maui-07

Mastery and The Trading Business

11 chapters
1:10:47

The video discusses the need for mastery in trading, emphasizing the importance of training, experience, and productive practice. It covers the differences between income trading and regular trading, the journey to income trading, back trading, time investment, and the comparison of trading experience to home inspection. The video also explores the importance of mindset, financial planning, and the consequences of a scarcity mindset in trading.

01 1:49 Mastery, Experience, and Mindset in Trading

The video discusses the need for mastery in trading, emphasizing the importance of training, experience, and productive practice. It covers the differences between income trading and regular trading, the journey to income trading, back trading, time investment, and the comparison of trading experience to home inspection. The video also explores the importance of mindset, financial planning, and the consequences of a scarcity mindset in trading.

Mastery in TradingTraining and Experience10,000 Hours ConceptTrading ExperienceProductive PracticeIncome Trading
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principle Mastery Requires Significant Time Investment

To achieve mastery in trading, one must dedicate 10,000 hours of training, practice, and experience, similar to other fields requiring expertise.

method Defining Productive Experience in Trading

Productive experience in trading is defined as actual practice that follows a strategy, considering technical analysis, personal biases, and news events, rather than passive screen watching.

02 12:41 Trading Methodology and Business Setup

The speaker discusses the importance of a reliable trading methodology with a track record, the need to understand system limitations and market phases, and the hidden costs of transitioning to trading as a business. They emphasize the necessity of backup systems, office setups, and budgeting for additional business expenses.

Trading MethodologySystem ReliabilityRisk ManagementSystem LimitationsMarket PhasesAlternative Strategies
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principle The Importance of a Proven Trading Methodology

A reliable trading methodology is essential for success, and it must have a track record of performance through live testing, not just backtesting. It is crucial to understand the limitations and weaknesses of the system, as no system works indefinitely.

method Assessing System Limitations and Market Phases

To evaluate a trading system, one must identify when it is likely to fail, understand the market phases where it is not appropriate, and have a plan for adapting or switching methodologies during those periods.

03 17:48 Financial Planning and Personal Expenses

The speaker explores the financial aspects of trading, including increasing trading account size, the psychological insights from net worth, and the individual's financial situation. They discuss the importance of saving, having cash on hand, and planning for college expenses, retirement, and car replacement funds.

Trading account sizeMaking more moneyTools for increasing account sizePsychological insightsNet worth analysisCredit card debt
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qa What is the recommended monthly spending for a trading account?

The transcript suggests that a person with a $100,000 trading account aims to reduce their monthly expenses to $5,000.

principle Financial preparedness is essential for trading success

The transcript emphasizes the importance of understanding one's financial situation, including net worth, liabilities, and expenses, before entering a trading business.

04 26:41 Budgeting and Financial Management

The chapter covers budgeting practices, including reviewing monthly expenses, assessing family and auto expenses, managing credit card debts, and discussing financial efficiency. It emphasizes the importance of understanding expenses, cutting non-essential costs, and managing high-interest debts effectively.

BudgetingExpense ReviewFamily ExpensesAuto ExpensesCredit Card ManagementFinancial Efficiency
principle Comprehensive Budget Review

A thorough budget review should include all monthly expenses, including fixed and variable costs, to ensure a clear understanding of financial commitments and potential areas for adjustment.

principle Long-Term Financial Planning

Long-term financial planning requires considering not only current monthly expenses but also future obligations such as health insurance, deductibles, and other long-term costs.

05 28:33 Spending Plans, Trading Strategies, and Financial Risk

The chapter discusses the structure of a spending plan, emphasizing the need for in-depth discussions to ensure proper setup. It covers tracking expenses, managing debts, and preparing for future financial needs. It then transitions to trading system evaluation, trade projections, high probability trades, and the importance of risk assessment. The discussion also includes expected earnings, capital requirements, and the realistic expectations of financial risk in trading.

