Prop Firm Founder: Why Finding A Strategy Is Only The Beginning

0:00This man has evaluated thousands of traders watch hundreds of them blow to zero and says it was almost never the usual suspects like their setups or their psychology. In fact, it was something I've never heard a single person talk about online. This is a purely probabilistic endeavor. The short run can look exceptionally well, even if you're running a strategy that has negative expected value. Let's say you take 20,000 people and you ask them to flip a coin. You're going to have a bunch of people who made a shitload of money and they're going to tell you exactly how they flipped the coin. What was going through their head? They were meditated. They were looking at the stars. Everything about why they were successful and it's just a lucky path that they walked. Introducing Ryan Wright, Navy veteran, former traditional prop firm founder and author of the art and business of professional trading. At his firm before traders risked a single dollar in the markets they learned from World Series of poker champions how to size a bet. Play the odds and make money even on losing hands they've been dealt.

1:00Okay, my technical shows up. I'm going to go long, going to place my stop here. I'm going to take profit here. What the hell is that? Like, what is that? That's nothing. That's priced. But underneath that you have thousands of variables. Like the market has hidden states. What do you mean by state? Market state. So the market state can be defined in the way that we train traders in the problem. By our most first of all, you have to explore a lot of things. You should at the beginning be trying to run scalping strategies, swing trade, go heavy into the fundamentals, read every book you can get your hand on. The reason for this is because we're trying to see what fits. All of these could work. All of these are valuable. What fits to my temperaments. Correct. You have to get clear on what style of trading your temperament suits. Then from there, what we'll typically do is. This episode, Ryan reveals how a strategy that loses on paper can still pay you. What law that every single trade against talks that actually doesn't apply to the markets. And why perfect discipline doesn't actually predict the best trading result.

2:00But let's say you have a hand in poker. You have pocket aces. If you were to model that out on average, that will lead to a 46% win rate. So I should theoretically fold when I have this hand. That doesn't mean that the person who ends up with those pocket aces has to fold. Because you're playing against other people. If you're able to bluff those other people, you can take that negative value that you have. And you can turn it positive if you are playing against other people who are less informed than you. What I'm more understanding is you're not reading the cards only or reading the player. So what is that equivalent in the markets of reading the player? I think this goes into something that I just wrote about on Substack. What we're really trying to do in trading is. Making money on a short time horizon is not a North start to have. That's right. And the reason I mentioned this is because online prop traders in the simulated world, then North start becomes can I get pass an evil and get a get a payout. But that can be on the basis of three weeks and 10 trades.

3:02Yeah. And even with a 20% win rate, you're going to have a pocket of opportunity where you get five wins in a row. Or three wins in a row and two losses. So you'll have a positive skew, even in a down words equity curve. You'll have the positive window. So try to understand when you look at traders in the trading floor, when you're looking at pros, what are they doing different compared to the other traders that have the occasional win and the optimized for win rates and risk reward? And maybe you'll be looking at other things. The way that you have to approach markets and trading is this is a purely probabilistic endeavor. And I think what a lot of new developing traders seem to forget or aren't introduced to the concept early enough is that like the short run can look exceptionally well, even if you're running a strategy that has no, it has negative expected value, right? It doesn't matter. You can take two traders, trader A and trader B, and over 20 trades, let's say trader A has,

4:07I'm just making up numbers here, they have a positive expected value of a dollar per trade. And you have trader B and they have negative expected value of a dollar per trade. Over 20 trades, trader B could be outperforming trader A. But over a thousand trades, that's where you're going to really start to see. Because the outcome of any individual trade is not what matters. It's the long run average of what you're doing. So when traders come into the market, they put too much emphasis and too much weight on the single outcome of any given trade. Right? So they're risking too much there. You know, they're not thinking about, okay, if I take this trade now, and they're only thinking that they're going to win the trade obviously. Because the technicals told them that they take this and they're going to win. But what does that trade, if it doesn't go in your favor, where does that leave you emotionally?

5:08Or where does that leave your account in the next state from which you're operating in? Are we talking here now? I'm reading the undertones, which is a loss or bad performance on a short window. It affects your ability to adhere to the plan in the future. So therefore, it's not about just wins and losses and win rates because you're carrying a mental burden, which affects your performance to then adhere to the positive expectancy. Is this where you were going? I think if you're new to trading, you will have that bias towards the emotional side. But what I'm really talking about is what does that do to your account? Right? So if you're taking an outsized loss on your first trade, the starting point from your second trade is severely diminished. You're not going to be able to, I mean, you need to be able to control your downside in trading or like you're going to have no longevity in this game. That's really where I'm going with that. So let's start building this into a framework which is a good trade-off or a good strategy or a good approach in the market is first line would be a positive expected value.

6:11I think that's non-negotiable. If we even step back from that, we don't actually know what the expected value of any trade is. With any certainty. On an individual trade basis? No. On a general trade sample size? In general, you'll never know with any certainty. You can approximate that. You can have a theory, but you're never going to for certain know that. Because every trade is different. The market state is always different. No matter what trade you take, you might think you're taking the same trade. What do you mean by state? Market state. So the market state can be defined in, I don't even say in the market state, but the state in general. So that could encompass the regime that you're in, the volatility. That could be at what time of day? What does your account look like? What does your mental state look like? All of these encompass what I refer to as this state. And that state is always different.

7:11And so even if you take all of your trades and you categorize them properly, and you can approximate this expected value, we are not operating in a game of chance. We are operating in an uncertain environment. OK? So let me try to break that down. In a game of chance like roulette, for example, I'll talk about American roulette here, you have the player has a negative expected value. The wealth path will always lead to zero over the long run here. Intrading, I mean, you can approximate that. I mean, you can not approximate it. You can for certain model that out, right? Because you're either going to have red, black, or green. Right? So we know that. And the expected value is that the expected value, the positive expected value, sits with the house. Yes. And that instance. So just to summarize, it looks like 50-50,

