In this week’s episode I catch up with trader and trading coach Nikolai Dimitrov.
With experiences as a concert pianist, a semi professional bodybuilder, and a fine finish carpentry craftsman, and an educational background in physics, math, and in business and management – Nikolai brings a unique set of experiences and perspectives to trading.
What I think you’ll appreciate from our conversation is Nikolai’s craftsman like work ethic when it comes to trading.This is a trait and quality that I think all of us could benefit from and practice.
If I could distill the belief down it would this idea of practicing quality as a way of life – Quality over Quantity.
In the episode you’ll hear us talk about the foundations for peak performance, the importance of confidence, what it takes to go from good to great. It’s a show chalked full of big ideas, so get out your pen and paper.
In the episode you’ll hear us talk about some of these big ideas –
- The importance of learning to
understand the behavioral context behind charts and patterns
- The importance of creating
- Understanding that when you’
re wrong it’s just feedback – it’s simply adding up to another scenario that is more compelling
- How successful traders frame
losses in a constructive way and recover quickly
- How the bottleneck to
performance is sometimes the quality of the focus you bring
- Why the only emotion traders
should experience is confidence
- How confidence is detached
- Learning to love a small loss
- How fear and doubt is the
result of a lack of anticipation
On being wrong –
When I’m wrong it’s simply adding up to another scenario that is more compelling.
On the importance of understanding your system and method –
If you don’t know your tools well, you’re not going to trust your work.
[03:55] Houston: Hello Nikolai, welcome to the show.
[03:55] Nikolai: Houston, thanks for having me, it’s good to be here
[04:04] Houston: Absolutely. We’re gonna get more into Nikolai, his background and why I brought him onto the show in just a few moments but first off, I just want to give a little bit of background on Nikolai. Nikolai is a trader, a trading coach and someone I consider a friend and I’ve been really excited to get him on the show because I think he has some really great insights that he can share with all us around trading and a lot of other interesting topics. So, I’ve always been impressed by Nikolai and I’ll get Nikolai to give his background in a few moments but I think Nikolai is one of those rare breeds where he kinda walks the talk and brings a lot of depth so why don’t we get started. So, Nikolai, why don’t you share with us a bit of your background – tell us who you are maybe and tell us about your trading background and your approach to trading?
[04:48] Nikolai: Houston, thank you for the much too generous introduction. My names is Nikolai, I’m from Bulgaria and I live in the US for about ten years now, I’m a professional trader and a Senior Instructor with the Day Trading Academy – I work on a few projects with them; I’ve been trading for about – well it depends on where you draw the line – but I’ve been interested in trading for at least ten years; where I came from in Eastern Europe there really was almost no opportunities to really even get acquainted with trading so I really started somewhere in the mid- 90’s with, I was trading really physical currencies pretty much trying to between them or just follow how the currencies relate to each other and pretty much by feel try to go back and forth and of course, I had my ups and down with that back then was the first time in my life I had a little bit of money on the side that I wanted to do something with; then one of the pivotal moments with trading in the beginning was when I was in University – I got a Management Degree and while I was in school there was a very interesting guest speaker who came, he used to work as a broker or a runner somewhere on Wall Street – right down on the floor; and he made a very interesting presentation of the psychology and the interaction between big institutional traders and you know and the floor and that really spiked my interest. I started to pretty much dig for information – online mostly and then eventually I moved to the US full-time which was in 2007 and her of course, the opportunities for trading education are significant so I did some research and I got some courses and I started initially with options and a combination of lack of preparation and maybe even a little bit of arrogance and some bad timings because 2008 was when I started to put real cash on the line which was historically everybody knows (Houston: a tough time) some of the worst times possible; or the best times if you know what you’re doing (Houston: right). Back then, I didn’t quite know what I was doing and having been successful in everything else before in my life – I’ve been a concert pianist, I’ve done body building kinda at a semi-professional level, I always did great in school and you know I really expected trading to be just another success and as most traders probably have figured out themselves that’s not the case especially in the beginning most people realize that it is much more difficult than it appears to be and so did I. I lost a lot of money of course, in the beginning but the journey seemed to be mostly up – there were some downs along the way and I must say I have been consistently profitable for just over three years now.
[07:58] Houston: Thank you so much for sharing that – that’s a lot of insights there; so what do you think, is it something like – in terms of your journey – is it something, when you finally cross that threshold towards being consistently successful – was it something you needed to learn or you had to unlearn to make that leap?
[08:22] Nikolai: Well, definitely it has been some of both but probably the most crucial element or probably the hardest one that’s why I realize it’s the most crucial one is to – when I learned to totally detach from the outcome and being wrong is a normal event in the market and for that matter I should expect it – roughly about 50% of the time, and of course seasoned traders know the industry average or of course their own performance; it’s somewhat hard to be consistently right much above 50% so it’s really the money in this business from my perspective at least I believe is made in the quality of the management of the risk that is assumed. So really learning to detach from the outcome and not use losing trades or even mistakes as really a judgment on my character or worth as a trader and really to accept that on this journey which I relatively early on realized was going to be somewhat long, I will make mistakes, I will pay for them myself and I will have to learn from them or give up.
[09:04] Houston: That’s so well put, man; that’s so well put …
[09:06] Nikolai: And I just want to add that quitting was never really an option for me because I never really felt quite as interested in anything before I really came across trading and I know it might sound like a cliché but I really only wanted to do that. I just never knew that I wanted to do trading before I only got exposed to it so once I did I really like commit to it and even though it’s been a rough journey, I’ve never really considered quitting trading.
