Hello, everyone. Today I want to share an anecdote that I think has a really valuable message. Hopefully, you’ll appreciate it and use it to separate yourself as a trader like I have.
So, here it is:
A guy driving a Ferrari pulls up to a bank in New York City and asks to speak to the loan officer. When the loan officer arrives, the man says, “I’m on my way to the airport and would like to borrow $5,000 for 2 weeks. I don’t have an account at this bank so I will use the car as collateral.” The loan officer checks out all the documents including proof of title, insurance, and registration. Everything checks out, so the loan officer gives the man $5,000 and says that he will charge 1% interest every two weeks until the loan is repaid. They shake hands, and the man hands off the keys to the car and says, “See you in 2 weeks.”
The loan officer and the president of the bank were very comfortable with the transaction, knowing that they were holding a $250k car. But they were still a bit confused by it. So they did a Google search and found out that the man who took out the loan was a Texas tycoon that opened oil wells and wind turbines. His net worth was over $100 million. Now they were even more confused.
2 weeks passed, and the man returned from his trip and handed over a check for $5,050. The president of the bank hands back the keys to the Ferrari and says, “We appreciate the business, but why did you need a loan for $5,000? You obviously have the money.” The man replies, “I left my Ferrari in a private, guarded garage spot in midtown Manhattan for 2 weeks and it only cost $50. Where else could I do that?”
I love that story. Now, let’s bring it back to trading.
For the sake of analogy, say that the rich man with the Ferrari is the market and the bank officials are us, the traders. The vast majority of traders understand the market about as well as those bank officials understood the man’s motivations. Sure, they had the Ferrari so they felt okay about the loan. But they had no idea why the man needed it in the first place.
Most traders might receive Twitter alerts and employ some basic strategies that sometimes work out in their favor. At the end of the day, however, they don’t really know why any of the price action is occurring.
The traders who separate themselves, are consistently profitable, and have long careers are the ones who have validated processes. Those of you who have read my posts before are probably starting to notice this ‘process’ word coming up frequently. You might even be sick of hearing it. Whatever the case may be, I’m not going to stop talking about the importance of process anytime soon. It is the single biggest key to success in this business.
Now let’s bring the analogy to its logical conclusion. The most successful traders are the ones who understand why the price action is moving the way it is. They don’t have to ask why the man would take out a loan if he didn’t need the money because they’d already know the answer — it’s the only thing that makes any sense. This is what process does. With the PS60 Theory, I know that stocks trade from supply to supply and demand to demand. I watch for sneaky pivots, I wait for confirmation, and I confidently make my trade. There’s no Twitter alert system, speculating on earnings reports, or any of that. It’s just technical analysis of price action that helps you understand why stocks move.
You want to separate yourself from the pack and really succeed as a trader? It’s simple, use a valid process.