he wanted to come into the arena and teach it.
I then stepped down from trading when I had my kids and here I am at 56 and just to show you who do I go to go get back in I go back to Ali, who I met when I was teaching, he then came up and now he’s teaching and he’s going to be someone to coach and mentor me moving forward and I’m nearly 60.
There is no like shit you can’t trade after a certain age and I’m proof that you can step back in and also show you who I’d go to.
Ali: That’s kind of you to say that and when people talk about age I think of one of our students Kevin he was 79 and he day traded the US markets. He said, I get up and enjoy my pension in the morning, but I top it up in the afternoon.
Harms: On the other extreme, what’s the youngest you’ve ever had?
Ali: 16. It’s important to understand the system I’m going to talk about is what I would call if you imagine a pyramid: it would be the foundations, it would be the base.
This system applies to a day trader who might be in front of their screens eight hours a day. They might be 25 hustling because that’s what they want to do or it would apply to somebody in their 50s who has got a more relaxed approach otherwise known as a swing trader.
They’re trading in and around the job because the pillars, hence the name underpin everything you do, so it’s almost like if these ingredients weren’t in a recipe then the recipe won’t work regardless of what else you did.
No matter what quality the saucepan was, this isn’t something that is only for swing traders or only for day traders.
They are like four legs of the table so as a new trader having the understanding that each of these four pillars has to be in place for them to be successful, or as a trader who’s struggling the chances are one or two of these legs they’re either avoiding or they’re not putting enough effort into.
Each leg is a set of skills that need to be learned and applied, and then put together and the reason why people can get into trading and can make money and then blow their account is because if you think about table with four legs, that table can balance there without one leg but you apply any pressure onto that table a losing run, losing money, over leveraging as soon as pressure is applied to the table without the four legs the table tips over.
Then what tends to happen is traders who have got experience will not understand the four pillars will not have a feedback mechanism in those four pillars to know which one is wrong, so they’ll jump to another educator they’ll jump back on YouTube, they’ll change their approach, which for some might be the right thing but for some they just needed to carry on trading or manage the risk more effectively.
Harms: It’s true what you’ve said a true trader shows up, not when they’re winning, but when they’re losing and under pressure.
Ali: I think the overriding scenario for new traders is never underestimate the concept of recency bias. This is something as somebody who has coached people one-on-one, I’ve coached everybody in every arena, I’m not just a guy that stood up from the stage and got people to run to the back and sign up.
I’m doing 15 hours of life coaching support a week, I see this and the one thing that as a new trader you need to be aware of is, never underestimate how much our mind is geared to focus on what has happened more recently and as a trader who’s got more experience I would say you need to examine that.
This whole pillar system is designed to help that because what usually happens is traders will react to the result of what’s happened more recently, three losing trades on the trot they question what they’re doing. Three winning trades they become overconfident.
It is also about when you’re losing, but it’s also about what do you do when you’re winning?
This has all been scientifically proven by Michael John Coates and he identified how the joke is never give your money to a fund manager that has got 10 years of decent track record because they’re over cocky, their testosterone levels are high and they’re about to lose money. It implies that traders who perform well their levels of testosterone go up and their tolerance for risk often gets too high, so it’s both performing when you’re losing under pressure but also performing when you’re winning.
The legs essentially make up this kind of recipe or this table however you want to think of it in your mind, leg number one is what I call technical analysis and what we call strategy recognition. It is your ability to read the direction of the market and the system you use to do that and your ability to read an entry into that market.
So when people say to me, are you a currency trader, indices trader, stock trader?
I say directional trader, so there are some markets I will favour over others, but it’s more about can I have a system that will accurately predict the direction of various markets on a consistent basis. The trouble with the word consistent is most people are expecting consistent to be 90% of the time. I would say on average I’m right between 50 and 60% of the time. So even though I’m talking about a system accurately and consistently is a system that works 60% of the time it’s not a system that works 90% time.
As a new trader and an experienced trader that’s just something you have to get over.
You need a system that allows you to be okay with being wrong 40% of the time.
The reason I teach that system is I say, you’ve got to get so confident in analysing the chart not so you’re confident you’ll be right every time but you’re confident you’re following the system.
A lot of traders will guess right and then guess wrong so they’ll change what they do. That’s why having a system to your analysis is so important because if you’re expecting to be right 90% of the time and your system is flaky, then you’re not going to be right 90% of the time so you’re constantly going to be changing your system or going on to YouTube to look for the next indicator, the next strategy, the next widget.