[10:20] Houston: Yeah, sounds like you have a very firm set of beliefs in terms of what you wanna do and kind of what your goals are; let me just back up a bit and we’ll talk about how you trade in a few moments but I thought that one idea that you shared was so important around that little distinction between just how we can judge ourselves and our performance and how it reflects perhaps on our self worth. I think traders always get tripped up on that but I though the distinction was very, very powerful because that’s basically saying I screwed up on a trade versus saying I’m a screw up because I can’t trade – so I think that’s a very powerful distinction that you made earlier on so thank you for sharing that.
[10:02] Nikolai: Indeed, yes; it’s mistakes – trading is one of the hardest things to undertake and mistakes are to be expected and for that matter if we never make any then we’d either be extremely talented which I dint personally believe there is talent to be trader or you would be extremely lucky which is not a realistic consistent occurrence so yes, there’s a big difference between really using your performance, your numbers as feedback and using them as a judgment on your character; the second one being destructive and very detrimental to the process of being a consistently profitable trader.
 Houston: Right, yeah absolutely. So, you said something in there – you don’t think that talent is overrated then as it pertains to learning how to trade or is it that talent in the beginning can only take you so far, what are your thoughts around that?
[11:59] Nikolai: Well, you mentioned in the beginning that I have a firm set of beliefs and I believe I reached some milestones as beliefs but I gotta tell you that that wasn’t always the case and this relates to the question you’re asking ; well, I used to believe that there was such a thing as trading talent but especially over the last few years since I’ve been coaching I realize that rally it’s a set of – there’s a skill set, there’s a technical skill set that everyone has to pass though and there’s a mindset to be eventually be attached to that skill set so that performance activity really clicks into place. And I used to believe that some people just had certain traits of character that helps them to be traders but in reality over time I really evolved away from that belief and now I believe that just different people because everybody comes from a different background to trading and I believe that the people who do better than others in the beginning, what people really tend to call talent is these rare individuals simply have developed some of these quality, some of these elements of the skill set or the mindset somewhere else doing something else and when they come to the trading arena they just happen to successfully and rapidly be able to transfer these skills and I’m really talking, not only for example, spatial dimension recognition but also trader’s patience, discipline and anticipation and you’re able to see events a few steps in advance and plan accordingly. These are really the things that help traders excel and some people just come better prepared from other disciplines, for example I’ve worked with professional athletes and also I’ve observed the success of people with backgrounds in technical occupations and of course, programmers as well. Currently, I’m working with an ex-professional poker player and I’m sure most of your listeners are familiar with how poker and trading are really related and yeah, it’s been quite a journey and evolving my beliefs and I’ve got to say that coaching has been really crucial to helping me realize how some of these pieces come together for traders.
[14:39] Houston: Yeah, sounds like you’ve just having the chance to coach other traders, you’re getting the chance to kind of integrate all these different ideas and make them into a very solid base of knowledge; so what exactly, what skills do you think transfer that if you pick someone from a profession – what are the most important skills that you think can transfer over to the trading – the trading game and also like you said, there are some technical skills in terms of your ability to focus and pattern recognition, anything else?
[15:11] Nikolai: Yes, the ability to focus, I would say patience is a very big one; also the ability to quickly recover from say in sport it might be from a mistake, in trading it might be from a mistake as well but mostly from the emotional impact of a loss or a mistake. I’d say also the ability to stick to the plan and understand the fine balance between adapting and improvising basically to objective information and actually falling for a bias or really becoming emotional and reactive and of course, while the former is very useful the latter is very detrimental but the line between them is very fine and most traders in the beginning were not able to really develop this filter for themselves, to monitor themselves and realize when they are doing one and having nice healthy adaptation to really what the market is offering them and then at other times, just sticking to the plan or really improvising can wait – that’s very unhealthy, hiding bias or to be flexible etc.
[15:37] Houston: Yeah. And maybe we can talk about that some more in a few moments but let’s change gears for a quick second and maybe you can describe for us what is your approach to trading now? How do you see the market process, what is your philosophy on the markets and how do you approach it?
[16:14] Nikolai: Well, I do mostly day trading, I do trade the futures market. I day trade to the index – the ES, S&P, the e-mini 500 futures; however, I also do some swing trading on a number of futures markets including the bonds and note, the currencies, the oil market . I believe the market is defined by logic almost all the time with the exception of markets that are rare, that are very thinly traded – they are not liquid enough and there’s very limited patience. My approach has – the best way to explain it is I’m looking for, I’m looking to understand how different groups of traders are positioning themselves and I’m trying to create really a framework of who is playing where and therefore expecting what; because people exit the market for various reasons – rational or irrational but everybody enters with the same intention to capture the moment at which the market is going to really move in the direction which they expect so everybody enters with expectations directionally and what I’m really looking for, I guess the way to summarize my approach is I’m looking for people to get hooked. Of course, not literally but emotionally, I’m looking for complacency or really, I’m looking for complacency to turn into fear or panic or disillusionment and I believe that the market can be looked at from the perspective of Newtonian physics that there’s action in reaction and when you learn to recognize certain structures or patterns; I probably should have started by saying that I trade entirely technically – I trade only from charts so there’s a lot of spatial recognition and when you learn to recognize certain structures and patterns and to really translate the language behind them because at the end of the day, everybody’s trading other people whether in the form of a discretionary trader or mechanized systems but you’ve got to understand that what you see on the chart is just the graphical coding of crowd behavior – of other people’s expectation of how price will move overtime and when you learn to really put that in a behavioral context – it was one of the turning points for me when I learnt to see the groups of traders and their expectations on the charts rather than just pivots (Houston: just patterns) and highs and lows and yeah and lines and really understanding the behavioral context behind this.
