Lesson 22: 10 Trading Rules I’ll Teach My Son
By Scott Redler, Chief Strategic Officer of T3 Live
I don't know if my son will follow me into the trading business.
But if he did, I'd drag him into the garage, lock the door, and not let him out until he understands these 10 trading rules:
10) Trading Is a Business
People think trading is like hitting the craps table at Ceasars Palace.
But it's a business just like any other.
You have to balance your books every month, make it through slowdowns, and most of all, not put yourself at risk of bankruptcy.
The average guy on the street thinks trading is really exciting. You lose $10 million one day, and make $20 million the next.
NOTHING could be further from the truth.
Every successful trader knows that…
9) Trading Should Be Mostly Boring
Thrill-seekers always fail. Always.
Here's a pretty common scenario:
A trader starts his career, and BAM! He has a huge day.
Let's call it $50K.
I gotta tell you, $50K all at once can ruin a trader's life.
They start thinking that big money comes easily, and that it comes all the time.
They start thinking about making $100K a day… or $200K a day.
So they keep taking more and more risk… until they run into a day like the August 24, 2015 flash crash.
5 minutes after the open, the margin clerk's demanding more cash.
The trader doesn't have the money to put up, so their positions get closed out, right at the bottom.
So they're put out of business just before the rebound.
I've seen it happen again and again.
So if you're just getting started, I recommend that you…
8) Focus on Execution First, Money Second
If you get good at anything, odds are the money's going to come eventually.
So focus on developing your skills, and properly executing the strategies you learn.
That's what's going to keep you in the game for the long run.
Fast money leaves the way it came.
Your #1 goal should be to develop a set of trading strategies that can give you consistent profits, no matter what's happening in the market.
Once your brain gets big, your wallet follows.
But let's not forget about your heart, because…
7) Your Temper Can Kill You
Self-control is more important than brainpower.
You can have all the intelligence in the world, but if you can't stay calm when you're losing money, you're toast.
You need the self-awareness to know when you're at risk of letting emotions dictate your decision-making process.
I just read an article in the Wall Street Journal about a banker that used basketball to judge job candidates:
Some employers confessed to weeding out applicants in the gym. John Osbon said when he was a Wall Street managing director he played basketball with job candidates. He would step on their feet or yank their shirt in games, he said, to see how they reacted. If they kept their cool, they passed the test.“They were all fair fouls, and I didn’t hurt anyone,” Mr. Osbon said. “You have to take someone down to size.”
Sounds like a pretty effective way to judge a trader's ability to take pressure!
How easily do you keep your cool?
And what can you do to work on being even-tempered?
But we all know we can't keep our emotions perfectly on check.
So I recommend that you…
6) Use Reverse Psychology on Yourself
We're only human, and we can never perfectly manage our emotions.
I've been doing this for 20+ years, and I still get too excited sometimes.
And when I feel that coming on, I know my ego is getting the best of me.
So I force myself to trade more cautiously, because I've put myself in the danger zone.
And when I start every trading day, I try to…
5) Be Naturally Neutral
I don't expect too much at the start of a trading day.
And I don't expect too little.
Every day is different, and if I'm in a neutral mood, I'm ready for whatever opportunities present themselves.
If you start your day dreaming of piles of cash, or worrying that you'll go up in smoke, you're doomed.
Now, once you're out there, not every trade will go your way.
You're going to lose money.
But that's okay, because…
4) Great Traders Are Losers
Every trader out there loses money.
I lose money all the time.
Some of the richest traders I've met lose money every single day.
But the reason I'm still in the game after 20+ years is that I don't lose big.
Say I'm long AAPL from $120, and I get stopped out at $118.
I'm not gonna celebrate, but I'm not gonna cry either.
You know why?
Because small losses won't knock me out of the game.
Now if I rode AAPL down to $130, that's another story.
If you dig a deep enough hole, you may need 10 winners to make up for 1 loser!
Understanding this can help you…
3) Start Thinking Like a Pro
Like I said, brainpower isn't everything.
You can have a 180 IQ, but you've got to adopt the mindset of a pro.
Pros don't think about Ferraris and private jets while they're trading.
We think about what we could lose.
Sometimes, no matter how much we plan and how hard we work, we're going to lose money.
That's just reality.
But I don't want you to think that great traders sit around waiting for the sky to drop.
To make it as a trader, you've got to…
2) Be Confident
By now, you understand that traders need to keep their egos in check.
They need to worry about risk, not just reward.
But at the end of the day, you've got to believe in yourself.
You need to know that you can develop trading skills, and then apply them in the real world, with real money on the line.
One of the biggest mistakes you can make is not giving yourself a fair chance.
Too many aspiring traders never get started, because they don't think they can do it.
They'll spend all day paper trading and reading books, but they never actually pull the trigger.
Don't fall into that trap.
Get an education, and then get started.
Start small. Don't take too much risk.
But get started.
And no matter how successful you get, don't forget to
1) Stay Balanced
This is what matters in life:
I'm lucky that I earn a living doing something I love.
But it wouldn't matter if I didn't have a great family.
When you're at your trading desk, do your best.
Never stop learning.
But if you don't have good people in your life, money is worthless.
Positions Disclosure: as of 3/30/2021 at 3:02 p.m. ET, Scott held the following positions:
Longs: BFT, BTWN, GE, GME, GOOGLE, GSAH, M, MBIO, MCD, PLTR, SBUX, SNOW, SOXL, TIGR, VIAC, VZ, BTWN calls, CDEV calls, FB calls, GME calls, GSAH calls, GSX calls, HYLN calls, JETS calls, PLTR calls, QRVO calls, TME calls, X calls
Shorts: BA puts, BIDU puts, FUBO puts, GME calls, SPY calls, VIAC puts
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About Scott Redler
Scott Redler has been a professional trader since 1999.
After 8 years of successful trading, Scott co-founded T3 Companies, LLC in 2007 and began serving as Chief Strategic Officer of both T3 Live and T3 Trading Group.
As the financial crisis began, Scott became a recurring guest on CNBC, repeatedly warning investors of the danger ahead.
Today, Scott remains a professional trader, and regularly appears on CNBC, Bloomberg Television, and Fox Business.
His technical analysis work has been featured by numerous media outlets including the Wall Street Journal, Reuters, MarketWatch, and Investor’s Business Daily, among many others.
Scott has trained traders all around the world, and has appeared in documentaries by the BBC and China’s CCTV-2.
Through the Redler Report, Scott helps traders, money managers, and individual investors view the markets through his eyes and approach each day with a steady, measured approach.
Scott also moderates the Alpha Team room on our Virtual Trading Floor®.