Full Show Transcript

So I’m at the Petrified Forest in the Napa Valley in California, and you can see in the background, back there, the remnants of Mount Saint Helena, which was the volcano that erupted, which ultimately created the Petrified Forest. Some very interesting lessons for traders. Come with me. I want to show you something.

So this is what happened when this volcano erupted a few million years ago. So I don’t know if you can see it here, but the volcano erupted and let out a huge amount of ash, which covered the entire surrounding area, including the forest, buried the forest completely for millions of years. And what happens over millions of years is really, really interesting. Basically, the wood in the forest got turned to stone because the minerals from the ash leeched through into the wood and gradually replaced the cells in the wood, turning the wood to stone.

Now what’s the lesson for traders? Well, come and I’ll show you one of these trees and we’ll draw out, figure out what the lesson is for you right now. So check it out. This is what happens when a volcano erupts, buries a forest with ash for millions of years. Here is one of those petrified trees, which all of the cells in the wood have been replaced over millions of years by mineralization, which has preserved this tree. So this tree was 2000 years old when it was living, and it’s been buried, I think it says up here, for 3.4 million years.

So again, what is the lesson for you as a trader? Well, think about the event that happened that caused all this. It was a volcanic eruption. It was a massive disruption to the environment, a big, scary event, catastrophic sort of event. And what were the trees? The trees are the traders in the market. And those trees that were unprepared… Unprepared, why? Because they can’t move, right? Those trees were stuck frozen when the volcano erupted and preserved. So basically, those traders went nowhere forever after, because they were frozen in time because of an extreme adverse event.

Now, what does this mean for you, and how can you make sure that you don’t get trapped or damaged in your account by an extreme catastrophic event like this? Well, one of the biggest mistakes that traders make is when something big and scary happens in the market, something that’s out of the ordinary, like a big shock, a market crash, a big panic, undesirable news like a war, or like a economic collapse, or anything like that. If you freeze as a trader, if you can’t move, if you’re not nimble enough to escape, then you’re going to get decimated. Your account is going to be basically killed, frozen in time, and you’ll basically lose everything as a trader, if you freeze, if you don’t take the action that you need to take.

Now, how do you avoid that? Because we’re all human. All of us traders are human. And when something scary happens, there’s this thing like the deer in the headlights. If you’ve ever been driving down a forest road or a dark road at night near the woods, and a deer wanders across the road and stumbles into your headlights, what does the deer do? Typically, it doesn’t move. It freezes because it’s scared. It’s petrified. Just like those trees. Well, actually not like those trees because the deer’s not wood. But hopefully the deer shakes itself, shakes its head clear and runs off before you, as the driver, hit it. Because otherwise the deer is going to die.

Now traders also get this deer in the headlights’ syndrome. And it’s just like this Petrified Forest example. When traders get that deer in the headlights’ syndrome and freeze when something scary happens, usually you get run over by the truck, or hit by the ash from the volcano. Because if you freeze, as a trader, at the wrong moment, adverse events happen so quickly that even if you freeze for more than a moment, you can miss out. You can lose your profits or you can get hit with a massive loss. So the lesson is you need to take action at exactly the moment that you’re supposed to take action.

Now the trouble for most traders is, most traders, if you’re not systematic, you actually don’t know what action you’re supposed to take. So something happens in the market, a big event, and you have to think how are you going to react. And even in that thinking, your emotion goes up, your intelligence goes down, and you lose the ability to make the rational decision. So how do you get over that? Well, you get over that by trading systematically. If you don’t have a trading system in place, chances are whenever something big, adverse happens, you’re going to freeze. You’re going to end up like a petrified log or a deer in the headlights that get hit by a semi-trailer.

So this is why systematic trading is so powerful, because what it does is it tells you, in every moment, exactly what you’re supposed to do. If you have a system that defines your entry, your stop loss and your exit rule, there is no denying at each moment in time, what are you supposed to do. Are you supposed to buy? Are you supposed to hold? Are you supposed to sell? You don’t have to have that emotional response or fear that causes you to freeze, which causes pain in the markets, because it’s financial pain, because you know exactly what to do.

So if you’re one of those traders who’s using technical analysis, or chart patterns, or fundamentals, or lots of different inputs into your decision-making, you are at risk of becoming a deer in the headlights or a petrified forest, because you don’t know, there is no definitive answer to exactly what you should do in each moment in the market. Put a system in place and all of those problems, all of those mistakes go away because the system tells you exactly what to do in each moment. And that’s how you eliminate this sort of problem. And the vast majority of traders who are not systematic will never ever be profitable in the long run, because something bad, something extreme will always happen in the market eventually, if you manage to survive long enough. And if you get to that extreme event and you don’t know what to do, your account will be decimated. And that’s why systematic trading is so critical for you to survive in the market.

But one of the biggest trading mistakes people make is trading without a system. Now, there’s lots of other trading mistakes that also prevent traders from surviving and making money in the long run. So if you want to succeed, click the link below and download my Trading Mistakes cheat sheet because it covers this and many other mistakes that traders make, which prevent them from profiting in the market and surviving in the long term.

My name’s Adrian Reid. This is Enlightened Stock Trading. Click the link below and download my Trading Mistakes cheat sheet to ensure you survive market events that cause situations like this. Click the link below, download the cheat sheet, and I’ll see you in the next video. Bye for now.