[19:12] Houston: So, by understanding that behavioral context does that give you more beliefs around your set-ups and your trades, how does that behavioral understanding help with your trading do you think?
[20:05] Nikolai: Well, it helps me really to re-frame what for example, being wrong means. If you start with the premise that there is always certain logic behind the combined sentiment, behind the market’s movement then you’d understand that when you’re wrong this is just information – the feedback loop, the market – the price action is telling you that you’re committing to a premise that is breaking and therefore when I’m wrong I’m simply adding up that new information to the picture and I usually have another scenario that becomes much more compelling therefore I believe that’s important for every trader to re-frame losses or mistakes in a constructive way so that they are able to use them as information because that leads to a number of positive adaptations being able to, as already mentioned to quickly recover, you know on the spot – mostly psychologically, mostly mentally too – really wipe the slate clean and re-frame and get back in the game and pull the plan. That is something that professional athletes really do much better than aspiring traders without that background, so that is really where I feel my edge is that I’m looking to understand the framed market, to understand what is going on and then have a very practical adaptation to that by defining where and how to assume the risk and then of course that’s a very – that’s a topic we can talk about in extent. I don’t know how detailed you wanna get here, do you wanna talk about some of the tools or …
[21:13] Houston: Maybe we’ll talk about them later; maybe we’ll just stay at this level for a second. So, I’m curious, so most people when they hear of people day trading, you know, they imagine that a day trader is someone who sits in front of the screens from the moment the market opens till the moment the market closes so, what does your average trade day look like? Are you in front of the screens all day long or what is your typical trading day look like?
[22:16] Nikolai: Well, that would be an ideal case scenario – I love trading. I can easily sit in front of the screen all day fascinated by the price action; however, personally I don’t have the luxury of having so much time for my trading cause I’m working on other projects as well – my coaching take a significant amount of my time as well but when I do have the opportunity to trade I always try to sit down at least half hour before the regular session opens. I firmly refuse to trade when I’m not prepared and haven’t done my really what you might call my pre-market routine; I like to be prepared, for me, it’s never really a matter of just sitting down and slapping something together . If I don’t have the time, I just don’t commit to it – I like to trade for really three to four hours so that I’m able to really set up and go into and of course it depends on the tools that I will be using on a certain market but I usually try to get into the flow with the market for a while, be able to frame it and then of course with the tools that I’m using define some opportunities and see what the market brings.
[22:32] Houston: Nice, so what time do you usually finish? Do you have a typical end day that you wrap up or do you just do that based upon other commitments and perhaps how well you’re doing that day. Do you have any goals like that or do you just keep on trading till your time is up?
[23:11] Nikolai: I don’t believe in placing artificial ceilings on your results, some days I believe traders should trade a lot and on other days, there’s very little to be done so, it really depends on the market and of course it depends on my personal input as the trader. If I’m not doing well, of course there’s of course stops in place and of course there’s a cut-off and if I’ve reached that cut-off for the day but also the bottleneck many times is the quality of the focus that I am bringing to the table. If I see that I am making mistakes and I am getting distracted and not being able to bring the level of focus that I know I have to and I usually do, I have learnt to walk away without there being judgment on my performance or anything like that; for me to at this point to please them and of course that was a big challenge overtime to get to this point; but at this point I can safely say it is in place and I realize that if I’m not there in my best shape in terms of focus – mentally and emotionally even physically, there is no point in just swinging the bat when you’re actually missing because my capital is good on a day when I’m in top shape and the market’s moving well as it is on any other not so compelling day so (Houston: Right ), I’ve learnt to pick my spots and also trade around my performance level.
[25:25] Houston: That’s fascinating. So, can you share your pre-morning routine; do you have a – is it a set ritual that you have that you try to follow or is it more of here’s a checklist of things I need to do before I start my trading day?
[25:38] Nikolai: Well, I’m a morning person so I always get up pretty earlier and of course it depends on which time-zone I’m in because I happen to travel all the time but when I’m in my office here in my headquarters, I trade morning sessions and I’m on the East Coast so I like to get up very early and of course I wake up, stretch…
[25:58] Houston: What time is early?
[26:00] Nikolai: Well, I rarely get up after 6 o clock; the market opens at [9:30]EST so there’s a lot of things that I can cover before I sit down to trade as well but I always like to have a nice solid breakfast. I don’t drink coffee but I do like to stretch and make sure that I am physically very comfortable because, I don’t know how other people see it but for me my level of performance is very intimately related to my physical well-being. If I’m sleep deprived or hungry or tired or in pain or in any other way physically inconvenienced I know that the chances that I will make a mistake or perform will be significant so I try to do everything to really make sure that I’m comfortable when I sit down so I’m able to focus. I also like to really in the beginning – I always like to start with a clean chart and just sit down and look at the market and then to trade and really for about 10 – 15 minutes, I like to just look at prices without even touching the inputs – the mastery or anything. I like to just get in and observe how the market is plotting and just get into the rhythm of it and then of course I start to add a couple of things in terms of framing because I trade mostly from naked charts. I don’t use a lot of indicators or whatever I put on the chart is mostly straight lines and something that a fifth grader can really draw on the chart and that’s pretty much it and of course, sometimes I do trade before the market opens at [9:30], however, the majority of my executions are in the regular session. I’m also a big believer of taking breaks because people get tired and when they get tired, they do make mistakes so that’s pretty much it.
