China Shop favorite Richard Friesen returns to talk to the guys about their progress. Dan and Kyle share their shop rules and Richard elaborates on the psychology behind our common mistakes. Our guest shares some of the methodology of his Mind Muscles system and how it can help our trading behaviors as well as sharing more details about his upcoming book. Richard also goes into detail on the importance of implied volatility when trading options. After regretting a quick peek into Dan’s mind, we wrap things up, we quiz our guest on his hand signal knowledge!

If you want to learn more about Richard’s book, Conversations with Money, you can email him at [email protected] with “Conversations with Money” in the subject.

2 Bulls in a China Shop: Recorded on 04/11/21

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Kyle Hedman: Dan Leeson: Richard Friesen

K: You are listening to an entertainment program put together by a company called Financial Ineptitude. Anything said on this show is not an endorsement or professional advice. Would you really want to tell a court of law you were suing us because you thought taking financial advice from two idiots on a podcast put out by Financial Ineptitude was a good idea? Really? Clown hat, smiley face.

D: Well, hello and welcome to the china shop. Kicking the door open today, letting everybody in. It’s me, shopkeeper Dan, with me as always is Kyle, creator of How you doing today, Kyle?

K: I’m doing good. It’s been rainy just had a, tried to grill in it, but you know toughed it out.

D: Rain, grill. Oh, we are so excited. We have back with us at the shop today, Richard Friesen. How are you doing today, Richard?

RF: I’m doing just fine. Just got back from a trip down to Big Sur and Monterrey, and Highway 1, and you guys have experienced that, I think?

D: Yes, very beautiful.

K: Yeah.

RF: Looking over the edges, my eight year old grandson goes running up to the end to look down.

K: Nice heart-stopping moment on an otherwise pleasant drive.

RF: Yes.

K: He’s probably the adventurous one then, huh?

RF: Yeah, or you know, at eight years old.

K: Yeah.

D: Yeah, I can remember being that age and being fascinated when my family took us to the Grand Canyon. And I didn’t make it to the edge. But I definitely started running and was grabbed very quickly.

K: I think when we were, how old were we when we were in San Francisco walking across the Golden Gate Bridge? Was it 16?

D: Oh, that was that Utah trip.

K: They had that fence up there to keep people from jumping off, and I think you wanted to test it out to make sure it was safe.

RF: It doesn’t wooooooork….

D: Just trying to keep people safe, Kyle. Trying to keep people safe.

K: Yeah. Well, that’s that’s that’s kind of what we do, isn’t it? We test out things.

D: Yeah, that is the heart of the show.

K: People need to know if they work.

D: That’s that’s funny. The heart of the show. Let’s watch Dan test the the safety rail of the Golden Gate Bridge. I haven’t changed in 20 years.

K: No.

D: Yes, okay. So we are so glad to have Richard back. He is such a seasoned professional.

And he’s got so much, so much inside that brain of his, we wanted to catch up with him and let him know where we’re at, and see, see what he thinks of our progress.

K: Yes. So as people heard back in the March review, we did come up with a list of shop rules. I’m thinking that maybe we should start with that.

D: Mm hmm.

K: Dan, do you have the list handy?

D: I certainly do. All right.

K: I feel like we probably should have memorized them if they’re our shop rules. I remember number one.

D: There will be a lot, it’ll be a lot easier once I get the the song, the parody song finished and recorded. Because then then you can remember it to music.

K: Yeah.

D: The first one we have was submitted by Kyle, though I’ve done it plenty of times. It was double check, double check your order before you make it.

K: You know, they give you that stupid confirm screen. And I don’t know how many times you just click it without even looking at it. And this happens more on mobile phones than anything else. But I find where it’ll switch the buy to open or sell to open to the opposite of what I want, really wanted to do. And of course, because I’m setting my, my bid, or my ask at a spot where it’s favorable to me, when you flip it the other way, then it’s super favorable to the other guy trying to sell it.

D: Right. Right.

K: So yeah, I’ve been burned by that one a few times.

D: Richard, is that, is there often miscommunication like that where you’d have to double check that you’re seeing what the, what you think you’re seeing?

RF: Sure, and what, I think you pointed out that’s important is what’s going on when you hit that order. It’s a whole bunch of emotional excitement. There is some concern. There is a, in other words, when you’re about to hit the order, it’s like when you’re taking a shot when you’re hunting. There’s that just moment of precision, and as a result, your brain doesn’t really have the extra bandwidth to take in what’s going on. So it’s, as you hit the order, in fact, you can even, well yeah you, this is really good exercise. So as you hit the order do a quick what we call our SET score, sensations, emotions, thoughts. What are my physical sensations? So right now, you know that we’re, I’m kind of new to the broadcast, and we’re just started and I haven’t relaxed. And I notice my stomach’s a little bit tight, my chest a little bit tight. So I’m going to take a deep breath. Emotionally, I feel funny and humorous or feel it’s kind of light. My thoughts quality are fairly relaxed and easygoing. So I’ve just did a really quick SET score. So if you do your SET score, and notice what’s going on, and then one of the things is to say, okay, what do I see? And then you can take a look at the order. So if you are aware, and you accept what you notice, then you can take the next step and broaden the input and see what’s going on. If on the other hand, the tight stomach or the tight chest, or the excitement, emotion is where it’s reactive, your higher level brain then doesn’t have the chance to really look at the order.

K: Ah.

RF: So that’s a, you know, I in the book that I just wrote, and is pretty well finished now. And we can talk about that later.

K: Yes.

D: Yeah.

RF: Is that I read it out loud. Oh, my gosh. All the things that I thought were clear, because when I read it to myself, my brain knows what it’s saying, it interprets it, and it allows it to override what’s really there. Well, so this is a thought. You can say, I am buying 50 April 25 calls at such and such a price. Saying it out loud, just like reading the book out loud, allows your brain to really look.