8:11because red or black, but that's a small skew for the house of two green squares or slots. That is the edge for the casino. Yes. So it goes from 50-50 to 48-48-44 for the casino. Yeah, it's a 5.26 for the casino, actually. But the point is, is that in a game of chance, you can model that out. Right? And that's where the law of large numbers comes into play, where you can say, all right, if I play this game, a thousand, 10,000, a million times, the wealth path of the person, the player, playing that game will always go to zero. We'll always go to zero. And the wealth path of the casino will always go up into the right. Completely agree. I think that makes a lot of sense. But then I'm struggling to understand why this doesn't connect to a trader, because I would have thought, I got my trade models, I got my rules, I got my confluences, I've defined my setup, and I'm waiting for the market to present what I agree with, and then I execute. If it doesn't, I don't. Obviously, you can sprinkle in a bit of psychology and, you know,

9:13random trades you took along the way. But over time, you are going to converge towards your expected value, as you extend out from 10 trades to a thousand trades to 10,000 trades, you will eventually end up at that 50% win rate you should have, because it's a game of chance. But you're saying it's not quite the game. It's not a game of chance. A game of chance has fixed odds, which you can model out. A game of uncertainty, which the market is, there are no fixed odds. The market is always different. You can't, like for example, in poker, and many people won't play poker, but so I don't want to go into the details on that. But let's say you have a hand in poker. Let's just say you have pocket aces. If you were to model that out, like in a, like a grand slam scenario, where you're like, okay, on average, let's say, that will lead to a 46% win rate. So I should theoretically fold when I have this hand. Right?

10:13That doesn't mean that the person who ends up with those pocket aces has to fold, because you're playing against other people. Right? So if you're able to bluff those other people, you can take that, that sort of like negative value that you have, and you can turn it positive if you are playing against other people who are less informed than you. And so let me just kind of round out this concept really quick. So in a game of uncertainty, we don't have fixed odds that we can model. Even if you think your trade is the same, the market state is never the same. The player on the other side is never the same. It might not be the same. And you can't with any certainty know that this is the positive expected value. In poker, I'm understanding that it's not a game of chances. It's a mix between chance because you don't know what the other person has, but it's a mix of skill. So it's not a complete performance sports like weightlifting, because the strongest man will win,

11:14or it's not quite a game of chess, because then strategy matters more. It's a mix, but in the poker one, what I'm more understanding is, you're not reading the cards only, you're reading the player. And from your article, I remember you wrote that, you know, if you were to get a physicist to, you know, to run simulations on a table, they maybe wouldn't notice that every time the guy was bluffing, he would scratch his nose. So that would not be factored into the data, but you could read the player and then make bets accordingly. So what is that equivalent in the markets of reading the player? I think this goes into something that I just wrote about on Substack. And what we're really trying to do in trading is optimize a policy, if you will. And a policy is just the optimal set of actions that you can take to maximize your expected value over the long run. And so that optimal set of actions will inevitably change the longer that you're in the market.

12:19Right? What's working right now today? Let's say with with Trump and Taco, Trump always check ins out. That can work right now. But if you're taking those actions, let's say, when, let's say, you know, three or five years from now, that's not going to be the same thing. As you know, the best way to scale as an up and coming trader is utilizing platforms. Before you decide which platform to work with, ask yourself one question. Are you judging them based on their marketing, their website, what kind of promotions they do? Are you judging them based on trust related to their payouts? Now a lot of platforms can claim big payouts, but one thing that all our prime has actually gone and done is got a third party audit by the largest of the big four, that is Deloitte. Now every proffing can promise fast payouts or no wrongful denials. But no other proffing in the industry has done what all our prime has done, which is to go on and prove what they claim and have everything audited to show that 98.35% of all payouts were processed within just one hour practically an instant payout.

13:20And most importantly, zero denials of payouts were recorded verified by Deloitte. And think how important this is because before you make your purchasing decision on which platform you should be working with, this is a platform you know you can trust. Not just the marketing claims they may make about their payouts and their payout speed. Also, if you prefer trading futures over CFDs, then all our prime has dedicated futures challenges. And if you choose to work with all our prime, you can choose from your preferred platform, including MT5, C trader, match trader, trade locker, DX trade, ninja trader and wealth charts so that you can choose the setup that works best for you. And before you pay anything, you can understand that trader friendly rules with clear explanations and practical examples. So if you want to work with a proffing that actually wants to see you grow, then you should check out all our prime. You can purchase your challenge today by using the link in the description or using the CoTOT for Titans of tomorrow. And if you do use our CoTOT, then it will automatically update with a special discount for the viewers of the show. But when that being said, back into the episode. I understand when there's seasonality in the market where there's things at the market at times will be run by fundamentals.

14:23And also the players, I'm understanding what you're understanding by player because in the goal on a poker table, everyone's trying to make money. So everyone has the same objective. But in the markets, not everyone's trying to make money, even though it sounds counterintuitive, because not everyone in the market is a speculator. Some people are talking currency, they're just using the currency, they're transacting internationally. Other people are hedging against another currency. So not all participants in the market are the same in terms of liquidity, what backing they have, or objective or time frame, someone's scalping, someone's a long-term investing. So when you have a mix of all of these, it's hard to read the opposing party. So then which is why then I think everyone is skewed towards technicals because then it's like, technicals is a nice amalgamation of every psychology and behavior intentions. But I also read from your articles that you don't really believe in technicals. So we can start to unpack why technicals is not the approach where most traders watching are going to be technical focused. Learning technicals in the way that a developing trader learns technicals like, okay, here's my setup. I'm going to go to an educator and they're going to teach me about their system or their strategy

15:26or whatever. A strategy and the technicals kind of go hand in hand, right? It's like, I see this pattern. I'm going to place my stop below the last swing low and I'm going to go along here, okay? If you were able to model that out, you'll probably find there's really nothing there if you were to take every single instance of this and you would define it precisely. But that doesn't mean that that setup cannot have positive expected value based on the decisions that you make. And that's what I mean by the policy. For example, it's like, when do you size up on this trade, right? When do you sit out? Do I not take this setup? All of those are individual decisions that you're going to have to make while you're in front of the screen. And nobody who's even handing you this fixed rule set is going to be at the screen with you in this particular market environment.

