Auction Market Theory Trader Reveals How Markets Actually Work
read summary →Auction Market Theory Trader Reveals How Markets Actually Work (Must Watch)
If you are a day trader, your trading day is already going to be decided win or lose before you’ve even pushed the button on that first trade. Your chances of succeeding as a trader are almost zero. From a technical perspective, this is where I spend so much of my time. Now, I have this belief that this guy is an ex-prop trader and worldclass performance coach. He was head-hunted by the world famous trader Andy Creger.
What does edge really mean to you?
Edge is not a setup. Edge is not even a strategy. An edge is if you’re trading, your entire strategy revolves around chart patterns that lead to a breakout. Sometimes those breakouts are going to run and run and run. You’re going to have a massive day. Other times, it’s going to feel like the market is out to get you and every breakout you buy is going to fail. Why is that? The answer to that question is ultimately going to be found in tune in to deep dive into the trading mind at the deeper levels to understand how to become an elite trader.
Prop firm trading is not like trading real capital. It’s almost not the same thing. And I made this joke a couple of times. Just because you play Call of Duty doesn’t make you a real soldier. The difference from going semi-pro at that prop firm to truly the big leagues with a trader like Andy didn’t improve my ability to read a chart. It’s not like he taught me some secret trend line technique that nobody else knows about. It was all about — Emry doesn’t hold back on his opinions on exactly what it takes to be a successful profitable trader. All this and more on this special episode on Words of Wisdom.
[Full transcript follows — captured from YouTube auto-captions, lightly cleaned for readability. Speaker tags retained where present.]
Emry, it’s a pleasure to have you with us today. I’ve come all the way to Toronto to come and see you and thank you for hosting us here. I want to get straight into it. We were just speaking before we started in regards to a misconception that the majority have when it comes to their understanding of what trading really is and what trading really means. So what does trading really mean?
So let me start off by saying what I think trading really isn’t. And by the way, it’s great to be here with you, too. This is something that drives me up the wall and it’s not out of a frustration at the retail crowd. Let me be clear. It’s a frustration at the fact that nobody has said anything better or different. Not consistently at least. A lot of people believe that good trading comes down to picking a level, finding a setup, getting an entry with a tight stop-loss, shooting for massive reward to risk ratios, and being right more often than you’re wrong in broad strokes. Now, that’s a very directional view of the market. And I’m not saying that good trading doesn’t have some of those elements in it, but that’s not what trading really is about.
When we’re talking about trading, to me, that is a switch that flips immediately in my mind. I’m not always a trader. I’m not always a market analyst. I’m both of those things at varying points in time. But when we’re talking specifically about trading, that’s when you cross the proverbial Rubicon. You pass that point of no return where you’re allocating risk to the market and you’re managing that risk to an exit. So when we’re talking about the activity of trading, what we’re really talking about is participation in an auction. Another way to put it: we’re participating in a negotiation.
This auction is not a single player game. It’s a multiplayer game. And if you understand what those different players want to accomplish, what their incentives are, and most importantly, what their constraints are, then you are able to participate in that negotiation, in that auction, on your own terms, and to navigate it more successfully than you would without. So for me, good trading is understanding that foundational principle. And most traders don’t.
On Edge
You mentioned a key word there — edge. People talk about edge, having edge, applying their edge, trading their edge. But what does edge really mean to you?
That’s my favorite question to ask traders. What is your edge? It’s a bit of a trick question because an edge has a few different layers to it. Let me answer by telling you what edge is not. Edge is not discipline. Edge is not an iron will. Edge is not a setup. Edge is not even a strategy. An edge is some kind of mechanical cause and effect behavior or pattern that is regularly repeating in the market that you can structure some kind of risk framework around in order to survive normal variance — normal random distribution of winners and losers — and ultimately end up with positive expected value.
So an edge has three components: there has to be some kind of repeatable cause and effect pattern, event or behavior; you have to have some kind of risk framework around it; and you have to be able to execute that risk framework on a consistent basis.