D: Mm hmm.

K: That’s interesting. I found that when writing articles for our website too, is by the time I give them to the wife to do like a quick review to make sure the grammar and everything is correct. Like as she’s reading it, I’m usually going back through and reading it again. And then after I put myself out of the writing mindset and into the reading mindset, then suddenly things start popping up again that I didn’t notice when I was putting it together before I gave it to her.

RF: Yep. Sometimes I’ll write something, my wife will read it. What the blank is this paragraph trying to say? And I’ll say oh, it’s trying to say ABCD. Pause. Well, why didn’t you write that?

K: Like that, that that idea of taking a break and assessing yourself, though, before you finish? Because that’s something that we do, safety wise, in the steel industry. Before you jump into a job, is you’re supposed to stop, take a couple minutes, assess the job, look for things that can hurt you come up with a plan, and then go do it. Because there’s always the, you know same with trading, you’re trying to get it in, you want to get it now before the price changes.

D: Mm hmm.

K: And you know, it doesn’t really change that much. And it’s also cheaper to get it right than it is to get it fast and wrong.

D: Well, yeah.

RF: That’s an excellent point.

D: Yeah, pa- patience is definitely one of my big issues at the moment.

K: Right.

RF: So patience…

D: I open I open the app and I want I want to trade, I want to be trading. And having positions like isn’t isn’t good enough. So I’m alw- you know, I I’m getting better at it. But I’m always popping it open and thinking like what’s my next trade, what can I do? Oh, I know, I’m waiting for this price, maybe if I nudge it down a little bit I can get to, I could sell that contract today.

RF: Mm hmm.

K: Right?

D: Yeah.

RF: Yeah, and that’s something, if you want to take a look at we can go a little bit deeper into the driver.

D: Well I know ky- I know Kyle would like that to happen, because he felt like I wasn’t so emotionally exposed last visit.

K: I’m just asking for a friend because I don’t do that, obviously.

RF: Mm yes.

D: Right? Right.

RF: All of my clients bring their friends to, for therapy. And no, you know so they’ll…

D: Right right right right. I mean my friend is too, too proud to show up so I’m doing it for them.

RF: Yes.

D: Mm hmm, mm hmm.

RF: Yes.

K: Hey, Dan, don’t you want to ask him about this problem you have?

RF: Yeah.

D: Oh, yeah, yeah. You probably have a list of my problems longer than a list of shop rules.

RF: Okay, shop rules. What’s next?

K: All right, number two is log everything.

RF: Okay. What’s everything?

K: All your trades. Whenever you’re making any trades, you need to be putting it in your logs and analyzing why you did it, and whether or not it worked as you expected. Sometimes, or at least lately, I’ve been getting kind of slack in keeping that that log going.

RF: Mm hmm.

K: So I’ve been taking a lot more effort to try to make sure I’m putting that together. If you don’t know what you’re doing and if it’s working, then how can you possibly analyze whether you’re getting better as a trader?

RF: So here’s what I’m gonna offer you guys, is our Mind Metrics program.

K: Hmm.

RF: And this is a whole revolutionary way to log your trades. And what we do is, and I just demonstrated earlier the sensations, emotions, thoughts.

K: Okay.

RF: What we do is we log those every day so that we can see how we’re doing emotionally, or with each trade, depending on how frequently you trade.

K: Mm hmm.

RF: We also look at the behaviors. For example, one behavior is, I’m just eager to trade and I want to trade now, and I’ll push my strategy to make a trade because I need the action. So that’s one behavior. We look at the positive intent of that behavior, it might be to relieve emotional stress or whatever it is. Then we look at what would we prefer instead? When we look at that, we say, I would like to execute the system, be patient and have a powerful mindset, and be a master trader, who waits and allows the market to settle to a point where it’s just right. So that’s what we want instead. So what we do is we measure ourselves on those behaviors, we measure our emotional response. And then in the Mind Metrics, we measure something that is, can can be like a brick on the forehead. What we do is we measure our lousy and lucrative trades. And a lucrative trade is a trade where we, our SET scores are within a range, we are following our system, we are waiting for the setup, we’re waiting for the execution, we allow the trade to go to our target price. Or if we have other parameters such like if a trade lasts for more than two hours, that means you know, we get out, or there’s something intervening, and we follow the system. So if we look at our lousy and lucrative trades, and I wish I could bring up an example here, but some traders find out if when they follow the system, they are immediately profitable. But their lousy trades sometimes lose five, 10 times as much as their profitable systems make. And if they just stayed with their system, they would be immediately profitable. So Mind Metrics journal is our SET scores, what is our sensations, our emotions, thoughts. It is the behaviors that no longer serve us, and the behaviors we want. And then is this a lousy or lucrative trade? And it’s in a vertical thing. So you can see immediately, and then you put the P&L for the trade. So you can see immediately these impacts, how they impact your P&L, and it is eye opening. And because there, we have this all color coded so whenever you enter a number, it turns it into a color. And I, as a coach can look at this and within five seconds know exactly what the issue is, when we set up a session with a client. I mean, it is just so crystal clear. In fact, I was even thinking about starting a group where everybody puts this stuff online, so that we know that when you come to the group, that they are going to be looking at this. And I was just wondering if, how that peer pressure might impact us in that moment when we want to be impulsive, and that impulse takes over. If having that higher level review coming up, if that wouldn’t impact that impulsivity s- a bit.

K: Hm.

D: Yeah.

K: I think 100% it would. I know just doing the show with Dan, even just reporting to Dan, let alone the listeners. It keeps me from being a lot more impulsive than I think I normally would be.