16:27Maybe you didn't wake up with the most energy or you had a fight with your girlfriend the night before. Whatever all of those factors are going to factor into where you are and what you do in that moment. And so when we look at a technical strategy, you're looking at an idealized version of what that is. But that doesn't mean that that exact thing is going to set up in front of you and you're going to be able to take that every single time in this exact same state every single time. But there are things that you can do that will and this goes back to, you know, observing the market, like trying to define the states in which your strategy does work. Right. So if you're, let's, let's say you're taking a breakout pattern just for simplicity. And if you're taking that breakout after three days of consolidation with heavy volume coming in on the open on the cash open and equity futures, for example,

17:33that might have more follow through than say taking a random breakout at New York lunch. Right. And so they're both breakouts. But the decision that you make, like nobody in their course is telling you, all right, we're going to wait for, you know, these, you know, 15 to 20 different things, like this is what your account looks like. This is what your mental state looks like. This is what the market looks like. This is what the volume is. This is, you know, all of these factors. So that to me is as a trader, all we're looking to do is optimize for the set of decisions that you can make in the moment to skew the odds in your favor, basically without being taken out of the cutting. I want to, I'm going to present you two extremes and I want you to kind of tell me where is that middle ground. So one extreme is the modeling side. So you, you watch YouTube videos, you learn all these confluences and strategies. And the conflict of interest, I think you're describing here is when you have people online teaching broad concepts and you teach it to a million people,

18:37then you're always going to have a 1% of people that made it work. So the online persona is benefiting from teaching things vague because law of large numbers, you always get a vocal few that will make it work out. But if you're teaching something very narrow and saying this, this, this, and this, and it doesn't work, it doesn't have an expectancy, you're not going to benefit from the law of large numbers. So this side of the extreme I want to mention is you're modeling everything up, but to a absolute extreme in terms of you model out exactly what time of day is up to more for this kind of breakout setup. It's not 1003. It's not 1005. It's 1004. And then you say, okay, there's no, there's no leeway on this. It has to be only set up. So 1004 has to be a breakout when it's news. And then you have all of these criteria upon which as you're describing criteria is are beneficial, but then it reaches a point where you overfit. You end up with one trade a year. Okay, that trade is good. You're not going to make any money. You're not going to be the market. So you got one shot a year. And then the other side or the other extreme is you go with the flow. You follow, you got all these concepts in your head, where it's alleyway, if it's indicators,

19:37it's smart money is this and that. You learn a bit of everything and you're throwing things differently every day. So you're doing right things, but completely in the wrong way because it's not invalidations and confluence. It's just ideas. So these are two extremes. Where is the Goldilocks zone here? I think in both, both extremes are suboptimal for different reasons. The first one is inevitably going to be overfit because you're, you're essentially mapping that to what's already happened in the market. The other side is to loose where you're extremely random. You're just flying by the CD or pants you're clicking about. That's, that's not going to work out for you either. I think the balance is finding something in the middle, which is a robust system, meaning that it's not perfectly fit to past market conditions. It's not overly random. So you're just clicking about. It is the optimal set of decisions that you can enact in that moment. And again, like I said,

20:39that can change. That can change over time. It can change today. Like if a strategy that I was running 2017 through 2019 stopped working. And I thought, for example, I was like fading retail panic in futures. What I was actually doing was something very different than that, which I came to find out a lot later that it would, it had more to do with gamma hedging than it did with retail panic. But I don't want to go into that. But what I'm saying is you also should be thinking about the mechanism that you are exploiting in the market. Right. And so you're never going to know for sure who's on the other side of your trade. You're never going to know specifically. But the more clarity you can get on why this mechanism should work in theory, the easier it's going to be when it stops working for you to go and do a post mortem and say, all right, well, I was, what was the mechanism

21:44that I was exploiting in the market? So I'm looking at it and like I think I'm like again, fading retail panic. Maybe it's a, I believe I have a behavioral edge. Maybe the real mechanism that I'm exploiting is completely different than that. So I think when anyone goes to build a strategy or try to develop an edge, one thing that I like to talk to traders about is understanding because I'll say this concept and I've talked about it a lot online. And it's like, yeah, but that's like, you know, it's bullshit. Nobody is, you're never going to know who's actually on the other side of your trade. The point is not that it's to understand when that strategy or that that causal mechanism that you're trying to exploit inevitably stops working because the job of a trader is work. It's not find this holy grail strategy. I'm going to run it indefinitely and I'm going to print money. So I take issue with the term learning to trade because it implies like once you've learned it,

22:49like you can just continue and it's not really that. It's something far beyond that. It's more about it's continuous learning. It's continually optimizing. It's not a destination. It's an ongoing journey. So as you were speaking, I was kind of trying to summarize it into a few key words. What I got from it is most traders try and trade the what's it's a pattern is a conference, whatever. You were more saying, you got to understand the why, like why is it working, but then also I was getting into our getting tons of who and you cannot necessarily know who is the other participants, but maybe you can understand what they are thinking. So these are the three words that I'll come into my head is the what is the why and it's the who. When I focus on the why, which I think a lot of traders end up in that trap of like let me go down to just why. Then you end up in conspiracy land of like the markets arrayed and this is this and algorithm X Y Z and then you start trading stories and conspiracies as opposed to price logic data. So how do we connect these, let's evade terms into something a bit more tangible. Let me try to give you an example outside of trading

23:51for a second. So I've just got a dog. He's five months old now. He's a road easy and rich back. He's beautiful. And let's say I wanted to model when he barks. Okay. So I'm going to go into, I want to start saying all right, I'm going to look at when he barks. So he's going to start to bark around seven PM and I start tracking that. Let's say I start tracking his barking every day around seven PM. He's barking. So I create a model in my head that says, okay, seven PM starts to roll around expect barking, right? One day that so my, my, I don't know what that could be. Maybe it's because I've moved through the house in this way or my neighbors got the music on and he starts barking. I create my theory of like what's going on, right? Then one day he starts barking at random hours. It's two PM. It's like four PM. And what you're, what you're thinking is like, oh my God, what, what happened to this dog? Like did he change? Is he just getting older? Maybe he's,

24:53maybe he's sick or something or maybe the, the thing that was, that was essentially provoking him to bark was the mailman is outside. And the mailman was coming at seven PM. But now the mailman is coming at random hours. Maybe they've changed. Maybe there's a new mailman in town. So what I'm saying here is sometimes when a strategy isn't working, the mechanism we thought we were exploiting isn't actually the mechanism that is being exploited. And so it's sometimes the thing you're exploiting is a proxy for the real underlying mechanism. And you aren't going to know whether that real underlying driving mechanism is still in the market or not if you don't even understand what you're exploiting. Yeah. Did you see where I'm going with this? Exactly. It's like the separation of these two things. You thought that your dog was barking because every time you got off

25:53off the sofa when the film ended or the episode ended at seven. And every day there you, therefore you thought I'm going to keep sitting here until like another hour because then he's not going to bark. But the mailman kept coming. So it's correlation causation is what I'm basically understanding. And you should we try and understand the causation the mailman causes the dog to bark because most people end up in correlation and trying to explain it to when you cannot explain a correlation. Is that the crux of what we're talking? Yeah. I think the reason that I'm trying, the reason that I give this example is so that when your strategy inevitably stops working because it's going to, you can start to understand, is the real mechanism still available to me or was I trading a proxy of the real mechanism? Yeah. That's the core there. And that's why having a good understanding of the underlying, you know, the underlying thing that you're trying to exploit, is it still there or was it a proxy for the real mechanism? I think that's worth sitting with.