Harms: I’m genuinely curious, not necessarily from a male-female gender perspective, but from a male-female energy perspective.
What have you found in terms of male versus female energy when it comes to trading, trader success, managing somebody’s testosterone?
Ali: Very interesting.
Science says that testosterone goes up, regardless of gender. However, this is really interesting, men tend to attach more significance to their results than women do.
For instance if a woman has five winning trades it’s not that she didn’t think she was responsible but she tends to take a little less personal ego over it.
Whereas if a guy had five winning trades and I am generalising a little bit he tends to be more bolstered by that. I use a pendulum as an example from the mindset point of view and guys will tend to be actually at the extremes more so, and I think it’s because men feel more comfortable in control. I think that’s lessened in the 20 years I’ve been doing it as you’re seeing a lot more women in similar roles.
But what you find is the masculine energy whether it’s man or women tends to like to be in control and regardless of how good your system is or how dialled in you’ve got the four pillars I would be lying if I said just because you’ve got these four pillars you’ve suddenly got control of every trade. The markets change so the perception of control it’s like business owners, so business owners tend to be a little bit more male-female, masculine in their way of doing things and most business owners think they’re going to make good traders because they say they’ve got an appetite for risk.
But what they also forget is the other side of the coin, which is they are usually control freaks, so being in the markets as soon as that trade is placed you don’t have any control over the outcome. You can’t call a meeting and sort your team out and solve the problem and make it shit happen.
So control freaks or people who really value control which I think is slightly more a masculine trait is the scenario where you get that whole but what do I do now? I’m like you do nothing, there’s nothing else to do. There is a spiritual element to trading, which I never thought about when I first started out.
There’s a sort of spiritual balanced element to how you operate.
Dr Ro: I guess you could as you get older they get wiser and with that wisdom comes more spiritual centred part to them. But actually, as you get older if you’ve had failure in the past or anything that has created a significant emotional block around money oddly enough, that could work against you and it becomes even more magnified in your trading.
Whereas a youngster coming in may not have that baggage, would that be a fair argument?
Ali: Yes, and I think the other thing to bear in mind as well is don’t underestimate the conditioning. If you have various episodes where you’ve lost money and people don’t logically go well I lost money in property. It’s going to be different with trading.
Or if I lost money in online marketing trading will be different because I’m learning Ali’s system, it’s logic versus emotion and also sometimes people come into it later in life with more desperation because time is running out.
So the six months to learn something is almost too long or sometimes you see with slightly older people if they’re a little bit more balanced but the conditioning is there. Whereas the younger guys and girls tend to have a little bit more hustle about them, they want to move quick, but they can end up being a little bit too greedy.
A lot of the time with the younger guys and girls I’ve got the reins on them pulling them back a little bit and sometimes with you the people in the later ages you’re giving them a little bit more of a kick and also the younger guys and girls just have more affinity with technology it doesn’t all seem very different.
There are these trends, but I’m always pleasantly surprised as a trainer. I had a lady who was in her 50s. She was an interior designer. She was quote on quote out there in her thinking she was very, very spiritual and if you looked at it on paper you’d have no chance.
This just isn’t for you, but I never, ever, ever write anyone off, despite what I might initially think or what I might judge. It took her longer because it was completely alien to what she did but she did it because she wanted it bad enough.
Dr Ro: You can come to the table at any age and as long as that table is stable, i.e. the four pillars are there and you’re comfortable with that.
Harms: In addition to that, we’ve also got the gender side which is for the men you’re about to get a reality check and ego reality check.
My wife is now exploring trading and one of the early conversations we had was, isn’t that like a guy thing? Now I’m listening to Ali. I’m thinking actually she’s going to be potentially a fantastic trader because of everything Ali has just described in her nature, so it’s a real fantastic realisation.
Dr Ro: A woman, for example, going into an estate agent or onto a building site with a whole bunch of burly blokes, whatever there might be a feeling of anxiety, but actually trading is a screen, charts, impersonal it really comes down to those four pillars you talk about and just having an attitude to really want to succeed.
You don’t have the anxiety of possibly having to deal with people on a day-to-day basis where there is this crossover of personalities, gender and the stress et cetera.
It is a very different environment.
Ali: And the market doesn’t say who did you know, what school did you go to?
These people that I teach online they’re just there and I get to know them very intimately. It is great because I’m helping, coaching and judging them based on their performance.