RF: That’s wonderful. Yeah, you can credit Dan for your success, then.

K: I don’t know if I can call it success yet.

D: Right, right?

K: (Inaudible) see more positive months before we can, you know, declare the markets conquered.

D: Yeah, I’ll take 10% Kyle, no problem.

K: Right.

D: I wish I could say Kyle’s made me better, but I have no shame, so I don’t, know peer pressure doesn’t work that well for me in that manner.

K: No, but I think just bouncing ideas off of each other has helped too. So if you’re talking about a community as well, where there’s interaction, I think that would help.

D: Oh, certainly certainly, and the, and the doing the r- show with you is helped me immensely if you just look at what I was doing last summer versus what I’m doing now. I mean, it’s it’s incredible the the difference.

K: There’s money for your accounts.

D: Yeah, there’s yeah, there’s there’s a lot more money in my account than there was so.

K: Yeah.

D: Must be doing something right. So is, are those those logs, those SET logs with the profit and loss, are those available on your website, Richard?

RF: Yeah they’re, the Mind Metrics program is available through our Compass online course.

D: Okay.

RF: Because you need some background, a little bit of training, some reframes, in order to do this. Because this takes us out of the mindset that is not productive, and takes us to a new mindset. And that shift is, is significant. And if we look at our brains as a series of neural connections, what we’re looking at doing is creating new neural connections around behaviors that serve us better. But just like any habit, and creating new behaviors, creating those new neural connections, requires some intention. And that intention happens easily or most easily, if they feel better. So what I do with my clients is, I will prime them. I will say something like, they’ll say, “well, god, I really should think about my trades beforehand.” And I, I really got to make sure that they’re, jeez they’re you know, they’re following the system. So I’ll say, may I rephrase that? Pause, okay. It feels so wonderful when I’m operating from my highest trading self, I follow the system, I allow the losses and profits to just take care of themselves. It feels so good to be a master trader and trade from that mindset. And I ask them to repeat that in their own terms. If we say, I need to do this, I should do this. I’m going to fight this, I need more discipline. Right now I’m I’m pushing my two fists together. And I’m pushing hard equally. So what the, that language represents is this internal struggle, where our discipline, oh, and our impulse are fighting each other. So I reframe it entirely to an invitation to a state that just feels better, honors our values, and gets us to our goals. Now that reframe is huge, because most of us have motivated ourselves through our lives, by self-criticism, by judging ourselves by pushing ourselves. And as a result, the thought of, oh my god, not judging myself not criticizing myself not pushing, oh, nothing will happen. And my response is, it’s going to be so amazing as you step into this wonderful state of rapport with yourself, and rapport with the market, and follow in your system. How good does that feel? And it’s a revolution to move from discipline and self judgment, to an invitation to a state that just feels so much better.

D: Mm hmm.

K: It’s like going from conflict to cooperation.

RF: Yeah. Yeah, that’s a really good point.

K: Damn, I learn so much when we talked to Richard. It’s incredible.

D: Oh, yeah.

K: How are you not more famous? Everybody should be, should know who you are.

D: Yeah.

RF: Well, now we’ll see what happens with the book, and and some of these principles are built into the book. So but you know, it’s like, I’ll tell I’ll tell you, nobody wakes, no traders wake up in the morning and say, hm what I really want to do with my day is to really be more aware of all the issues, I have. To look at all the hurts and pains that I have hidden from myself, and really become aware of the traumas I’ve had, and the behaviors that no longer serve me. Boy, that’s what I want to do today. Who, who on the internet could really help guide me through that?

D: Right.

RF: Now, if I were to say, Kyle and Dan, I’m going to double your profits every month. You’re going to make so much money that you’re going to fulfill your dreams, you’re going to have Ferraris…

D: Yeah.

RF: You’re going to have mansions…

D: Yeah.

RF: You’re going to get laid every day. I mean…

D: Woo.

RF: This is going to be super and I guarantee it.

K: I would think you’re lying.

D: Now, hold on Kyle, let the man speak.

K: Yeah, right?

RF: You think I’m lying, but there are people whose heart is empty, and that dream is so enticing that they will deny their rational ability, and fall for it. I have an audio called Con Artist, How to Be One. And the advantage a con artist has I mean I can, I have this skill, I can do it myself, although I’m a good guy and rarely do it. But if, I’ll talk to somebody, and I will drill down and find out what their dream is, what their hopes are, what they long for, what is that hole in their heart? What are their missing? What is their pain? And as a con artist, since you don’t have to deliver reality.

D: Mm hmm.

K: Right.

RF: You now can, you have the key to their heart. And my father was duped by multiple con artists over his life, losing lots of money. Because he was, his dreams, he was so eager to fill his dreams, that all they had to do is find out what they were, and then give him his dream. And once you do that, all of a sudden, your higher level self, your rational self, no longer has unique access to your decision process.

K: Sounds like the dark side of psychology.

D: Yeah.

RF: So what’s really important in trading is to find out what your hidden hopes and your hidden dreams are. And I think we’ve mentioned this last time, that if every time there’s a tick in your direction, and you’re making money, and you go, oh, yeah, my dreams are gonna come true. I’m going to be great. You know, my parents will respect me. My w- my wife will love me. I’ll make more money. I’ll have you know, my my yacht, my my private plane, and I’ll have all this stuff, and I’ll be somebody, and I’ll be worthwhile. If every tick is a referendum on your dream, the pressure to trade, and impulsively trade, is going to be so great that your higher self, your higher trading self won’t even have a chance. So for your traders out there, is find out what hidden dreams do you have around trading? And are you bringing those to every trade? And if so, then the pressure is going to be too great to make rational decisions.