There are some examples. An informational edge — if I was very close to President Trump, his son or a close adviser, I’d have an informational edge and would know about certain things he might say or do that lead to expected market outcomes before the public knows. But that edge has an expiration date. Eventually I’m not going to have that access. There’s also speed-of-execution edges, but now you’re coming up against the best capitalized funds in the world dedicating obscene amounts of money to R&D. Their algos can trade faster than you can. Not an edge I’d try to compete in.
The edge I’m looking to exploit is understanding when certain market participants don’t want to act, don’t want to supply or buy inventory, but when they’re forced to act. There are certain market events — time of day, FOMC, options expiry — where participants are forced to do something. A simple example: gamma exposure. When you’re approaching a certain level of gamma exposure, market makers need to start trading directionally in line with the market and that’s going to accelerate a move. If you know when that happens, that’s a way of exploiting this edge. It’s not a question of want to — it’s a question of must.
Funds must rebalance month end, quarter end. CTAs are largely trend following and follow specific patterns. We know their algorithms trigger signals based on certain events. A basic retail example is the famous “stop hunt.” Nobody knows exactly where the stop losses are unless you’re the broker, but we can surmise — they cluster at round numbers, previous highs and lows. The issue is that retail traders believe a stop hunt triggers a violent movement beyond that level, but typically the behavior once stops have been hunted is that we fall back within the previous range, often violently. Hence the belief that movements are “manipulated.” It’s not manipulation. It’s a liquidity mechanism. It’s a feature, not a bug.
On Scalpers, Efficient Markets, and Regime
Let’s talk about scalpers — futures traders on ES or NQ. You’re trading some of the most important financial markets on planet Earth. Do you think those markets are efficient or inefficient? Trick question — sometimes inefficient, but most of the time fairly efficient. If they were inefficient, the American economy would be in disarray.
Scalping depends on moments of inefficiency. Even in an efficient session, there will be moments of inefficiency. The question is: can you identify when the market is transitioning from efficiency to inefficiency?
I have this belief that if you’re a day trader, your trading day is going to be decided win or lose before you’ve even pushed the button on that first trade. It comes down to whether you’ve actually thought through the market environment we’re in. Take a basic breakout trader. If your strategy revolves around chart patterns that lead to a breakout, sometimes those breakouts run and run. Other times every breakout fails. Why? Probably not because algorithms are hunting you. Probably not the dice. We can be more knowledgeable than that.
The foundation for me on technicals is understanding market regime. We have a balance regime and an imbalance regime where the auction is looking for discovery, in search of new fair value. Most of the time, especially in super liquid markets like ES and NQ, they tend to be in a balanced state. When you have balance, buyers and sellers are equally comfortable doing business. From a game theory perspective, no side is under any particular constraint. That’s when you get those wide ranges. But if you’re a breakout trader buying the top and selling the bottom, you’re probably going to get destroyed.
How can you identify a regime? Not by just looking at higher highs and lows, but by asking: where is value migrating? Sideways? Higher? Lower? That tells me about pressure in the market. In a strong market I want to see aggressive sellers — market sells trying to knock the bid lower — but they’re not being rewarded. They’re being absorbed by passive buyers. Then I want to see those passive buyers move their bids up. That means large institutional players are willing to buy at premium prices. At the same time, aggressive buyers hit the tape and start lifting offers. If passive sellers get run over, we get that release of initiative energy. The market runs higher. But eventually we run out of buyers willing to lift. The auction enters another state of balance, searches for fair value, and typically finds it where institutional players were happy to accumulate before.
What you have to understand is that the largest players in the market do not care about the direction of the market on any given day. A hedge fund manager isn’t walking in thinking “how can I send NQ 30 or 300 points higher today.” It’s about what they have to do — rebalance, take profits, increase a hedge. And the answer to that comes down to where they can properly do business. Can I do business when the market is flying higher? I can’t — liquidity is too thin. That’s not conjecture. That’s physics. That’s the plumbing.
