In this episode, Ben Okopnik, an experienced trader, talks with Agnieszka about the importance of balancing emotions and rational thinking in trading. Ben emphasizes the need for a clear evaluation of risk and potential outcomes before making a trade. He also stresses the importance of learning to think rationally and developing a trading plan with clear risk parameters to avoid emotional decision-making.
The conversation also touches on the difficulty of finding the right path to learning trading, given the noise and nonsense in the market. Ben recommends finding trustworthy professionals to learn from and emphasizes the importance of hands-on experience in addition to academic knowledge. The conversation highlights the importance of education, discipline, and a focus on the process in trading.
About Ben Okopnik
Ben has managed to pack several lifetimes into one so far, with a broad range of experiences. After emigrating to the US in the 1970s, he's been a soldier in the US Army, an electronics technician, a taxi driver in New York City, a Blue Water sailor, a teacher. He's held a number of highly lucrative positions and ran a couple of successful businesses.
His trading experience has been mostly in options, surfing the line between quant and discretionary - but includes futures, FX, crypto, DeFi, and passive investment. Recently, he's been concentrating almost exclusively on learning directional stock trading via the Strat.
Contact Agnieszka Wood | Ahead Coach:
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Contact Ben Okopnik:
Mentioned References:
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Transcript
[00:00:00] - Agnieszka
I am Agnieszka Wood, and on today's show, I'm very excited to introduce my special guest, Ben Okopnik. Ben has managed to pack several lifetimes into one so far with a broad range of experiences. After emigrating to the US. In the 70s, he has been a soldier in the US. Army, an electronics technician, a taxi driver in New York City, a Blue Water sailor, a teacher on mostly computing-related topics, and a large variety of other things. One of them, he just told me he was also a Hollywood star.
[00:00:36] - Ben
[chuckles] I don't know if I'd call it that.
[00:00:38] - Agnieszka
Very nice having you here. Welcome!
[00:00:41] - Ben
It's a pleasure to be here, Agnieszka. Thank you.
[00:00:43] - Agnieszka
Ben has been trading for about a decade, and his trading experience has been mostly in options, surfing the line between quant and discretionary but includes futures, forex, crypto, DeFi, and passive investments. And recently, he has been concentrating almost exclusively on learning directional stock trading via the Strat. I met Ben on Twitter recently, actually, where we had a very interesting exchange about what you should focus on first when you get into trading in order to be successful, getting your skin in the game, or the psychology of trading. And since our belief seems to differ on this topic, I ask Ben to join us today to have this conversation here on my podcast and hopefully shine some light on this intriguing and quite controversial topic. Welcome to episode number six, A Chicken and Egg. Hi, Ben. Again, welcome to my podcast, and thank you for being open to discussing your beliefs in this open forum.
[00:01:42] - Ben
My pleasure, Agnieszka. I think that putting it as the chicken and the egg, this very much parallels what we're discussing because I don't think either one of us is saying, no, no, only this piece is necessary. Both are necessary. Of course, the question is, where should most of the focus be? And that's a great discussion in itself. So looking forward to it.
[00:02:06] - Agnieszka
That's awesome. Ben, when we had our initial conversation, what became very clear to me at first was your rational approach. Considering that trading, as you said, is an intensely human activity, one that engages our strongest emotions, we have to learn to approach it rationally, almost mechanically. For me, as a mindset coach, there is so much to unpack here. But let's begin with this. Could you elaborate a little bit more on what you mean by the mechanical approach to trading and how that can help traders with controlling their emotions during trading sessions?
[00:02:47] - Ben
Okay, so as I'm sure you know, a lot of clinical psychology, right? As a coach, I'm sure you know about this, right? Comes down to correcting irrational thinking, right? If somebody says, oh, everybody always hates me, generalization, right? Everybody. There we go. There we go. So you have to learn to think rationally, because if your perception is not correct, then the outcome of your thoughts and actions is very unlikely to be anything other than random.
[00:03:20] - Agnieszka
Right.
[00:03:21] - Ben
To me, that is the basis, because if you go in and trade, trading particularly focuses that any mistakes of rationality, any mistakes in perception, you're going to pay for those directly.
[00:03:34] - Agnieszka
Very directly.
[00:03:35] - Ben
Yeah. There is no softening layer, there's no buffer between you and the money.
[00:03:41] - Agnieszka
Right.
[00:03:41] - Ben
If you make a mistake, you're going to pay for it 100% of the time. So to me, that is the classic foundation of everything else. On top of that, and to me, the layer that has to come next is you could theoretically say that it's a psychological layer, but also a half and half, I would say, perception of risk. You have to have a rational evaluation of risk. Right.
[00:04:07] - Agnieszka
And I think that's a lot where it goes wrong.
[00:04:09] - Ben
Right, absolutely. Now, in order to do that, you have to have a clear evaluation of what your perception of risk is. How do you establish that? By actually trading. By actually going in and trading. Throwing yourself into an environment where you are at risk. Otherwise, you can think about it ahead of time all you want, but until you've done it.