[27:56] Houston: And in terms of the breaks, is it something that you try to take a break every half hour or just when there’s a lull, what’s your ideas on that?
[28:05] Nikolai: Of course it depend s on the volatility of the market; if it’s very dynamic I probably would stay glued to it most of the times, however, most of the times Houston I have developed a bit of a filter to constantly monitor myself both physically and emotionally and that’s really, I’ve learnt to trust these filters and I check myself ever so often. I used to time myself, I used t have an alarm that was ringing very half an hour so that I can get into the habit of how do I feel – mentally, physically and then of course I had to detach some of the technical things that I’m trying to do so every time when the alarm rings I was going back to making sure that I’m checking my contacts and you know looking for certain things that I tend to miss and that really made a significant improvement in my trading:
[28:57] Houston: Yeah, I think you shared that with me a while back and I was like “yeah” I was very impressed that you were so detailed and focused on these little things that I could see right away when you shared that with me I saw how impactful that can be by just number one, just having a good feeling in terms of how you are feeling – sensations, emotions and thoughts – like you said if there are things going on that you’re missing , just using that maybe 30 minutes reminder to kinda reframe and re-focus again so, yeah very powerful.
[29:24] Nikolai: It’s very, very important; I hope that your listeners understand how crucial it is to overtime pay attention to these elements of trading because it is a performance process and I’m a firm believer that there is no really secret trading intellectually other than really learning to probably use your tools but you know also paying attention to mastering yourself.
[25:56]Houston: Yeah; and so the exercise that Nikolai kinda talked about – I’ll just summarize it for the folks who haven’t heard it before and I think a previous guest on here Rich Friesen who has a similar exercise but think about this every thirty minutes, maybe set an alarm or timer and when the alarm rings just check in with yourself, you know and Richard Freisen calls it the SET approach: Sensations – so how do you physically feel? Emotions – that’s the E in SET, how are you feeling and then your Thoughts – how are your thoughts. Are your thoughts conducive, are they positive or negative and just begin to track that overtime and you will probably get to a better place. It’s not a race or a contest you know try to know it out every single time just try to be honest with who you are and maybe try to raise it up one level if you can.
[30:41] Nikolai: Yeah, I definitely agree that everybody should have a routine and for different people, different things work and the framework you just described is a very good input.
[30:49] Houston: And especially for someone who is just starting out and who hasn’t quite gotten the feel for how they are doing the trading day yet and they’re a little bit unconscious about that then this little if to help you become a little more aware, a little bit more mindful. So zipping down one level – so tell us a little bit more about your trading so, you said you traded pre-dominantly futures; can you tell us how many trades do you typically take in a day. Is there an average or it just depends on the amount of action or the opportunities that present themselves?
[31:17] Nikolai: It definitely depends on the volatility and I never really limit myself although there was a point in my development when I had to because as many traders I had swings in my behavior between being very considerate and very scared of the market and episodes which I have been very reactive, borderline reckless so but it really depends on what mattered I have learnt to really adapt in the healthiest of way I wanna believe to what the market offers – the average holding time – well the average doesn’t bring a lot of information but it’s probably between 5 -10 minutes. Some positions I do hold longer, other one I’m in and out if I’m trading very close to the bone; so it really depends on the price action and I have in the past traded also options and dabbled with the stock market but I do believe that the futures market and some forex markets as well are where my edge is.
[32:37] Houston: Speaking of edge – so what do you – you talked about this a little already. What do you think you bring to the table that’s unique but we hear a lot about that, I guess the idea of someone who needs to have their own unique edges, do you believe that and if so what do you think are your unique edges and they don’t have to relate to trading but what are you bringing to the table that’s unique, yourself?
[33:01] Nikolai: Well, I don’t necessarily say that they are unique for that matter they’re certainly not but I’d say that patience and of course a positive attitude is something that I really rely on and I believe is part of my trading edge; I’ve learnt to really wait for the right moment and I actually got to say that over time I learnt to instead of fret over what the market’s gonna do to really enjoy stalking the way the opportunity is gonna set up.
[33:36] Houston: I like that.
[33:37] Nikolai: Also, a little bit more practically, I always gain at a good price like if I don’t get the market to offer me what I’m looking for I simply walk away, I’m not interested so that of course is part of a pretty fine risk management plan or the parameters I am looking for, so I never really assume the risk in a situation in which I am not very clear on what is the reward and what is really the expectation with which I am getting into the market. Furthermore, I am a big proponent of really working with scenarios, I really- there might be something to expect from the market, but I believe the corner stone of really professional trading is flexibility and as part of that I always try to anticipate various scenarios for development, so I am patient and if I see a setup I will enter, but I always assume that I might be wrong and therefore I try to prepare myself for those alternatives. If I don’t see the development I expect, how it is going to look like, is it going to offer me another opportunity and of course I try to define this parameter so that when the market does something instead of like many inexperience traders reacting to it and becoming emotional, because both winners and winning can losing trade can trigger emotions and either side is really preferable, I believe the only emotion the trader should experience is confidence and also confidence I believe at least the way I feel it is I describe it as detached curiosity. I like to observe the market and really, I love the market so for me it is fascinating to watch the movement and how the price patterns for, but at the same time I never really feel compel to participate, so that is the detached part, I really don’t feel compelled that I have to be in the trade I am missing come over or I just miss the trader today these are really fallacies that I believe as traders get more experience they learn to overcome and then the other part is the risk management that I can’t possibly over state the importance of always having hard stops and knowing exactly what point you are wrong and you have to take the lost and admit the situation. I believe that is one of the most difficult aspect that aspiring traders struggle with and it is managing to frame what a stop out or a loss mean for them, so that it actually bring something constructive to the table rather than negative emotions as disruptive focus.