K: Hm, that’s a good point. I think we’ve all felt that when the markets ticking up that, or when it turns and goes the other way, ah, shit. Well, there goes the boat.

RF: Yeah, right. There goes the boat. Oh, you can see it sinking.

D: Yeah yeah. All right, should should we, should we move on with the list?

K: We’re gonna have a hard time getting through everything we want to get through if we keep going at this pace.

RF: Yeah, we’re totally inefficient here. We’re just not doing our job.

K: I think the, some of the some of the other ones here kind of all go together. I think we kind of covered like the no impulse or bandwagon trading. Net seller of options is one that I submitted. And I think, did I get any pushback on that from you, Dan, or is that?

D: Yeah, I’m wondering if that isn’t, I mean, I agree with the strategy that you’re doing, you should be a net seller of options. But I don’t think that that should be like a rule for anyone out there trading.

K: Okay. So what we learned from talking to some of our other guests is we started thinking of options, as you know, insurance. Which is you know, what they really are. They’re protecting you in case the stock shoots up, or tanks, depending puts or calls.

D: Mm hmm.

K: So, what I’ve been doing this last month is trying to work out a strategy to where I can just generate a monthly income selling puts and calls. Cash secured puts and covered calls on a select number of securities that I have much more intimate familiarity with.

RF: Well, selling premium you, what you pointed out is really, really just right on, it’s like being an insurance company.

K: Mm hmm.

RF: And occasionally, there’s a hurricane, an earthquake. So what’s your betting is a whole bunch of small gains against the potential for a large loss. Now, if you’re covered, you know you can, or you put on complex butterflies and condors and reverse condors, and I don’t even know but, I traded options for 20 years professionally on the floors.

K: Right.

RF: And I don’t even know what what those things, all those positions are. But in fact, I don’t know if I mentioned it, but I gave a presentation to the Silicon Valley Options Group. So this is the the techies, the there’s maybe 100 people in the group. And I had them all close their eyes., and I said, “How many of you are consistently profitable or have been profitable over the last few years?” Out of a, maybe 100 people, three hands went up.

K: Wow.

D: Wow.

K: That’s crazy.

RF: Yeah, and that is because they dealt in these complex things. And then if it wasn’t going the way, they would put on this to balance that, and then they would cover that with this. And so there, they, they didn’t understand the basics of options. And especially, it used to be that options really got far away from value when we were on the floors and just started. Oh, my gosh, you could put on reversals and conversions for a profit, locked in profit. I mean, it was just crazy. But right now the, for the most part options are driven by algorithms that just keep everything so in line, that you need to have a different edge. And by putting on complex positions, what you’re doing is you’re actually giving away your edge because the more positions you have on, the more they are going to approach value.

K: Ah.

RF: So I know traders who trade directionally with options, but some of them don’t even understand the primacy of implied volatility. And as an option trader, that’s all I traded was implied volatility.

K: We just started dipping our toes into that realm.

RF: Okay, excellent.

K: Having some luck with that.

RF: Oh, that is so good. What I did when I was on the floors is, this was before we had everything computerized, is I had these huge g- what, two foot by three foot graphs. And I would chart the at the monies, you know, the calls and puts that were closest to that the money, the implied volatility. The 20 delta, if you understand what that is.

D: Mm hmm.

RF: So that’s the out of the money 20 delta, and I would chart the implied volatilities there of the calls and puts. Then what I would do is then chart the price, and this is all by hand again. So what you find out, there’s there’s waves of volatility. And they correlate with the movement of the, well at that time it was the underlying stocks. And of course, and it still is the case, as the market moves down swiftly swiftly, the implied volatility goes up. If you get a slow uptrend in the stock, the implied volatility goes down.

K: Right.

RF: So what I did is I just charted the implied volatility, and bought and sold options depending on that. But a lot of option traders aren’t even aware of that, or they’re aware of the definition of it, but they make their trades without a complete understanding. Where is the implied volatility? Is it historically low, is it historically high? If you’re selling premium at a historically low implied volatility, the risk there is far greater than when you are at a very high level. Now at a high level, you have a lot more volatility, and there’s a different kind of risk. But a- but at least you have the ability, the possibility that you’re going to make significant money w- as that implied volatility starts to collapse. So you have to look at that from that framework. And so I advise everybody to you know, if you’re on thinkorswim, or wherever you are, to chart the implied volatility. You have to turn it by hand, as a physical way to just really get it ingrained in your, in your mind in a way that you you get an understanding of its rhythms.

D: So so, you’re talking about when implied volatility is low, then that’s when you’re looking to buy the, like the calls.

RF: Well, you know you, low volatility can go on for a long time. Yeah. So I’ll give you a story. And I was making a lot of money, trading options on my own. And the markets went quiet for a coup- for several months, and I got bored. Then I went off to start a- another company, which is a, it was a huge mistake. Not just because of the result, but because I did it out of boredom and needed some excitement. So I came back to the floor after losing all my trading capital.

D: Right.

RF: And Micron was this was ’95 or something, had been just going down and people were coming in, and just selling premium. That’s what the firms were doing the retail was doing. And so you step into the pit and somebody says, I don’t even remember what they were, but the 840 calls, and I would say three and a quarter bid at a half, and they’d say sold at a quarter. So then you’d be three and an eighth and three and three eighths, sold at an eighth. So you you ended up, wanting to or not, ending up with a lot of premium. And it was just killing me, and the little money I had my trading account was dwindling to the point where I was afraid I’d get a tap on the shoulder from the clearing firm.

K: Hm.

RF: But all of a sudden Micron just took off. And there were only a couple, three of us traders, and it was like money, I mean, it just flowed. I made more in two months than I made normally in a year.

K: Wow.