[00:04:34] - Agnieszka
Yeah. So you have to feel it. You mean you have to feel the risk in order to establish your perception of risk. I mean, you can feel how it feels, but you think there is no way to protect yourself upfront before you throw yourself to the fire.
[00:04:52] - Ben
Of course, you definitely must risk limiting your trades. There's no way out of that. You don't just go in, throw your money in and go, well, I'll just sit here and see what happens. No, put in your stop, put in your limit, and sit there and watch what happens as the price moves between the two of them, whichever one of them it hits, whether you win, whether you lose, preferably and this is interesting, you should lose preferably first off. You know what I'm talking about.
[00:05:20] - Agnieszka
Yes, absolutely. Especially that very first trade. Everyone says lucky trade. I always say this is the unlucky trade because you win that first trade with completely bad expectations.
[00:05:34] - Ben
Worse.
[00:05:35] - Agnieszka
Yes.
[00:05:35] - Ben
The worst thing, the worst thing that could possibly happen to you is you win your first trade, then you're so excited and your estimation of risk becomes incorrect. It's the one thing you can't afford.
[00:05:48] - Agnieszka
Right. I think the dilemma of many traders is because you say you have to put your parameters, you have to put the risk. And that's where I see a lot of times going exactly wrong, because they don't, and I didn't, and nobody does. I mean, most of the traders who are getting into trading, I mean, they open an account and they just put a trade. They don't even think there isn't, you know, that they can lose. They only think about they can make money.
[00:06:20] - Ben
You may be right. And this, to me, again, comes down to rational estimation of what's, you know, what's true. You have to look at it rationally. When you put your money into a trade, the chances of you losing versus winning are exactly the same as we put it. In the options world where we do a lot of calculations, the expected value of any trade at entry is zero.
[00:06:49] - Agnieszka
Right.
[00:06:50] - Ben
That is, if you do 100,000 trades, if you go strictly by chances with nothing else influencing it, if you don't have any definite alpha, as we call it, 50,000 of those trades are going to go to the good, 50,000 of them are going to go to the bad. The outcome is zero.
[00:07:11] - Agnieszka
Yes. And in general, rationally speaking, you should note it before placing a trade.
[00:07:18] - Ben
Absolutely.
[00:07:19] - Agnieszka
But somehow there is this difference between when you go, let's say to a casino and when you're trading. Because when you go to a casino, I always say the difference is when you want to play the slot machine, you first have to put the money in. Right. So you kind of accept the risk and you're actually assuming, well, I might lose it. And that's where you rationally accept the risk with trading because you don't have to pay upfront, you have to pay after. Deep inside. A lot of traders do not accept that risk.
[00:07:55] - Ben
You may be right to some degree. To me, as soon as you click that button, whether you buy or whether you sell, you always have some definite. Every single trading platform I know of shows you risk versus reward. And so the moment you click that button, you are at risk. You know that you have an open risk. You may be right in that it is not as clear how should I say this does not have the same exact emotional impact as actually taking money out of your pocket and shoving it into a machine.
[00:08:35] - Agnieszka
Exactly.
[00:08:35] - Ben
So you're right to that degree. People don't see those numbers on the screen as being quite as meaningful as taking actual cash out of their pockets and plunking it down. So I would agree with you there.
[00:08:47] - Agnieszka
That's why a lot of times they say, oh, I have a loss, but I haven't taken it. A lot of traders believe that not taking a loss is not hurting them. And I tell you, I have learned the hard way and I have waited years for the price to come back on my very first trade. And I can tell you at some point it was a souvenir I was like I have this at that point, after all those splits, I think it was like I had three shares left for the price. The price of that stock was just incredibly high, while this whole stock just never really came back. And I thought this is such a good warning that the price does not have to come back. No, that was the untaken loss. So when I hear people saying that, I'm like, oh, well, you might learn the hard way. I know I did.
[00:09:41] - Ben
Again, from the calculated perspective, I'm coming from the perspective of options. There's a kind of a saying that every options trader basically memorizes from the beginning, and that is volatility is mean, reverting price is not. There is no means by which the price has to come back. In fact, it almost never does. If you look at the general trend of prices in, let's say, SPX, it's an upward trend. It never reverts. Okay.
[00:10:12] - Agnieszka
Yes. From a rational point of view, if you put those facts on paper, you will agree with them. The moment that traders get into trades, even if they know that they make decisions completely irrationally right, based on emotions.
[00:10:30] - Ben
And this is exactly why I say that you have to actually do some trading. Because then you can sit back, look at your actions, and say, wait, why did I do this? The rational thing to do was X, Y, and Z. But I did A, B, and C. Why in the world did I do this? And now you have perceptions that are much more aligned, or that you can drive back toward rationality because you see yourself acting emotionally beforehand. You could say to yourself, oh, I'm going to be cool, calm, and collected. I'm always going to do the right thing. If the price goes against me, I'll just exit. No, you won't.
[00:11:09] - Agnieszka
Right?
[00:11:10] - Ben
No, you will not. Stop lying.