[36:31] Houston: So talk a little more about that so how do you reframe that, so most people would say oh I got stop out I feel like shit, because I wanted to make money. How do you reframe that, walk us through instead of it been a negative assessment of your character or who you are, what should it mean or what can it mean?
[36:08] Nikolai: Well the way I approach the market I believe that loss is a re-information and of course when you get stop out you properly define your planning in your trader, your particular situation that when you actually the market hits your stop you got to admit that you are wrong and your feedback loop which is never wrong to the price action is ever right, it telling you that you are on the wrong side of the market, so do I look at a loss as just add up to the information that I have, so it usually make the next premise or the next decision that much easier because like I said if you are working with scenarios, when one if it fails then the alternative one gains compellingness. (Houston: right)So in this was also I learn to expect that I will be wrong on average about 50% of the time, so some way along my journey as a trader now I remember this from him he said, I have learn to love a small loss so really when I get stop out its really no big deal for me, it’s usually well, alright I am wrong. What that mean and where is the next opportunity for me and of course that connect to knowing your tools very well, because if you don’t know your tools well you’re not going to trust your work. When you don’t trust your work it is going to be hard to manifest confidence and what I already mentioned, confidence is the only emotion you should be striving to experience and that is very rarely the case in the beginning for traders
[38:34] Houston: Right, yeah, I think like you said, it could probably fluctuate between been under confident and been over confident.
[38:41] Nikolai: Yes, and I believe that at some point I might have even said that to you that when your confidence doesn’t match your skill level you tend to underperform if your confidence is lower and you tend to get reckless and just do way too aggressive stuff when your confidence is really higher than your skill level. So it is very important to be humble and also brutally honest with what you know, what you don’t, not only particularly in what you are looking at the moment from the market, but also about yourself, like what are the tools you use, do you know how to use them, do you know the situations which you want to use them etc… because otherwise it just snowballs the wrong way very, very quickly.
[39:29] Houston: Sure and I think that idea of having these mental constructs or these scenarios are so important cause I think the one thing I took away from that, you said there is as oppose to having an emotion, let’s say you stopped out and an emotion appears and you become reactive and that turns into a crowd trade, but having the scenarios laid out ahead of time, these probabilities that could happen, then you are expressing yourself differently, so when you enter your next trade it’s not because you’re now feeling reactive like you need to participate that you need to make your money back here you kind of spent that bit of time planning some possibilities and then you are simply expressing the trade, because you have given it some thought versus of kind of jumping in because you feel compelled like you need to.
[40:14] Nikolai: Indeed I believe that professional traders – if you zoom out a little bit and look at it – they get paid for anticipating the market, now some people might be tempted to believe that their job is to try to call the immediate future when reality anticipation is really about drawing possible scenarios and really deciding what you want to do about each one of them, because really the fear and the doubts, I believe they are the products of lack of anticipation and fear and doubt they are really detrimental trading almost every un-seasoned trader struggles with and maybe very many seasoned over they struggle with some form of fear, whether it is a fear of losing or the fear of missing an opportunity and when you know exactly what the market can offer you, because you have already done the crunch work it’s much easier to be sharp and to execute your decisions. Of course you should, anticipation also goes to, it kinds of connect to flexibility you always got to assume that potentially you could be wrong and if you are what does that mean and does that offer you any other opportunity, because most traders really react to their loses because the pain of losing money really compels them to want to do something to make it back and that usually leads to deviating from the plan and not been prepared, because the market very rarely offers opportunities exactly one after the other unless your time frame or plan calls for it. So you got to be prepared and the way to prepare yourself – I am a big proponent – and I demand this of all my private students to talk to themselves out loud at least in the beginning and constantly ask themselves the question that are the most uncomfortable ones like what I am ignoring right now, where is my stopping, why if the market does something else what are my intentions and this really keeps you grounded into a very practically technical contest and also keeps your I believe emotions in check, so you can maintain this frame of mind which is conducive to trading.
[42:41] Houston: Yeah and so what we are on the topic of emotions, so it sounds like one way to manage our emotions over trading that you’re advocating is that we remove some of the uncertainty by having these senarios layed out ahead of time. Any other ideas around managing emotions that arise from trading?
[43:01] Nikolai: I belive good habits are a great idea, so habits take repetition and by good habits I mean being in the habit of checking yourself, the checklist which you mentioned earlier, the template, also the habit of making sure that physically you are in a good place, you are not tired, you are not bored or uncomfortable or this is really important and habits get instituted by repetition, so emotions are really just another information channel and when people learn to appreciate them as such rather than let them take the wheel or let them really create destructive criticism, it actually becomes very enjoyable in order that they may appear extreme to many people but I used to believe that trading is boring, because it is monotonous, repititive and extremely rigid and disciplined but in reality I have learnt to enjoy that structured routine of really framing the market, making sure I am doing everything that is necessary for me to remain in that optimal state of mind and also be patiently waiting for my moment for my opportunities.
[43:24] Houston: Well said man, so you just talked about getting the best out of yourself there so what are some of the things that you do to get the best out of yourself. I know you are deep into fitness, I know last time we spoke you were getting huge, you were getting swell, what else you do to get the best out of yourself? Fitness or anything else?