If I want to take profits as an institution and I have a massive position, I want to take profits as the market is ripping higher, not as it’s sitting doing nothing. I want to sell into a bunch of other traders excited about taking it higher. I might set an iceberg order, algorithmically dripping liquidity back into the market. Because my position is so massive, I might absorb all those excited buyers who bought at the prior high. Then the market rolls over and I exit with a nice profit. This is why you might not want to chase a break past prior highs.
Game Theory and Orders of Thinking
In very basic terms, applying game theory to trading involves trying to understand what other players want to do based on incentives and constraints. I used to play high stakes poker. I wasn’t the best, but I understood there are different orders of thinking.
First order: what’s the best play I can make with my cards? In trading, that’s just the entry. Do I have a setup, a fair value gap, whatever?
Second order: I start wondering what other players want to do. If we break beyond those highs, is that a trap? Maybe people are waiting to slam the market the other way.
Third order: where it gets interesting. This is where I’m trying to make another player believe I’m doing something I don’t actually want to do. In poker, that’s the bluff. In trading, that’s where my love of trading really comes out — the bluff in trading. I’ve had people on X tell me level two data is worthless because people spoof orders. My response: yes, the spoofing of orders is a big part of the value of looking at level two data. What is a spoof? It’s a bluff.
If a stock is trading at $100 and breaks 105, what’s the obvious target? 110. So what do you think happens at 110 on the order book? A massive wall of sellers. Is it for real or a bluff? We don’t know until we start trading closer. Sometimes those orders vanish — pulled, it was a bluff. Sometimes it’s real.
Fourth, fifth order thinking — that’s where it goes to infinity. There’s a point of diminishing returns. But thinking about that wall: if I think it’s real, I want to front-run it. I might exit at 109. Or maybe big players who are long here want to take profits at 110. I hold my position, we test 110, get absorbed, pull back. Sell limits reload — okay, now it’s an iceberg. We test again. Eventually all those buyers get absorbed or the offers get pulled. Picture running at a door full speed with someone massive holding it shut. You bounce off. You run again. Bounce again. On the third try the massive guy walks away. You fly right through.
A feature of exploiting an edge if you’re looking for breakouts is not predicting what’s going to happen. It’s understanding the spectrum of possibilities. That’s called Bayesian analysis. Based on how the market behaves at that level, the sliding scale of probabilities shifts one way or the other. When one outcome seems far likelier, that’s where positive expected value lies.
His Journey
If I started trading today from scratch, retail has never had it as good as they have it now. With AI especially, you can explode that learning curve. Of course AI has dangers — if you don’t know what you’re talking about and you’re using AI, you’re going to be talking absolute rubbish. It’ll just sound a lot more academic.
I traded my first stock through my father’s account at 16 or 17. I couldn’t care less. In university I came across The Elliott Wave Principle by Frost and Prechter in a philosophy class. I don’t have a degree in finance — my degree is in history, English, and philosophy. The book got me hooked on the behavioral side of finance. Stock market behavior as a forecaster of human behavior — that idea stuck with me.
I went into the corporate world working at Apple. Made a great salary, good benefits, stock options. Hated it. I’m the world’s worst employee. Met an angry client who turned out to build all the shopping carts in grocery stores. He came in fresh off a private jet flight, complaining about how every second with me cost him pilot time. I asked him “how can I be like you?” He looked me up and down and said “well, sure won’t do it working here. You have to go into business for yourself.”
I started day trading on the job. Got pushed out of stocks, had to trade FX. My broker gave me 1000:1 leverage. I didn’t know what leverage meant. Up and down, blew accounts, made a few thousand in an hour, lost it all. But it was proof of concept. I quit my corporate job, liquidated all my Apple stock options as my trading base. This was the 2010s. If I’d just held that Apple stock, I would have outperformed my own performance as a trader for a long time.