RF: But had Micron premium stayed low, it could have very well put me out of business. So you know you, you got to look at risk assessment. But if you know where the implied volatility is, you can start to know where your risk is.

D: So in that example, when you were buying the Micron, you were, you were buying calls?

RF: Yeah, well, fo- again, I trade implied volatility.

D: Right.

RF: So it didn’t matter if I was buying calls or puts, that was irrelevant, because what I did was I get myself what’s called delta neutral.

D: Right.

RF: So example, if I bought 150 delta calls, that means I needed to sell an equivalent delta amount of stock against it. So my only position was the implied volatility. So if I bought calls, for example, and sold the stock against them. When the market went up, my calls would go up in, more in value than the stock I lost. So then what I could do, as the stock went up I would get longer, I would sell the some of the stock. The stock would go down, I would get shorter, then I would buy more of the stock. So even if a stock didn’t go anywhere, I could pump that premium, because I’m getting longer as it goes up and shorter as it go down, so I could pump that premium. If on the other hand I was short, and then again it doesn’t matter if I’m short calls or puts, because if I short puts, I’m going to sell the stock to balance against it.

K: Mm hmm.

RF: So if I’m short on the other hand, and the market starts to go up, I’m getting shorter, I would start to buy you know, at the higher price. If it starts to go down, I need to sell.

K: Mm hmm.

RF: So if the stock is relatively quiet, my buys and sells are there, and I just get the advantage of having, as the price of the option goes down with decay, with time, then I get to make that decay. If on the other hand, the market moves radically during that time, then I keep buying tops and selling bottoms. And I tend to you know, it tends to be a losing position. But again, it’s just implied volatility that I’m trading. And so if I’m charting implied volatility, I can take a reasonable guess as to whether I want to be a buyer or a seller.

K: Okay, so your, you know, once you know where it wants to be at normally then you decide based on whether it’s above or below that currently?

RF: Right, so another option story. I was just starting trading for CRT, excuse me. I was just starting to trade for CRT, which is a large option trading firm. And we were trading stocks for the first time, I was on the Pacific exchange and a stock (inaudible), there was a big accounting fraud or something, it dropped 30, 40%. The implied volatility in the options went to like 70, 80, 85. And so I got a call, I wasn’t trading in the (inaudible) pit at that time. So I got a call, says we want to sell some premium. So I went in, and Rich Friesen, philosophy major, very careful, looked, and there were some options at 85 implied volatility. And I sold 10 or 20 of them, I forget what. And I went back the phone and said okay yeah, we sold 15, 20 options of this strike you know, this implied volatility. And I remember Gus on the end of the line says, Rich no, we want to sell a lot more. So I went back again, I looked carefully, I looked at the, all the calls the puts. Where was the premium the highest? And I sold, I don’t know 50 more. I says okay, Gus, we’ve we’ve sold. And he says just a moment, Rich. There was silence on the phone, I heard him in the background talking to somebody else, and the owner of the firm Joe Vinci(sp?) came on and he said, Rich, should we give this to a broker?

K: Oh my god.

RF: OMG. I went back, and Rich Friesen, both hands up, fa- palms away, sold, sold, sell you 50, sell you 100, sell you 50. I drove the, I personally drove the implied volatility from around 75, 80 all the way down to 60.

K: Oh my gosh.

RF: So I came back, we sold 1,000 or so options, and the volatility then just collapsed down to 40. The implied volati- again you just notice I’m talking about implied volatility.

K: Right.

RF: That’s what we traded. And there was almost a half million dollars in my account from that trade alone.

K: That’s crazy. I think I think we just lost Dan.

RF: Yes, we did.

K: God dammit. Alright, so we’re learning some issues with Zencaster it looks like. All right Dan, did you get back in it?

D: I did, hello.

K: It sound like you were tearing up your office, is what it sounded like, Dan. Were you throwing your chair around or something?

D: Yeah, you know, I got really angry at hearing how Richard wasn’t buying enough of that, that option, those options, and I just wanted to smash stuff.

RF: Well, well, that is, yes, Dan. Yes, Dan, let’s talk about, let’s talk about your impulsivity.

D: (Inaudible).

RF: Dan, that’s a wonderful awareness of your emotional state. And I, as a therapist, really support these awarenesses that you have of your anger. So let’s talk about your mom and dad, and where this anger is coming from.

D: Hmm, hmm. Yes. Yes, my impulsivity to to throw office chairs, and get angry at hearing stories. Yeah, yeah. Well, you know, I think it all started when I first came to America on a boat with my, as an immigrant child.

RF: Yeah.

D: I got separated by my family.

K: That sounds like a lie.

D: From the old country.

K: I think, are you telling…

D: We were trying to get away from cats.

K: Are you telling the the…

D: There were too many cats in the…

K: Oh my god, you are.

D: Old country. Yeah.

K: That’s An American Tail, Dan. That’s that’s not your life, you’re doing it again.

D: But…

K: That’s that’s a movie.

D: No, I’m I’m pretty sure I was separated from my parents, and we had a big adventure, and eventually I made my way out west.

K: Yeah, that was the second one.

D: That was…

RF: I have now learned not to go into Dan’s past at all.

K: Dan’s past is terrifying.

RF: That that’s’s a dead end street there. In fact, nor- normally, I encourage people to really become aware of all the traumas in their past. But I think with Dan, we just should seal them up, concrete and rebar, and not look at them.

D: Stuff it down with brown.

K: That’s not good when your therapist tells you (inaudible).

D: Yeah, stuff it down with brown.

K: But you know what? You know what, Dan? It’s not worth it.

D: Yeah, bottle that shit up. Yeah.

K: Just shut the door.

D: Just bottle, you better bottle that. Yeah. Anyhow Kyle, did we want to, I believe we had some more stuff.