I’ve got no biases. They’ve got no biases, it’s just if they like the sound of my voice or not for 15 hours a week. But I think that’s a hugely important point because in a way that’s what drew me to it, it was out of pain but it drew me to it because I was like if only I could do something where nobody else is involved.
Nothing else matters other than whether I achieve it.
Dr Ro: What I love about your situation Ali is that you are at an age where you’ve been that youngster coming through. You’ve been somebody in their 30s now into the 40s, you’ve gone through biological change and have experienced it.
Unlike as you said on Instagram, people that are like late teens and they’ve maybe had one or two good trays, but they’re blowing it up to some disproportionality, they haven’t lived through recessions and seen when the market is volatile.
Ali: Having an element of self-awareness is huge.
But also having the openness to understand that even somebody who is in their mid-40s to somebody who may be in their mid-50s has got enough hours under my belt. And not just coaching people like talking to them in a static situation, but in front of the market about a trade they’re in, about a trade I’m in, about a mistake I’ve made and I am always very open. This is like a sport, it’s not a perfectionist game.
Pillar number two we call data.
It’s the pillar that a large percentage of traders can see a traders personality style in how they approach data. So, for example, I’ve worked with people that are so analytical in their approach that all they can consume themselves about is a spreadsheet. I had one guy who made his own spreadsheet.
The real analytical people think this is great and it appeals to them because data is key and then on the other side somebody like me and the only reason I became a successful trader is because I owned the analytical side of me that I was disowning. I’m not naturally an analytical person.
Even now, I’ll get weeks behind on keeping my trades up to date on my spreadsheet. I’m the guy that wants to be in the market. I’ll fill out my spreadsheet later. So, data analysis is your ability to test and track the trade you place, your ability to then take that data and interpret it and thirdly, then any changes you make.
So what you tend to see is the extreme is the guys that don’t bother collecting data so they don’t know the performance of their trades they are just looking whether they made money or not. So they’ve got nothing to interpret and then they can’t make any strategic changes.
On the other side of the coin you’ve got the guys that collect more data than they need. They obsess about it almost to the point where they’re more focused on that than their trades and then they’re making too many changes because they’re trying to over-optimize what’s in front of them.
I tend to see more of people’s personalities coming out in how they approach the data side of the trading and what’s interesting is how a couple of clients recently and I heard this message over and over again they said out of all the areas in trading that get talked about the most this is one that gets talked about the most but gets taught the least.
All the gurus are saying yes, you must record your trade you must journal. Nobody is actually really showing them how to do it, and this is borne out 15,000+ hours in the trading room where I’m not just sitting there calling trades I was looking at traders courtly performance, monthly or even weekly performance looking through the trade and just asking simple questions that you would want to know if you had 10 million in a fund.
Harms: I was lucky enough to see a glimpse into your data collection Ali and it was immense. You just had all the data there and there was nothing missing.
Ali: I think the most important thing for your listeners is there will people here literally their tails wagging now because that’s the natural tendency literally foaming at the mouth over it and then you’ve got the other group who are like, I don’t understand excel, I don’t know spreadsheets, numbers scare me and it’s important to understand that I got a C in maths at GCSE I am not naturally numbers orientated but I sat there and went what’s the area within this pursuit I’m disowning.
It’s like saying I keep pulling my hamstring as a runner but I’m doing nothing to strengthen or make it more flexible, you wouldn’t do that you’d go there’s a problem in my approach I need to solve that problem.
So for me it was about saying I’m too busy being in the market changing my approach. I need to be able to look at the data, so what is actually happening to my trades?
This is something we are world class in because you can’t coach people for 20 years and just keep telling them to place trades here and there and I want people to manage trades without me. It’s too much stress on me when I’ve got 200, 300 traders waiting on my call and my call might be slightly different on that particular trade than somebody else’s.
I want them to be able to collect the right data so that they can analyse their own trades in their own performance at a certain point.
Dr Ro: Everyone talks about logging your trades and I wrote down data equals performance. That’s a measure really of your performance. If you think about it, if people are afraid to face their performance, but if they’ve recently done okay they’re going to gravitate to what they’ve done recently instead of looking at their overall performance.
Actually looking at data to see their overall performance may show that they are actually not doing so well. They keep running with that strategy which might actually be the wrong strategy overall long term.
Ali: You couldn’t be more correct.