[00:11:13] - Agnieszka
That's the two emotions that are completely switching the moment that you enter a trade, fear, and hope, right? They completely go upside down.
[00:11:22] - Ben
Exactly, right? I absolutely agreed.
[00:11:27] - Agnieszka
Yeah. So let's say for people who are already in trading, right, and they have made so many irrational decisions, and now they're like, okay, I do want to think rationally, but I'm still struggling because those emotions are just simply taking over. How do you do that? Because you have a very rational approach. What are the best ways to control your emotions during trading? Do you have any emotions because you're thinking rationally, right? Of course. How do you deal with it?
[00:11:55] - Ben
So there are two things when you're already trading and again, you look over your past trades and you say, you know, I'm acting emotionally and I can't stop myself. If you're a self-starter like myself, then you look for ways to correct the impact of those emotions, to set them aside. If you're not, and many people aren't, and there's nothing positive or negative about this, then the best thing to do is to look for a coach like yourself who has actually thought about this and who can help you. Redirect your whether redirect your emotions into a more rational channel or find a mechanical approach to your strategy where your emotions simply can't get involved. No matter what you think, no matter how you feel, as an example, again, let's say that you decide that you're going to always trade with a stop and a limit, but as soon as you get into it, oh, my God, the price is moving in the wrong direction. Well, if I move the stop away a little bit, you understand exactly what I'm talking about, right? Of course, yeah. And people will do that. And then the limit oh, well, maybe the price yes, price is going in my direction, but if I move the limit down, I can at least take some profit.
[00:13:11] - Ben
Right. Wrong thought patterns. Right. What do you do about those? Well, you have to correct those misperceptions. You have to have a hard set of rules. Like, I'm going to do my best to compute what is a reasonable stop and what is a proper limit for this trade. I'm going to set those and I'm going to walk away from the computer. If need be, I'm going to switch it off.
[00:13:36] - Agnieszka
Right, right.
[00:13:36] - Ben
If that's what it takes for you, then do that.
[00:13:39] - Agnieszka
Yes.
[00:13:40] - Ben
Right.
[00:13:40] - Agnieszka
I totally agree with you. It's funny because you're talking about those perspectives, I call it, in my coaching mindset, shifts, because you have to shift your perspective and start thinking about what works in the environment of the market, which is very different than how we normally think, how we do things, how we achieve success in our daily life. They're so different. And I think the biggest problem is that we just take our perspectives of what we know and we just bring it to the market and we think.
[00:14:16] - Ben
This is going to work. I'm going to take that and run with it. Actually, one of the emotions and the perspectives that we bring in from daily life into the market are not just a little wrong, they're literally 180 degrees away.
[00:14:30] - Agnieszka
Correct.
[00:14:31] - Ben
I'm not going to say the market is designed because I don't believe that there's anyone sitting there pulling strings, but the market is perfectly configured, and perfectly structured to take money away from you. If you think as a let's call it a civilian, absolutely. 100%. Look, the price is trending this way, therefore I should get into it. Oh, the price is trending down, therefore I should shirt the stock. Too late. Yes, you are too late. And if you get in at those times, someone will take your money. Guaranteed. Yeah, guaranteed.
[00:15:08] - Agnieszka
It's almost like advertising is playing on our emotions and they know exactly how we react.
[00:15:12] - Ben
Right, yes.
[00:15:13] - Agnieszka
The same way the market is constructed, because it's a business model and I think everyone has to understand it. Just like in a casino, the house always wins. So it is not like you have to trick the market. No, you have to trick yourself into not thinking that whoever you think you are, you're nobody there. Right. And you're really lucky if you will be able to pull money out of the market, out of that huge machine that is designed for you to fail, basically.
[00:15:47] - Ben
Right, yeah. Again, if you come in with those emotions of a civilian. Yes, it is. Absolutely. A model that will make you fail. It will take your money, as I call it. All you will do is provide liquidity to professionals. Yeah.
[00:16:06] - Agnieszka
It's funny. I love to call it. You have to take yourself out of the equation. You are in your own way, because when you're talking about designing a process that will help you to do those things mechanically so basically for you, I don't know, sometimes it might mean placing bracket orders. Right. And just walking away. Because the moment you sit there and you're watching and you see all these price movements, your mind is simply going to play with you. It is. I mean, there is no other way. And yes, I always say, like, yes, you can make it very difficult for yourself and sit there and watch it and say, no, but I want to be disciplined. I have to be. I'm like, if this is really so difficult for you, why would you do that? Trading is difficult enough. Design the process that will make it easier if you lose money after eleven, and stop trading after eleven.
