The Tao Of Trading - How To Build Abundant Wealth In Any Market Condition

INTRODUCTION

The world has changed in the last thirty years, and with it, the way markets operate.

Thirty years ago, the most successful investors in the world had the biggest funnels of information. Today, the best investors have the best filters of information.

Our access to free, virtually instant information can be both a blessing and a curse for the aspiring investor. The market is filled with opportunities and opinions. Swimming in this ocean of information, it is an increasingly difficult task for investors to filter the noise and find the signal.

It is often difficult for the individual investor to discern whether the information they are receiving is low-quality, biased, or agenda driven. Acting upon such information can lead to significant financial mishaps.

I wrote this book to help you:

• Understand how the financial markets and Wall Street really work
• Become knowledgeable and confident enough to make your own trading decisions
• Navigate the markets in such a way that you can be profitable whether the stock market is rising or falling
• Filter the noise and find the signal, so you can focus only on what really matters when it comes to trading the markets

It is a difficult environment for anyone following conventional wisdom when it comes to investing. Let me explain what I mean. Let’s look for a moment at stocks and bonds: the two cornerstones of any traditional investment portfolio.

The stock market is as expensive as it has ever been according to many experts, as well as some highly regarded measures of stock market valuation. As I write this, the S&P 500 and Nasdaq are at all-time highs and Warren Buffett’s favorite stock market valuation tool* is also at an all-time high.

“Value investing” hasn’t worked for well over a decade. Most investors - professionals included - have failed to adapt to the way the investing game is now being played, in an environment where central banks are buying up trillions of dollars’ worth of assets each year.

Bonds, too, are expensive relative to history. The yields offered by bonds range from paltry to negative. As of November 2019, there were approximately $13 trillion worth of bonds in existence globally that trade with a negative yield. This is unprecedented!

(A bond with a negative yield is a bond that you are guaranteed to lose money on if you hold it until maturity. Most people would agree that this doesn’t make for a particularly attractive investment.)

WHAT IS AN INDIVIDUAL INVESTOR TO DO?

So, if you’re a baby boomer facing retirement (the median age of baby boomers in 2019 was sixty-five) what are you to do? How are you going to earn an income in retirement? Money in the bank pays you nothing, returns available in the bond market are paltry, so the only game in town is the stock market…right?

Well…there’s a problem with that “solution.” The big question with piling your life’s savings in the stock market when you are facing retirement is: what is likely to happen to your life’s savings when the next recession comes around?

The stock market is likely to fall 30 percent to 50 percent. It’s just what stock markets do during recessions; we’ve seen this movie before. If you’re a retiree with a stock portfolio and the thought of this doesn’t send a shiver down your spine, then you’re made of granite!

When you’re a retiree and your employment income stops, you can no longer “buy the dip” when stocks fall. In fact, you’re much more likely to be in a rush to preserve whatever money you have left in the market—which may mean rapidly selling all your stocks when (or more likely, well after) the next recessions hits.

The picture is only marginally more favorable for millennials. Property prices in many cities around the world are vastly beyond the reach of this generation, many of whom have postponed—or given up altogether—the dream of home ownership.

The stock market today isn’t a particularly attractive destination for investment given the valuation concerns. And bonds are not an attractive proposition given the very low-to-negative yields on offer. Property prices in many major cities around the world are trading at valuations that are well above historical averages.

Everything you might want to invest in looks expensive! So, what is a retiree to do if they want to earn an income while preserving their wealth? What is a millennial to do if they want to grow their wealth rapidly?

SOME GOOD NEWS AND SOME BAD NEWS

Now let me share with you some good news and some bad news.

The good news is that, armed with the information and insights contained in this very book — together with a little consistent effort — you will have the knowledge to be able to:

• Navigate the stock market with confidence
• Become a profitable trader no matter whether the stock market is rising or falling
• Earn the type of consistent positive returns from the stock market that would seem impossible to somebody without this knowledge
Know exactly when you should pull the trigger — or pull the plug — on an investment
• Manage your risk like a professional, so that you can sleep well at night
• Generate a consistent second income from the stock market — or even make it your full-time income one day

Does this sound good or good?

