Daytradejeffrey · Follow
11 min read · Aug 15, 2018
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I’m was staying in Amsterdam a while ago.
When you travel the world, it gives you time to think through things.
Something that came to my mind recently is the Murphy’s Law.
Murphy’s law states that anything that can go wrong will go wrong.
What can go wrong, will go wrong, and it will go wrong at the worst possible time.
It reminds me of my friend who wanted to get into trading back in December 2017.
He started off with only $1,000 and went all in on a sh*tcoin (=altcoin that’s fundamentally worthless.)
Well, sooner than I expected he had made a whopping $32,000 profit.
That’s up to 3200% in under a month.
Well, while that strategy worked, the market crash of December 2017 came:
And because my friend listened to all the people yelling “HODL”, this is what he ended up with:
The coin ended up exactly where it belonged and my friend lost almost all of his money.
With even just a little bit of training, he could’ve simply used a trailing stop loss and locked in the massive profits he made.
Had he locked up these profits, he then could’ve proceeded to turn them into even bigger profits.
In trading, you might get off the hook by not using stop losses, and it might even work out very well for 6 months, but when the market crash comes, and on the exact moment you need it, it’s going to fail.
People always laugh when I say that our $97 course is more valuable than universities that cost up to $200,000.
Even though my friend is studying economics in a top university, this information would’ve helped him make up to $30,000.
If he had just used an hour or couple to study it, he would’ve benefited more than all that irrelevant information he learned there.
I always come back to this concept of Six Sigma, creating the perfect systems.
Think about your own life & trading: how often do you make mistakes? How often are there failures in your systems — sets of behaviours that you execute?
If you could continually lower that amount on a weekly basis, how much your life would change?
Now, imagine that on a monthly and yearly basis.
Mistakes are costly, they cost massive amounts of money, lives and time.
For some people, one mistake of not securing their passwords can literally cost decades of work.
Life is short. Yet, people buy into this fallacy that they have to make mistakes to succeed.
It’s important to know:
- How to increase your efficiency
- How to decrease the number of days, weeks and years you would normally waste
- How to get to your goals faster
Why? Because it’s not like we have an eternity to achieve the things we want out of life.
The human life is short, and we don’t have a thousand years to try everything before “getting it”.
It’s like Warren Buffet said:
“It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.”
You can learn from mistakes, but they don’t have to be yours.
Or you can be like this guy who tried learning how to fly an airplane without any training, I guess he thought he could learn it by trial & error.
Just like most of the traders in the space, he literally got REKT because of his ignorance.
A single point of failure (SPOF) basically means a part of your trading system that, if it fails, it will stop your entire system from working.
If your current trading strategy has a single point of failure, it basically means that if something goes against your direction, you’re REKT.
Instead of doing that, you must have no single point of failure.
It basically means that one mistake, fault, or malfunction in your trading system, emotions, or anything else won’t cause your entire portfolio to break down.
Obviously, this is a complicated concept and I can’t go over the whole thing in this one short article, but all this comes down to what the billionaire investor, Warren Buffet said:
“Rule #1: Never lose money. Rule #2: Don’t forget rule #1”.
The second you copy the mindset of Warren Buffet where he doesn’t allow himself to make any mistakes, you’re going to succeed in trading.
But how do you pull that off? Is it possible?
Yes.
In airplanes, they pull it off.
Airplanes crash extremely rarely and almost never because of an engine failure.
In fact, the odds of a plane crash are one for every 1.2 million flights, with odds of dying one in 11 million.
Your chances of dying in a car or traffic accident are one in 5,000.
How do you do this in your trading?
You must create redundancy in your trading.
Redundancy basically means that if something fails in your system, you have something that’s going to catch you.
It’s kinda like a seatbelt in a car.
Here are a few basic examples of creating redundancy and eliminating a single point of failure:
- Calculate your position size before you enter a trade
- Set a stop loss instantly after you’ve set your buy orders
- Have a plan for emotional management
Now, I have over +2300 members in our community and I’ve been helping out people with trading since 2016.
The biggest reason I’ve noticed that beginners fail and feel emotionally stressed about trading, is that they just try to find the “perfect strategy” by trial and error in real markets.
The most common path for new traders is that they watch 5-minute charts for 10 hours a day and eventually get REKT or just bored.
The truth is that the most profitable traders don’t have to watch charts for 10 hours a day.
Do you really think Paul Tudor Jones was watching 5-minute charts for 10 hours a day to become one of the most profitable traders in history?
No.
What you want to do instead is create perfect systems that run with very little effort.
This minimizes the probability of statistically bad emotional trades, it maximizes your profits, and removes almost all the emotional stress for trading.
What’s a system?
Essentially, it’s a set of things working together as parts of a mechanism instead of just doing random things.
The system can be based on your personal experience, or it can be built up based on outside information.
Creating systems is a skill you’re going to constantly be getting better at, but even a very simple system like writing things down will eliminate almost all anxiety and make you feel good about trading.
If whatever you did worked, great. If it failed, you simply mark down that it failed and come up with a next step and keep going.
By doing this daily, you make your system continously better, and with the power of compound interest, it will start working extremely well in your favour as time passes by.
The end goal of doing this is to have a system that’s at Sigma level 6, but I’ll talk about this in the upcoming paragraph.
The US military has created a very interesting system for creating perfect systems.
Someone’s going to shoot at you, your engine might fail, or you might have to react extremely fast, or else you’re dead.
