The biggest mistake that traders make is that they misattribute skill for luck
and they misassess probability levels. My name is David Jaffee from BestStockStrategy.com
it. Multi-million dollar account and I may have
it falls to the low end of the range I sell a naked put on that security
sometimes if it's an expensive stock like Amazon I'll sell a vertical credit
spread that's pretty much it trading is very easy I made all the trades from my
phone and it only takes me about 15 minutes a day five days a week but one
of the problems is that people over complicate things and what they do and I
see this on Facebook is I'm a member of the RobinHood group is they
misattribute luck for skills so I see people who will make money by buying a
call option on Amazon and then they'll take a screenshot they'll post it to the
group and then they'll expect validation and adulation from the other people in
that group but in my opinion this is very negative reinforcement because
whether that person makes money or loses money on that trade it is an incredibly
poor choice to actually make that trade and actually making that trade is going
to lose that money in the future because they're going to win on that trade maybe
three out of ten times and then they're going to think that they made money
because of some specific circumstances which are
completely luck right because even if you win on that trade three out of ten
times then that's the that's the statistical outcome and you're not
really going to deviate from that whether you make that trade a hundred
times or a thousand times so but they're gonna think and they're gonna miss
attribute some chart pattern or some market condition and they think that
that's going to increase their odds and make that trade profitable six out of
ten times instead of three out of ten times so they're going to try to
replicate those winners and increase the odds of those winners and then they're
going to keep throwing money at a trade that is worse than the odds of a coin
flip so the times that they make money the three out of ten times that that
trade makes their money they're gonna miss attribute it for skill when the
reality is that they made money simply based upon the expected probability from
that tree they're gonna make money on that trade probably three out of ten
times or thirty five times out of a hundred you know thirty or thirty-five
percent but they think that when they make money on that tree then it's skill
when in reality it's just the expected probability that's why we make money by
expected probabilities and predicting like how likely something is to happen
for example a lot of people are spending $200,000 on a college degree and then
they get out and their first job is working in retail or working in real
estate which are jobs that they don't even need a high school degree for or
much less a college degree so they spend a $150,000 - $200,000
dollars to get a degree and then their first job or their second job at a
college or their eventual career ends up to be something which is completely
different from what they majored in in college and it turns out that they
didn't even need to go to college they didn't even need to spend that $200,000
and accrue that debt at five percent annually and in my opinion much more
importantly sacrifice those four years that they gave up when they could have
been learning monetizable skills because what they did in ordered when they did
when entering college is they missed attributed how beneficial college would
be to their life another thing which I think people are very bad at is they
will eat really shitty food and they'll misassign the probability is of how
detrimental and how harmful the intake of that food actually is to their health
so they'll eat food and then they won't notice the effects immediately so
therefore and don't forget about it but what they don't realize is that the
harmful effects of that trashy and garbage food are cumulative over and
over nature over time it's very pernicious and over time when you eat
that food it might not have an effect on you immediately but you know you might
feel that effect from that burger you ate five days ago or you know like you
might feel the effects next month when it deregulates like your insulin levels
or it increases the number of the amount of visceral fat that you have or it
decreases your your body's uptake of dopamine or things like that I see this
happen all the time with people who take SSRIs and antipsychotics and
medications where they take these medications from the doctor because it
was prescribed to them and they they assign a being misassign the
probability that they think that it's gonna get that it's going to increase
their feelings of well-being and they end up with like hormonal deficiencies
they end up with increased stress, decreased sex drives if they increase they end up with
increased brain fog or the inability to remember things or to speak clearly or
increase thoughts of suicide so what they're doing is they're misattributing
the probability and the expected outcome of their behaviors and
that's really what separates successful people from unsuccessful people
sometimes successful people they make decisions which might feel a little bit
off but if the expected probability turns out to be something that they
should engage in then they will take that action and actually do it and
because the expected probability is positive whereas unsuccessful people
they are not as accurate in making judgments and assigning probabilities to
expected outcomes and then that's why they make poor decisions this goes in
everything from like dating to you know choosing your job etc like if you meet
someone and they act like a jerk or they disrespect a waiter and they make a
comment and then you just disregard it and you think that things are gonna get
better whereas someone who is better at assigning probabilities they're not just
going to hope that that situation improves instead they're gonna take it
as a warning sign and decrease the assessment that this person is a
valuable partner and a viable mate and therefore they're gonna not continue the
relationship with that person so these are just you know examples that I'm
making up but the point is that a major component of success whether you're
successful in life or whether you're successful as a trader is just assigning
more accurate probabilities and not misattributing things that are based upon
probability to your individual skill level like I'm sure that a lot of people
have heard that 70 to 80 percent of people think that they're above average
or an above average driver people are seeking validation they're not
necessarily seeking truth so one thing that you can do to improve your overall
life is just make sure that you ask yourself is this outcome based upon luck
or is this outcome based upon skill and the other thing that you can try to do
is try to assign more accurate probabilities for an expected outcome
and if something has a very low probability of being successful but the
payoff is very high and if it doesn't work off it doesn't work out rather the
downside is extremely limited that it makes a lot of sense for you to move
forward and try that new behavior or engage in that project as opposed to
something that might have a higher sense that might have a higher expected payout
but where if it doesn't work out then the downside is very poor so once again
this is David Jaffee remember the main takeaway from this video is that you
want to make sure that you're not misassigning probabilities and you're not
misattributing things I skill when in reality they're just luck and that's the
biggest thing that I see that's inhibiting people from being successful
traders you can go to BestStockStrategy.com and you can enter in your email and
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if you leave a comment below I'd be happy to answer it I answer all comments
and thank you for your attention I appreciate you I'm trying to be of
service and that's actually a very selfish thing because by being of