K: I got through most of the stuff I did. I got some fun stuff prepared for Richard. But if you’ve got anything else that you want to go through, if we want to let Richard talk about his book that’s coming up, and some of the other stuff that he’s got to promote.

D: I mean, I did have a couple of things I wrote down, that I was wondering if I could see if Richard would sh- has any experiences from the trading floor. Did you ever y- have you ever seen that movie, Rudy?

RF: No, I don’t recall that.

D: Richard?

K: Okay, it’s the, that’s the one about the guy at Notre Dame, the football player?

RF: No, no, I haven’t seen that.

D: Yeah. And then the, in the, the important scene is the underdog, he fights the whole time to get on the team, and then he has his moment. And they end up, the whole team carries him on their shoulders off the field in celebration at the end of the film. And I wondered if there were any moments you ever experienced where somebody did something that was just so awesome that everyone maybe they didn’t, obviously it’d be absurd to think that somebody got carried off the trading floor. But was there anything where you felt like, that a thing happened, and everybody’s like that guy did a great thing today, he’s awesome?

RF: Nothing comes to mind. I know there are times when I saw something that everybody was missing.

D: Hm.

RF: But it’s not like we’re on the same team. It’s like, if I’m winning, you may be losing.

D: Oh, gotcha gotcha.

RF: And there may not be a full appreciation of the fact that you weren’t on my team at that time.

D: Ah, okay okay, so so what was the time that you s- you notice something nobody else seemed to notice?

RF: Sure, let’s see, a couple of stories. The the most important part of understanding the markets is transitions. That, if the market maintained the same pattern for a long period of time, we would all be rich.

D: Yeah.

RF: An example of that was the dotcom boom, where people came off the street, didn’t know anything about stocks or markets or no history. They sat in a physical trading room at that time, and everybody made a lot of money. But then of course, the market, what we call the market mood, shifted and they started losing. So on the floor, I remember a time when there was these patterns of the impli- again going back to implied volatility, that we just, you know, we were selling high, buying it low, selling high. And I smelled something that was different. The firms were coming in a little different, there was a little bit different size. And I says man, this position, this spread, these huge spreads we had on, there’s something wrong. And everybody else was putting more on, these spreads were getting wider. And they were selling more, they were selling, man we’ve been selling these at, you know, X, and now we’re selling them at X plus 15%. Wow, is this great?

D: Wow.

RF: This is even better. And I thought no, we’ve shifted the market. So now I had to be on the other side, the same side as the orders coming in, and it was a little work to get out of them, but I got out of them. And then I put more on, or no, I bought more of the spread rather than selling it. And all of a sudden it just exploded. And when it exploded, all these guys, like who had put on huge amounts because it was such a safe bet, all of a sudden had to get out. Now I had what they called is bullets. In other words, I had something to sell, because I had worked myself into the opposite position.

K: Right.

RF: And then I could just sit back and I could sell, and they were desperate, because some of them could go out of business. And so then making that sale was one of the busiest, or most profitable days of my career. So we talk a lot at Mind Muscles about the market mood, and being really sensitive to shifts. What are the critical factors? We have an exercise where you print out the market you’re trading, and then you circle the different market moods, or the different market conditions. And you might come up with five or six or eight of different types of market. You know, one could be very volatile in a range, one could be very quiet up, one could be quiet down, and you give those names. And then you look for what are the indicators of those market moods. and then get very sensitive to shifts, because I have some clients that have been very profitable. They’ve got their system, they’ve honed it, and then the market mood shifts. And then they try harder. They tweak the system. They put more on. They have been so rewarded for doing A, that that has become part of of their neural chemical, pleasurable shift to keep doing A. But when the market mood shifts, they just hang on. So knowing and being really intent on finding out when a market mood is, shift is about to happen, is where the biggest profits and the biggest losses are.

K: That’s interesting. And was it all just intuition that keyed you in, or was it just the fact that it was different?

RF: Yeah, it’s the fact, I think that one of the things is, we talked about earlier dreams. When you have this thing, and you’ve just done well, and you’ve done well over and over again. That that experience is so powerful. You don’t want to let it go.

K: Right.

RF: Whereas my experience says, oh my gosh, am I becoming cocky and overconfident? Am I getting a thrill from doing the same thing over and over again? What, does my higher self say? Are we ready for a market mood shift? And I would go into every day and say, how are they going to get me today? That my pleasure is not why I’m here.

K: Right. Just just being hyper-aware, then?

RF: Yes.

K: That seems like that’s the key.

D: Yeah, we were we were just talking on our episode we recorded yesterday about how the, I was looking at the news, and I found seven stories about how the market’s about to hit a big correction. And how that that’s just a consistent theme. In a bull market, you just, every week you seem to have analysts predicting the oncoming correction. But this is, this is the first I’ve spoken to somebody that I felt like really has been in the spot where they’re watching the market and feeling. And now you put it in this va-vocabulary, the market mood shifting.

RF: Yeah, you know if if there’s enough people saying there is going to be a correction, and that seems to be the powerful meme, then the chances are it’s not going to be a correction. Because if everybody believes it, everybody’s prepared for it, everybody has their position in the market to handle that, then there is not a lot of pressure for that to happen.

K: Right.

D: Oh.

K: Is that why Buffet says “Be greedy when others are fearful, and fearful when others are greedy?”

RF: Mm hmm, yep.

D: Yeah, that’s a good one.

K: So it’s not necessarily a self fulfilling prophecy?

RF: No.

K: It’s more of the opposite of that.

RF: Yeah, well and the problem, of course, is that the markets can continue. It’s like, I don’t know if you guys are old enough to watch the Wiley Coyote in the cartoons?