26:53And most traders don't they have a fixed rule set. They're like, okay, my technical shows up. And I'm going to go long here. I'm going to place my stop here. I'm going to take profit here. Okay. What the hell is that? Like what is that? That's nothing. Okay. That's price. But underneath that, you have thousands of variables. Like the market has hidden states. We don't actually know who we're trading against. We don't know all the hidden states. There are many hidden states in the market. So the reason that I try to explain this to more developing traders is because it'll take you a long time if you just try to focus on, okay, I found this strategy and this is going to work because this little shape shows up in the market. Those shapes don't mean anything. If you have a purely random distribution in the market, you will find, like if you model this out, you'll find

27:54patterns that look like ascending wedges, look like breakouts, look like head and shoulders patterns, they all exist. Now, this goes into probably one of the most frustrating pieces for those that are more quantitatively minded is because what makes those, let's say, those shapes for someone who's able to exploit them over the long run for, to accumulate wealth, it's hard to disprove those. Because if we go back to the policy, the set of actions that are available to you are always different. And the, whether you choose to trade this, whether you choose to sit out, whether you choose to triple your size on this trade, is everything is available to you in that one moment. So this is why it's endlessly frustrating when you see gurus or people who've just come into the market and they say, I'm absolutely crushing it. I'm crushing it. They've been crushing it for

28:56three months, six months, a year. They've made a million dollars. Okay, that's great. But are you the lucky path? You know, because we know there's a distribution of paths available to us. Even if you have, even if you have negative, negative expected value on this strategy, you could have very well made money on that. So that's why it's frustrating for the, for the quant side of things, because you can't really disprove it. If you look at technical analysis like a causal mechanism, if A happens, I do B, then that's, you know, you can, you can model that out fairly easily. And you're going to see there's really no edge there. But if you, if your decisions around that, that you can actually influence that, just like in the poker, in poker, you can influence your expected value by playing the other people or making optimal decisions. It's not a one-to-one for the market, but I think it's the closest thing that we can get to, to the market. It is playing poker,

30:01because that's really what it is. It's not like playing roulette. For the last two years, a proud sponsor of the show is a top ranked leading pro firm Alpha Capital. And for the years that I've been working with them and the thousands and thousands of viewers you guys have been working with them through the discount codes of Titans of Tomorrow. It's clear for me to see why they are top ranked pro firm in the industry. They have also reached a monumental milestone of a hundred million in payouts. And with the multiple step plans and the multiple package types they have, there's going to be an option catered specifically for what you're looking for. So you can buy an evaluation account catered to your needs at the most competitive prices and without discount code TOT for Titans of Tomorrow. You are able to get the most unbeatable unmatched prices in the industry with a leading trusted pro firm. And with that being said, let's get back to the episode. So I'm going to throw some ideas at you. The correlation causation thing, I think is wonderful, everything makes a lot of sense. But I think a lot of people think the trade trading causation and not correlation. And the reason they believe they think they are trading causation is because they add the stories and say the market is XYZ. So I'll be curious to know

31:03how do we separate correlation causation? Can we even because we don't all the states. But then the second part was is that even the goal to try and separate correlation causation? Because as you mentioned, let's say a support level or anything in technical is a Fibonacci level. They work at times, we've all seen a head and shoulder play. We've all seen a Fibonacci level of respect. But is it respecting because it's a causation or is it respecting because it's a self-fulfilling prophecy? If everyone's looking at that and everyone's agreeing with that and everyone's entering upon that, it works because that's where the volume became. So it's not necessarily a correlation or causation, it's mass mentality, mass liquidity leading to mass outcomes. Would that be the line of thinking? Maybe you can give me an example of what you mean by the correlation causation. And then I can dig into that a little bit more. Let's say we have an obvious level of support. And then let's say begin a trader's all entering on supports because they are learned supports and resistance. So you have all of those areas and you do get a double bottom triple bottom okay as respecting. So then the fourth touch that it comes towards everyone's entering. Oh, this is another support

32:05level is historically respected. Pass price equals future price and then a shoots lower. And then now you get another camper trade saying, ah, stop loss run. This is the market's getting the liquidity of the others and they're expecting the V-shape recovery because of the stop loss run. And then it just goes into a downtrend. So Camp Number One had a story support level. Camp Number Two had a IZ liquidity sweep exercise there. We're looking for the and then the other person saying, oh, it's just a breakout break test continuation downtrend. They all had a story and all of them present at different times the support level. We're respects sometimes the sweep of liquidity will work sometimes the downtrend breakout will work sometimes. How do we qualify and know the difference when all has an explanation at a price signature? I think, well, that that that's going to be individual to the trader. So those that are trading that support and the decisions that they make to enter that will influence their wealth path over time. And maybe there is something to that. Maybe in the craziest part about this is that both of those people can make money. Right? Because

33:09again, because there's so many decisions to be made at the individual level every time you're not going to take every single one of those. So you could have one of the traders that fades this and one of the traders that stays with it over the long run both actually make money. When the other traders are acting with negative expected value and they're going to get, you know, we're going to take their their money essentially. So what I want to explore you because I get it that, you know, every confluence, every style of trading, there is a pocket of people that make money. The law of large numbers once again, but the 1% or 10% of people that do make the support work or the sweep work or the break of structure downtrend work. All of the ones that are making a work is because they didn't just follow the price action pattern blindly. They added other criteria as you were describing earlier. What I'm curious here also is because in your technical article, technical analysis article, you were also mentioning that price action signatures where it's a wedge that has a breakouts and it works. And then it has a breakout that fails. The difference between the two was not the pattern. It was maybe the level two and then you're reading the other

