Thread by @Fxflow

1/ Ok here is thread two of the @kevinmuir interview with @agurevich23
“Treat a trade like a bullet from a gun”.

Conventional wisdom states that as traders we should be nimble and react to new information swiftly.

2/ Thus the trading cliche repeated mindlessly by so many PMs on podcasts “we have a strong opinion weakly held” meaning that we are confident in the trade but if new data disproves our thesis we will bail from it like a flock of pigeons scattering on a sidewalk.

3/ @agurevich23 flips the conventional on its head by saying that you should have weak beliefs strongly held, meaning that once you commit to trade you should hold it to target or stop and don’t allow the market noise to shake you out of your position.

4/ This is 100% true whether you are a degenerate one minute scalper like me or a slow and steady buy and hold investor looking to build a retirement nest egg.

5/ We know from reams of trading data that almost no one makes money in the markets because as humans we are all inveterate FOMO chasers.

6/ The most tragic example of this was Peter Lynch’s Magellan fund which produced an astounding 29% compounded return from 1977-1990 yet the average investor in the fund lost money. How is that even possible? Easy. They sold the drawdowns and chased the peaks.

7/ The truth is that the market is not some prefect allocator of capital but a giant three card monte game with everyone trying to shake you out of your trade.

8/ Make no doubt about it, trading is very much a zero sum game and as the saying goes in poker, if you don’t know who the sucker is then you are it.

9/ And you are never as big a sucker as when you are in the midst of a trade when all your judgment is clouded by the money on the line. That’s why Alex’s advice makes so much sense. Once you’ve done your research stay with the trade win or lose.

10/ I do hundreds of trades each month and I can tell you from experience that second guessing is for losers.

Now implied in the “weak belief” part of the statement is the absolute assumption that you can and will lose it all on any given trade, so you MUST size accordingly.

11/ This is the single most important aspect of weakly held beliefs: the bullet must only graze you and never kill you with a single shot.

12/ So for example if you are going to be a BTFD investor you must be prepared to “eat the bullet” for 30 years because long term returns only prove positive over such long term horizons.

13/ That means that even if you are twenty years old and your optimal allocation is to be 100% invested in equities - you shouldn’t do it, because at the first 40% drawdown in your account you will puke it all pretty much at the bottom no matter how much you tell yourself you…

14/ …won’t.

I bet if we ran an experiment on two young investors and one had “Strong beliefs” putting every dollar of his savings into the market and the other had “weak beliefs” about the magic of compound growth only allocating

half his money to the market and keeping the other half in the most useless investment vehicle there is - cash. After 30 years the 50% cash man would actually have more real money to retire on

because the other guy would have inevitably been shaken out of his trade on multiple occasions.

That’s the power of “weak beliefs, strongly held”
Read his book here amazon.com/Trades-March-2…

Listen to @kevinmuir interview here