[00:17:02] - Ben
Right, yeah. To me, that's actually I like to take a kind of an outside perspective of myself whenever I see myself getting emote. And this isn't just about trading. This is something I've learned from sources as disparate as Zambudism and yoga and so on. There is a concept of the watcher which is you understand what I'm talking about, sort of an abstraction of yourself that sits in your head. Does not judge the awareness. Right, yeah. Does not judge, but just sits there. And it was absolutely fascinating to me when I started trading to have that, to look down onto myself and go, look at the emotions you're experiencing, all you're doing, you just bought one share. The most I can lose is maybe a dollar. But look at you. Look at your heartbeat. Look at your breathing. This is amazing that this is happening to you. How is this? As you've mentioned, I'm a sailor. I've sailed the ocean. I've been in hurricanes as a soldier. I've been in scenarios where I've been shot at. I've been in some really amazing stuff in my life. And the emotions brought forth by trading, by risking nothing more than a dollar, were so outrageous, were so huge that I just had to sit there, look at it, and go, what in the world is happening to you?
[00:18:36] - Ben
It's fascinating.
[00:18:38] - Agnieszka
Fascinating. And why do you think that is? Is it the scenarios we make in our heads that we are scared of? Which absolutely, I think what is it? 90% of which does never happen.
[00:18:49] - Ben
Of course, there are the scenarios, there are the average person's concepts of what money is and what it means. Right. Money affects us at the deepest level. Normally, we don't think about it. Money comes in, we spend it, big deal. But as a trader, you are again faced with direct gains and losses with nothing between you and the market. And I think those things hit you directly in emotions, in ways that most people can't even predict. They don't know what it is.
[00:19:22] - Agnieszka
Yeah. I think that part of it is that a lot of people value themselves through money, right? Through their success, what they have, and what they can present to others. So the moment that you are losing money or that you are not having success, you take several losses after each other, even though it can be the most rational thing right? Because it's probability. So yeah, it's very probable you're going to be experiencing it still. It hits so much so deep that the whole confidence and everything about you, you start just doubting yourself as a person, which I find the trading experience is just so much more than just trading. Just because of that.
[00:20:08] - Ben
I agree.
[00:20:09] - Agnieszka
Additional emotional side. Right.
[00:20:10] - Ben
I agree. I lost a dollar. I must be worthless as a human being. What in the world? So this is one of the things that makes trading fascinating to me now. One of the things that and again, of course, I have had to learn enough relevant psychology, trading psychology, in order to trade well, you basically have no choice once you have learned, once you've established something that will produce alpha for you, something that does have a positive return overall. Now the only thing you can work on is improving your execution, obviously, but really mainly yourself. Right?
[00:20:52] - Agnieszka
Yeah.
[00:20:52] - Ben
And so one of my favorite things that I ever saw was Mark Douglas. Of course, I'm sure you've heard of Mark Douglas, right? Mark Douglas wrote this wonderful book, Trading in the Zone, and he said something in there that to me is absolutely key. He said, once you have defined how you're going to trade, and what your trading strategy is, do 20 trades. It doesn't matter whether you win or lose, you do not pay attention to that. You are committed to doing 20 trades, win or lose.
[00:21:24] - Agnieszka
Yes.
[00:21:25] - Ben
At the end of those 20 trades. Now sit back and evaluate. Do you need to change your strategy or do you keep going forward? And I love that concept. That's another version of what we've been talking about.
[00:21:36] - Agnieszka
Yeah. And that's a very rational approach. Right. And if you manage to stay within that rational area while you're evaluating it, you're actually learning from it and moving forward. Right. A lot of traders that I talk to that come to me with a problem, they don't even journal or they don't even evaluate because they're so fed up with the losses that they go like, I don't even want to look at this. So that brings me actually to our second topic. So most traders that come to me for help, struggle with accepting the risk we talked about a little bit already. And technically, yes, they can place the stop, but because of various emotional reasons, they don't accept it. So they don't place the stop. Right. And they will keep lowering it or simply remove it. Now, in one of your tweets, you mentioned that there is nothing anyone can do for them. I'm sure the audience does not want to hear that, but basically, they need basic education. Right. This has nothing to do with mindset. You also mentioned that some people aren't suited for trading, just like some aren't suited for truck driving.
[00:22:57] - Ben
Right.
[00:22:57] - Agnieszka
I, on the other hand, believe that you can do anything if you put your mind to it. And throughout my life, I kept proving it to myself every time again. So while you're saying focusing on the mindset before experience in dealing with problems that needed doesn't make sense to you? In my mind, if you deal with your mindset first, you can prevent the problems so that you don't have to deal with them, or at least you can be prepared for how to handle them. Right. So I would love to understand where you're coming from. Would you like to elaborate on your point of view?
[00:23:41] - Ben
Sure. A lot of people come to trade. The thing that drives them into trading is purely emotional. I don't think there's ever someone unless you go to school and you get a degree in finance and you go to work for Susquehanna or whoever, one of these big trading houses or market makers.
[00:24:05] - Agnieszka
Right.
[00:24:05] - Ben
That's a rational path. And that's something that takes years and years of tremendous effort.
[00:24:11] - Agnieszka
Just like a career. Right. You learn it like you would want to be a doctor. Pretty much.
[00:24:16] - Ben
That's exactly what it is. Yeah. And by that point, you're not really dealing with emotions or any of that stuff that you have worked through so much. It is such a rational, structured discipline. Frankly, professionals can't afford to have this emotional, irrational approach. That's just not going to happen. Let's set that aside because that's a completely different area. So let's talk about retail traders. Retail traders are, I would say, always driven by emotion to start trading.