Trading is not linear progress. The human brain craves linear progress — go to the gym, lift more, more, more. Trading is the polar opposite. Failure was not an option. Hacked together an ugly track record over a couple years. Profitable but I knew it was luck. Begged a real prop firm for a job. Got hired conditionally. Just wanted to be a fly on the wall to see what professionals were doing differently. They weren’t tier one like Jane Street. These were guys 20-40 years in the trenches with consistent techniques. I learned risk management — how to survive long enough to realize an expected return.
My favorite role was being a performance coach. We’d take people with track records, people with minimal experience like me, even old school pit traders being phased out as automation took over. I coached traders from pits, from Millennium Capital, a VP from Credit Suisse — and I’m thinking why am I coaching these guys, they have so much more experience. But the experience was in a completely different arena and didn’t translate. They were trading in the dark.
Then I was head-hunted by Andy Krieger. I thought it was a prank. Had to Google him to match the face. The difference from semi-pro at the prop firm to truly the big leagues didn’t improve my ability to read a chart. Andy didn’t teach me a secret trend line technique. It was all about this way of thinking. In the first year I felt like I got my MBA and a PhD in macroeconomics all in one. Watching one of the biggest traders in the world — a guy who by his estimation has traded well over a trillion dollars in notional size — how he thinks about the market, how he communicates with other participants to find out what their positions are. Old school cat and mouse. Completely changed my view.
On Coaching, the Amygdala, and Freudian Analysis
What got me hired was making it clear I have no ego. I’m here to learn. I know I got lucky.
Almost all successful traders I’ve seen have some competitive athletic background. Andy played professional tennis. I represented Canada at fencing, boxed, wrestled, played football my entire life. The mindset of being around coaches set me up to coach others.
Good coaching isn’t about transferring knowledge. AI can do that. Information is useless without a framework for applying it. When I see large trading communities, my head is thinking — if anyone succeeds, the odds are almost random. A thousand traders in a Discord, there will be a couple success stories regardless. Good coaching comes down to spending quality time. Every trader is different. There’s no way RZ that I can trade the way you trade, even with identical strategies, because we’re fundamentally different people with different psychological baggage.
The most common loop hurting traders: self-imposed pressure. The human brain from its factory settings is designed for failure when it comes to trading. Why? The amygdala is the threat reaction center. If you see a mountain lion on a hike, it triggers fight or flight. The amygdala rewards immediate action and urgency — counter to what good trading rewards (patience, inaction). When traders cut a winner early, it links to the amygdala diffusing a threat. The trade could turn negative, so closing early diffuses the threat. You consciously rationalize it (“market’s overbought”), but the amygdala doesn’t care about any of that. Then you have a voice saying “you idiot, why couldn’t you let it run?” and you start putting pressure on yourself, creating a negative feedback loop. They’re running the wrong software for the task at hand.
The answer isn’t more discipline. If you don’t know how to swim and I throw you in a deep pool, is iron will going to stop you from drowning? You need to know how to swim first. The emotions don’t go away — you just don’t let them dictate behavior. A lot of it comes down to predetermining decisions.
I saw a classically trained Freudian psychoanalyst for the better part of three years, four to five times a week, an hour each session. Roller coaster but incredibly valuable. We have ego and superego. The superego sits in our subconscious — the hall monitor, the overbearing judge, formed in early childhood through interactions with authority figures. An amalgamation of all those voices. For traders, this manifests in telling yourself how stupid you are after a trade you can’t believe you fell for again.
The work was on reforming the superego into what the clinician called a “benevolent superego.” End result: when I take a trade I’m not in a rush to congratulate myself if it worked, nor to beat myself up if it lost. The thought process became: did you follow your process? Did you stick to predetermined risk parameters? Would you take this trade again? If no — forgive yourself, move on. Instead of your mind working against you, it’s in your corner.
A lot of people think dopamine is the happiness chemical. It’s not. It rewards anticipation. So when I’m anticipating I have to do something to close a trade early, I get rewarded with dopamine, creating a self-reinforcing loop.
The solution is predetermining as many outcomes as possible before getting into them. This is where the type of market and how you express your view plays a huge role. Most retail traders are trading a spot market — buying straight futures. Few use options effectively. Professionals gravitate toward options because you have far more control over risk and exposure, and remove the urgency of having to do something to manage profit or loss.