Spending PlanFinancial PlanningDebt ManagementTrading system evaluationUnderstanding trading capabilitiesTrade projections
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method Segmenting Money into Buckets for Trading

Segment your money into different accounts or 'buckets' for specific purposes such as trading, taxes, expenses, and drawdowns. This includes a trading account, a tax account, a reinvestment account, and a draw account for expenses.

method Using Historical Results for Trading Evaluation

Use historical results from a trading system to evaluate its performance. This includes back-testing results and comparing them to theoretical projections.

principle Approach Back Trading with Caution

Some of your actual results may involve back trading, and you need to keep back trading with a grain of salt.

06 41:32 Understanding Actual Results and Financial Accounts

The speaker discusses the importance of understanding actual results and back trading, emphasizing caution. They also explain the concept of a refund account balance and its role in funding the regular trading account.

actual resultsback tradingcautionrefund accounttrading account
principle Approach Back Trading with Caution

Some of your actual results may involve back trading, and you need to keep back trading with a grain of salt.

method Validate Trading Scenarios in Real Conditions

Make sure you did it right, because you want to be right here, right? But you want to know what this is actually going to look like.

07 41:49 Risk, Performance, and Market Dynamics

The speaker discusses the risks involved in trading, including potential capital loss. They share experiences of initial losses in 2013, the importance of a draw account for expenses, and the psychological impact of losses. The discussion also covers strategy performance, market variability, and the impact of implied volatility on trading strategies. The speaker concludes with an analysis of account balance and future planning.

riskcapital exposureLoss2013Initial PerformanceDraw Account
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risk_rule Risk Management and Capital Exposure

You should not risk every penny of your capital on a single trade. Instead, allocate a portion of your capital to trading, keeping the rest in a separate account for emergencies or expenses.

strategy_rule Recognizing Normal Variability in Strategy Performance

It is normal for a trading strategy to underperform for a period of time, and this does not necessarily mean the strategy is flawed.

08 54:17 Account Risk and Strategy Limitations

The chapter discusses the importance of maintaining a non-zero account balance to avoid financial risk, the emotional and practical impact of consecutive losses, and the limitations of the M3 strategy. It emphasizes the need for risk management and capital considerations.

Account RiskConsecutive lossesEmotional impactM3 StrategyRisk ManagementCapital Requirements
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principle Account Balance Zero as a Warning Sign

An account balance reaching zero is a warning sign that something needs to change. If this persists over time, it indicates that the trading approach may not be sustainable, and adjustments or additional capital may be necessary.

psychology_pattern Emotional Response to Consecutive Losses

Consecutive losses can trigger emotional responses that may affect decision-making, such as fear or frustration, which can lead to poor trading decisions.

09 59:04 Market Cycles, Confidence, and Personal Development

The chapter covers risk assessment in market cycles, the importance of adapting strategies to changing environments, and the role of confidence in trading. It also includes exercises to build confidence through visualization, self-talk, and physical actions.

Risk AssessmentMarket CyclesStrategy AdaptationTrading ConfidencePersonal DevelopmentVisualization
method Circle of Excellence Visualization

Close your eyes and imagine a circle in front of you. Step into the circle and recall a time when you felt extremely confident. Recall the sights, sounds, and feelings of that moment. Squeeze your right fist and say 'power' to reinforce confidence. Step back out of the circle and observe any changes in color or sound. Re-enter the circle and feel the confidence and power rising through your body. Add additional resources to the circle, such as memories of feeling powerful or being on a roll.

warning Avoid Following Trade Alerts

Following trade alerts can lead to short-term success but is harmful in the long term. It may create a false sense of security and prevent traders from developing their own skills and confidence.

10 1:08:14 Reconnecting with Confidence Through Body Awareness

The speaker encourages the audience to step back into the circle and feel confidence returning to their body, emphasizing the connection between confidence and body awareness.

ConfidenceFeelingBody Awareness
psychology_pattern Using Positive Emotional States to Enhance Confidence

The practice involves recalling and re-experiencing positive emotional states (such as being loved, confident, and powerful) to build a mental resource that can be applied to future situations.

