Connors’ Weekly Battle Plan
A Father’s
Message To His Kids On Father’s Day
Dear Kids,
With Sunday being Father’s Day, I wanted to take the opportunity to
write a letter to you about trading. This letter gets to the heart of
my philosophy of how markets work and why traders succeed, and is
based on my more than two decades of experience in this industry.
Should you decide to enter Wall Street — a place that I find
fascinating, exciting and an arena that takes brains, skills, guts,
perseverance, and a little bit of luck to succeed in — I hope you
take my words to heart. I wish someone had given me this letter when I
started, and I’m hopeful it will take years off your learning curve to
success.
1. BE HUMBLE – You will never be
smarter than the markets. Never, never, never. I don’t care which
schools I send you to, or which colleges you attend or what your GPA
will be. It’s meaningless. The market will always be smarter.
And the sooner in life you learn this, the more successful you will
eventually become. Everyone comes into this game believing they
possess the clairvoyance to outsmart hundreds of thousands, if not
millions of some of the smartest people in the country. They cannot.
The collective whole will always win. Maybe not short term, but
certainly long term. For every one story of the guy who sits on a
trading desk and year after year “outguesses” the market,
there are literally thousands of others who have failed using the same
approach. It’s the one person who smokes two packs a day of cigarettes
for 40 years and is still alive. For every one of him, there are
thousands of others who are dead. What does this mean? Stay humble, stay
focused and stay structured! And don’t mistake a few winning trades
over a few months or years as genius. There’s a person out there I
know, who now successfully manages over $1 billion in his money
management firm (up from under $10 million dollars a decade ago). He
makes money every year for his clients. He also earns somewhere
between $30-$50 million dollars a year for himself and his family.
You’d think a guy like this has it all figured out. But he doesn’t.
Here’s what he had to say about himself in a recent magazine article:
“I am very humble and assume that I will be wrong in my
assessment of the environment which forms the basis of my trading.”
He’s making more money in a year than most people will make in three
lifetimes, and he always assumes he’s wrong. Until you start making this
type of money, live with the credo that the market is always smarter
than you. Good things tend to fall into place if you do.
2. Worry More About Losing Money Than About Making Money –
Worry about the losses first, the profits second. That means you go
into every trade assuming the worst. A plane may fly into a
building in New York, a company of the stock you own may be indicted
for accounting fraud, or simply that the market may have a very sharp
turn and your stocks will turn with them. This means you place a
PROTECTIVE STOP ON EVERY TRADE IMMEDIATELY UPON BEING FILLED. There’s
a reason your Dad put this in caps. It may be the single reason why
some people make a lot of money at trading and a lot of people don’t.
If you need to be reminded of just how bad markets can hurt you, punch
up the monthly charts of any stock you like beginning in March 2000
and ending at the end of 2002. (i.e. see
(
CSCO |
Quote |
Chart |
News |
PowerRating),
(
AMZN |
Quote |
Chart |
News |
PowerRating),
(
SUNW |
Quote |
Chart |
News |
PowerRating),
(
AMAT |
Quote |
Chart |
News |
PowerRating),
(
SCH |
Quote |
Chart |
News |
PowerRating) and more). All excellent companies. And all
companies that saw their shareholders’ net worth mangled because their
stock prices collapsed. There was no need to have stops in place for
the few years before that. Risk control was meaningless. You were a
loser if you didn’t make 50% a year. It’s so easy to get wrapped up in
that nonsense until the day it all goes away and disappears. My guess
is that your dad will see at least one more bubble in his lifetime and
the three of you will you see at least two more. There will be a lot
of money to be made from these bubbles. But, for the majority of your
life, you will be living in markets that move like they have moved
every decade for the past seven decades. And the only way to secure
your future is to preserve what you have earned. And that is done with
stops on every trade and daily positions sizes that cannot wipe you
out in case the unthinkable happens (and trust me, it will). Focus on
the potential losses. The gains will take care of themselves.