On Childhood, Scarcity, Position Sizing
Every single one of us has stuff from growing up impacting our trading subconsciously. It’s not just relationship with money — it’s relationship with resources. Primitive amygdala running primitive operating system. We need resources to survive at an evolutionary level. If you saw your parents arguing about money, that instills a scarcity mindset.
You posted a phenomenal trade on the euro. I’m guessing you were hands-off, probably forgot you had it on at times. If that trade went the other way, does it change your life in any way? No. You’re not operating from a place of scarcity. Most traders trade like they have everything to lose because they do. You could have a 55% win rate and still lose seven trades in a row. How many traders can withstand that? Very few.
The most stressful years of my life were when I was 100% reliant on trading and didn’t know where my next dollar was coming from. I had zero sense of normal personal finance. Didn’t want to pay monthly rent because I didn’t know if I could afford it. Wanted to buy everything in cash. Stupid sums of cash sitting around because I was scared of drawdowns. Wrecked havoc on my brain. I’m a very risk-averse guy.
I measure my biometrics, particularly heart rate, while trading. Resting in low 40s. Trading can hit 120 — like a light jog. That tells me my amygdala is firing. I’m pumped with adrenaline and cortisol and want to do something. Recognizing that as a biological signal is information.
This year has been exhausting. February, March, early April amazing. I told my friend statistically I’m unlikely to keep outperforming. Self-fulfilling prophecy maybe. My position size started decreasing. I rationalized it but had a hard time dialing it back up when conditions improved. Why do I feel loss aversion now that I didn’t earlier? The deep work doesn’t stop regardless of where you are.
What allows me to stay steady is my ability to treat trading as a game. Trading is what’s going to make me wealthy, but it’s not what’s going to make me rich in the here and now. If you’re in a place of relative financial stability, the odds of you succeeding are much higher.
If there’s one thing I can say about my greatest strength — I am painfully self-aware. I’m not the best analyst, trader, executor, risk manager. I just have to be myself. The visual metaphor in my brain: the market is a swirling source of energy like a river or ocean. I just want to go down with my bucket and take a little of that energy out. Sometimes my bucket is leaky and I give some back. My relationship with the market is two-sided.
On Options
When I met Andy I was just dipping my toes into options. Extremely skeptical. Andy is the most knowledgeable person I’ve met on options. He’d ask me weird questions: not just where the market’s going, but how it’ll get there. Slow grind or quick violent move? How long? I’d say I have no clue, why does it even matter? Through him I realized that when you’re long the underlying, you’re dependent entirely on direction. With options there are other variables — the Greeks, second and third order derivatives. Do you want price to accelerate or not? Do you benefit from the market taking a long time? You have all these options in how to engineer outcomes.
Why are retail hesitant about options? They’re more complex. Price is two-dimensional. Options are three-dimensional because of time. But they’re incredibly rewarding. With underlying, your curve is linear — long at 100, goes to 200, doubled. With options, the same move could be 50% return or 1000% depending on structure. The P&L curve can be bent and reshaped. You can also sell options as easily as buy them. I’m providing liquidity to the market.
This year the strategy Andy and I have been working on is market neutral. We don’t care what the market does. The market would have to crash 40% in a remarkably brief period for us to be stressed. No free lunch — if the market rips higher we underperform on a relative basis. But we’re basically market making for other traders.
The edge: when the market crashes lower, participants are forced to buy protection because they have net long exposure. People hedge when the market is already crashing. The metaphor: we sell fire insurance to people when their house is already on fire. If your house is on fire, you have no leverage in the negotiation. I hold all the power and can charge whatever I please. Then I turn around and buy my own insurance to protect against your insurance. I lovingly call it “getting paid to buy lottery tickets.” It’s relaxing but requires heavy quantitative research, statistical modeling — stuff I personally don’t enjoy. I’d rather be in the trenches slinging futures.