Locke Typical bad year v0.3 download original

Entering Info

42635

Cash Flow Projections

This plan is shared as an example for educational purposes ONLY and does not imply the information stated is accurate or possible.JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
Trading Account
Balance100000100000100000100000100000100000100000100000100000100000100000100000
Target Profit per Plan (%)0.10.10.10.10.10.10.10.10.10.10.10.1
Max Loss per Plan (%)0.10.10.10.10.10.10.10.10.10.10.10.1
Actual P/L on PC after commissions (22.19%)-0.0360.0008-0.0059-0.12500.0840.0570.0560.0050.0220.0450.119
8 Wins (67%) and 4 Losses (33%)
Gain / Loss ($22,190.00)-3599.999999999999580-590-1250008400570056005002200450011900
Gain/Loss Running Total-3599.9999999999995-3519.9999999999995-4110-16610-16610-8210-25103090359057901029022190
Gain / Loss Running %-0.036-0.035199999999999995-0.0411-0.1661-0.1661-0.0821-0.02510.03090.03590.05790.10290.2219
Monthly Tax Liability / Credit0.31079.9999999999998-2417737500-2520-1710-1680-150-660-1350-3570
Tax Liability / Credit Running Total1079.99999999999981055.99999999999981232.9999999999998498349832463753-927-1077-1737-3087-6657
Re-Fund Account
Starting Balance10000096400964809589083390833909179097490100000100000100000100000
Trading Account disbursed Gross Profits0800008400570056005002200450011900
Ending Balance96400964809589083390833909179097490100000100000100000100000100000
Net Gain to be added to Draw Account000000030905002200450011900
Draw Account
Starting Balance660006050055000495004400038500330002750024163190131505312703
Re-Fund Overage000000030905002200450011900
Monthly Business Expenses Draw 500-500-500-500-500-500-500-500-500-500-500-500-500
Monthly Living Expenses Draw5000-5000-5000-5000-5000-5000-5000-5000-5000-5000-5000-5000-5000
Monthly Tax Liability0000000-927-150-660-1350-3570
Ending Balance605005500049500440003850033000275002416319013150531270315533
Total Balance - All Accounts266000256900251480245390227390221890224790224990224163219013215053212703215533
YTD Gain/Loss %-0.034210526315789476-0.05458646616541354-0.0774812030075188-0.1451503759398496-0.16582706766917293-0.1549248120300752-0.15417293233082707-0.15728195488721805-0.17664285714285713-0.1915300751879699-0.20036466165413533-0.18972556390977444

Comments

ItemComment
1The initial (January) Trading Account Balance must not be less than the Re-Fund Account (January) Starting Balance.
2The initial Re-Fund Account (January) Starting Balance must not be greater than the initial (January) Trading Account Balance.
3If the Trading Account Actual P/L on PC after commissions exceeds the Target Profit per Plan or Max Loss per Plan, the % amount you enter for the monthly result will be italicized and the cell will have a colored border (green border for exceeding the Target Profit you entered; red border for exceeding the Max Loss).
4The goal is to maintain a constant Trading Account Balance.
5If a trade is lost, the Trading Account Balance will be maintained by withdrawing money from the Re-Fund Account, reflected in the Re-Fund Account Ending Balance for the month. (The Trading Account is, in effect, re-funded.)
6Too many losses will lead to an Overdrawn Re-Fund Account.
7If a trade is won, profits will be moved to the Re-Fund Account until the Re-Fund Account Ending Balance matches the initial (January) Trading Account Balance.
8If the Re-Fund Account Ending Balance for the month exceeds the initial (January) Trading Account Balance, the overage will be moved to the Draw Account.
9The goal of funding the Draw Account is pay for business expenses, living expenses and taxes.
10Although there may be very many trade wins, with profits going to the Draw Account, it is possible to be Overdrawn by the end of the year.
11Trading Account Tax Liability / Credit Running Total can be a credit, since this can be used to offset gains in another account.
12Draw Account Monthly Tax Liability, however, can never be a credit since it only deals with money going in/out of this account.