D: Oh, yeah.

RF: You know, go over the cliff, and he’s running and he’s running, and then all of a sudden, he looks down. And then as soon as he realizes there’s nothing under his feet, he starts to fall.

D: That’s when he falls, yeah.

RF: Well, we can, the markets can run on air for a long time. And the rational people, I mean like I had a, many years ago, a hedge fund manager who came to me. Professional traders, several million dollars, many millions of dollars, under management. And he had shorted Tesla.

K: Mm hmm.

RF: Rational. Tesla didn’t have a chance. You know, the guy was an egomaniac. He’s he’s going against GM and Ford. What chance does Tesla have?

K: Right.

RF: And he, so he shorted it at like 75 and he had lost half of his, his hedge fund.

K: Oh, man.

D: Wow.

RF: So you know it’s it’s fascinating, but most…

K: Yeah, rationality doesn’t always rule the day.

RF: It, no, it doesn’t. It’s, people’s perceptions of the markets are more important than actually the markets themselves. Because it’s the perceptions that drive it.

K: Mm hmm.

D: Yeah, we’re seeing that a lot with the earnings calls, where we’ll read through the earnings call results and be like this is great news. But the stock price falls anyway.

K: Yeah.

RF: Yeah, that is so typical, because everyone’s expecting X. So everyone buys X, you know, buys the stock, and then they’re getting ready to sell on the good news.

K: Mm hmm.

RF: Well, there’s no buyers.

K: Right. I like watching for those dips, when their earnings are are really good. And then I’ll go scoop up some shares after it dips.

RF: Mm hmm.

D: Mm hmm.

K: Like I think six months ago Costco ended up doing that, put out some decent earnings, and then just tanked the ne- next day after the report came out. It’s like okay, well, those weren’t bad. And I’ll buy some of that.

D: Right? Right.

RF: Yeah, exactly. You know, what are people prepared for?

K: Right.

RF: Oh, my gosh, some horror stories on the floor. This, we had gone through several cycles where people were buying ahead of the earnings reports because it was time when earnings were exceeding expectations.

K: Mm hmm.

RF: So she bet everything she had on an option, because this had worked for three or four times.

K: Oh god.

RF: And the market shift was about to happen, and it didn’t. And so she lost all of her savings. She was a clerk on the floor, and so again, you’ve got to watch those market mood shifts.

K: I thi- what was the phrase we came up with, Dan, when we first started doing this? It works until it doesn’t?

D: Yeah.

K: Like it’ll work three times in a row, and then that fourth time you learn ev- you lose everything that you made on the previous three.

RF: Yep.

D: Yeah.

K: But you make a good point, if it did the same thing all the time, then there’d be a lot more millionaires out there.

RF: Yeah, everybody would be rich.

D: Yeah, we’d all be rich, yeah.

K: Yeah.

D: All right Kyle, you want to you want to move on to the fun and games?

K: Oh, okay. All right. Let me pull up my charts here. So Richard, I prepared something here for you, a little quiz about hand signals.

RF: Oh no, I don’t remember any hand signals. Come on, don’t do this to me.

K: All that you have to do is you have to tell me if the hand signal is for a trading pit or baseball, or if it’s a mobile crane signal?

RF: Oh no.

D: That’s all that’s all you have to do.

RF: I don’t know anything about any of those.

K: Well, you don’t know what they are yet.

RF: I’ll take guesses.

K: Okay. All right. We’ll start with, we’ll start with an easier one here. Let me see if I can find it here. All right, one finger pointing down to the ground. What is that? Is that baseball? Is that a crane? Or is that trading?

RF: I guess crane.

K: That is baseball. That’s a fastball.

RF: Okay.

K: All right. All right. Let’s try another one. All right, one finger pointing up in the air twirling in a clockwise direction.

RF: Well it’s not trading. Crane?

K: That is definitely a crane.

RF: Okay, so a stopped clock is right twice a day.

K: Alright, let’s try another one here. Let’s see, I just lost my shot. Okay, palm out. Two fingers parallel to the floor. What does that mean? What is that?

RF: That’s trading?

K: Yes. Do you know what it means?

RF: Don’t remember, but I remember that it was from the floor.

K: Let’s see, I think palm out was sell…

RF: Sell?

K: And the two parallel is seven.

RF: Okay.

K: All right, you want one more? Should we do one more? All right, two thumbs pointing in the opposite directions, and then like moving, oh god, I don’t know how to describe the movement.

RF: Your thumbs are, well…

K: So you put your hands in front of you with your palms facing up and your thumbs pointing away from each other and then you move your hands apart from each other.

RF: I’m gonna say baseball.

K: No, that is another crane.

RF: Another crane? I could have,  I should have just just guessed crane.

K: Could have stuck with one and you would have, well you still got one out of four, that’s not bad. No, two out of four, two out of four you got.

RF: Oh gosh.

K: You got 50% I’ll give you that, I’ll give you that.

D: Kyle, Kyle, what what is the the gesture if I take my center finger and point it upward, palm facing towards me?

K: With a closed fist?

D: With a closed fist.

K: Richard, you got any ideas?

RF: Yeah, that that’s a symbol of setting your boundaries in a positive way and allowing other people to fully appreciate the emotional intensity that is going on inside you and sharing your most heartfelt emotions in a time where the other person may not fully perceive how you’re feeling and how you’re being hurt.

D: Yeah.

K: I’m guessing you had to write a paper on that at one point. That was the most beautiful description of that I’ve ever heard.

RF: Of the finger, yeah.

D: Yeah.

K: Oh my goodness. All right. Richard, do you want to let the people know what you got going on? And where they can find this stuff?