So you can’t be sucking on your thumb when “sh*t hits the fan”.
How do they train their pilots?
This one little exercise I’m about to show you has decreased my stress insane amounts.
It has also permanently lowered my stress in almost every situation in my life.
You should always plan for 3 scenarios: A, B, and C.
Let’s say you’re thinking of quitting your job and starting to trade full-time.
The way most people do that is that they don’t have this system that has forgiveness in it.
Their mindset is pretty much “I’m 100% sure I’m going to succeed, I’ve got to succeed, and I’m not even going to think about anything else”.
The problem with that is that there’s no forgiveness in there, there’s no redundancy.
There’s no smart understanding of realities in life and how much energy it’s going to take to become a successful full-time trader.
There’s also the “positive thinking” side of things where people believe that just thinking about failing will cause them to fail.
Let me say this, there’s some truth to thinking about your goals, but I don’t think that’s what the author of Think & Grow Rich — Napoleon Hill — meant when he taught his principles.
Optimism is important, but as in anything, you can overdo it.
So, here’s the US military approach:
They train their pilots to do a plan for 3 scenarios.
If you’re planning to become a highly profitable full-time trader, you should create a plan for:
A) The best possible scenario - You’re the next Paul Tudor Jones, you’re going to be an extremely profitable trader in the next few months, buy a Lamborghini and move to Bali.
B) The most likely scenario - You’re going to make some profits if you do smart things, but there will be some downfalls.
You won’t make money as fast as you think, but you push through it and eventually become a full-time trader.
You will consistently get better and your portfolio will grow as you’re making those profitable trades a day in and day out.
C) The worst case scenario - You’re going to lose your portfolio, and you will have to go back to your day job before you can try again.
Once you’ve written down all these scenarios, you must create a plan for each and every one of them.
A) Create a plan for how you can spend all the money you have, how to help your family, how to give to charity…
B) Create a plan for how you’re going to use your profits for your living, how much money you’re going to re-invest and spend, how you will optimize your taxes.
C) Create a plan for how you will get back to rebuilding your portfolio, where you’re going to live, how you’re going to make your living.
Believe it or not, some of my friends live the plan A), all they have to think about is what model Rolex they will buy, what real estate they’re going to invest in or how much money they will give to the charity.
It might happen to be your future, but you must have a plan for each scenario because this way you’ll make rational and logical decisions when “sh*t hits the fan”.
When a foreign missile is heading towards you, you have no time to create plans, you must act instantly.
We’re really talking about what Sun Tzu said:
Prepare for the difficult while it is still easy.
The following tool is used by companies like Amazon, Ford Motor Company, and General Electric.
By applying this tool, they’ve saved tens on billions of dollars, so make sure to implement it in your life as well.
In the business world, it can enhance an organization’s profitability by increasing the quality of its processes.
The same principles apply to your profitability as well.
Yes, we’re talking about Six Sigma.
Some of the basics elements of Six Sigma are:
- Resource allocation - How much resources are you allocating towards getting ahead in your particular financial goal?
- Training - How much training are you receiving towards getting ahead in your goal and what is the quality of the training?
- Data for decision making - Can you do data analysis based on your current situation to find the areas you need to improve on and make objective decisions?
These are the main 3 elements, there’s many more but they are outside the scope and space of this article.
The better the quality of your decisions and processes, the higher level you’re on in the Six Sigma scale.
The different levels of Six Sigma are:
Sigma Level 1: You’re failing 690,000 times out of 1,000,000
Sigma Level 2: You’re failing 308,537 times out of 1,000,000
Sigma Level 3: You’re failing 66,807 times out of 1,000,000
Sigma Level 4: You’re failing 6,210 times out of 1,000,000
Sigma Level 5: You’re failing 233 times out of 1,000,000
Sigma Level 6: You’re failing 3.4 times out of 1,000,000
Sigma Level 7: You’re failing 0 times out of 1,000,000
I know a lot of people who live at the level 1 - almost everything they touch goes wrong.
But I also know people who are at level 6 - almost anything they do becomes successful.
Getting to level 7 where you’re not making any mistakes at all is virtually impossible.
You’re just a human and you’re always going to make mistakes every now and then, but the level you want to aim at is the level 6 - failing only 3.4 times out of a million.
This might sound impossible, but that’s exactly what they’re doing in the airline business.
You’re not going to do that just by reading this article, and it’s going to take a lot of work to get there, but if you get there, the rewards are massive.
The point of this article is not to go too deep into Six Sigma or any other tool mentioned, because these are complicated concepts, and I would need up to 8 hours to teach every one of these in depth.
Some of you are in my mentoring programs and we’ll get into this more in depth there, but I dropped 3 specific tools for you:
- Redundancy - Build redundancy in everything you do. Instead of going all in, risk losing 1%. Instead of having all your investments in one coin, have different asset classes. Instead of relying on one single income source, have many. Except things go wrong and make plans ahead of time.
- Planning tool - Use the planning tool above to create plans for each scenario. This will reduce your stress massively.
- Six Sigma - The third tool I recommend you to learn is Six Sigma. You can read a book on this, or take a course in our course area.
The main thing here is really planning and executing.
You have to spend time thinking about how to actually apply these concepts to your own trading and investing.
Just reading these articles won’t make you a successful trader.
If you want to learn from the best traders in the space, hop inside our free training.