OK, so what’s the bad news?

Well, the bad news is that it is largely going to come down to your own efforts.

If you want to:

• Grow your wealth rapidly and consistently
• Be profitable whether markets are rising or falling
• Make good investment decisions without having to listen to stock market research, mainstream news media, or financial newsletters

You cannot outsource the management of your entire investment capital to a bank, broker, investment adviser, “robo-adviser,” or any other player in the investment advice industry. You must assume this responsibility yourself. We will explore exactly why this is the case in chapter one.

WHAT I’M NOT SUGGESTING

If you currently use someone for financial advice and you are happy with them, I am NOT suggesting that upon reading this book, you fire them and start doing it all yourself.

Let me be very clear on that!

A more sensible approach would be to start employing the methods you will learn in this book on a small amount of your investment capital. As your ability and confidence grows, start allocating more capital to the money you are managing yourself and watch as your account balloons.

If you are new to investing and you have some surplus cash sitting idly that you can afford to put at risk, the methods in this book could be the perfect place for you to get started.

I applaud you for taking this important step to secure your financial freedom and I welcome you on this trading journey.

CHAPTER 1 - UNCONVENTIONAL WISDOM

“Never accept ultimatums, conventional wisdom, or absolutes.”
— Christopher Reeve

“…the only way to get ahead is to find errors in conventional wisdom.”
— Larry Ellison

“When you’re used to being prepared to reject conventional wisdom, it
leaves you open to learn more.” —Mayim Bialik, PhD

The financial markets are the number one place on earth for anyone wanting to create extra income and grow their wealth. The opportunity set is enormous, and you won’t have to pay a lot in overheads or tie money up in illiquid assets.

The benefits of trading are almost too numerous to mention. As a trader, you won’t have a boss telling you what to do. You won’t have to ask somebody else’s permission to take a day off or have a holiday.

You won’t have to hire any staff either. Managing staff can be an overwhelming task for many small businesses.

Your start-up costs will be small, compared with almost any other business venture you might contemplate.

You won’t have to deal with complaining customers who don’t pay on time. You won’t have to negotiate with hard-ass suppliers who are trying to screw you down for every last dollar.

You’ll never have to sit through endless performance reviews or sales meetings, for an organization that would sack you in a heartbeat if that action was deemed to be in the best interests of some faceless shareholders.

Trading is enormously empowering. It offers you the potential for incredible freedom. The biggest problem many successful traders face is what to do with the other twenty-three hours of their day that are not spent trading!

As a trader, you live or die by your own efforts. This is brilliant news for people prepared to spend the time acquiring the proper education and mindset. There is a strong chance that you are just such a person, because you are reading this book. Congratulations and welcome, I look forward to guiding you on your trading journey!

Every aspiring trader knows deep inside that if they could just “crack the code” of the financial markets and learn to trade consistently in any market condition, they would have the keys to the abundance they deserve.

But without proper information and guidance, the financial markets can seem like a maze at best, and like a minefield at worst.

“Cracking the code” is tough!

I have spent the better part of the last twenty years cracking that code myself, and I’ve written this book with the purpose of helping you successfully trade the stock market, whether it is rising or falling. I want you to not just survive, but prosper through all the economic booms and busts that lie in our future.

In 2017, I decided to leave the finance industry, where I had spent the previous twenty-five years of my life. I had spent well over a decade in a dealing room, staring at a Bloomberg terminal for ten to twelve hours a day. This may not sound thrilling…and believe me, most of the time it wasn’t. But spending that much time learning
how financial markets operate, afforded me the opportunity to educate myself on how to trade the markets.

I also had the privilege of working alongside some of the smartest people and some of the best professional traders in the finance industry. Not only that, I have worked with and consulted to some of the wealthiest and most successful families and businesspeople across Asia and Australia. The opportunity to learn from these
people has been invaluable in my journey.