A lot of people come to me and say the strategy I trade doesn’t work. I say, show me the last two years of performance for that strategy and nobody has ever gone one second Ali I’ll grab it for you. I turn around and say is it the strategy that doesn’t work or is it your ability to deliver on the strategy?
All of my traders that I work with closely know there is no point coming to me saying something about our strategies not working or I think I’m getting this wrong or I’m feeling really unconfident today. I’m like all of those things in the short-term are true, just like the positives.
So what keeps a trader in what we call the breakeven cycle is that recency bias. I have had five winners, but you’ve had five winners you’ve risked 1%, you had five winners at 1% and three losers that are twice as big as the winners.
What happens is you sweep those losers under the carpet because your recency bias was I know they weren’t great trades and I screwed up this week but we will start again on Monday. But in the same breath a trader comes in and they’re trading a similar strategy to me, in which over a hundred trades can have 40 losers.
I want to know over the years what those average 40 losers a year look like.
Does that look like 10 lots of two losers in a row, or does that look like on average six losers in a row and then three lots of three?
Somebody can come in and they can do everything right, follow my strategy, my system to a T and their first trades could lose. So what’s the quickest way for that trader to get out of recency bias is pull up the spreadsheet of eight years of performance of that strategy external to them and see that four losing trades on average happens three times a year, every year for the last eight years.
Suddenly that makes it about the performance of the strategy Ro, you said data is performance it helps get help traders get out of the way because then they can evaluate the four trades based on pillar one, so did they follow the system and then if they follow that system and there were four losers, what happens to the traders mindset?
When you start thinking that strategy is meant to have four losers in a row rather than I can’t believe it’s had four losers in a row, then you shift yourself. Imagine this on a more detailed level. I know that 78% of my winning trades go into a losing position before they win.
I expect my trades against me. Imagine from a mindset point of view, I’m already ahead of the game because I’m expecting my trade to go against me whereas the guy who has never learned to do this properly is like shit my trades are losing.
Dr Ro: Just one point if you’ve got a strategy there are ways to go back and look at the performance of that strategy even if you’ve traded for yourself.
Ali: Imagine buying a company, you’re going to look at the performance of that company to know that what the guys asking for that company is a legit amount, so it is the same. You might look at the performance of that company that doesn’t mean you can automatically deliver the same result, but you look over the accounts of say the last five years to make sure the evaluation is fair and that if it’s worth you buying it.
That’s one of things I say to my students, you’ll see how these four pillars linkup, but there’s no point a trader coming in saying I want 200% return year because that’s their financial freedom figure yet the strategy that they’re looking at performs brilliantly but it only does 50% a year. They’re more likely to break the rules and get frustrated.
The strategy is a brilliant strategy that doesn’t fit what they want. This is why there is not a one size fits all in terms of trading strategies or trading performance because I work with people in their 50s Ro that just want to top up their pension.
So for them consistently delivering 30% a year is fine, then I might use this kind of stereotype. I might work with a 25 year old girl that wants to be doing this full time in five years, so 30% a year to them is nowhere near what they need.
If they know the capacity of the strategies in the past it gives them a better chance of being able to deliver on whatever comes in the future, and there’s no guarantee just like in business.
The third leg is risk management.
Most traders at some point have either risked too little or usually too much on one individual trade. Imagine you’ve got a bag of gold coins, 100 gold coins in your bag each one of those coins represents 1% of your trading pot. Most traders are either risking too much of that pot on one trade so they might risk five gold coins in one trade.
Or they’re varying their risk based on what they think may happen or what’s happened as a result of their previous trades. The classic being a traders had five winners so, on six trade they risk three times more and they think they’re being conservative as what they’re saying to themselves is I have just had five winners, so I’m only playing with profit or vice versa a traders had two or three losing trades and they want to quickly make those losing trades up so then on the fourth trade they risk twice as much or three times as much.
So essentially without going into the exact formula it’s applying a consistent risk management process.
Dr Ro: By the way recency bias comes into relationships, and the number of people I’ve worked with over the years and their current partners is diametrically opposite to the one that was abusive or too soft or wasn’t loving enough so they go looking for the opposite to that.
Ali: When I met you my partner at the time was literally 180 compared, it was like you went from the nice and calm and steady lovely family orientated brunette to the fiery redhead business woman. I did a complete 180 in a relationship and as somebody who coaches people through trading you see you see this happen.
I see it happen in my own life and part of the reason I have this system is just because I’ve been trading for 20 years doesn’t mean I’m immune to recency bias. I might’ve strengthened the muscle more than somebody who’s done it for three months.
