Psychological Analysis E-Book

Adam Sarhan

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch

Seitenzahl: 469

Veröffentlichungsjahr: 2021

Beschreibung

Beat the market by using Psychological Analysis for investing and trading under any conditions Conventional wisdom tells us that people are rational and make rational decisions with their money. But that's simply not true considering most people fail to beat the market. Conventional wisdom also tells us that there are two primary ways to approach the market: technical and fundamental analysis. Again, that is not true because if it were--everyone would be rich. Think about it, how many times have you seen stocks with poor fundamentals go up, or stocks with great technicals go down? It's obvious that something is missing. Author Adam Sarhan, Founder and CEO of 50 Park Investments, developed a new approach, titled, Psychological Analysis (PA). Coined by the author, the term teaches you how to make rational, not emotional, decisions with your money and shows you how to analyze both the individual and collective market mindset at a particular time based on the behavior and decision-making of people in the real-world. Psychological Analysis is designed to tip the odds of success in your favor. After studying every major economic and market cycle going back to the 3rd century, the author explains that human nature is the one constant and tells you what actually drives markets. Psychological Analysis is responsible for major and minor market moves today, tomorrow, and all throughout history. Adam shows you that there are more factors that influence price than just fundamental or technical analysis and how to bring out the smart money superhero inside you. This invaluable guide helps you: * Make rational, not emotional, decisions with your money--especially when you are under pressure * Understand the psyche of the market so you can learn how to join the Smart Money Circle and consistently take money out * Generate above average returns in all market environments * Incorporate Psychological Analysis into your overall trading and investing strategy so you can make smarter decisions on and off Wall Street Psychological Analysis: How to Outsmart the Market One Trade at a Time is a must-have resource for traders, investors, finance professionals, and anyone who wants to profit regardless of market conditions.

Leseprobe

Table of Contents

Cover

Title Page

Copyright

Dedication

Foreword

Prologue: You Deserve to Win and Be Rich

SIMPLE BUT NOT EASY

TWO TYPES OF MONEY

YOUR BIGGEST OBSTACLE

ACTIVATING YOUR SMART MONEY SUPERHERO

THE FOCUS IS ON WALL STREET

Acknowledgments

About the Author

Disclaimer

CHAPTER 1: How to Think Like the Top 1%

ENTREPRENEURIAL SPIRIT

AN INVESTOR IS BORN

MARKET TUITION

THE ALLURE OF SPECULATION

TAKING CONTROL

CHAPTER 2: Why You Aren't Beating the Market

HOW I ACCIDENTLY STUMBLED ON MY SECRET WEAPON: PSYCHOLOGY

PAPER TRADING

BEATING THE MARKET

ONE IDEA, PROPERLY EXECUTED

PAIN AND PLEASURE

PSYCHOLOGY OF SUCCESS

SMART MONEY VERSUS DUMB MONEY

THE INDESCRIBABLE QUALITY OF HUMAN NATURE

CHAPTER 3: The One Question You

Need

to Ask Before Getting Started

ARE YOU AN INVESTOR OR A TRADER?

WHAT IS “THE MARKET”?

MARKET LEXICON

THE (GREAT) AMERICAN TAILWIND

MAKE THE TREND YOUR FRIEND

INVESTING VERSUS TRADING

TYPES OF INVESTORS

SPECULATORS

PROFITS ARE A FUNCTION OF TIME

OPERATIONAL TIME FRAMES

PICK YOUR TIME FRAME: SHORT, INTERMEDIATE, OR LONG TERM

FUNDAMENTAL AND TECHNICAL ANALYSIS

THE ANATOMY OF A TRADER

CHAPTER 4: How to Use Fundamental Analysis Like a Pro

FUNDAMENTAL ANALYSIS 101

VALUE VERSUS PRICE

FUNDAMENTAL INDICATORS OF VALUE

THE TROUBLE WITH FUNDAMENTAL INDICATORS

CONFUSING NUMBERS AND CREATIVE ACCOUNTING

STRONG FUNDAMENTALS? SO WHAT?

THE MARKET IS A FORWARD‐LOOKING APPARATUS

THE VALUE INVESTOR'S LONG‐TERM BET

ANOTHER WAY OF DEFINING PRICE

CHAPTER 5: How to Use Technical Analysis Like a Pro

WHAT IS TECHNICAL ANALYSIS?