Even futures traders should understand options. Gamma scalping: there’s a level on ES where if we go below, my options portfolio is in trouble. So I want to be short futures to offset. My options give me natural bullish exposure, so I only need to trade the short side — extremely relaxing. I can engineer situations where I de facto trade without a stop-loss because my options profits buffer drawdown on futures.
Options expirations are huge. When multiple expiration windows align it’s a volatility event. Options expirations align with incentives and constraints. If there’s tremendous put concentration at a strike and the market is close, we have a battleground. Some want to push past, some desperately defend. And if you’re not committed, you can switch sides — be mercenary based on what order flow tells you.
FOMC and Order Flow
Around an FOMC event, the order book thins out. Market makers pull liquidity. On a heat map tool like Bookmap, the heat map goes blank. Why? Because in that environment we get emotional market responsiveness — algos running keyword searches on the Fed statement, retail buying and selling emotionally. Without market maker liquidity to buffer, you get incredibly emotional price reactions. Liquidity providers aren’t there because it’s a lose-lose for them.
If the market sells off like crazy on FOMC and there are no bids, what do all the short sellers do? They cover by buying. With no liquidity to buffer, you get the rip in the other direction. Eventually liquidity comes back, extremes get faded, and the session often ends up where the explosive movement started. That’s where equilibrium exists. That’s where institutions want to do business. They don’t want retail to run the market 3% and then they’re stuck. Not manipulation — just plumbing.
On Resources and Watching Order Flow
I hate getting asked for resources because I don’t have a good answer. I learned on the job sitting next to Andy. No book or course to point to. But you can get understanding by observing not price action but order flow. Price is a consequence of volume. Watch the speed at which orders enter at various windows. Look at ES from 9:30 to 10:30 Eastern — peak inefficiency in the morning. I guarantee if you scalp all day and review trades, you’re screwing yourself between 11:30 and 2:00 PM Eastern. That’s where you give back gains. Then 3:00 to 4:00 PM you see another flood — funds rebalancing, positions being trimmed. Mechanical, not manipulation.
If you’re trading breakouts in a balanced regime where buyers and sellers are equally comfortable, your breakouts will fail. When the market is transitioning into discovery and one side has capitulated under constraints, breakouts work. That’s when I look for shallow pullbacks. It depends on the regime.
On AI
Where I’m most excited about AI is research at quick speeds, especially on the heavy quantitative side. Hallucinations are still too high to be reliable for that. For learning market mechanics, ask AI to drill down and cite specific sources. Don’t just take its word for it. Get causal explanations. You’ll arrive at a bedrock of information you can verify independently.
On Prop Firms
Prop firms have incentives that aren’t aligned with their client base, especially sim-funded firms. If you’re a sim-only prop firm, your interests are diametrically opposed to your clients. You want them to lose money, but not so much they give up. You want a couple to succeed as aspirational stories — good marketing. Counterparty risk: they just might not pay you. They’re not regulated.
Look for firms whose incentives align with yours at some stage. If I can get $1 million in simulated accounts but only $200K live, the firm’s interests aren’t aligned with mine — I can make more on imaginary $1M than real $200K.
If I started trading from scratch today, 100% I’d go the prop firm route. But prop trading is not like trading real capital. Just because you play Call of Duty doesn’t make you a real soldier. Just because you’re a star at FIFA doesn’t mean you’ll be a world-class footballer. We’re in the late stages of the golden era of prop firms. The Wild West has passed. There’s still opportunity, but in the back of my mind I’d be preparing for the day I’m forced to trade my own capital, build a track record, and raise other people’s money responsibly.
Specialist vs. Generalist
I’m a big fan of being a specialist over a generalist. If you’re a generalist, you’ll be exit liquidity for true specialists. I could be a dollar trader, sometimes expressing my view through the euro, using yen as funding. But NQ versus crude oil are completely different markets. If you don’t know about EIA inventory on Wednesdays in crude oil, you’re going to get run over. You have to understand the players, when they’re incentivized to act, what forces them. Like racket sports: if you’re good at tennis you’ll lose to a professional ping-pong player but beat many other ping-pong players.