Locke Typical good year v0.3 download original

Entering Info

42635

Cash Flow Projections

This plan is shared as an example for educational purposes ONLY and does not imply the information stated is accurate or possible.JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
Trading Account
Balance100000100000100000100000100000100000100000100000100000100000100000100000
Target Profit per Plan (%)0.10.10.10.10.10.10.10.10.10.10.10.1
Max Loss per Plan (%)0.10.10.10.10.10.10.10.10.10.10.10.1
Actual P/L on PC after commissions (89.2%)0.0580.0320.1030.0440.1140.0530.0870.1030.0740.1190.0890.016
12 Wins (100%) and 0 Losses (%)
Gain / Loss ($89,200.00)5800320010300440011400530087001030074001190089001600
Gain/Loss Running Total5800900019300237003510040400491005940066800787008760089200
Gain / Loss Running %0.0580.090.1930.2370.3510.4040.4910.5940.6680.7870.8760.892
Monthly Tax Liability / Credit0.3-1740-960-3090-1320-3420-1590-2610-3090-2220-3570-2670-480
Tax Liability / Credit Running Total-1740-2700-5790-7110-10530-12120-14730-17820-20040-23610-26280-26760
Re-Fund Account
Starting Balance100000100000100000100000100000100000100000100000100000100000100000100000
Trading Account disbursed Gross Profits5800320010300440011400530087001030074001190089001600
Ending Balance100000100000100000100000100000100000100000100000100000100000100000100000
Net Gain to be added to Draw Account5800320010300440011400530087001030074001190089001600
Draw Account
Starting Balance155331409310833125431012312603108131140313113127931562316353
Re-Fund Overage5800320010300440011400530087001030074001190089001600
Monthly Business Expenses Draw 500-500-500-500-500-500-500-500-500-500-500-500-500
Monthly Living Expenses Draw5000-5000-5000-5000-5000-5000-5000-5000-5000-5000-5000-5000-5000
Monthly Tax Liability-1740-960-3090-1320-3420-1590-2610-3090-2220-3570-2670-480
Ending Balance140931083312543101231260310813114031311312793156231635311973
Total Balance - All Accounts215533214093210833212543210123212603210813211403213113212793215623216353211973
YTD Gain/Loss %-0.006681111477128792-0.021806405515628697-0.013872585636538256-0.025100564646713033-0.01359420599165789-0.02189919873058882-0.019161798889265218-0.011227979010174777-0.012712670449536730.00041756946732054950.003804521813365007-0.016517192262901735

Comments

ItemComment
1The initial (January) Trading Account Balance must not be less than the Re-Fund Account (January) Starting Balance.
2The initial Re-Fund Account (January) Starting Balance must not be greater than the initial (January) Trading Account Balance.
3If the Trading Account Actual P/L on PC after commissions exceeds the Target Profit per Plan or Max Loss per Plan, the % amount you enter for the monthly result will be italicized and the cell will have a colored border (green border for exceeding the Target Profit you entered; red border for exceeding the Max Loss).
4The goal is to maintain a constant Trading Account Balance.
5If a trade is lost, the Trading Account Balance will be maintained by withdrawing money from the Re-Fund Account, reflected in the Re-Fund Account Ending Balance for the month. (The Trading Account is, in effect, re-funded.)
6Too many losses will lead to an Overdrawn Re-Fund Account.
7If a trade is won, profits will be moved to the Re-Fund Account until the Re-Fund Account Ending Balance matches the initial (January) Trading Account Balance.
8If the Re-Fund Account Ending Balance for the month exceeds the initial (January) Trading Account Balance, the overage will be moved to the Draw Account.
9The goal of funding the Draw Account is pay for business expenses, living expenses and taxes.
10Although there may be very many trade wins, with profits going to the Draw Account, it is possible to be Overdrawn by the end of the year.
11Trading Account Tax Liability / Credit Running Total can be a credit, since this can be used to offset gains in another account.
12Draw Account Monthly Tax Liability, however, can never be a credit since it only deals with money going in/out of this account.