I had a trade recently and I followed my system, but for whatever reason, the result played on my mind more. I know logically that losing trades are just part of the system that could have been because I had other things going on, or for whatever reason that trade played on my mind.
So that system is there not just for my students but it’s there for me because I know recency bias has affected me in multiple areas of my life, but still affects me after 20 years. I think one of these things as we go into pillar four is mindset.
Yes, the overriding thing we try to avoid is succumbing to recency bias, but also the acceptance and the overriding thing with pillar four and mindset is, as traders we are not biologically geared up to trade. It’s probably the worst thing we could be doing as humans based on our natural biology, which is to avoid pain, seek pleasure and to deal with what is happening to us in the moment.
The sabretooth tiger mindset of your brains are wired to avoid pain or look for pain, so recency bias is built into us and also we especially the younger generation are almost flexing the recency bias muscle or training recency bias muscle by ordering something on Amazon and it turning up.
I literally ordered a new desk lamp yesterday night at 7.30 and it’s due here in the next hour and I didn’t go wow, that’s amazing. My daughter has never waited for a TV programme. If we train recency bias in the point of view of being impatient and being able to get what we want, with trading I can make a months money in week I can have one trade that may, on average, that strategy takes 5 to 6 days for that trade to transpire or be a winner or a loser, and a bit of news comes out and hits my target within 20 minutes, so I suddenly make 2% return, or 4%, 5% return.
Last month I had one trade that made 6% return in four days. Now if you’re somebody from an older generation and you’re used to getting two or 3% in the bank that can actually throw you the other way and send you into shock.
But for the younger generation if that becomes the norm, and that’s stimulated with all this get stuff now that is not going to be every trade. You’ll have a trade the following week that sits through the month right going up, down, left, right and centre because the market isn’t the same and is different.
That links back to data so if I know that the average time I’m going to be in a trade is six days, six trading days, but I know there are outliers within that average that go for 36 days I don’t start questioning it I don’t jump out.
The amount of traders I’ve worked with experiences they will after a week say what do you do with the trade? I say nothing, I stay with it. They seem to think if you’ve been in it for a week there’s something wrong.
The person who’s never traded before if you can accept early on that you are flawed from a performance point of view and a mindset point of view as a trader you’ll actually get over these learning homes more quickly because you have that acceptance that I’m not going to be this indestructible human with no emotions and I don’t want to be, but as a trader, I’ve got to work on ways to keep those.
Dr Ro: And being aware of what those flaws are as opposed to seeing it as a weakness
You just have to make sure you’re strengthening and keeping an eye on, and monitoring and as you said already, you could wake up in the morning and there’s been a death in the family, or the relationship at home is not going well or any number of things.
I remember for years struggling with the concept of just sitting on your hands and I found it really hard, but if mentally upstairs something is not right or the market is very volatile, but you’re one of those people instinctively that wants to get on and trade, the concept of sitting on your hands is really difficult.
Ali: What I try to do is bridge the gap between the cute phrase on Instagram that says you make your money in the sitting not in the trading which is true, but my brain and other traders say but how do I do that?
If you’re asking me that question, the chances are, that is another area within mindset hindsight bias which just causes traders a whole world of pain and then the third is personality styles. It’s this idea that certain traders will be prone to overtrading based on their personality and certain traders will be prone to under-trading.
One of the reasons I put this model together is there is a big thing that goes around which is are you a fear trader or a greed based trader?
I’m like it’s bollocks because I’ve been both and every trader I speak to at some point has placed trade out of fear and greed. You will have a tendency to one or the other, I tend to go towards a greed based trader, but I’m also a fear-based trader.
If I’ve got recency bias and I’ve been fearful this week I’m going to see myself as a fear-based trader not a greed based trader. Understanding if you are a more left quadrant personality style you’re going to be prone to over trading over the longer term, it doesn’t mean you won’t be prone to under trading, depending on what markets you use. If you’re right-based so you’re analytical and more amiable you’ll be prone to under-trading.
So when extreme events happen we’ve talked about this five trade losing run five trade winning run. If you’re prone to recency bias and you’re a driver base personality that loves to win and hates to lose, if you’ve had five winners you’ll be more internally motivated as well.
You think that the winners were more down to you, you’re far more likely to either overtrade or overleverage which is risking too much on that sixth trade if you have five winners. If you have had five losers and you’re prone to overtrading you’re far more likely to place the sixth or over leverage on the sixth as you want to get your money back.