[00:24:53] - Agnieszka
Yeah.
[00:24:54] - Ben
Oh, I heard of this guy that made, you know, $10 million in GME in three days from starting from $100. I want that too.
[00:25:04] - Agnieszka
GME. Oh my God. They just had earnings last night. This morning, I texted my or I put in a chat room to my students, like, are there any GameStop wannabes oh, dear? You guys keep focus. Just make sure you're not biased because you can really get biased by it. Right.
[00:25:31] - Ben
I've actually made very good money in GME, but certainly not by buying or selling stock, by shorting Volatility, basically by saying around earnings, around events like that, people are going to get crazy about price, they're going to overpay. And so I'm willing to take the other side of the trade. This is where options come in handy. And so shorting volatility in something like GME, around events that's proven quite profitable.
[00:25:58] - Agnieszka
Yeah. But you see, you trade the market. You don't trade the stock, the price. I want to make money. You know what I mean? It's very different. It's the distance that you take the distance approach and say, okay, what is the real opportunity here?
[00:26:16] - Ben
Exactly.
[00:26:16] - Agnieszka
Instead of getting sucked into that swirl sorry, you were talking.
[00:26:22] - Ben
Yeah, no, it's fine. I'm sorry. I also get diverted. To me, this trading is absolutely fascinating. All aspects of it, including the psychology of it. As I said, most traders begin trading from an emotional perspective.
[00:26:36] - Agnieszka
Right.
[00:26:37] - Ben
And as long as they stay with that purely emotional perspective, they're never going to make it. All they're going to do is contribute liquidity to the market, put money in professionals' pockets, and that's the end of that. I think that, again, for those people, if they are stuck, the only next step they can take is either go to someone like yourself or learn about how the psychology of trading works and change it themselves. But again, most people are not well suited to that.
[00:27:08.360] - Agnieszka
Yeah. It takes a lot of work, and it takes a different perspective. So if you cannot stand outside of yourself, like you were saying, and I call it leader position.
[00:27:19] - Ben
I like it.
[00:27:20] - Agnieszka
Yes. During my program, I review sessions, and trading sessions of my students, so I also pay very much attention to their body language because I can tell whether you are in a leadership position or if you are in an operator mode. Right. And most traders begin in the operator mode with 90% time spent on clicking the buttons.
[00:27:47] - Ben
They're hunched over all the classic signals.
[00:27:53] - Agnieszka
Your hand over that mouse.
[00:27:57] - Ben
Yeah. Warren Buffett actually has this thing that he tells people once in a while, and I think it's a wonderful idea. He said if you had a card with ten spots on it where you could only every time you took a trade for the rest of your life, you had to punch one of those things out. If you could only take ten trades for the rest of your life, how careful would you be entering those trades?
[00:28:21] - Agnieszka
Yeah, I think waiting for the opportunity is the most difficult thing for people to do because that means pretty much doing nothing or distracting yourself from trading. But if you're so you're saying basically, when people are focused on the emotions, I call it to focus on the money.
[00:28:47] - Ben
Yeah. You can't afford to do that.
[00:28:50] - Agnieszka
Yeah. Switching the focus to the process, that's just such a significant change of perspective or mindset shift, and then just work out what your process is and what you were saying. Like, if you do those 20 trades right, and they don't work, or they work now, you can work on the process. What do most traders do? They ask themselves, what's wrong with me?
[00:29:19] - Ben
Yes. What did I do wrong?
[00:29:22] - Agnieszka
So tell me about your journey, about your trading journey. How do you tackle the challenges? Because since you were in the military, there's a lot of former military people who are trading, and they're doing great because of the discipline. Right. Do you see it, how it contributed to your trading?
[00:29:43] - Ben
Yes, I do. It's somewhat indirect. My military experience is quite a while back. It's interesting. I was actually at a veteran's meet-up this morning, which happens every two weeks, just so happens. But yes, mission orientation, working out the structure of the mission and executing it, you not only learn those things, you sort of inculcate them into your life process in the military is just something that you learn to do. And yeah, that definitely does relate to trading.
[00:30:20] - Agnieszka
So how do you deal with distractions that take your focus away from that mission?
[00:30:28] - Ben
You don't let them distract you.
[00:30:31] - Agnieszka
You just reject the thoughts.
[00:30:33] - Ben
No, there's a thing called mission focus. All right? This is the primary thing. You got to keep your eye on the ball. If something happens that is distracting, you have to give it some weight because some distractions are actually threatening to the mission or whatever it happens to be. And that's the only evaluation that you do. Is it a threat to the mission? If so, how much of the mission effort do I have to devote to it? If so but other than that, no. You judge it again from a rational perspective, even though the impact is emotional.