Monthly Spending Plan 8K income Worksheet download original

Sheet1

MONTHLY SPENDING PLAN WORKSHEET
www.FINANCIALFREEDOMCLASSROOM.com
***Input or change information in gray boxes***
INCOMENotes
After-Tax Pay6250100000 in 25% tax bracket with no state tax
Rental Income0
Business Income0Does employer pay some of all 401k and health?
Dividend/Interest0
Social Security0
Retirement Income0
Other0
Other0
Other0
Net Monthly Income Monthly IncomeSpending Plan TotalNet
625062500
Main CategorySub Category Suggested %Monthly Totals Actual %Main Category Total
Charity10-15%0.00850
Savings5-10%0.128800
Emergency Fund 0Note: Not contributing to emergency fund other than College + IRA
IRA Contribution50
401(k) Contribution250What is employer contribution? Are you going to make that up?
College Fund250
Self-Employment Tax 0
Car Replacement Fund200
Savings50
Other0
Other0
Other0
Housing25-35%0.22961435
Mortgage1200Minumum payment?
Home Equity Loan0
Repairs/Upgrades130
Property Tax0
Insurance0
Furniture40
Maintenance Supplies20
Lawn/Gardening25
Snow removal20
Other0
Other0
Other0
Utilities5-10%0.1016635
Cell phone150
Home phone20
Gas & Electric100
Heating90
Water 75
Cable TV100
Internet50
Sewer0
Trash50
Other0
Other0
Other0
Food5-15%0.0944590
Grocery400
Restaurant190
Other0
Other0
Auto10-15%0.1152720
Car Loan #1200
Car Loan #2150
Insurance0
Repairs220
Maintenance0
License/Registration20
Gas100Car expenses should drop with trading business
Public Transportation0
Tolls & Parking30
Other0
Other0
Other0
Insurance & Health5-10%0.1488930
Health Insurance800
Other health expenses0Health expenses will rise significantly
Dental expenses40
Vision expenses20
Life Insurance50
Disability Insurance0
Long-Term Care Insurance0
Prescriptions20
Other0
Other0
Other0
Personal10-20%0.0288180
Child care50
Private School Tuition0
Hair/Manicures/Pedicures30
Clothes30
School Supplies20
Pet Supplies0
Toiletries0
Gifts-incl xmas50
Other0
Other0
Other0
Recreation5-10%0.1072670
Entertainment100
Club memberships20
Computers & Games50
Vacations500
Other0
Other0
Other0
Debts5-10%0.0384240
Credit Card 150pays more than minimum?
Credit Card 290
Credit Card 3100
Student Loan0
401(k) Loan0
Bank/Personal Loan0
Other0
Other0
Other0

Net worth sample download original

Sheet1

Net Worth Calculator500000Debt Ratio0.2805755395683453
Name: Date:
AssetsLiabilities
CashCurrent debts
Checking accounts5000Household5000
Savings accounts65000Medical0
Money market funds27000Credit cards20000
Cash of life insurance0 Department store cards
Cash on hand5000Back taxes0
Other College Fund48000Legal0
Total:150000 OtherCar Loan0
Investments Total:25000
Stocks0Mortgages
Certificates of Deposit0Home150000
Bonds0Land0
Annuities0Other0
OtherTrading Account100000Total:150000
Total:100000Loans
Real Estate/PropertyBank/finance company0
Real Estate295000Automobile20000
Automobile25000Recreational vehicle/boat0
Bullion (gold, silver, etc.)0Education0
Recreational Vehicle20000Life insurance0
Other5000Personal0
Total:345000Other0
BusinessTotal:20000
Business value0TOTAL LIABILITIES:195000
Business Real Estate0
Other0
Total:0
Retirement
Retirement accounts (IRA, 401k, 403b, 457) 100000
Employer pensions ($/month * 240)0
Social security0
SEP 0
Other0
Total:100000
TOTAL ASSETS:695000