3. Learn From The Best – You are
being sent to good schools in order to learn from top teachers, you
are taking lessons in your sports from instructors who I consider to
be top notch and you should learn to trade from people who know what
they are doing. It’s nice to figure it out on your own. I did that for
many years. The path was fun but it was time consuming. I would have
been far better off telling a guy like Kevin Haggerty that I would
retrieve his golf balls every afternoon in exchange for sitting with
him for a period of time, or babysitting Tony Saliba’s kids in
exchange for being the coffee boy on his trading desk for a year. Work
for the firms that are the best and/or find a mentor you trust to
assist you from there. The more you learn, the smarter you will be.
Wall Street is made up of thousands of very brilliant people who you
will be competing against. That means you need to learn from those who
know, in order for you to have a chance of achieving long-term success
in the shortest period of time.
4. Learn Everything And Then Really Learn One
Thing – That means learn everything you can about the
markets. Devour the books, the courses, the newspapers, the magazines,
the seminars, the financial TV shows and anything else you can get
your hands on that will make you smarter. And then, take all that
knowledge, and simply learn just one thing. Be the best in the world
at one thing. Generalists lose. Specialists win. You play sports so
I’ll speak in baseball language. This past Friday, we saw Roger
Clemens win his 300th game and strike out his 4000th batter on the
same night, an accomplishment that ranks him amongst the greatest
pitchers ever to play the game. ROGER CLEMENS WILL BE IN THE BASEBALL
HALL OF FAME BECAUSE HE DOES ONE THING…HE PITCHES! Yes, he plays
baseball. Yes, he knows the game inside and out. But he specializes in
one thing — pitching. He doesn’t play center field one game,
shortstop the next and work on drag bunts in practice the following
day. Roger Clemens has a 5-day routine that is completely structured
around him being a great pitcher. Do the same with your trading.
Become the best in the world at one thing. Decide what that one thing
is and then go full force. If it’s options trading, then get all your
training in that arena. And only focus on options. Don’t look at day-trading
stocks and then scale-trading commodities and then something else.
Think only about options. Think about them 24 hours a day if you can.
Because this type of concentrated focus and effort is the only way to
achieve true greatness in one’s field. And we just saw this Friday
night in a great baseball player who for two decades single mindedly
focused on simply throwing a baseball better than everyone else.
5. Be Lance and Magic – And now I
come to what I consider to be the single most important trait, not
only to becoming a successful trader, but to succeed in life. And
that’s to stay mentally tough especially when adversity hits.
It’s knowing when and how to dig in when things go wrong. I know
people who become unglued simply because they have a toothache. Their
day and everything around them becomes undone because of a minor
inconvenience. And then you watch people like Lance Armstrong, who had
fourth stage brain and testicular cancer overcome the disease and then
win the Tour de France, one of the most difficult athletic events
known to man…four times. He did this AFTER he had cancer, not
before.
Then look at a person like Magic
Johnson, who is diagnosed in 1991 with the HIV virus and should have
been dead within a few years. Instead, he’s on the cover of Sports
Illustrated 10 years later, healthy as can be and reportedly worth
over a half of billion dollars because instead of crumbling from the
diagnosis, he dug in and focused on achieving his childhood dream of
building a business empire. When your father asked him at
TradingMarkets 2001 (shortly after he cleaned the clocks of 100 TradingMarkets
members in one-on-one basketball) what he attributed his sustained
health to, he looked me in the eye, took his finger to the side of his
head and slowly tapped his right temple over and over.
Succeeding at trading may be important
but being mentally tough in the worst hours in life is many times more
important. People like Lance Armstrong and Magic Johnson should be
your heroes.
That’s my message for you this Father’s Day. It’s still too soon to
know if you’ll make your way to Wall Street. If you do, you should
print out my philosophy above. If you decide to take a different
career path and seek your fortune elsewhere, please print out and
memorize number five. Because, when it all comes down to it, it’s the
one that will ultimately decide where you will end up in life.
Have a great week trading (and happy Father’s Day to all the dads
out there)!