I learned about how trends form, how they persist, and how price typically responds under certain circumstances. And, I have figured out ways to exploit this price action for profit.

In my twenty-five-year career as a banker, adviser, and player in the markets, I have witnessed firsthand the many hurdles individual investors and traders face. I have developed methods to help people overcome these hurdles in order to be successful. With this book I seek to empower you with the skills, knowledge, and techniques necessary to maximize your profit potential while teaching you how to minimize risk. My desire is that you will be able to trade the markets consistently while sleeping well at night.

WHAT TO EXPECT FROM THIS BOOK

The title of this book was inspired by The Tao of Jeet Kune Do by Bruce Lee. In addition to being a trader, I am also a Jeet Kune Do instructor and I perceive some important parallels between martial arts and trading. Martial arts are not just about punching, kicking, and grappling. These aspects are important, but what powers the physical aspects of a martial art to victory? The engine behind it all is your mindset, your psychology, your will to win. Many martial artists have great technique, but maybe they can’t take a hit. When they do take a hit, their mindset collapses, their engine stops, and their techniques just don’t have the drive anymore. Similarly, trading is not all about entries, exits, and reading indicators. These are important, but what powers a trader to victory is her mindset, her psychology, her will to win. Most aspiring traders just don’t have the right mindset, which makes trading success elusive.

This is not your traditional book of Tao. Neither is this a traditional trading textbook. This book is called The Tao of Trading because Tao means “the way.” And in my own unconventional, tongue-in cheek style, this book will teach you “the way” to build abundant wealth regardless of the market circumstances you find yourself
in. This book is the culmination of my twenty-five years of experience trading the markets, and it will help you acquire both the techniques and the mindset you need to be successful in trading. It is the very information I wish someone had shared with me when I commenced my journey as a trader.

I wrote The Tao Of Trading to help people live more joyful and inspired lives by alleviating the burden of financial stress that ways so many people down. My mission is to revolutionize the way finance is taught by shattering long-held myths that have been perpetuated by Wall Street.

INTRODUCTION

The world has changed in the last thirty years, and with it, the way markets operate.

Thirty years ago, the most successful investors in the world had the biggest funnels of information. Today, the best investors have the best filters of information.

Our access to free, virtually instant information can be both a blessing and a curse for the aspiring investor. The market is filled with opportunities and opinions. Swimming in this ocean of information, it is an increasingly difficult task for investors to filter the noise and find the signal.

It is often difficult for the individual investor to discern whether the information they are receiving is low-quality, biased, or agenda driven. Acting upon such information can lead to significant financial mishaps.

I wrote this book to help you:

• Understand how the financial markets and Wall Street really work
• Become knowledgeable and confident enough to make your own trading decisions
• Navigate the markets in such a way that you can be profitable whether the stock market is rising or falling
• Filter the noise and find the signal, so you can focus only on what really matters when it comes to trading the markets

It is a difficult environment for anyone following conventional wisdom when it comes to investing. Let me explain what I mean. Let’s look for a moment at stocks and bonds: the two cornerstones of any traditional investment portfolio.

The stock market is as expensive as it has ever been according to many experts, as well as some highly regarded measures of stock market valuation. As I write this, the S&P 500 and Nasdaq are at all-time highs and Warren Buffett’s favorite stock market valuation tool* is also at an all-time high.

“Value investing” hasn’t worked for well over a decade. Most investors - professionals included - have failed to adapt to the way the investing game is now being played, in an environment where central banks are buying up trillions of dollars’ worth of assets each year.

Bonds, too, are expensive relative to history. The yields offered by bonds range from paltry to negative. As of November 2019, there were approximately $13 trillion worth of bonds in existence globally that trade with a negative yield. This is unprecedented!

(A bond with a negative yield is a bond that you are guaranteed to lose money on if you hold it until maturity. Most people would agree that this doesn’t make for a particularly attractive investment.)