34:12player through order flow. Would this be a the answer to it? I think you as a trader again, what I'm what I'm trying to say is you're trying to optimize for your set of decisions that can include level two. That may not include level two. That might include something completely different to that. Maybe you're looking at a VWOP or something. It's hard to say and that's why I said, like nobody can hand you a fixed set of rules that's going to inevitably indefinitely print money in the market. It's just not how the market works. It's not how trading works. And the sooner that you can accept that fact, the better off you're going to be. Because then you're going to stop with these false beliefs of, okay, some like I'm going to learn this system and I'm going to go to the market and I'm going to make money indefinitely. That is literally where the grift lives. That's not how trading works. So I can't tell you look at the level

35:14two and do this and do that and do that. Because you know, sometimes I'll sit with traders like very experienced traders and also have seen this myself where you'll say, all right, I'm going to buy this level. But for some reason, oh, I don't like how we're prices moving into that level. Like I don't want to touch that at all. And you could probably sit there and quantify that over time if you sat there enough. But I think this is where the experience comes in where you'll sit next to a, let's say we put some a junior trader next to a very senior trader. And he's like, hey, this is your setup. It's coming up right now. Like it shouldn't you be getting ready? He's like, yeah, I'm getting ready. I'm getting ready. No, no, no, I'm going to, I'm going to, I'm going to, I'm going to pass on that, right? Why is that? That's the accumulation of experience over time. And that is hard to pass on to somebody because it's, if it were a purely mechanical system, you could, you could theoretically give it to that person. But even then some of the best quants that I know are discretionary in the sense that they can have a model that they turn off

36:16and turn on based on their own perception of, you know, what's going on in the market. So you're always going to have this sort of decision making to do, you know, and that's the frustrating part. And so I think people want something to be clear cut. They want to have that, that system. But that system, the way that your, that the trader teaching that system is going to execute it, even if he gives you the full rule, the full rule book is going to be different from the way that you execute that in the market because your account size is different. You might be in a different product. You, you might be trading at a different time of day. You might be, there's a myriad of circumstances surrounding that. And that's why, like I said, when someone tries to give you a system, it's a starting point. Look at it. Maybe there's something there. Maybe there's nothing there, you know, we don't know. And that's the frustrating part where you can have these grifters who maybe they're lying. Maybe they're not lying. Maybe they're

37:22gassed up on their short-term variance. And they actually, you know, survived a lucky path. And they did make money. But that doesn't mean that that system is going to work for you. And and that's the point. So when anyone goes out and they say, for example, oh yeah, my multi-millionaire students are just, you know, absolutely crushing it. Well, okay, let's say you take 20,000 people and you ask them to flip a coin for a couple of years. Inevitably, you're going to have a bunch of people who made a shitload of money and they're going to tell you exactly how they flip the coin. What was going through their head? They were meditating. They were looking at the stars. Everything about why they were successful. And it's just a lucky path that they walked. So that, but that's beauty in a sense of trading where it is. It's very, it's very interesting in that. And there's a point. Exactly. Let's say we have a 50% win rate model. I mean, gave it to 100 people

38:23or a thousand people, a 10,000 million people. Okay. Now you got a lot of larger numbers. Out of those million people on a 50-50, there's there's, everyone's going to end or you have a a bell curve, basically. Majority of people will have that 50-50. But then you're going to have that poor unlucky guy that just blew their account. Then you have one guy out of the million that made a lot of money. Doesn't mean that's the norm. It's just a normally on the bell curve and the normal distribution remains. What I want to cover here now is one point I just want to say. So the law of large numbers, it applies to games of chance because it means it converges to the, it converges to the outcome that's expected by that. That's governing, the odds that are governing that game of chance. So in markets, it's a little bit different. We can't really use that. And I've seen people, you know, actually teaching strategies and they talk about the long run, the law of large numbers and all of that. And just to be clear, like you can't really apply that to training. I know in

39:23your example what you're saying is true because it's, we're talking about a 50-50 game and that is true. That's the coin flip game where we can model that out. But it's just worth noting that if you're seeing people throwing around, you know, the law, law of large numbers or the law of total expectation here, we can't apply that necessarily to, to trading. What I do see off the back of what you mentioned of it's the new ones is this fits the plan. This is the model. This is the data confluence is everything you're supposed to follow. The junior trader took it. The senior one didn't because of a certain reason. And the word you chose was experience. But I'm trying to understand what is that? Because although I, there is a chance that that is completely true, the other side is the coping mechanism that the guru would use and say, you took the loss. I didn't. You just haven't got the experience yet. And then instead of questioning the strategy, the model, the data is your work ethic and they throw the accountability back on the individual as opposed to on the strategy. And it could be short term variance. It could be a flawed system. It could be something and it's the

40:24nuance of application. So what I want to get into here is what is the reality of a QuantStrader who's modeled it out and has dates and follows the plan. And as you're saying, occasionally applying discretion to pull the plug because of states, because it's COVID right now. So my model didn't factor in COVID. Oh, it's a, it's a war going on. That my model didn't factor in war. So let me pull the plug. So apart from the discretionary pull the plug, the QuantStrader will often just follow the plan because the data is there. And then the pro trader, as you're saying, they will apply discretion that the junior didn't that discretion over there. You will, you chose experience. I'm also throwing in here in tuition, but what is experience and intuition that isn't in the data and the model and the strategy? What is that sixth sense that we're talking about? If I knew like exactly what that was, that would be easy to transfer to somebody. The problem is is, and again, this goes as much as I'd love to disprove a technical analysis,

41:26it's very hard to do that. And because of the fact that the decisions that you make around the model or the trading strategy that you have, the fixed rules that that you have, it depends on the decisions that you make. It is that intuition. It is that. So it's incredibly frustrating for somebody who's more quantitatively minded. And I want to go out and I would love to say, that all of these guys are grifters. A lot of them are grifters. They know they're lying to you. They are straight up con men. They've never made any money. And they'll keep selling you their system. It's never going to, it could genuinely have just be complete nonsense. You can make anything up. But you can still take a system that has negative expected value and turn it into a positive expected value system based on the decisions that surround taking those trades. Or how you're going to manage those trades? How are you going to get into those trades? How are you going to get