[44:41] Nikolai: Yeah, I believe that been in good shape at least for me is very important. Trading is a performance activity and I believe in order to get the best out of yourself; for me the secret is to balance life, for me that has never been easy, because I tend to really enjoy and like to get into extremes for example at some point in my life I was so dedicated to trading that I was literally ignoring all other aspects and that’s really not the best recipe, for me sport is very important, having time to go out and connect with nature as well, I am also a bit of a compulsive reader – that’s another part of my extreme personality, so I always like to read and even learn new things. I enjoy also a good story, whether it is a book or a movie, so I believe that in order to perform at a hundred percent, you should also learn to relax a hundred percent as well and that is really when I achieve really the highest quality focus is when I know that I am rested and I have relax and I have done things to balance myself out, socially, physically and really when I sit down many times I believe that trading almost happens effortlessly, so that relates to something else you probably want to touch on how to remove your, I believe you mentioned that in the beginning, that you have to many times remove yourself so that trading can happen rather than trying to necessarily add up all these things you know what they say that something becomes perfect not when there is nothing else to add, but when there is nothing else to subtract.
[45:36] Houston: Right, that’s beautiful and so around your performance, then is it and I think it is such an important thing you said there, because I think in our go, go, go society it’s hard for a lot of people to recognize that down time can be productive. So what do you prioritize? Do you prioritize getting a lot of rest? Is that a priority of yours, you prioritize just getting time away from the screens, or just getting a certain amount of physical activity every week, do you have a priority around that or just that you are trying to find balance and get a bunch of that stuff in?
[47:10] Nikolai: Yes, I got to say that sleep is very important for me, I really, like the quality of my performance really goes down when I am sleep deprived that’s why I always make sure when I am going to trade and especially trade long, I get adequate amount of sleep and of course the rest of the aspects of my life they kind of fell together and they synergize with each other when I am really going after some physical goals like you mentioned earlier, that kind of require that rest as well, so I got to say that between staying in good shape and have a diet and spending enough time behind the screen trading, coaching and really doing some of the other things I do. That absorbs the majority of my waking time and that is something I believe all traders should take a very hard look at and really examine from a very purely numerical perspective, how much time they are spending and how does it contribute their priorities, because I have seen many promising traders fail because they just fail to realize that they are not putting the time due to the things that are important whether for some it’s the amount of time they take preparing for a trading day, for others it is actually doing the work overtime to, spending the time to do the work to get better at your craft which for us is trading and for yet others it is just swinging out of balance with taking a break or relaxing, really spending more time for recreation, which is very necessary for you to perform consistently on a high level.
[48:57] Houston: Yeah, well said man, well said. So where do you find that? You just talked about new traders that sometimes they’re not doing maybe what’s required and have the structure in place to become successful where do you think a lot of new traders or even traders who have been trading for awhile, where do they get tripped up if they are not where they should be, where do they – are there complacencies – where do they get tripped up and are getting stuck?
[49:23] Nikolai: Well, other than the already mentioned problems with time management, I have noticed that most people who come to trading or even some that has been in the arena for awhile, it is the lack of flexibility that really kills many people, because people come from all different backgrounds and trading is very, it requires really a set of beliefs in a skill set that is very different from what people might bring to the table, from other aspects of life, so really that lack of flexibility and perspective, really the lack of really looking at not only what to do, but how you are doing things and really humbling yourself and think well maybe I should learn to do things in a different way in order to achieve my goals, that is something that I have seen very many traders fail with and I keep beating that horse with many of my students that they should be flexible. Not only when they are looking at the chart and considering different scenarios, but also they should practice that flexibility in many other aspects of their life, so if you see people who have very extreme and inflexible personalities in daily affairs and then they sit in front of the screen and they believe that they can perform in a different manner simply because they decide that now they are behind the screen and they are going to do things in a certain way, that’s an illusion, our temperaments are what they are and of course they are not set in stone. This is where good habits come into place and how you can gradually overtime learn to change your perspective, changes even your temperament by instilling god habits and working towards improving in certain directions.
[51:17] Houston: Yeah, that’s such a great perspective, because the old saying goes, what you do anything, is how you do everything, so if you bring a certain and it is funny how I don’t think it is debatable, but it trips us up all the time and that we don’t realize that what we bring into and how we are outside of trading is exactly we are going to be in trading, so if we live our life that is full of drama and stress and anxiety or fear, that is exactly what trading is going to reflect back to us, but there’s often that disconnect and it takes a while for people to realize oh the market is just like a mirror, it basically mirroring exactly who I am and then presenting it back to me.
[51:56] Nikolai: Yes and unfortunately changing some of these aspects and habits is not only very subtle work, but for many people it feels like it is very personal and uncomfortable to face some of these aspects, because it requires a very, first it requires a very humble attitude and it requires a very honest look at yourself and really a lot of grind work for many people at least in my experience when I am working with aspiring traders, a lot of grind work to change these habits, because you know as well as I do that some habits are just very hard to go.
[51:32] Houston: Yeah and what I get from what you said there, is I think the way I would describe is I think it forces us to become, well if we are honest with our self it forces us to be vulnerable and I think a lot of people do not want to feel that, so then they become blind to the changes that are actually required to get to the next step.
[52:55] Nikolai: Yeah and unfortunately for these people it is not realistic to believe that they will achieve the desired level of consistency before they really face some of these aspects and bring significant improvement so that they will.
[53:11] Houston: Yeah absolutely. It just remind me of the saying, I think it is from Perry, I read a book with a quote of his recently and he said he is a Developmental Psychologist and he has a famous say he says, when someone comes to me for help, I listen very hard and ask myself, what does this person really want and what will they do to keep themselves from getting it? And I think it applies so well to trading, because in many cases, we are ultimately the ones that are responsible and the ones that are the limiting factor in terms of our success.