Whereas the analytical right-side quadrant if they’ve had five winners they’re far more likely to want the sixth but over optimise their data to get it. If they’ve had five losers they’re far more likely to go back to the data and ask the question, what is wrong because an analyst loves to be right and hates to be wrong. If you think all of that will then link to how you then place the next trade.
So if you’re somebody that is prone to overtrading you’re more driver personality based you’ve had five losers that sixth trade may not actually have met your strategy criteria, pillar one, but the reason you traded it is you thought it met the criteria because you’ve got the overtrading tendency.
Then if you log that on your data you’ll start to see that there are certain trades in certain situations that you place that you shouldn’t so that data then shows you this and then you can go, I tend to ignore price levels at a certain time based on the result I’ve had. I know this as I’ve sat and I’ve got four people to analyse a chart and they see it completely differently.
I remember this guy Stuart came and said did you take the trade? And everybody went what trade? He said, oh shit. He looked back with the benefit of hindsight and realised there was no trade based on a strategy there and then realised he’d been on a losing streak a week. We work through this in a very systematic way.
When you learn it and it doesn’t mean you have to have traded to understand how you will perform in the market you only really know once you’ve traded. But somebody who’s never traded before if they understand recency bias, hindsight bias and what their major personality style is, it’s not that everyone is one personality style if they’ve got an awareness of that before they even press the button, they are way ahead of 90% of the people out there.
Dr Ro: That data is also what you were feeling, what was the decision process behind this trade so you can also define leg three and four which is the mindset and the risk.
Ali: If your listeners were to imagine a spreadsheet you’ve got what I call the nuts and bolts which is the trade number, the market, strategy, the time, the number of days in the trade, was it a winner or a loser? But then you start to get into other data: how far did that trade run past your target?
Something that kills traders is getting out at a 2% win coming back three days later and seeing the trade has run onto 6% and then hindsight bias kicks in, which is I should have stayed in. Then take it even further we get our traders to assess the trade, I especially get day traders to journal and rate where their relationship, the whole environment and they have what we call performance.
We have a performance score for our day traders so they have to give themselves a score out of six. It is the environment, family, all these things and they have to score that because over time, there is a correlation between what is going on externally and then I just get people to do a self-critique. They will evaluate that trade based on the four pillars so you’re right, it’s not just simply a set number.
I had a guy named Don, he came up with his own coding system for the trade one of them was WTF and that’s when he placed the trade he knew in his hindsight. I went with it as a coach because I would rather he created his own system to do it than not and it actually made a difference. He said when I saw too many WTF on the sheet I knew that I was kidding myself.
Dr Ro: There is a way of using demo accounts, can we just talk about that very briefly.
Ali: You look at it from two perspectives.
You’ve got to be able to look at a chart and the chart is simply the price movement of a particular market. Not only can you access charts for free, it allows you to go through the analysis process for free.
Imagine you’ve got to catch a train from a train station you’ve never used before and you can walk to the train station for free. You can walk into the train station for free. You can look at the departure board to work out which platform the train is leaving for free.
The only thing you pay for is the ticket to get on the train.
You can do every bit other than get on the train for free and it’s the same when it comes to learning to trade, you can analyse the charts. The demo account is simply imagine having a bank account that does absolutely everything that your online banking does.
The only difference was the figures in the bank account are made up, they’re not real money. What that allows you to do is to experience every element of the trading process without actually putting any of your own money online.
For me, I’m very big on traders, especially traders who might be or potential traders who’ve never had any experience and one of the biggest challenges new traders have in their mind is the idea of actually physically placing the trade because that’s the bit that feels alien.
But the example I give is most people have paid for something online the transaction element of placing a trade is like filling out a credit card form and pressing buy for your daughters present once you’ve done it a few times it’s fine, but ironically, it’s the area that creates the most fear in people because it’s the bit that’s unknown.
You get over that with the demo account so I get my traders to practice all of the different trades and get used to all the terminology a bit like pretending to buy five or six different things online you’ve gone through the process, you know how it works.
The challenge with demo accounts is I’ve met too many demo trading millionaires that have got a very good performance on a demo account, but they can’t deliver on real money so for demo accounts are there for you to be able to physically go through the process and get competent at the process, but as soon as you can you move away from a demo account and you move onto a real account because you really don’t understand how you will behave especially in the mindset quadrant until real money is involved.