RF: Yeah, my biggest love right now is my Conversations with Money book. I’m looking at our current culture, the young people were out of rapport with their feelings about money, wealth, success. And there’s just so many internal conflicts, especially with people with really good hearts, and want the world to be a better place. So I wrote the book Conversations with Money. It’s about Joe, a journalist who is just conflicted all over the place, and he has a series of conversations with the character Money. And he also has a love interest with Julie. And we go through basic principles under the guise of conversations, and Joe fights every step of the way. So what I’m doing now that the book is ready to go, is I’m doing a pre-release copy along with weekly meetings, and an online course that allow people who are not having the relationship with money, and not getting the results they want, to have them work on it. And as you know from our last session, we did some hotseat work. And that’s the kind of work that we can do. So if they’re interested, they can send me an email and I will put them on the list. And you can just send [email protected] that’s plural, [email protected] and just say, Conversations with Money. And I will add you to the list, and when we are ready to release the dates and sign people up, I will let you know.

K: My wife just got the copy of the manuscript. She’s reading through it. I’m waiting patiently to get my turn at it. Let’s see, so we’ll put the links to all that stuff in the description. And we’ll also put a link to your Mind Muscles web page.

RF: Right.

D: Yeah.

K: Is there any other…

RF: Yeah, we have an, for traders who want to have an assessment of their mindscape there’s a free assessment there they can take. We have online courses, you can take it by yourself. And the most aggressive way is personal coaching with me. And my god is that fun. I I I will th- hang in there with you while you’re trading. We’ll do hotseat work in that actual moment. We do the Mind Metrics journal, which I’m going to send you guys. And we can maybe look whether we want to include that as part of the program, there’s just so many wonderful things to do as you start to feel better about yourself, you start to operate from your higher self, you start to move forward and get the results you want. That feels so much better than judging yourself, beating yourself up and trying to force yourself to discipline Oh my god, let’s step into that more wonderful world that feels good and gets you to your goals.

K: We might have to redo our good, bad and the ugly segment to be a little more positive, Dan.

RF: Right.

D: Right? I’m, well I’m really excited to start working with the journal stuff.

K: Yeah, me too.

D: And we could very well reassess the good, the bad, and the ugly to reflect, you know, your SET score. You know, as we log them all like, what was what was the good, the bad, the ugly from that.

RF:I will set you guys up, send you emails and we can talk about how to move forward.

K: That sounds great.

D: Oh, fantastic.

K: Dan, you got anything else to cover here?

D: No, no, this has been such a another great wonderful call.

K: Fascinating every time.

D: Thank you, thank you, thank you, Richard. You’re amazing.

RF: Oh, you guys are so much fun. I would pay to do it.

K: Oh wait what?

D: Oh, well. Let me turn off the recorder. I’ll take your credit card.

K: Okay.

D: Hold on.

RF: Okay.

K: Oh god. Oh did we miss that Dan? Are we supposed to be charging for any of this stuff?

RF: Yeah.

D: You know?

K: Oh god, okay.

D: What kind of person charges somebody to talk to them, Kyle, a therapist? Come on, I don’t sink that low.

K: I know, right?

D: I wouldn’t seek that low. No.

K: When we signed, when we signed up on the guest exchange, yeah, that they said never charge. I’ll never charge a guest to be on our show, that’s ridiculous.

D: Oh, yeah, they were asking us how much we charge. And yeah, they wanted us to set a price, and it was like no no zero. Like, come on, talk to us like, come on.

K: Yeah.

D: Who am I? Who am I to, yeah I’m yeah, no no. I’m not charging somebody to talk to me.  That’s not the purpose of the show. Anyway.

K: If you, if you take money, too, then you don’t get to ask real questions anymore.

D: Yeah, yeah, I really value a genuine conversation more than anything else. That’s that’s really valuable to me as a human being. Anyway.

K: Yeah, we need to stop talking.

D: All right. It’s been a great time, getting totally off topic. Now we’re just hanging out, which is you know, kind of what we do in the shop, rambling, we like to ramble. We want to thank you all for joining us and making it to the end of the show. We’re so glad to have Richard back. And as we discussed, we’re gonna we’re gonna start incorporating some of his, his his methods into what we’re doing and we’ll, we’ll keep reporting how that works out. Check out his links in the episode description. And until next time, folks, happy trades.

K: Bye, folks. And thank you again, Richard.

RF: Thank you guys. Thank you, Kyle. Thank you, Dan. Really appreciate the time.

D: Oh, you got it right.

K: All right, that was fantastic.

D: 2 Bulls in a China Shop is an entertainment program, and all thoughts and opinions expressed in the show belong to the hosts and not of any company. They are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide entertainment about stocks, and the financial industry of trading. If you make trades based on what you hear in this show, you assume all risks for those trades.

Who is Richard Friesen?

Richard Friesen works with professionals and business leaders who want to increase their personal effectiveness with joy and grace. His neuroscience based Mind Muscles™ model gives his clients the opportunity to reach their goals with online training, simulations, interactive exercises, group support and real time decision processes.
Richard has been a futures broker for Merrill Lynch, a floor trader on the CME, CBOT and the options floor of the Pacific Exchange where he built and sold a successful options trading firm where he served on the Exchange’s board of directors. He also founded and built a financial software company and is the inventor of ten significant trading interface patents. This combined with his Master’s Degree in Clinical Psychology, Neurolinguistic Programing Master’s certification and neuroscience focus, brings a unique framework to business, investing and career success. His current passion is completing his forthcoming book “Conversations with Money.” This book observes the main character “Joe” who deals with all the conflicts, self-sabotage and belief systems around money and wealth.

Free Online Trading Assessment
Online Course: Compass Lockdown Edition
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MindMuscles for Traders Website
Book: Conversations with Money

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