42:27out of those trades? All of those decisions influence the expected value of that edge, if you will. So that's the difficult part because it's incredibly, it's incredibly difficult for newer developing traders to grasp this concept. But if you, I guess, or so I don't want to leave people with like, oh, you have to have a lot of experience. You have to just have intuition and then you're going to make money. But there is an element of that. And this is why I say, if you can work with someone or learn from someone who's not telling you buy here, sell here, put your stop here because that is not the full thing that's going to make you money. So what we're always trying to do as traders, the overarching goal of a trader in general is to optimize their, what's will borrow a term from reinforcement learning called their pie star function, which is the optimal

43:30set of decisions for that given thing that they're trying to accomplish. And so the optimal set of decisions today might not be the optimal set of decisions in a month. And you, unfortunately, you have to spend time in the market. You have to see these things. You have to understand sometimes when Trump comes out and he says, we're going to put tariffs over here. And then you notice that he gave a stay to Mexico. He's probably going to do the same thing. That's where the whole talk with thing came in. And that isn't, I mean, someone could probably just tell you that, but what if he stops doing that? What if he starts following through? And so those decisions have to be updated. Your belief system has to be updated real time. That's why the job of a trader doesn't start and stop once you have a system. It's a continual, it's a continual learning process. And it takes a lot of work. And the more clear you can get on this, the better that you'll end up

44:33in the long run. The reason, I don't know how I sit with the word intuition. I don't have a full lot opinion. I don't describe to you why. I agree with what you just mentioned here of like, if you are up to date with the fundamentals and you start to understand what Trump was doing, maybe he could change that at a moment's notice, then that's no longer intuition. That's a data point. That's information. So intuition, the reason I'm kind of intuition can be experience, but even experience, what is that? Because I'm going to bring the example of you have a trading flow, you have traders. And inside that, are you teaching them the same approaches or everyone has their unique approach? And then as a team, you're managing the risk like, how does it work in a team trading environments or a pro firm as you were? I think the way that we approach it at the pro level is depending on, well, okay, let's say there's a trader's journey, we'll go through different phases. If you're just starting out, I'd say the first thing that you should probably clear on is what are you good at? Are you a fast thinker? Are you more methodical? Are you

45:37very thoughtful? Because the style of trading is going to be influenced by those factors. You can try to take somebody who's deeply, let's say, a thoughtful person and they take time to make decisions and you try to get them to run a scalping strategy. Yeah, good luck with that. That's never going to work. If you take somebody on the other side and you tell them, you know, somebody who's optimized for scalping like myself, when I got into trading, like I was just a pure scalper, for me, if you told me I had to be, you know, sitting there and I could take one trade a week, I would have lost my mind. I didn't want to do that at all. So I think the way that we train traders in the problem environment is, first of all, you have to explore a lot of things, right? You should, at the beginning, be trying to run scalping strategies. You should try to swing trade. You should try to go heavy into the fundamentals. You should read all the, you know, every book you

46:38can get your hand on, hands on in terms of, let's say you're trading crude oil. There's a good book called Prisoners of Geography that I recommend. You should be reading these things. The reason for this is because we're trying to see what fits all of these good work, all of these are valuable, what fits to my temperament. It's correct. Correct. You have to, you have to get clear on what, what your temperament is suitable. Like what style of trading your temperament is suits. And then from there, what we'll typically do is once that's sort of identified and you see a little bit of maybe there's something there, you'll typically try to pair that person with a more senior trader who trades in a similar fashion to that. And then, so you're not going to put a, you know, a scalper with somebody who's, you know, swing trading. It's just not going to, it's not, there are things you can learn from that. But in an ideal world, you would try to put stylistically products, what products they're trading together. So they can kind of play off of each other.

47:45In a sense, you're not going to be taking trades based on that. But the other thing that you mentioned is are we teaching them styles of trading. And this is one of the biggest misconceptions. I saw this in one of the, one of the comments on, on another video where it was like, yeah, you know, you just want to sell your strategy. And like, I think we've just talked for at nauseam about how that's never going to work. So like, don't do that. But there are elements that can be taught around trading, probability, you know, how to identify a marketer's genes, how to like how to size for volatility. Do you understand, you know, fundamentals, you know, all of these things. And then you can learn, you know, deeper things which are covered in the book like concepts like adverse selection and there's just a lot of stuff to learn. Stationarity, non-stationarity, you know, all of these things. But let's not go into that right now. What I would say is,

48:49you have to start to find what suits your temperament. Try a lot of stuff. Don't get taken out of the game. Trade on sim. Does it mean that your sim results are going to carry over into live trading? No, they're probably not. I wouldn't expect that. But that's the goal. I find something that works for you and explore, be insatiably curious when you go into the market. Like go look for different styles of trading. Go look up, you know, on archive, for example, with an X or SSRN. Go look for these, you know, let's call them these models that come out of university sometimes. These are quant models. Or go read a high frequency trading book. Not because you're going to be high frequency trading. You're never going to do that. But you're starting to see the market from different perspectives. And you can start to see what other players in the market are doing. And the more you

49:49understand about the interconnectedness of the market. And there are different players that interact at different times. There are different mandates. You have, it's an ecosystem where you have different players of varying sizes, all looking to do different things in the market. And the better that you can get at understanding the interconnectedness of this market and how it works, the plumbing, let's call it underneath the market, the better equipped and the better prepared you're going to be for developing a thesis around why should this mechanism even work in the first place? So it's a full time job. If you think you're going to pop open your laptop or your cell phone and take a trade from the pool and you're just going to print money, I hate to break it to you but that's never going to happen. I've spoken to a variety of guests on the show and a unanimous comment denominator between all of them is the emphasis they put on data and actually knowing the inner workings and the insights of your edge and your performance. That's why I'm proud to

50:52bring a partner of the show TradeZeller. The number on journaling, back testing and all in one insight experience created by traders for traders. What TradeZeller really gives you is deep insight about your trading that would ordinarily not be visible. Whether it's through understanding your trade types and playbooks or even insights powered by artificial intelligence through Zeller AI. Whether you trade Forex futures, cryptos, the stock market, it all seamlessly connects to TradeZeller. So there is no additional work. You've seen me reference it dozens of times and all of the benefits I've had in my trading from the insights I've found from my TradeZeller. So join myself and thousands of other viewers of the show you'll get the best discount using the link in the description or code TOT for Titans of Tomorrow. So you've thrown a lot of wonderful things and I'm trying here to sit and listen and connect dots and what I'm collecting towards and tell me from right to wrong. We started off at let's say the study a bit of everything to understand your temperament. I get it because you're kind of as nature or nurture but the temperament definitely exists and I, for example, myself, I don't like sitting around not knowing if I was right or wrong. So soon