It doesn’t have to be large sums of money but that’s the key, use a demo account to become competent in the process, but don’t sit there for too long. Another thing traders will do is say I’m going to demo trade until I’ve made 20% and the challenge with that is you could simply be trading a strategy that is underperforming at that point. Once competence reaches a certain point, then get onto a real account.
The amount of data that you log is proportionate to the type of trading you are doing, if you want to be somebody that’s sitting in front of the screen all day essentially your full-time job you have to do more testing of the strategy because you’re under more pressure, you’ll be trading more quickly your pattern recognition needs to develop.
But the guys I work with who want to do this alongside their job, the swing traders, we’ve already got nine years of live data and 20 years worth of backtesting data. I don’t say to those guys you have to do 20 years worth of testing before you ever trade a strategy. Start trading it now because you might only place three trades this week, but spend either time reviewing the data that we’ve got and building up your own data as you go.
So again, the amount of data that you have and the amount of time you spend collating that data on previous trades depend on the type of trader you’re going to be. We don’t have a single strategy that doesn’t have at least at least five years’ worth of testing data behind it and all of our live traders are recorded good, bad and ugly.
For me one of the biggest things that students are comfortable with they say is I see you trade through a five trade losing run and I see you come out the other side and I see the data and I see how you frame that process in your mind. I have all that data and accessible to those students at that level because they need to be able to dive into it. It is no different than buying a business.
Harms: As a youngster one of the takeaways I’ve got is another analogy to add to the mix is it’s like deciding to play FIFA, Xbox, PlayStation version of playing football versus you then going to actually physically play football for a football club, that’s the difference between a demo and trying it and being in the game version of this to actually then physically going to play.
When you’re playing for a proper football team you have a coach and they’ll say don’t worry this is a challenge that all players have faced, but I’ve got a lot of knowledge in this area.
Ali: With gaming you could almost find a middle point. Imagine how your emotions would shift if you were playing FIFA and you were staking a result on how you play.
Once you play in real football the stakes are high. It’s real.
There is a coach but there’s even people on the gaming level that treat gaming in a very different way than they used to. for some of the guys I say you have to examine how you approach this and how you’re analysing your charts whilst there’s a TV programme in the background and your kids are running around and you wonder why you’re missing stuff.
It would be treating FIFA as if it was a real scenario that had an impact other than just the computer game saying game over.
Demo trading gives you the ability to have the game over and nothing is lost, other than your ego, but once money is involved the emotion changes and what can keep traders demo trading is that they feel emotion because some people want to be right. The guys in the room sometimes I’ll show them my trading account because I’m trading multiple six-figure accounts.
Now I might make 3% this month but I made it on a quarter of a million quid. 3% of a quarter of a million quid is a different ball game than making 10% on a thousand both are great, but there’s a different mindset involved.
One of my best traders who ended up doing some training for us Kerry, at one point I think she was averaging the best part, 45, 50% return a month over a six-month period. She was very open about the fact that it was on a five grand account because she felt more comfortable trading a small amount of money at a higher risk so she found her niche.
Whereas the thought of trading a quarter of a million quid in one account she said I couldn’t do it. That’s the other thing that we do at a more advanced level: the traders really get in touch with the best way to trade for them because there is one way to do this.
Yes, there are these four pillars which underpin any trader of any discipline, any size of account, any goal, but when you go further up it’s no different than a recipe. You could do it perfectly and make this beautiful meal and I can have that same recipe and screw it up. I still need the same ingredients but if you want to take it to the Gordon Ramsay level, there are those things that happen at a more acute level.
Having awareness is really important.
I know that I want 50% return a year on my swing trading account now to some traders especially guys who dabbled in crypto are like 50%? I make it one year in and out, regardless of what’s going on in the economy, regardless of what’s going on globally, financially, regardless of whether I jumped on and got lucky on basically a hockey stick the fact that we’ve seen on-crypto.
The challenge a lot of people are faced with a dabble in crypto’s is they may have got in and made three, 400% in a couple of months and they think that’s the norm and it’s not so when you talk about 50% they’re like I’ve just done 400%. I say did you follow a system, can you replicate that? Have you got the data to back it up and do you have the mindset to do it?
Whereas Kerry would say 50% no good for me. I want to be doing three, 400% a year, but I’ll do it on a smaller account as that makes money because that makes me feel that’s the way I want to trade.
Dr Ro: It’s definitely not something you hear a lot of people talk about in the industry at all.
For the newbies what would be the first thing two or three key steps in taking them beyond the podcast?
