Patrick Victor, founder of No Nonsense Forex, and Ben Kennedy, Head of Business Development, ARYA Trading, discuss what it takes to excel in the trading world.
We're joined today by two very special guests with a very special topic. That's very important for all traders. The importance of trading psychology joining me now is bank Kennedy, head of business development at Aria trading and Patrick Victor creator of no nonsense Forex. Those of you watching my recognized Patrick's videos on YouTube.
He has a very popular YouTube channel where he delves into some of these topics in more detail. I definitely recommend you check them out. Gentlemen, welcome to the show. Thank you very much. Thank you. Uh, why don't we start by introducing yourselves to the audience. Let's start with you, Ben. Yeah. So, uh, as you mentioned there, David, I am the head of business development over area trading and area trading.
Really. We focus on the risk and money management, kind of the unsexy side of the industry. Um, but obviously one that, you know, it's kind of overlooked, but the massively essential in any trader's journey to kind of be successful. Um, and we do that through a few different means. One is, um, Outsourcing some of your emotions and secondarily is just kind of having a community where everyone has that same ethos.
Okay, excellent. And Patrick, you have a big following on YouTube. Tell us a bit about yourself, how you got your channels, started your inspiration behind the videos and why it is. You have chosen to use a chess piece to represent yourself today. So I began the channel in 2018 and the whole idea was a couple of things to take a completely different approach to technical analysis, and then focus heavily on the things like money management and trading psychology, which I always felt got ignored for the most part online.
And I began the channel by making videos that didn't have my face on it because I always thought it was distracting when you're trying to learn. You always focused in on the person talking so that. Then as the channel grew so to the man behind the curtain persona, and that's all coming to an end in September when we do our conference.
But I do appreciate you allowing us to carry this on for you and why the chess piece, is there any symbolism behind the chess piece where maybe you just like chess? I actually I'm terrible at chess, but symbolism behind it. It just shows that, you know, If you do things correctly and you follow a good set of rules, anybody can take down, you know, the largest traded market in the world, which is the BoardEx market.
Okay, well, I'm looking forward to the big reveal. It's September. I love to have both of you back on and, uh, lift the curtain, so to speak for now. Let's talk about trading psychology. That is more or less the theme of your research. So let's start with that. What do you mean by trading psychology? There's a lot of different definitions out there.
How would you define it? How would you apply it to your daily life? Let's start with you, Ben. So really the way I view trading psychology is it's pretty much everything. It takes all of the steps in order to actually not just identify a trade, but then be able to execute it and manage it while it's still running.
But, um, it, I mean, it seems as though, although it starts at the very beginning and, you know, Starts with kind of your risk to reward and, and really that, you know, if you're going after a particular asset class, because of the risk to reward, you know, there's, there's often a psychology psychological decision in, you know, why have I chosen this and what do I want?
And, and really, you know, that begins to, uh, begins to manifest further as you begin to, you know, I guess take every step that's needed to, to execute your trades. So really I would say that, um, The, the focus on psychology, the, or the main focus has to be on actually managing the trade that you're currently in.
Um, you know, I'm a, I'm a big believer in kind of outsourcing everything that, uh, that you can, when it comes to actually trading. And, you know, we find that we make money on, you know, on the entry and the exit, so we don't need to constantly be checking. Um, and, and really that's kind of what built the, the ethos and really what led us to then create something where you can, you know, Manually go in.
And I always believe that it's the human who has the power and the knowledge to be able to actually understand where to trade. But it's also, then if you have a, a robot, you then eliminate those emotions that bring us down as humans. Patrick I've taken one psych class in college. And that was the extent of my psychology knowledge.
I don't even remember anything of that class, but I do remember reading that all our decisions in our lives ultimately are driven by emotion. Does that apply to trading? It absolutely applies to trading and I've taken zero psychology courses in my life, but all the same, uh, I, I define money management and trading psychology into kind of two different buckets.