51:52trading doesn't really work for me because if I enter a trade and I'm one week in drawdown, it's one split second decision to pull out the trade. Well another person maybe has the patient to wait. I'd rather know if I'm right or wrong within an hour. Hence, good for what's scalping. So temperament is always going to be there. Does that bow down to psychology now? So you're playing to your strengths, which I agree you should and then understand your temperament. But then the word that picked out in my mind was psychology. Then we went to the poker conversation and it was like, it's not read the cards. It's not it's read the player. So once again, know their bluffs, know their tells psychology comes here again. Then we spoke about intuition and intuition can be experience masking as an idea. But intuition can also be I took four losses in a row and feeling a bit fearful. My intuition told me not to get in. That was not intuition. That was fear masking as an idea. So once again, psychology can corrupt once again your your experience or intuition. So the word I'm coming back to here through all of these topics that we've covered over the last 30, 40 minutes. The word that I'm coming back to is actually psychology because it affects your temperament, affects your intuition, affects your modeling and adherence to the plan. Was this the correct

52:59reading between the lines? I would say, okay, as psychology is typically scapegoated in trading or used as a scapegoating rather, I hate the term trading psychology because it's a catch-all for literally everything that can go wrong. Like a veg psychology. Yeah, exactly. It's like, okay, I have a naive negative expected value strategy and I just need to work on my mindset. I should probably go meditate a little bit and then come calm to the market. If you show up like a Buddhist monk to the market and you're naively trading a negative expected value strategy, I don't care how composed you are. It doesn't matter. What you're going to do? Yeah, exactly. You can do that and you can come you can show up to the roulette table like a stoic monk and over a thousand spins, you're going to lose all your money. It doesn't really matter. Also on the flip side, I know we talked about games of chance and games of incomplete information, uncertainty. The casino on the other

54:06side can also show up as a mess after a three-day bender and they're still going to print money if people are playing that game. I don't say that psychology has nothing whatsoever to do with it. I think that the biggest thing that newer traders can take from this is that first of all understand probability. Understand the short run has nothing. Well, it can skew the results in such a way that it looks like your strategy is bleeding money and it very well might be, but you don't know that in the short run. You can't just say, oh, I'm not executing my strategy. Maybe your whatever you're running has a, it pans out to be a 30, 40, 45 percent win rate. Some of the best traders in the world have, you know, sub 50 percent win rates and that's totally fine because the amount that they're able to extract on their winners is multiples of their losers. And this

55:12goes back to the win rate fallacy where it's like you can have a 99 percent win rate and lose your ass. That's the biggest, one of the biggest things that people fall into. They're like, I have a 90 percent win rate. Okay. And what? That tells me nothing about your strategy, nothing whatsoever. So I think you also mentioned sim results are not necessarily going to be your real results. And even though the rules might be the same, the states could be modeled and the rules could factor in policy states and all these things. But that is the gap that needs to be bridged his psychology. I'm with you by the way. I think psychology is definitely scapegoat it and a cover roll. But I am also curious to know what is its place. I would say one, if you're approaching the market with a good frame of reference where you understand the general principles of what trading is. It is a game of

56:17it's an uncertain game. It's a probabilistic game. We have to have an optimal set of decisions, right? So the policy converts like whatever the recurring market condition, it converts that into a positive expected value over time after costs are considered and so on. So psychology can come into play once all of those other pieces are out of the way, right? You have to have something that you're going to do. It could be a rule set. It has to be something. And I guess an easy way to tell whether it's psychology or not is do I have a set of rules that I'm going to adhere to or a checklist or a state that I'm going to like what's the word I'm looking for? Pre-commit to prior to this happening. If you can look at that and you say I'm going to pre-commit to doing xyz and then

57:23you're not doing it and then you're all over the place and maybe you're stressed out, maybe your financial house is not in order and you genuinely have things in the back of your mind where you're unable to truly understand that this is going to take time. I'm not just going to, you know, bank on this one big trade. I think then you could start to look at that. If you're looking to be active when you know you shouldn't be active and you're not following your rules that you've pre-commit to prior to coming into the market, I would say that's the last piece of the puzzle. And for me, it's like when you go into any of these tier one environments, the first thing you're doing is you're studying probability, you're playing poker, they bring in, you know, world champions into these firms all the time. We've had, you know, some world series of poker champions come and do talks for us. These things are incredibly important. Once that's out of the way and you truly

58:28understand it, if you're still struggling with things, it might be worth sitting like what, you know, what that could be. That might be psychology, but I'd say in 95% of cases when I hear someone talking about psychology, it's actually downstream of like their issues are upstream of that. They don't have a plan. They don't even know what they're extracting. They don't know what kind of market is. They don't know the gap risk in their market. So when they get caught off side, they're like, you know, wow, I didn't expect that. Let's say you talk to a trader and you say, okay, when's liquidity highest in your market? They have no idea. You know, any of these things that you should know, like off the top of your head, and you're blaming psychology for your lack of results, then I would say, that's not the culprit. The culprit is not that. And if you understand the short run versus the long run, and that your results can look terrible in the short run, and yeah, again, not psychology,

59:32but people fall into this because they want to say, oh, I just, I'm not following the system. I'm not doing that. Whatever it's psychology, it's an easy, it's an easy scapegoat. I want to want to now lean towards your book. So if I was to guess the title of your book based on the conversation we've just had, I'll probably title it something like the game of trading. It's not so dissimilar to poker is where where the conversation is kind of letters just curiosity. But the book is actually tied to the art and business. So why would these two words, art and business, the words and not the science or the game or the psychology of trading? Why art and business? Well, a lot of books have been written, right? And there are books that have those those words in them that I would have liked to use. I think this one isn't necessarily the business of trading. Like when I wrote this book, what I was really going for was I was extremely tired of seeing books that just dealt with trading psychology, what I call pop psychology, or

