EXAMPLE #1 – I speak to many potential investors. It amazes me how many people have been in 80-90% cash for the past 3-5 years. They’ve missed out on such a strong run in the market. When I ask them what would it take for them to get back in, they freeze up and can’t answer. These are people who are NOT in the market, and they are horrified of getting in.

EXAMPLE #2 – Today is May 22, 2013. The general market declined by less than 1% (0.82% to be exact) and my phone has been blowing up with panic by people who are IN the market!!! My trading friends are either calling or texting me with serious worry, and even a few stories of mini “blow-ups” today. I’ve never seen anything like this in my 17 year career! God help these people when (not if) we get a serious correction.

I have discussed this topic on my weekend show and on Twitter recently, and I get TONS of responses as to what has created this fear. Some reasons include: lack of trust in the market, the market is rigged, high frequency trading, it’s not healthy for the market to keep going up like this, and we’re doomed as soon as Bernanke hints that quantitative easing will slow down.

Whatever the reason doesn’t matter. The bigger question comes down to figuring out how to overcome your fears because fear is unhealthy to your general livelihood. If you find yourself fearful, you might need to ask yourself a few questions: Maybe the market isn’t for you? Maybe you need to reduce your leverage? Maybe you need to reduce your position size to deal with the volatility? Maybe you need to get better entries and stop chasing extended stocks? Maybe you need to stop watching 1-minute charts tick by tick? Maybe you need to view your trading as a business, and not gamble so much?

Whatever the reason, one thing I can guarantee is that you’ll never be successful at trading if you are doing it with scared money or too emotional with your approach. I do everything possible during the trading day to keep a level head and a strong state of mind. As a trader, you must find a way to do this or else you will be trading too much on emotion and increase your chances of making bad decisions.

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What defines a person as someone who is the best in their field? One word: CONSISTENCY. Michael Jordan is not one of the best basketball players ever to play the game because he scored 30 points ONCE in a game. It is because he averaged 30 points PER GAME over a 15 year career. Paul Tudor Jones is not considered one of the best traders and money managers out there because he was positive ONE year. It is because he has been CONSISTENTLY positive over the past 25 years.

The main focus for all traders should be: Protecting the downside and producing consistently positive results. You don’t want to be a boom and bust trader who makes a ton of money in the uptrends, only to give it back in the downtrends. Trust me, I did this a few times early in my career and it’s not fun. After doing a great deal of post analysis of my trading, I made the proper changes to make sure I don’t do this again.

One last piece of advice: Traders should not obsess with their day-to-day results. What I personally do is shoot for positive quarters. You’ll stress and beat yourself up too much trying to make money every day, week, or month. Rather, take a step back and look at the bigger picture. If you’re like me and want to stay in the game for a long time, you are better off looking at the bigger picture and focusing on long-term consistency. Good luck trading!

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About 10 days ago, my friend got into a big fight with his girlfriend. He was invested in the market, but sold all his stocks because he was so frustrated from the fight. I told him: What are you doing? For the past 6 months, our style of trading has been challenging and I’m finally seeing signs that it’s back to working again. Forget this girl and get your head straight! This is THE WORST time for you to get out of the market.

He didn’t care. Not only did he get out of the market, but even worse, he went short. As the market started to climb, he wouldn’t cover and kept shorting. I felt bad and really encouraged him to take a couple of trades that I was making. Still, he wouldn’t listen to me. I gave him 2 stocks that each went up over +20% and 1 option trade that went up +300% and he didn’t take any of them. As they say, you can lead a horse to water, but you can’t make it drink.

Here’s the lesson: You can’t do anything in life (especially trading) if your head is not clear. You can have the greatest strategy in the world, but if your mind is rattled and you’re not mentally tough, you have NO SHOT of succeeding. If something is bothering you and stressing you out, you are better off taking a break until your head is clear. Otherwise, I truly believe your poor state of mind will lead you to make bad decisions. What are things you can do to stay mentally tough? I will save that for a future blog post.