[53:07] Nikolai: I really liked that that was a very interesting spin around on the way that things usually go; so what are they going to do or not going to do? How exactly did you say that?
[53:59] Houston: He said what will they do to keep themselves from getting it?
[54:03] Nikolai: I really like that.
[54:05] Houston: So this is a really fascinating conversation so far, let’s move on for a second; let’s talk about a good trader, someone who’s consistently profitable, who’s comfortable with a consistent methodology, a pretty good mindset – what’s your advice for that person to go from good to great?
[54:25] Nikolai: That’s an interesting question. I think that for many people – for many advanced traders it’s about like we already spoke about to bring their confidence level to very accurately reflect their skill level and some people underperform because for whatever way they can frame their belief they just don’t believe they can do better or they don’t believe that it’s possible that they can do better and some of them don’t believe they could do better and yet other just find ways to sabotage themselves because of one belief or another that they hold so I think that confidence is crucial and in order to improve that people need to first of all assess their lives and I think it helps to spend some quiet time really think about exactly what are the beliefs that you are upholding when it comes to trading because many people there’s a lot of talk out there about all the emotional aspect of trading and the beliefs and that aspect and I also believe that for some traders when these things are in place, it’s the other side of the coin that needs – they just need to do more work and get better at their tools or even learn new tools and then gradually learn to apply themselves either more efficiently or more often within the market. I think these are some of the aspects and for yet others I believe maybe it’s certain qualities that they need to practice in their life for example patience is a very big one – some people tend to do very well if you look at their numbers they, they tend to do very well in certain situations, they also tend to offset these results in other ways so when you look at their performance , it seems like there is something missing and they’re usually not satisfied with their results, so I suggest that advanced traders should find a quality feedback loop usually somebody from the outside that is objective and they’ve gotta listen to that loop and there’s definite got to be an element of that feedback loop that is very, very hard and it should be firmly grounded in numbers. Because numbers don’t lie and of course there’s some soul searching that should be done as well.
[57:00] Houston: I like that idea of a quality loop and maybe some of those elements they lie or they live outside of your trading and outside of your trading is outside of your life, right? So, if you want to mention there…
[56:12] Nikolai: Yeah, some people I believe they need to remove a certain element themselves from the process and many people try to for example they try to identify things that they want to improve on – they don’t try to work on the variables one at a time and you know monitor the output – but rather like throw everything against the wall and this way if there’s any progress it’s usually unsystematic and as there’s a much more efficient way to improve your results and achieve your goals by just working on one thing at a time and then monitoring the output and to just gradually adjusting these variables.
[57:57] Houston: That’s just well put, so we’re coming up on the top of the hour and we done a lot so far; do you mind if I shoot you a couple of fast questions and then…
[58:07] Nikolai: Yeah, sure go ahead.
[58:07] Houston: …we’ll be closing the interview. So we talked about the beginning and you kind of said that you couldn’t think of something else that you would do that is a much fun as trading; so let me ask you that question again – if you weren’t trading, what would you be doing? Would you do something related to performance or what do you think you would be doing if you could not trade?
[58:27] Nikolai: I probably would – you know I’ve never really liked that but I actually enjoy teaching much more than I suspected and I’ve done coaching in another field previously in my life and I’ve got to say that teaching is very rewarding but that being said I’m also , I probably don’t want to use that word but I will anyway – I’m very strongly hooked on the performance aspect of trading so I’d probably find something that is really challenging but at the same time I’d probably find a way to share and help bring other people along that same path so …but it’s a very difficult question and honestly I hope I never have to deliver a specific answer in practice and I felt that…
[59:31] Houston: Cool, so here’s another question and I didn’t know about this about you so you said you are a concert pianist, how did that help or not helped your trading?
[59:39] Nikolai: Well I can only hypothesis but I believe that playing an instrument is – at least playing the piano – is not only hand and eyes co-ordination but it’s also being able to really read the music a few steps in advance and really it’s the spatial pattern recognition and I also believe that being put on stage regularly to perform brings a certain level of the inevitability of learning how to deal with stress in a positive and constructive manner. Also I believe that because I have been lifting weights in my entire adult life and the irony again you earn some great, you learn hard work but you also learn to work smart you always try to be efficient and of course you have to be disciplined and patient for the results you know these are really qualities that in a very large scheme of things at a very early point if I wanted to become good at trading I had to develop qualities that I have been in a way working on already in other aspects of my life but they are qualities that I wanna possess as man and as a human being anyway. So that is how really many times I stay motivated because I know that everything fits together and all the works that being put in many of the difficult emotions and periods that have been experienced, they have their place and they’re part of the big picture and they’ll fit together.
[61:18] Houston: Yeah, that’s well put and it just made me think – I hear a lot of traders struggle with the discipline and sometimes their coach will tell them they need to be more discipline which does not really help because it is not really constructive but your idea of maybe finding another activity where you can begin to build the discipline that is ultimately going to be transferred back to your trading as a way to work on that without directly working on that in your trading.