[00:31:09] - Agnieszka
I see. That is so interesting. So basically what you do is you evaluate it, but looking at your mission has this impact on my mission. So you basically just look at it pretty much like when you have a trading strategy, right? And you have all these opportunities coming at you, all you have to do is evaluate, if this fits into my strategy. Is this fitting into my strategy? Is this what I want? Is this what I said I want?
[00:31:43] - Ben
Yeah. And you have to learn, as a great coping skill in trading, you have to learn to stop making deals with yourself.
[00:31:54] - Agnieszka
No negotiations.
[00:31:56] - Ben
No negotiation. But this is really close. Okay, maybe I haven't seen the exact trade that I want, but, you know, this is really close, and maybe I should risk a little. No, don't do that. Do not do that.
[00:32:11] - Agnieszka
Yeah, I have a few extra punch cards.
[00:32:18] - Ben
That's a bad idea.
[00:32:19] - Agnieszka
Yeah, definitely a bad idea. If you have to convince yourself, I always say, well, if you don't see a setup, if it doesn't jump out at you, it's probably not there. If you really try to see and you have to turn your computer upside down to convince yourself this is actually a flag. It's probably not a flag. Oh, that's fascinating. In one of your messages, you mentioned that you are still going for basic competence in trading. Right. And that's what I'm talking about. Sounds good. The things that I. Am talking about sound like a good next-level things and stuff to aspire to once you get those basics ironed out. And in this case, I was talking about being present a the moment. Now I understand that you are also actually talking about being that observer. So we are actually talking about the same thing which I consider a basic competence for every trader to be present in the moment. Simply because if your mind wanders into the past and brings pain from previous losses, right, or it runs into the future and triggers this high expectation of yourself, all the money you're going to make or fears all the money you're going to lose, this will impact your decision-making process.
[00:33:42] - Agnieszka
Right? So then you basically let the emotions decide about your trade. So this brings us to the question of what comes first, a chicken or an egg?
[00:33:53] - Ben
I was just thinking that that's a very exact parallel to the whole chicken or the egg. And so again, to me, you have to at least experience how trading impacts you. And going from there forward, how much of the emotional basis can you shift to the rational? How much do you need help with? How much can you do by yourself? So possibly again, chicken versus egg. Maybe both. Maybe both coming up at the same time via ramping process. You can do so much of one, then a little more of the other, then a little more of one, then a little more of the other. And so perhaps it's that sort of ramp-up process.
[00:34:42] - Agnieszka
Yeah. And actually when you were talking about it, what I notice is, or what I notice how we are being impacted, our decisions are because of our experiences from the past, right? And a lot of times people would say, yeah, but I am just like this because of all the things that happened to me. And in fact, those are all irrational thoughts because you're taking something that happened maybe 20 years ago and now you're bringing it into your trading that those thoughts have nothing to do or even those experiences have nothing to do with your trading. Right. So that is a pretty irrational thing to do, right? Even though people are trying to make it rational because they say, yeah, but this is the way I am.
[00:35:29] - Ben
No, the reality is the market does not care about your story.
[00:35:33] - Agnieszka
That's a good point.
[00:35:34] - Ben
It absolutely does not care. Either you did the right thing or you're going to lose.
[00:35:42] - Agnieszka
So it's really about doing the right thing.
[00:35:46] - Ben
One of my favorites, I don't know if you've ever heard of Nassim Nicholas Taleb.
[00:35:52] - Agnieszka
I have not.
[00:35:53] - Ben
So he's the guy who came up with the Black Swan theory.
[00:35:56] - Agnieszka
Oh yeah. I have actually read the book, so I'm not so good at names. So maybe was this the Outer then? I have heard of him, yeah.
[00:36:05] - Ben
Taleb. Absolutely. Fascinating guy. Good thinker. Really good thinker. And many years ago, he wrote a white paper with a guy named Espin Hogg about how market makers evaluate risk in options. And there's a wonderful quote from it that I just love. He said Trading is neither philosophy nor mathematics. It is a rich craft with traders learning from traders or copying other traders, and tricks developed under evolutionary pressures. In a bottom-up matter, it is techne, not episteme, meaning that is craft rather than academic knowledge.
[00:36:50] - Agnieszka
Wow.
[00:36:51] - Ben
Academic knowledge.
[00:36:52] - Agnieszka
That's amazing.
[00:36:53] - Ben
You can sit and study as long as you want. It will not help you until you actually experience it. It's like wood carving, for example. You can sit and read about wood carving for the rest of your life, but until you put that knife to the wood right. You will not know what it is to actually carve wood.
[00:37:16] - Agnieszka
Yes. So that's about the experience and then the risk that goes with the experience, you can also read about it, and you should read about it, and you should learn about it so that you know what to expect. But if you do not trade, you will never experience it. So you will actually never know what your reaction will be.
[00:37:37] - Ben
And that is exactly my point. Yes.
[00:37:39] - Agnieszka
So, yeah, the circle around the mindset is important, and the experience is important.
[00:37:47] - Ben
I agree.
[00:37:48] - Agnieszka
That's wonderful.
[00:37:49] - Ben
Now, okay, so here's something else. Have you ever heard of "Turtle Traders"?