As for my friend, he’s still short the market and has lost -15% of his account recently. In the past two weeks, he’s transformed from a sound-minded rational person to a bitter trader that just wants the whole world to collapse…and (according to him) preferably before options expiration this Friday. Stubbornness and leverage is a bad combination. I sent him this video from Rocky Balboa so he can hopefully start to get back on track mentally.

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1) Transparency. My number one priority was to give investors 100% transparency and visibility. Specifically: Access to trades, positions, and balances in real-time.

2) Retirement accounts. Most people have a 401k at their job which is managed by their Plan Administrator. When people leave their job, they are allowed to rollover their funds into an IRA account, however, they usually don’t have anyone to manage it for them. My new structure allows for both taxable and retirement accounts.

3) Custody. I was looking for a reputable custodian that offered a platform to make trading simple for me. In other words, I wanted to make one trade that would get allocated proportionally to all the accounts.

4) No lock-up period. Because the accounts are under the client’s name, they have the ability to leave or add money whenever they want.

5) One-man shop. Potential investors would often ask me: “What happens if you get hit by a bus?” I would tell them “I don’t take the bus,” but they never found that answer to be funny.

The bottom line: I wanted a structure to give people comfort with their investments.

I recently moved to New York City and partnered with Zor Capital, LLC. Frank Zorrilla, the firm’s founder, already had the structure in place that I was looking for, and it was a homerun to join his firm. Zor Capital provides managed accounts for accredited investors and institutions. If you would like more information, please email me at jfahmy@zorcapital.com or visit the company’s website.

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Jones is considered one of the best traders in the business for one main reason: CONSISTENCY! He has produced positive returns for 25 straight years! I don’t know the exact number of years, but you get my point. The fuel behind his consistency is his discipline, specifically his ability to manage risk and cut losses.

Besides his tremendous success as a trader and a hedge fund manager, what makes Jones an even bigger hero in my view is his philanthropy. I love the phrase “The secret to living is giving” and Jones truly exemplifies this quote. In other words, what’s the point of being successful if you never give back to others? As Jones says in this 60 Minutes interview: “You find your joy in life through service and sacrifice.” Enjoy the video!

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1) I have tremendous respect for the people at IBD and I’m a paid subscriber to their online newspaper. So what I am about to say is not a knock on IBD, it is a knock on people who can’t think for themselves.

2) If you follow anything blindly (newspaper, newsletter, trading service, blog, etc.) you are doomed as a trader. Why? Because what happens if that service or paper goes away? The crutch that you’re relying on is gone and then what???

3) The ultimate goal for all traders is: Get to the point where you can make confident decisions on your own and trade with complete independence. While I respect IBD, I DO NOT rely on them. I can turn off CNBC, Twitter, and all communication to the outside world…and still be fine with making my own decisions and letting THE MARKET tell me if I’m right or wrong.

4) I’ve said this a million times and I’ll say it again: Get rid of all your indicators, ignore the economic reports, and PAY ATTENTION TO THE PRICE ACTION OF STOCKS! That is all that matters! Even when the market pulled back in mid-April, many leading stocks were showing strong price action and never flashed any sell signals. In fact, their relative strength gave me even more confidence to add to them, and not some analyst comments or anything else…just the PRICE ACTION.

5) For the record, IBD changed their outlook to “market uptrend resumes” on Monday evening (4/29). They have their rules and I admire them for sticking to their discipline. Their job is to guide the individual investor in the right direction and, for the most part, they get it right. Again, if you simply listen to the price action, outside opinions don’t matter.

For now, many of the traditional IBD rules are not working. Stocks are not breaking out with the extreme power that I have seen in the past, and when distribution days build…they are met with “shove it in your face” buying to new highs. I’ve written about this many times recently. I am confident that things will return to normal sometime in the future, but for now, you must learn to adapt to the current market conditions and think for yourself!

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