3 Things Traders Who Know Everything Don’t Know

Have you ever met a trader who “knows everything”? Of course you have. Every now and then, you come across them on TikTok or YouTube. If you can’t already tell just from looking at them that they know everything there is about trading, don’t worry: They’ll tell you.

Well, I’d like to share three things they (apparently) don’t know (and I bet there’s a good chance you know some of them already).

1. No one knows everything

   I mean, come on. Really?! Humans have been trading options for literally millennia. Arguably the first recorded example was when Thales (620 B.C. to c. 546 B.C.) contracted the local olive presses to potentially capitalize on a bumper olive crop. (Sounds like a future blog post to me.) Let’s not forget the Dutch Tulip Mania of 1636 when seemingly everyone was trading options on these bulbs (sounds like another future blog). But it wasn’t until 50 years ago when humans actually came to understand how option pricing worked. (Thanks Fischer and Myron!)

   In my first trading gig, I worked for a legend in the options world, the late Steve Fossett. (Sheesh, is this yet another future post? I got me some inspiration today!) He was massively successful. The one thing he was known for saying is, “I’m still learning.” I love that attitude, and it shaped the way I think about trading and about life.

2. The best traders are humble (and have losing trades)

   The best way to identify a losing trader is when you hear someone who only talks about their winners. These braggadocios are really annoying. I mean really. Who are they kidding? There’s actually an answer to that question: Only themselves.

   For many professional traders (who trade big enough to move the market) this is a prerequisite—you never brag about how much you’re making on a trade so other pros don’t come in and do the same thing, crowd the trade, and squeeze out your profit. Back when I stood down in the CBOE trading pits, when we were making a killing and another market maker asked, “How’s trading going in your pit?”, the answer was always something to the tune of: “Ugh. Oh man. Yeah. It sucks. No paper. I’m going to have to get a second mortgage. How about you?”

   As retail traders, that’s less important. In fact, our community benefits from our student traders sharing both their wins and their losses. That’s how we learn.

   John and I try to set the tone for that too. We are actually much more likely to share stories about our past notable losers than our winners. And it’s not just to be humble. It’s because I believe that while you can surely learn a lot from hearing about how someone made money, you can learn a lot more hearing about the mistakes they made. This is how we shorten your learning curve. I like to say, “I’ve made the mistakes so you don’t have to.”

3. Knowledge only benefits you if you have the right psychology

   Imagine if you were a boxer who is afraid to get hit. You train for months and then in the ring you cower or run away when the first punch is thrown. Or you don’t want to hurt the other guy, so you don’t punch too hard.

   Sort of a ridiculous analogy. Or is it? I’ve met a handful of traders who I could quiz on factoids and theory who can get ’em all right but just can’t find a way to make money.

   Let me be really clear: Psychology is the most important thing in trading.

   I’d almost go as far as saying it’s MORE important than knowledge. If you’re too scared to make the trade; if you get too nervous when you’ve made a little profit and get out too quick; if you’re too nervous when you lose and your head’s on fire and you freeze; if you get too greedy when you have a profit and watch it retrace and wind up a loser; if you’re too greedy when you have a loser and wait for it to come back, trading is not going to work.

   This is not a phenomenon known only to traders. This applies to anything you can do in life. Sure, some athletes are born with good genes. But they and all the other greats will tell you that it’s the mental game that got them where they are.

   Entrepreneurs. How many stories have you heard about great entrepreneurs who didn’t graduate college? How about Sir Richard Branson, Steve Jobs, Steve Wozniak, Mark Zuckerberg, Larry Ellison, Michael Dell, Walt Disney or Bill Gates? Henry Ford didn’t even go to high school!

   What made them successful? Attitude. Sheer will. Determination. Mastering their own minds.

   Psychology.

   This is what matters. You can always learn more (and should always try to and need to). But psychology is what really makes or breaks a trader.

   And if you haven’t already registered for our 7 Keys to Making This Your Most Profitable Year online training (which, you guessed it, is all about trader psychology) we have a special encore presentation of it coming up in a few days. There’s still time to grab a spot here. I hope to see you there!

   Trade Smart,

   Dan