Money management is what you do after you're already in the trade or after you're already in the investment. And the rules you set ahead of time provided you actually do that. Now, even if you do that, the problem comes on the psychology side. Once price is approaching one of those levels, whether it's to the upside or the downside, right.
Most people no longer want to follow those rules, especially if their overall trading is going really well or really poorly, they always want to deviate. And so, uh, that's where trading psychology comes in and really money management and trading psychology. Both is where all the gains lie. It's not in the entries.
So, this is why we focus on this so much more heavy than other channels do, because it's so slept on because it doesn't really get clicks, like, you know, the, the technical analysis and the fundamental analysis do. Um, but it is far more important than either of those two things. Yeah. Well, can you give us an example of how to apply this in actual trading practice?
You brought up a good point, which is that as a trader people often. Said targets stops. Uh, whatever the case may be for themselves and emotions kick in and they deviate from their original objectives. How do you get yourself back on track? Patrick? I'll let you answer first couple ways. You can do it. You can take the automation route.
Um, you can set these things. You can preset these things on your trading platform, uh, more often than not, and the same with your investment platform, um, which I. Do you recommend people do if they feel like they have issues with their psychology, once those levels start to hit, or you can just be really honest with yourself and understand where these problems are coming about and do something to fix them, which I think longterm can really carry you forward into everything you do, not just trading or investing, but just life in general.
So the sooner people get started on this, the better, because it's not an overnight fix. Now you're going to have to make a lot of mistakes. You know, most people don't really even look at their trading psychology until it's too late. Which is unfortunate, but getting a hold of it, um, I think is a lifetime skill and can really be a big boost to your, your longterm investment profile and your trading profile.
Ben, what Patrick just said, can you apply any of that to your life, into your experiences? Yeah, absolutely. I mean, he's, he's a hundred percent correct there. Um, you know, it, it is something that if it's, once you master it, it's, it's something you can apply to every single part of your life. And, and really, you know, my, my view is that, uh, a lot of things can be professionalized and can be systemized.
You know, we, we see it with pretty much all businesses that become successful. They're able to systemize stuff. And I think your trading is exactly the same, you know, to a certain degree. And I think. If you want to try and get yourself out of a rut, just, you know, just as you mentioned that David, one of the best ways is to really just reflect and think, okay.
I personally am going to walk away from the markets. You know, if you are in a, uh, you know, in, uh, to be honest, it's, it's the same for both extreme, positive and negative. But for an example, if you're in a, an extreme, negative, and you're feeling very down, I, I would always say the best thing is take yourself away from the markets.
Wait until your psychology is back under, under control, you know, under your control. And you can then execute, execute your, you know, your own plan. So a lot of people. They are the do or they should have a trading journal. Um, and with this trading journal, that's the, that's the plan that you lay out. And that's the plan that I very much think that, that, that everyone should stick to.
And I think if you do that and you, you kind of walk away when your emotions are either too high or too low, then you should be able to remain fairly stoic. And, uh, and, and therefore hopefully see some gains in the market. Let let's draw on some real life examples. Now I know we've spoken offline about GameStop silver, squeeze, AMC, the reasons, you know, squeezes that, uh, read it.
The wall street Beth's group has been, uh, has been known for and making the headlines. So. Let's put your stuff in this position. Okay. So your, your, let's say your buck game stop at 200 bucks. And, and you know that based on your own analysis, this is that this is a ridiculous valuation, but your emotions have kicked in in you and you want to be a part of this cause and you're holding onto it.
Walk me through the psychology there. Patrick, we'll start with you. Yeah. So at this point, you're probably not going to set any rules as to when you're going to take profit off because you're really just riding the wave. And then who do you follow at this point? At what point are you gonna take money off?
It's like that person who goes down to a blackjack table with 200 bucks. And plays it all the way up to 2000 and then walks away, broke, you know, they didn't have a win limit. Uh, you have a loss limit, which is zero, which is great, I guess. But, uh, you have to set some kind of rules. It's it's just kinda like.