[00:37:55] - Agnieszka
No.
[00:37:56] - Ben
So this is fascinating. There's a book, I believe it was called "The Turtle Trading Method" or something (Official Title: Way of the Turtle: The Secret Methods that Turned Ordinary People into Legendary Traders). But this was an experiment that came from a bet between two very successful Chicago futures traders, William Eckhart, and Richard Dennis. Okay. And Eckhart believed that you had to be born with the right emotional makeup and could not trade successfully without it.
[00:38:21] - Agnieszka
Oh, wow.
[00:38:22] - Ben
Yeah. Dennis, on the other hand, believed the opposite, that he could grow traders like they grow turtles in Singapore, was his exact statement. He had just been to Singapore, and he saw how they grow turtles in these ponds, and he said, we can do this. And so Dennis put out this ad that I think a lot of people simply didn't believe that they could just go to work for one of the most successful traders in the world, and he would teach them how to trade. Good God. And so he assembled a group of people who had either never traded before or did some trading and perhaps were unsuccessful, didn't really matter much. And he taught them a very simple strategy. And the key was, as long as they stuck to that strategy, they would make money. And as it turned out, Dennis was right. Every "Turtle Trader" who was able to follow his rules became a successful trader. Some went on to make fortunes and create hedge funds on their own.
[00:39:24] - Agnieszka
But when you say were able to follow the rules, how were they able? Because that's where the emotions come in.
[00:39:33] - Ben
Right, right.
[00:39:35] - Agnieszka
Or where did they all have this special makeup?
[00:39:38] - Ben
No. And this was exactly the difference between the two sides of the bet. They did not have to have a special emotional makeup. The rules were clear-cut. They were simply when the market has been and I don't remember exactly what the rules were. Yeah, they're not particularly applicable today, by the way, with computer trading systems and so on. But it was something like if the market dips below a certain percentage for X number of days you enter if it stays above, you exit, whatever it happened to be. But they were purely rational, mechanistic rules. Now comes the point that you're talking about, which is they started following these rules, and now you have to remember they were not using their own money. They were trading specifically for this firm. Right.
[00:40:29] - Agnieszka
Yes.
[00:40:30] - Ben
It's different, but still, when you trade money, especially large amounts of money in the market, those emotions are still going to hit you. Right. Now, in the second part of the book, once these folks started trading and were able to execute the rules and so on, now the emotions hit them.
[00:40:47] - Agnieszka
Oh, that's so interesting, isn't it?
[00:40:50] - Ben
I think you would really enjoy this book.
[00:40:53] - Agnieszka
Yeah, I should definitely look at that.
[00:40:54] - Ben
Hurdle Traders. So a fascinating study of how that worked. And a lot of people actually dropped out of the program for the specifically stated reasons of, I just can't do this. I can see it being successful.
[00:41:08] - Agnieszka
So what was it? Was the money getting into their head?
[00:41:10] - Ben
Yes. When you imagine yourself trading $10 million, or $100 million, having that at risk at any one time, some people simply can't handle it.
[00:41:21] - Agnieszka
Yeah, there's something that I call emotional immunity that I work with my students on to develop emotional immunity, and just exactly for that reason. And that's not just on the profit side, but also on the risk side. To start with, what is the level that you are immune to? And you can always grow that immunity. You can always increase that resistance and teach yourself. It's a sort of muscle memory that touches you less and less, and then once you go too high, you will feel it. Right. I can always go back. The problem is that a lot of traders, they just want to make big steps. Yeah, I want to make a leap, and I want to make a million dollars.
[00:42:04] - Ben
Yeah, that's a guaranteed way to lose.
[00:42:06] - Agnieszka
Yeah. Because you hurt yourself, the wounds are deep, and then it's very hard to heal them. Right. The last thing that I wanted to touch upon with you is what is that learning process. What would you recommend? Like, how to learn to trade? Because learning by doing costs money, time, and money. And is there any way to shorten the curve? Because there's so much help out there. There are courses, chat rooms, and YouTube videos, and it seems like everyone makes money, but it somehow it doesn't seem like the success rate is growing among retail traders. I think it's still over 90% failing. Right. So what would be that perfect process?
[00:43:01] - Ben
So I agree with you completely. I actually think that given the huge influx of traders into retail traders into the market, I saw a graph probably about a year ago. The number of retail traders has increased more than 1000 fold in the last six or seven years, which is incredible.
[00:43:25] - Agnieszka
Hence the good earnings from brokerages.
[00:43:28] - Ben
Oh, yes. This is why all the brokerages can now give us free stock trading and all of that. Here's what I'm going to say. I think it is incredibly difficult, it is almost impossible to find the right path on your own unless you get lucky. There's so much noise, there's so much nonsense by so many quote gurus who are simply out to squeeze a buck from you, that it's almost impossible to find anything. I was incredibly lucky. Okay, maybe this is worth boasting about a little. Maybe because of my personality, maybe because of how I speak to people. I was lucky enough to connect with some old-time professional traders, some people who are actually retired from CBOE, and several people of that sort who helped me along. Now, again, none of them would simply come out and say, do this, this, and this, and you'll make money. That's not how it works.