1:00:37these paint by numbers manuals where it's like, okay, we're going to look for the MACD crossover, we're going to buy here, we're going to sell here and all that. Like those, those books are less than, less than useless. And what I wanted to do is what I was searching for that I never was able to find was what are the concepts? What are the first principles? Because even the subtitle is first principles, mental models and the mathematics of edge, right? So that's how I tried to approach trading. What are the first principles? What are we trying to do? Who are we competing against? The game as a whole, what is this game? And I think what you'll find at least from the initial reviews of the book coming in, and I'm getting a lot of DMs on X and emails and everything, is that it's incredibly refreshing because it's so far away from what's out there today that

1:01:38it's, you know, I'm hearing from traders that have been in the game for a long time, and like, it took me years to even understand half of these concepts. And what I wanted to do was say, look, I can't teach you to be profitable. Like I wish I could. I would just, I would, you know, create a small squad of people and just print millions, but unfortunately this is not the game. But what's more important are the concepts, the mental models, the first principles of trading. What is mental models in trading? Well, mental models in trading are, you could call them like heuristics or things that you look to, you build over time that will save you from doing stupid things, for example, in the most simple way, the mental. Like a mental is a mantra. For example, one of my mantras, let's say, is a restricted traders or profitable trader. I don't believe the edge lies in reasons to get in. It's the reasons you didn't get in the restrictions. Would that be a mental model, for example? Yeah, I mean, it could be a mental model. I would say, I would say without

1:02:44going into, you know, all of the, well, first of all, let's, let's back up for one second. I would say there is a number of mental models that you can use in life outside of trading as well. So it doesn't particularly pertain only to trading. It's just a way of thinking that will enable you to make better decisions over time. That's essentially what the mental model is. And I want to get into now. What is your favorite chapter? If I have a quick flick through, which part of the book would you say if I'm only to read one part, which one should it be? Do you have a favorite? Well, impactful. It's, I think that depends on where the trader is in their journey. And I think many things are going to resonate with different people at different times of their trading journey. And I wish I could say, but it is this, this is not a book that's meant to be

1:03:44read from cover to cover. It is, I would say something that you should have on your desk every day when you come into the market will help that'll help you sort of reframe your thinking around certain things. Right? It's a probabilistic endeavor. What are like, for example, if you look at any, like read out, any one of those. As you said, it's not a cover to cover book. It's probably something that you're drawn to as I was reading through the contents. Area of the book that I'm most curious about or drawn to as I read through the contents is this part called the second order thinking. So what does that mean to you in trading? Okay. Second order thinking is a very useful concept in the sense that it asks, you have first order consequences. So for example, let's say the feds cut rates. And the first order might be that stocks go up. Right? The second order asks, but how are the market participants already positioned within the market? And what does cutting

1:04:46rates signal about the economy? For example, so you have first order and then you have second order which is and then what happens? So you have the initial and then you have and then what happens thereafter. So I mean, that could even be applied to trading itself. It could be I take or let's say for the trader themselves, they don't adhere to their stop one time. Okay. Great. You took a maybe actually you didn't adhere to your stop and then actually it comes back and you actually make money on that trade. What does that end up teaching you about moving your stop? Like inevitably on the subconscious level, you might be thinking, oh, wow, actually I didn't adhere to my stop. So and then the market came back and that was a pretty good decision because I made money. And if you're thinking, okay, making money equals, you know, a good good decision, then that's

1:05:48what you're going to train. So I think the way to think about it is in that. Okay. So bad decision leads to a good outcome. Yeah. Becomes a feedback loop to encourage the bad behavior, which is a trump, which always happens. And especially when you're optimizing for raw returns over things like risk adjusted returns. So I get emails sometimes where people will reach out and they'll say, I made X amount of money. Okay. And like what does that like based on what? What did you? What did you trade? It's irrelevant. Like let's say you made three, you know, $3,500 a month. Okay, great. Well did you have a million dollar account because like that's not good at all, you know, you could just buy boot, you could buy bonds. Cool. Yeah. So where I want to pivot towards now just to wrap up the episode is your final take some policy and how that could be relevant for traders to take away and start trying out from tomorrow. What I would say is the market, I think the simplest way to think

1:06:52about it is this. And this is the job of a trader and this is going to tie in what I mean by policy. Is that the market creates an opportunity structure. The trader's policy or their set of decisions that determines whether those set of actions is going to turn into or become positive expected value. Right. So what we're trying to do is when we talk about edge, when we talk about all of these things because these terms get thrown around interchangeably edge and trading strategy and all this. And what I would say is an edge exists and it only exists if your policy, your set of decisions, can convert a recurring market condition into positive expected value after costs and execution and path dependency and all of that. So again, when we touched on technical analysis,

1:07:59I think it's important and I want to leave everyone with this sort of closing thought that a trader can produce positive EV from a situation where the naive action is negative EV is not positive EV based on their decisions. That's why I think policy is so important. And so again, it's like the market creates this conditional payoff landscape and the trader's policy determines whether any part of that landscape can be harvested with positive expected value. So I know that there's a lot of terminology there, but I think that's a pretty good way of thinking about it if I had to summarize. Yeah, just to wrap up, should people buy the book? Why should they buy the book? What can they expect to get out of the book? Based on those who have read it and I've been just completely surprised by the number of people that have reached out, people that I've looked up to for years in this game, I've received a message the other day on X from a well-known author, somebody

1:09:03I highly respect, who said, hey, your book just came in. I can't wait to read it. I've got a pilot trading books and it's moved right to the top. And so those things are interesting to me because that person is deep in the game. They've written books on trading and they're still endlessly looking for different ways of thinking. I think that's what separates the best traders from those that don't make it in the game. And so if you're looking for something that is not a buy here, sell here, manual, it's not just a bunch of platitudes about pop psychology and you truly want to understand a deeper level of trading down to the mechanics of the market, how things work, the mental models, then pick it up. People seem to really like it. The early reviews are all positive. So if I'm to use the episode today as a reflection of what the book could be, I think we end up speaking really deeply and there was wisdom, there was curiosity, there was a debate, testing your

1:10:06beliefs, all of this, as opposed to a drag and drop. Here's a train model kind of thing. So I'm sure the book therefore becomes equally thought provoking and help people question the deepest beliefs that they have. Ryan, thank you very much for being here and epic episode. There we go. Cheers. Boom. Thanks. Great stuff.