Tulip mania. You know, people are liking a lot of this market conditions and crypto and things like that to tulip mania. A lot of people, not a lot people, but a handful of money made a handful of people, made a lot of money in tulip mania. They were just a few people out there that had the presence of mind to take profit along the way.
And, um, I think if some of the game star people would have done that. And I keep in mind, this was mostly retail traders that jumped in. Most of them wouldn't have taken the loss that they did, but a lot of people came in and when it was too late and they got hurt for it. And I'm actually happy to see that.
I know that sounds crazy. You don't like to see people lose money, but this is a great long-term lesson for people to not enter the market this way. Take a much more intelligent approach next time and realized the mistake you just made. Okay. Uh, two things here. So Patrick, I'll just continue with you. So you said much more intelligent approach.
So first of all, what is this much more intelligent approach? And I'd like to apply this to this term that I've been hearing a lot online and on media, which is the herd mentality, applying it back to GameStop. What do people mean by following the herd? Is that a good thing in trading? Uh, not in this part market climate.
So when you say a more intelligent approach, I would say not using herd mentality on a meme stock that has a super low valuation to it. I think you pretty much did everything wrong. You know, if you entered at a certain point and then, and then didn't manage the trade, you know, you have to have some kind of plan beforehand for every single trade and every single investment you enter and you need to be consistent with it.
And almost nobody has a set of rules. Um, they just, they, they go on pure emotion and speculation, and then once they're in it, they have no idea what to do because they didn't set these rules ahead of time. And that's why no matter where they would've gotten in on game stop, whether it would have been a hundred or at the very top, it would not have mattered.
They would have ended up in the same place. Well, Patrick, I've spoken to some people I know personally who have made quite a bit of money. And, uh, that they think they did something, right? Because obviously they, they were in, they were in the green. A lot of people were in the red now. What, what, what is it?
What is the difference here between the intelligent trader who's made? Right. Trades logical trades versus somebody who got in on game stop and got rich that way through, through, through their herd. Can you, can you walk us through the difference here? Maybe? Like, I don't want to say this, but maybe, maybe they got lucky.
Maybe they didn't because you could also be unlucky. Right? How do you make that differentiation in trading? It's very difficult. It's a fine line. Yeah. I think if they were retail traders, they certainly got lucky. I think most of the people who did make money on GameStop or the people who were part of the Reddit group already that had.
A plan in place that saw the writing on the wall and that had that community around them already to tell them what to do, um, which really helps. Um, but either way, this is not the investment climate to take your cues from. So if you did really well on something like this, that long-term, it's going to be the worst thing that ever happened to you.
I started out in penny stocks and I hit my very first one and it was a 10 X gang. And it completely ruined me for the next five years, because that was my new standard. You th those are the type of games I was chasing and real life doesn't always work that way. The problem is it works that way right now.
So this is the only climate people understand, especially if they're young, which can be a problem too. Yeah. Um, so really I, if, if you won on game stop and you made money, that's great. Um, but please write this off as an anomaly and don't make this a habit. All right, Ben, let's move over to you now. What are your, what were your initial reactions to the GameStop and silver squeeze movements?
If you wanted to call them a movement? So the, the reaction was initially, uh, well, because I think same as everybody, you know, we it's the first time, I think in history that we've really, really seen a huge movement, like this kind of going up against the hedge funds. And I think to a small degree, unfortunately, maybe some of the, um, The retail traders have perhaps overestimated their power to a certain degree.
Um, you know, yes, they can push gang stop up 1700%, but you know, then they moved on to the silver squeeze, just like you mentioned. And, uh, you know, they only moved the market. Oh, it's arguably that it was even them, but the market moves 12% in, in their favor. So I really, I think that for the retail traders, when they come in, you know, They, they feel that as you mentioned, that herd mentality and that really gives them a false, uh, false, uh, feeling of power, you know?
So then they, they feel as though actually we can move the market. We are the market, but perhaps they underestimate the, you know, the, the, the full power of, or, you know, the, the full amount of money really in the market and the people who do move it because they've been moving for thousands of years, but.