[00:44:37] - Agnieszka
Isn't it interesting that actually people who you can trust, will never promise you that you will make money or that you will make million or 100,000 a month because they know they cannot promise it? So maybe that's the first warning for everyone.
[00:44:51] - Ben
Exactly.
[00:44:52] - Agnieszka
If anyone makes this kind of claim, that's a red flag for sure.
[00:44:57] - Ben
Right, I agree. And this is what is out there. 99.99% of everything that is out there is literally that.
[00:45:05] - Agnieszka
I wish when I was learning that there would be someone I could completely trust and that they would take my hand and help me. But still, till this point, I feel that there are not really many people in the market that can do that for you. And because of that, still, the path is people losing accounts many times and losing their confidence and end up in that failing cycle and stuck.
[00:45:33] - Ben
Now, I actually do have a positive recommendation.
[00:45:36] - Agnieszka
Good. Oh, thank God.
[00:45:39] - Ben
One of the incredibly few. And this, I must admit, I was lucky to run across this myself. And it's free.
[00:45:46] - Agnieszka
All right, bring it on.
[00:45:48] - Ben
I will. Now, again, nobody gives away Alpha. Nobody tells you how to just go in and make money and that's it. No, that does not happen. You can just throw that completely out of your head. It simply does not happen. Simply because if someone can actually make money in the market, why would they want to charge you money?
[00:46:09] - Agnieszka
Right?
[00:46:10] - Ben
Why would they need to why do they need to take that counterparty risk and deal with you and charge you and go through setting all that up when they can simply go into the market and make money? Okay? So that's an absolute rationale. Someone who sets out to charge you money to teach you. That should be the biggest red flag there is. And that's, as I said, 99.99% of the market. Okay. I happen to be lucky to connect on a personal level with professionals and learn enough of the right thinking from them to actually build that into myself and start learning how to make money. So it's a very indirect, very difficult approach, certainly not for everyone.
[00:46:59] - Agnieszka
Got you.
[00:46:59] - Ben
And again, involved quite a bit of luck, that is from the options trading side of the house, if you will. It's difficult on the stock trading side of the house. This is actually something that I ran across in a Futures Forum talking to an old-style trader, a guy named Daniel Bones, a wonderful guy to follow on Twitter. And Dan mentioned this strategy put together by a guy named Rob Smith called The Strat. And after seeing a million gurus advertising this stuff, I was incredibly skeptical, and I sort of kept that at the back of my mind, but I kept running across it on Twitter, and other places, and I thought, I don't really believe in directional trading, as most options traders don't. We trade volatility. Directionality, that's a really questionable thing. How the hell can you possibly predict which way the stock is going to move? But I decided at one point, and with the market being varying in volatility as much as it did, there was a point during last year when I said, you know, I need to back off because very few good trades are coming down the pike, and I don't want to take an extreme risk.
[00:48:23] - Ben
Let me put some time into finding out if this is real in the first place. And Rob Smith, he's also a retired trader. I seem to run across a lot of these people really quickly. Rob has put together the strategy from all of his experience in the market called "The Strat", and it is directional trading. And this is what I'm trying to learn. A lot of it, again, goes against what I always thought that directional trading. Is it really possible? Well, it is. And in my experience, and with the tremendously helpful community around "The Strat", I have been gaining some measure of success around directional trading, which has been amazing to me. Yeah.
[00:49:10] - Agnieszka
Wow, that's amazing. Thank you for sharing that.
[00:49:12] - Ben
Absolutely.
[00:49:13] - Agnieszka
If you have any links, we can post them. So if anyone wants to check it out or just probably Google the name and they will find it. Right?
[00:49:23] - Ben
Yeah. "The Strat" is at the site called sepiagroup.com. Sepia, as in the collar sepiagroup.com. There's a lot of tremendous amount of free material on YouTube from him and from people who work with him, but also sepiagroup.com check him out.
[00:49:47] - Agnieszka
Awesome. Thank you for that recommendation. And that brings us to the end of this episode. Thank you so much, Ben, for joining us and for this candid conversation today.
[00:49:59] - Ben
Agnieszka, it's been a pleasure talking to you. A pleasure to be here.
[00:50:03] - Agnieszka
I hope it will help traders who are listening to this to gain some perspective and understand that, first of all, learning trading is a process. And since this is one of the most challenging and demanding jobs out there with a huge amount of risk, it requires more learning and preparation than any other occupation. And to survive, you must know your weak sides and address them as soon as possible, whether it is a strategy, technical knowledge, or the emotional and mindset side of it. Thank you so much for listening to the podcast. If you enjoy my show, please rate it, review it on Apple Podcasts, and be sure to subscribe so you can come back for a real-life conversation in the next episode. Until then, this is Agnieszka Wood from Ahead Coach. And don't forget, you too can realize your dream without losing yourself and your confidence in the process. Thank you so much, Ben, for being here.
[00:51:03] - Ben
My pleasure.
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