WHAT IS AN INDIVIDUAL INVESTOR TO DO?

So, if you’re a baby boomer facing retirement (the median age of baby boomers in 2019 was sixty-five) what are you to do? How are you going to earn an income in retirement? Money in the bank pays you nothing, returns available in the bond market are paltry, so the only game in town is the stock market…right?

Well…there’s a problem with that “solution.” The big question with piling your life’s savings in the stock market when you are facing retirement is: what is likely to happen to your life’s savings when the next recession comes around?

The stock market is likely to fall 30 percent to 50 percent. It’s just what stock markets do during recessions; we’ve seen this movie before. If you’re a retiree with a stock portfolio and the thought of this doesn’t send a shiver down your spine, then you’re made of granite!

When you’re a retiree and your employment income stops, you can no longer “buy the dip” when stocks fall. In fact, you’re much more likely to be in a rush to preserve whatever money you have left in the market—which may mean rapidly selling all your stocks when (or more likely, well after) the next recessions hits.

The picture is only marginally more favorable for millennials. Property prices in many cities around the world are vastly beyond the reach of this generation, many of whom have postponed—or given up altogether—the dream of home ownership.

The stock market today isn’t a particularly attractive destination for investment given the valuation concerns. And bonds are not an attractive proposition given the very low-to-negative yields on offer. Property prices in many major cities around the world are trading at valuations that are well above historical averages.

Everything you might want to invest in looks expensive! So, what is a retiree to do if they want to earn an income while preserving their wealth? What is a millennial to do if they want to grow their wealth rapidly?

SOME GOOD NEWS AND SOME BAD NEWS

Now let me share with you some good news and some bad news.

The good news is that, armed with the information and insights contained in this very book — together with a little consistent effort — you will have the knowledge to be able to:

• Navigate the stock market with confidence
• Become a profitable trader no matter whether the stock market is rising or falling
• Earn the type of consistent positive returns from the stock market that would seem impossible to somebody without this knowledge
Know exactly when you should pull the trigger — or pull the plug — on an investment
• Manage your risk like a professional, so that you can sleep well at night
• Generate a consistent second income from the stock market — or even make it your full-time income one day

Does this sound good or good?

OK, so what’s the bad news?

Well, the bad news is that it is largely going to come down to your own efforts.

If you want to:

• Grow your wealth rapidly and consistently
• Be profitable whether markets are rising or falling
• Make good investment decisions without having to listen to stock market research, mainstream news media, or financial newsletters

You cannot outsource the management of your entire investment capital to a bank, broker, investment adviser, “robo-adviser,” or any other player in the investment advice industry. You must assume this responsibility yourself. We will explore exactly why this is the case in chapter one.

WHAT I’M NOT SUGGESTING

If you currently use someone for financial advice and you are happy with them, I am NOT suggesting that upon reading this book, you fire them and start doing it all yourself.

Let me be very clear on that!

A more sensible approach would be to start employing the methods you will learn in this book on a small amount of your investment capital. As your ability and confidence grows, start allocating more capital to the money you are managing yourself and watch as your account balloons.

If you are new to investing and you have some surplus cash sitting idly that you can afford to put at risk, the methods in this book could be the perfect place for you to get started.

I applaud you for taking this important step to secure your financial freedom and I welcome you on this trading journey.

CHAPTER 1 - UNCONVENTIONAL WISDOM

“Never accept ultimatums, conventional wisdom, or absolutes.”
— Christopher Reeve

“…the only way to get ahead is to find errors in conventional wisdom.”
— Larry Ellison

“When you’re used to being prepared to reject conventional wisdom, it
leaves you open to learn more.” —Mayim Bialik, PhD

The financial markets are the number one place on earth for anyone wanting to create extra income and grow their wealth. The opportunity set is enormous, and you won’t have to pay a lot in overheads or tie money up in illiquid assets.