[61:47] Nikolai: I believe that that is one way to do it, if they can find something that they enjoy more than trading they should definitely spend some time doing it but it should definitely in some way contribute to them being more disciplined and them following a certain plan because compliance problems as I believe you address them are very common with traders and that by the way is a staple of what coaches deal with and I believe that not being able to follow the plan or having a problem with discipline – is really a function of preparation and confidence and you know confidence we already spoke about it – is about trusting your work and being capable to re-frame what a loss means but when it comes to preparation, you know surprising as it is many people who pay lip service to wanting to be traders and to really wanting to have the lifestyle and to have the benefits of doing that as a career – they just simply don’t do the work – whether they are lazy or just don’t plan appropriately for their time and their energy but many people just don’t have realistic expectations about what it takes to really assemble that skill set and develop the mindset that needs to be attached to their performance as a trader.
[63:17] Houston: Nice. So a couple more questions and this one is a little more jovial so, here’s a quick question for you, if you could have free unlimited service for five years from either an extremely good cook , a chauffeur , a housekeeper, a masseuse or a secretary – which one would you choose?
[63:28] Nikolai: Oh, that’s a very difficult one but I believe that I would go for a – it’s gonna be a very close call between the private chef and the masseuse because both of these are kinda important for your physical state and both of these especially working on your diet can be very time consuming and at this level of the game – it’s all about efficiency, it’s about how much time you have to dedicate to this occupation, at least for me.
[1:04:04] Houston: So you don’t wanna give an answer – cook or masseuse
[1:04:07] Nikolai: I’ll go with the cook simply because I really enjoy good food.
[1:04:11] Houston: Alright, so one last question; as you told us earlier, you’re an avid reader so what are your top recommended books – and they don’t have to be books around trading but any trading or otherwise, what are your top recommended books that you like to give to people or share with people?
[1:04:27] Nikolai: That a difficult question because a lot of things come to mind but when it comes to trading I suggest that everybody should read Daniel Kahneman’s book – it’s called Thinking Fast and Slow and it’s a very interesting review of different biases that people develop and how they develop them and what are the mechanics behind them and of course what are the many manifestations that these biases socially and really I think it relates to trading as well because it’s very important to learn how to understand how biases are formed and really reflect on them yourself and recognize yourself in these pages when you’re reading about these biases and another book that I recently read and enjoyed was Nassim Taleb’s Antifragile – I believe that’s how it’s pronounced. It’s is a very interesting idea and I also believe that even though not in a very direct way it relates to trading as well and Taleb as well has a background in risk management and he’s very well published as well, so these are two that I really enjoyed recently and there are a number of other ones. I mean, I’ve read a lot of classics when it comes to trading and I like many of them but nowadays I recommend most of my traders do less reading and more actual work behind the charts. I really enjoy the issues, Market mind Games when I read it, it was very useful and these are a few that come to the top of the list.
[1:06:17] Houston: Cool, Thinking Fast and Slow definitely changed my mindset around trading as well and that’s definitely one that I wasn’t expecting that but like you said that was one of those books where I just suddenly realized that there was a lot of mindlessness going on and there was a lot of unconscious thinking going on around trading and having that realization shifted a lot of things for me so yeah great recommendations. So, one last question, for you, if people enjoyed what you had to talk about today (a) and wanna know more about or wanna follow you, where’s the best place for them to get in contact with you or where can they follow you?
[1:06:57] Nikolai: Well, I’m more of a private person; I’m also extremely busy so I don’t frequent social media but if people wanna get in touch or drop me a question they can write to me at – I’ll give my email it’s nikolai..
[1:07:17] Houston: I’ll be your gatekeeper Nikolai so you don’t have to get spammed by people so if they are interested I could pass over your information Nikolai.
[1:07:28] Nikolai: Yeah, so by all means I’ll leave my email and unfortunately my schedule is so busy between travelling, trading and coaching and trying to have a semblance of a balanced life which I seem to from time to time fall out of that I really don’t have a lot of time and I do work privately with a number of students and colleagues so I’m really not …there are opportunities to work with me but I’m really not looking to expand my operation in an official way , I also suggest that people check the outfit that I do some projects with. I don’t know if I should mention its name
[1:08:11] Houston: Yeah, yeah you can
[1:08:12] Nikolai: Yeah I believe I already mentioned the Daytradingacademy .com and that’s pretty much it I believe that if people are interested, there’s a lot of good stuff that they can get from me and the program there.
[1:07:28] Houston: Sure, absolutely. I just wanna thank Nikolai today; it was very much a lot of fun having you on the show and I know we could probably go on for another hour but I know I have to be respectful of your time but let me just wrap up for the audience here. So, Nikolai shared with us a bunch of great insights today, so what the one biggest insight you got from this podcast today? I always like to ask that question and I’m curious so let us know; so drop us a line in the comment section of the blog and tell us what was the one big idea for you and we mentioned a bunch of things you could even try by yourself so what would you be willing to trying – so you know, pick one of the ideas and try it out for two trading weeks or a month and let us know how that turns out for you.
So as always you can find the show notes, transcript and the resources we mentioned here by going to the blog and that’s at thetradingedge.org /episode 13. Once again thank you Nikolai, it was a lot of fun, man.
[1:09:30] Nikolai: Houston, thank you very much for this opportunity and good luck to all your listeners.
[1:09:33] Houston: Thank you man, let do it again.
[1:09:35] Nikolai: Thank you.
[1:09:36] Houston: Take care.
thedaytradingacademy.com – The academy where Nikolai coaches
– Thinking, Fast and Slow – Nobel Laureate Daniel Kahneman’s treatise on behavioral psychology.
– Antifragile: Things That Gain from Disorder (Incerto) – Taleb’s most recent title and must read for fans of his previous works – Black Swan and Fooled by Randomness.
– Market Mind Games: A Radical Psychology of Investing, Trading and Risk – Good title my Denise Shull on understanding that trading is a game of trading against other people.
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