The, the question is, you know, all, we really now in the power of some retail traders and, and at the moment, I really don't think so. Um, and I think the people who are feeling that all the people with the say the sunken cost fallacy, you know, where they've, they're in a, any, um, an investment and it's losing money and they don't want to jump out of it.
So I think that's, that's one problem for, for a lot of the retail guys. Okay. Uh, Patrick elect to come back to what you said earlier about your earlier days trading penny stocks and your first 10 X return. I know. How that must feel. I used to trade some options myself, uh, when I was fresh out of college that went well at first and didn't go so well afterward.
A lot of my friends are right now just they're they're, they're, they're putting all their money into one thing. They're going all in on an option. Shane they're going all in on a penny stock and, uh, you know, maybe they don't follow the wall street bets, ethos to the T, but th they, they have a similar mentality.
You should leverage yourself up to your maximum risk. Personal risk tolerance, which usually is like, you know, two, three X margin. And they're just doing a lot of risky trades. Um, you've been through this, you've lived through, this is just a good idea. I mean, some people are making a lot of money. Yeah. I think, you know, the overall answer to that, it's a terrible idea.
And, uh, they don't realize it's a terrible idea because they see it working in other places and they want to emulate that. Uh, but the problem problem is especially long-term, you know, The market is not normally like this. And we, at some point are going to have a return to normalcy. And when I was younger, you know, if you were to get a 10, 15% return year over year on a stock, that was a really great thing.
And that was worth. Investing and that was worth seeking out and what's going to happen to these people that only understand five X, 10 X gains. Once the market calms down again, you know, they're not going to chase things like that, man. They're going to look for extremely speculative investments because they still will be out there.
Um, but the chances of them going up this time are going to be much lower on top of that. At this point in the game, really nobody's paying attention to their downside, especially if their margin traders, that's the last thing they're thinking about. And that defense is really what wins championships.
Long-term being able to mitigate your losses along the way. And so you can just kind of put those gains right back in your pocket, you know, when you get them. Patrick. I like to ask you to help us dissect the psychology of millennial traders as a group. I know it's very difficult to generalize, but just for the sake of simplicity, we'll put them on a group.
So younger, younger traders under the age of, let's say 35, there's this prevalent view that like you said, we should be chasing risk people. My age. I don't like to think about long-term RSPs and, and, uh, you know, putting your money aside on low, low return, maybe low volatility assets. Like I'm not speaking for, for everybody.
There, there are obviously exceptions to this, but the, just the people I know they, they don't have this mentality break down how a younger person thinks. Versus somebody who's near retirement age. Why is it that we think we say to money managers that as your client gets older, you should have a more risk off portfolio.
Not just because they're nearing their income, generally the end of their income generating ages, but also because they, they, they don't, they don't like risk investments anymore. Break down the psychology of age for us. So I'll do my best. It's a bit tough for me because I'm right in between I'm generation X, but, uh, for the millennial crowd, honestly, in the moment, you know, we don't see markets like this come around very often.
I would argue we've never seen a market like this with this much alpha around it. So I guess short-term, I'm not really mad at the whole yellowing into stocks, as long as you're staying away from margin, because that can put you in a hole. You mean your, your trade can go past zero to the downside, uh, which I don't like, but if you stay away from that, when you're young, you can just make the money back.
And as long as you don't have dependents, you can be a little more reckless with it. I know that's fine. And you know, the problem comes after when all of this goes away. You know, where are your expectations now? Are you able to scale down a lot into safer, smarter investments? Most people aren't going to be able to, because this is their only frame of reference.
And that's the thing I really worry about going forward. Then let's talk about a case study that you've prepared for us to apply what we've discussed, the theories of trading psychology and, uh, walk us through this case why it's relevant and what people can learn from it. Yeah, absolutely. So there's a case study from, uh, it was actually published by MIT and, um, it was saying that in the height of the Goldman Sachs manual trading, you know, during the year two thousands, They had 600 manual traders, you know, every single day, looking at the markets, analyzing executing trades and obviously, you know, in hopefully making money.