Equally what about people that are already trading what are a few things for them to consider.
Ali: If you’re completely new, assess whether the trader or the person who is talking about that is covering all of these bases. If you want to do a programme are you going to get access to the process they use to analyse the market?
Not because that’s the only process out there, but are you going to get to see the data and know the strategies that they‘re going to teach, have data backing them up and what’s the risk management profile?
I think within risk management what you want to be able to see is live trades. I think that’s really important. And even if you’re not seeing every single live trade they’ve ever placed but you have some ability to be able to see when they’re teaching you something, for instance on the kickstart program I don’t teach these four pillars I teach them the student applies them, they get feedback from me and then they go and reapply them.
Learning these four pillars is not an intellectual pursuit.
Say you want to stack on muscle you’ve got to eat a certain amount of protein. Someone might know they need to eat two times their body weight or protein formula but knowing it and doing it are two completely different things. So to me the most important thing is they’ve got to learn it, apply it so you can see which areas you’re stronger and see which areas you’re weaker in and then you’ve got to get some feedback from me from somebody who actually knows the system and understands it, so there’s a shortcut.
The shortcut is not learning from me, the shortcut is getting feedback from me to speed the process up and then reapplying it with that new knowledge. I think the most important thing for new people is not to be scared with the amount of stuff I’ve covered.
I relate it to driving if you actually broke driving down into its individual component parts with no previous frame of reference which you don’t have as you’ve never traded before you would literally not get in a car and drive.
The only reason you drive is you’ve been around cars all your life, family, friends and other people have shown a competence in it and there are 30 million cars on the road, so your brain has got a subconscious that this is something you can do. If you looked at driving without all of that frame of reference you wouldn’t do it as it would seem too complicated.
I think don’t be fearful and anybody that you learn from, whether it’s me or somebody else that they are able to deliver on these three areas because I think there’s a lot of people out there that will show you charts and show you technical complicated systems and mechanisms and show you six trades where they supposedly made all this money and they’re showing you a chart that is an after an event scenario rather than what they actually do when it’s real times.
One thing on the kickstart is we teach each pillar, but then through that kick start I will show winning and losing trades from that month. That might be a disastrous month but I will show the system they’re learning, good, bad and ugly. I don’t need to teach people to pay the bills.
They pay the bills. I don’t need to do it, which means I can teach from the perspective of I don’t really care whether you sign up or not. If you think this is too difficult you are not the client for me. If you think this is too easy or this is rubbish I’m going to go and learn from the guys driving around in London go for it because all due respect you’re not the person I want to work with.
You have to have the understanding that this is a skill that at 20, 30% return per annum can completely change your life over a 20 year period and forget trading full time. I’ve got people that have been with me for six, seven years and all they’ve done is just compound 30 to 50% a year.
They are in a completely different place, financially, emotionally, spiritually as a result of knowing that they’ve got a mechanism that’s inflation proof everything else. I’ve worked with people that know nothing who’ve gone on to do this full time so for the new guys don’t be fearful as I’ve covered a lot, just understand it’s just a set of skills that you would learn like any other pursuit.
As an individual trader, do one simple assessment, which area out of those four do I tend to put too much weight on?
Usually based on personality styles a trader will put too much emphasis on the charts and technical, or it may even be they might be too obsessed with data and optimisation.
Look at the four pillars and say which ones do I tend to gravitate to and which ones am I maybe avoiding? This was no different than when I learned it, I was completely avoiding data because I was too hooked on being in the market and placing trades because I was left quadrant driver personality, expressive personality.
If I was losing I over traded if I was bored I over traded. For me I had to become more analytical and look after the things I was avoiding because trading isn’t like a business where your business partner can be the numbers guy or girl and you can be the marketing person. As a trader you’ve got to be good at each part of the business.
Also if you’re not getting the results you want, have a word with yourself. It’s this weird thing that goes on with people who trade saying, I don’t want a trading coach but it’s acceptable for an Olympic athlete to have a psychologist, coach, a nutritionist performance coach, basically a coach at each one of those pillars.
My personal trainer is a Winter Olympian and if you saw the network that he had around them to get him to the start line of the bobsleigh you’d like, wow, why wouldn’t you have the same approach as a trader?
Especially if the approach you’ve got isn’t giving you the result you want.
Harms: I think this has been incredible. Thank you so much Ali for your time over these two parts.
That’s myself, Ro and Ali signing off. We shall see you on the next episode.
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