The benefits of trading are almost too numerous to mention. As a trader, you won’t have a boss telling you what to do. You won’t have to ask somebody else’s permission to take a day off or have a holiday.

You won’t have to hire any staff either. Managing staff can be an overwhelming task for many small businesses.

Your start-up costs will be small, compared with almost any other business venture you might contemplate.

You won’t have to deal with complaining customers who don’t pay on time. You won’t have to negotiate with hard-ass suppliers who are trying to screw you down for every last dollar.

You’ll never have to sit through endless performance reviews or sales meetings, for an organization that would sack you in a heartbeat if that action was deemed to be in the best interests of some faceless shareholders.

Trading is enormously empowering. It offers you the potential for incredible freedom. The biggest problem many successful traders face is what to do with the other twenty-three hours of their day that are not spent trading!

As a trader, you live or die by your own efforts. This is brilliant news for people prepared to spend the time acquiring the proper education and mindset. There is a strong chance that you are just such a person, because you are reading this book. Congratulations and welcome, I look forward to guiding you on your trading journey!

Every aspiring trader knows deep inside that if they could just “crack the code” of the financial markets and learn to trade consistently in any market condition, they would have the keys to the abundance they deserve.

But without proper information and guidance, the financial markets can seem like a maze at best, and like a minefield at worst.

“Cracking the code” is tough!

I have spent the better part of the last twenty years cracking that code myself, and I’ve written this book with the purpose of helping you successfully trade the stock market, whether it is rising or falling. I want you to not just survive, but prosper through all the economic booms and busts that lie in our future.

In 2017, I decided to leave the finance industry, where I had spent the previous twenty-five years of my life. I had spent well over a decade in a dealing room, staring at a Bloomberg terminal for ten to twelve hours a day. This may not sound thrilling…and believe me, most of the time it wasn’t. But spending that much time learning
how financial markets operate, afforded me the opportunity to educate myself on how to trade the markets.

I also had the privilege of working alongside some of the smartest people and some of the best professional traders in the finance industry. Not only that, I have worked with and consulted to some of the wealthiest and most successful families and businesspeople across Asia and Australia. The opportunity to learn from these
people has been invaluable in my journey.

I learned about how trends form, how they persist, and how price typically responds under certain circumstances. And, I have figured out ways to exploit this price action for profit.

In my twenty-five-year career as a banker, adviser, and player in the markets, I have witnessed firsthand the many hurdles individual investors and traders face. I have developed methods to help people overcome these hurdles in order to be successful. With this book I seek to empower you with the skills, knowledge, and techniques necessary to maximize your profit potential while teaching you how to minimize risk. My desire is that you will be able to trade the markets consistently while sleeping well at night.

WHAT TO EXPECT FROM THIS BOOK

The title of this book was inspired by The Tao of Jeet Kune Do by Bruce Lee. In addition to being a trader, I am also a Jeet Kune Do instructor and I perceive some important parallels between martial arts and trading. Martial arts are not just about punching, kicking, and grappling. These aspects are important, but what powers the physical aspects of a martial art to victory? The engine behind it all is your mindset, your psychology, your will to win. Many martial artists have great technique, but maybe they can’t take a hit. When they do take a hit, their mindset collapses, their engine stops, and their techniques just don’t have the drive anymore. Similarly, trading is not all about entries, exits, and reading indicators. These are important, but what powers a trader to victory is her mindset, her psychology, her will to win. Most aspiring traders just don’t have the right mindset, which makes trading success elusive.

This is not your traditional book of Tao. Neither is this a traditional trading textbook. This book is called The Tao of Trading because Tao means “the way.” And in my own unconventional, tongue-in cheek style, this book will teach you “the way” to build abundant wealth regardless of the market circumstances you find yourself
in. This book is the culmination of my twenty-five years of experience trading the markets, and it will help you acquire both the techniques and the mindset you need to be successful in trading. It is the very information I wish someone had shared with me when I commenced my journey as a trader.