On Overtrading
That’s neurology. The amygdala wants urgency. We take a loss and find ourselves in a trade the next second without knowing how. Loss aversion at its peak. Whenever we take a trade, deep down we think we’re exerting control. But the biggest control we have is whether to take the trade at all.
A simple framework: I have a visualization where I physically flip a huge switch in my mind that allows me to start looking for trades. Like the safety on a gun. I have to disengage the safety before taking shots. Takes about 15 seconds, intentionally. So ingrained that it forces me to slow down.
Brexit
A pivotal moment was Brexit. I had no idea how the vote would go but if you asked me I’d have said remain. Volatility stacked on volatility — Trump won that same period. I prided myself on being a chartist. The owner of the firm said “you can throw all that in the bin, it’s not going to matter.” People build levies to protect against flooding, but if there’s a tsunami it doesn’t matter. I respectfully disagreed and traded my setups. Got humbled quickly. But I pivoted quickly. Threw the chart out the window, took a calculated risk based on skewed risk-reward. The trade worked.
I had a feeling I did something wrong. My boss said: “You had a bad trade with a good outcome. Outcome was fantastic but you had no plan.” The lesson: don’t be dogmatic. Be open to multiple possibilities at once. Over a year there will be one or two macro events that don’t give a damn about your charts. You have to position size differently for them. That’s when fading extremes really stuck with me.
Biggest Misconception
Every strategy will have its day in the sun if you have good risk management. I don’t disagree that risk management keeps you in the game. But the root cause of that thinking is that there’s a limit to how much edge I can have. Traders simultaneously have unrealistic expectations of themselves but also limit themselves tremendously.
The solution is not in studying a price chart more. Nor in completely psychoanalyzing yourself. It’s in understanding you are one tiny piece of this game. There are other players. Most traders at the self-directed level are not successful. And yet they’re still doing what all the other traders do — focusing on charts, risk management, and psychology. If you want results that go beyond the average, you have to do things the average trader isn’t doing.
Players to Watch
I love institutional players with very specific mandates. Long-only funds that can’t short for speculative profit but add hedges. Pension funds with massive long exposure must hedge. Even though hedges are a small percentage of AUM, position sizing is large. CTAs trend follow. For commodities, look at producers. What are commercial soybean producers doing? They need to hedge production costs. They probably know loads more about the market than you. Find players that have undue influence, specialized knowledge, or are forced to act under specific circumstances.
Michael Saylor and MicroStrategy is a great example. Bananas, going down in history as a crazy trade. There’s an edge there. Look at price of Bitcoin, price of the stock, short interest, open interest.
A university endowment managing billions doesn’t care if today’s stock market closes higher or lower. They have a thesis, a mandate, exposures they need, hedges based on conditions. They care about doing business in areas with volume so they don’t disturb the market accumulating for days, weeks, or months.
On Success
I don’t think it’s possible to be successful as a trader without a chip on your shoulder. There is a part of me that thinks I’m smarter than most of you. I have the conviction to put my risk where my thinking is. That’s where I lived for most of my trading time — operating from a place of ego, pride, dare I say arrogance. I don’t like who that makes me.
Every great trader I’ve worked with has the same thing. There’s a darkness, a shadow great traders carry. Many nights crying, thinking I’m done, I’m throwing in the towel. Somehow I’d find the resolve to tap into that darkness and say failure is literally not an option.
Now I want to operate from the opposite end. From peace, gratitude, humility. Faith has played an important role. Conversations with Peter Brandt on faith have gone a long way. Life is a game and we’re only playing for a certain time. I don’t want to be remembered as a trader or market analyst. I want to be remembered for being a friend, family member, mentor, asset to my community. Trading just keeps the lights on. I love the markets — I don’t necessarily love trading.
You can’t buy happiness. I’ve tried. But you can buy freedom. You need freedom to be happy and fulfilled. Success means trying to be consistently the best version of myself I know is possible.