Um, what they then proceeded to do was to fire 598 of those in favor of keeping just two, but then hiring 200 computer engineers. Um, now I, I think, you know, really what, what we should be able to take away from that is that with. That many different traders, you have 600 different mentalities, you've got 600 different opinions.
You've got all these, you know, there will be a lot of people agreeing, but there will also be some spanners in the works. And you know, those people who are actually costing some doubt, shall we say, um, now I'm assuming they had to, you know, who, who were the best. But I think the key reason why they were doing this is, uh, is again to.
To try and streamline their whole process. So to be able to make sure that they say, okay, well, you know, we have just two traders, but what are these guys going to be doing? You know, if we can allow them to focus on the key areas of their, of their trading, which obviously is understanding which way the market's going, which particular asset they want to be trading.
And then where are they going to get in and where are they going to get out? Then they don't have to be kind of manually checking on the trades all the time. They don't have to be manually moving stop-losses, you know, I mean, it's much more relevant for us retail guys, you know, checking and saying, okay, well, am I gonna have a quick look at my trade four times a day, five times a day?
You know, am I going to have to move my stock manually? Um, and I think, you know, outsourcing those, should we say those laborious parts, which, you know, one take up a bit of time, but two. Really kind of bring that doubt into your mind because I personally have seen in the markets, there's a general rule of thumb, where more time that you look at the markets and you stare at the screen, I think then that leads into, you know, uh, more doubts and perhaps more action that doesn't fall into your plan.
I think that's really the key thing here. David is, you know, there's action that doesn't fall into your plan. Okay. Uh, Patrick, I like to go back to you and apply this to real asset classes. Now, today, crypto in particular, this is, this is something that the younger generations have really picked up on. How is it that a brand new asset class cryptocurrencies as a whole, not just Bitcoin.
Has, you know, it's, it's been incepted relatively recently in the history of all asset classes, but it's managed to attract the majority of millennial traders, at least their interests. How is it able to do that? Oh, it's captured our imagination for one, um, you know, all of the possibilities and all the directions, you can go with it.
Not just so much from Bitcoin and the store of value that it gives you, but everything blockchain related, you know, this could very well be web 3.0, now the difference between 3.0 and 2.0 is back in the 2.0 days. We didn't have the ability to talk to each other. Like we do now. With social media. So we have the chance to get in early, or at least we feel like we do.
So this is big. This is kind of what we spoke about before. You know, this is a once in a century type opportunity, more often than not, I would say so, you know, might as well jump into it while you can. Um, you know, the, where everything else that we're talking about comes into play is just, you know, Taking profit along the way, which is very unpopular to say I put on my blog, how I had taken a quarter of my position out already on Bitcoin and light coin.
Um, so I have my initial investment back, which means I can't lose at this point. Now, if it 10 X is from here, will I regret it? No, because you know, good money management. It's sounds crazy to say right now. But it's going to carry you through throughout your entire trading career. You just have to get regret out of the way and just follow your rules.
Um, but it just seems insane to so many people to take profit, any kind of profit right now, but that's what you have to do. We hear this a lot in relation to, well, not, not just for crypto, but you know, everything that has gone up a lot, that the FOMO tray fear of missing out. Walk us through the trading psychology there.
I see my friends making a lot of money in the crypto space. I want to jump in because they are too, even though block Bitcoin's already, you know, sort past $50,000. W w what is the psychology behind a FOMO trade? Well, it's in the definition, right? It's, it's fear of passing up on this. You know, what a lot of people think is a once in a lifetime opportunity and it very well might be, I'm not really mad at FOMO phone does have a place sometimes.
If you really think, and if you follow, you know, the experts out there that say this, thing's going to, Bitcoin's going to 500,000 or a million and you want to get in now because you haven't before then do it. Uh, I'm okay with that. It's, uh, it all just comes down to what you do after you've put your money down, you know, are you intelligent with it or are you just let it ride?
No matter how high or how low it goes. There's a lot of people who FOMO it in at 15,000 Bitcoin and 20,000 Bitcoin. And they're doing really well. Um, it all just depends on the person and it depends even more, you know what you do once you've already put your money in the trade. So when you exit your blockchain positions, what were your emotions?
How did you feel. I felt great because now I can't lose, you know, as a, as a Forex trader, we're constantly looking out for our downside. Cause if you can just manage to do that and then over time, you're going to be fine. And so that's just how I'm wired to think. And it's served me really well for now. So now I'm just, I'm trading free shares.
Um, for lack of a better term. And that's a great feeling, even if I'm cannibalizing a little bit of my gains down the road. I'm okay with that. I have one final question for the both of you guys. So what this ties into our final theme of our discussion, which is getting your psychology back in line. I have some friends who are frustrated at missing, out on returns, and I tell them, look, it's okay, you've you missed out.
At least you didn't lose money. And tell me why it is that it hurts us more to miss out on an opportunity. Psycho psychologically speaking, then it is to maybe get in and lose five, 10, 15%. I'll start with you, Patrick. Oh, for me? Yeah, because you always think of what might have been. Um, if you had just pulled the trigger and you're mad at yourself for not being more aggressive.
Um, but I would argue that you have to get comfortable with that because. As we've talked about before those gains, aren't always going to be there and you're going to pass up on some really bad opportunities down the road as well. I got it. If I just look back to all of the buy and hold trades that I passed on and have gone crazy, I'd be a multi multi-millionaire by now.
That's just not how it goes. You know, it's, it's so hard to explain to somebody that you have to take a long-term approach when we're in an environment like this, and just understand that you're gonna miss a lot of trades. And that's just how it's going to go and just focus on the trades you have and manage them as, as well as you can possibly manage them.
And there's always going to be new opportunities coming around. They might not look like this. Um, but some are gonna have a lot of alpha behind it. Some are not, but if you can just keep this train going and just do it for the next 20, 30, 40 years, you're going to be really, really well off. If you can.
Just, I remember that. I know that's not what people want to hear all the time. Um, but that's the only way long-term you can really look at it. Okay. And Ben, I'll let you close. Yeah, I, I feel like, uh, just as humans, we were fairly envious creatures and I think that's where the whole FOMO psychology comes from is, um, you know, we don't miss it.
We don't. We don't feel upset by the opportunities we don't know about. You know, so a lot of people didn't know about Bitcoin when it had its rally up to 17, 18,000. Um, and so they don't, you know, they didn't really care, especially they didn't care for two years or three years until it's actually, you know, Moved into this current cycle.
Um, and I feel like, you know, once someone sees in their immediate pack around them, it's a little bit primeval. Everyone wants to be the King of the castle, don't they? So when they see other people getting ahead, I think that's then a, a bit of a trigger. Um, but, but I would always say like, if you, if you can control the elements in your immediate environment and you're, you're happy with your particular structure that you have in place, then I think that, you know, if you can.
Cut yourself at 2% loss per day. For example, if you do have a bad day, walk away, maybe cap it at 10% per week, whatever the case may be. Um, and you know, you don't let those winds go to your, you know, go to your head and you don't let the losses go to your hearts. Then I don't really think you can be, you know, you can be too upset as long as you follow your own plan and you're not envious of those around you then, um, then you should be able to have that psychology well in check.
Uh, and you know, as Patrick said, you know, turn yourself into a multimillionaire, but. Over the long term. All right, gentlemen, that was very educational, very enlightening. I'm sure a lot of people will find that useful. I want to thank you both so much for coming on the show today and I hope I can, uh, I can speak with you both again at some point in the future soon and Patrick, I'm looking forward to the reveal in September.
Hopefully we'll speak then as well. Thank you both, David. Yeah. Thank you. And thank you for watching Kitco news. I'm David Lin. Stay tuned for more.