NAVIGATING THE AMERICAN TAILWIND

BRIEF HISTORY OF TECHNICAL ANALYSIS

DISCRETIONARY VERSUS SYSTEMATIC TRADING

READING CHARTS

FINDING PATTERNS IN STOCK CHARTS

STAGE ANALYSIS: FOUR STAGES

TRENDLINES—CONNECTING DOTS

MOVING AVERAGES—SMOOTHING OUT PRICE ACTION

FAST‐ AND SLOW‐MOVING AVERAGES

SLOPE

VOLUME

TIGHT ACTION

IDENTIFYING TOPS AND BOTTOMS

EXPECT PULLBACKS AND CORRECTIONS; DON'T FEAR THEM

TECHNICAL ANALYSIS IS MORE OF AN ART THAN A SCIENCE

CHAPTER 6: How to Develop a Winning Strategy That Beats the Market

DEVELOP YOUR STRATEGY

THREE DIRECTIONS

THREE ACTIONS

WHAT TO BUY

SUPPORT AND RESISTANCE

BREAKOUTS AND BREAKDOWNS

ADVANCED ENTRY POINTS

HOW TO BUY THE DIP—AFTER THE BOUNCE

RISK AND REWARD

DEVELOPING YOUR OWN STRATEGY

PEOPLE LOVE STRUCTURE: DEVELOP RULES AND GUIDELINES

RULES VERSUS GUIDELINES

FIND YOUR EDGE AND EXPLOIT IT

ARBITRAGE

CREATE A PLAN, THEN TRADE YOUR PLAN

KEEP IT SIMPLE

THE A.M.P.D. INVESTMENT SYSTEM

CHAPTER 7: Psychological Analysis

FIX YOUR MIND, FIX YOUR LIFE: CREATE A HEALTHY MINDSET AND OVERCOME A TOXIC ONE

MENTAL CAPITAL

HUMAN NATURE IS CONSTANT

PAIN AND PLEASURE

EMOTIONS ASSOCIATED WITH PAIN AND PLEASURE

BREAKING OUT

CHAPTER 8: Master Your Mental State and Your Life Will Change

YOUR RELATIONSHIP WITH MONEY

UNDERSTANDING YOUR MENTAL STATE

CONTROLLING YOUR INPUTS

CONTROL YOUR FOCUS

KEEP IT SIMPLE

CONTROL YOUR DESIRES OR YOUR DESIRES WILL CONTROL YOU

KNOW—AND MASTER—THYSELF

MAKING

GREAT

DECISIONS

CHAPTER 9: How to Make Smarter Decisions

GOOD VERSUS EVIL: SMART MONEY VERSUS DUMB MONEY

THE DANGER OF EMOTIONAL LOGIC

STUDY THE CROWD

RETAIL VERSUS INSTITUTIONAL INVESTORS

“THEY” WHO?

ANALYZE THREE SIDES

THEY (DON'T) WANT YOU TO LOSE

THINK CLEARLY (A.K.A. ACCURATELY)

CHAPTER 10: What's Holding You Back?

WHAT ARE MENTAL WALLS?

A NEW WAY TO LOOK AT WEALTH

MENTAL WALLS

COGNITIVE BIASES

BIASED THINKING: (DON'T BE) FOOLED BY RANDOMNESS OR THE EFFICIENT MARKET HYPOTHESIS THEORY

STOP (OR LIMIT) YOUR BIASED THINKING

CHAPTER 11: Create a Smarter You with an Unbiased Mind

ANCHORING

CONFIRMATION BIAS

IRRATIONAL ESCALATION BIAS

CONSERVATISM BIAS

HYPERBOLIC DISCOUNTING

ILLUSION OF CONTROL

INFORMATION BIAS

NEGLECT OF PROBABILITY

POST‐PURCHASE RATIONALIZATION

STATUS QUO BIAS

WISHFUL THINKING BIAS

RISK AVERSION

FRAMING BIAS

DISPOSITION EFFECT

DENIAL

OUTCOME BIAS

RECENCY BIAS

HASTY GENERALIZATION

GROUPTHINK

HALO EFFECT

PERSONAL BLIND SPOT BIAS

CHAPTER 12: Ever Hit a Wall? Destroy It and Master the Learning Cycle

A WALK THROUGH ROCK CREEK PARK

EGO

FEAR

PAIN

SHORT‐TERM THINKING

ADULTING WALL (OVERCOMING CHILDISH BEHAVIOR)

LACK OF VISION WALL

OTHER DUMB MONEY WALLS

IDENTIFY YOUR WALLS AND DESTROY THEM

CHAPTER 13: The Most Important Skill to Master on Wall Street

ALWAYS RESPECT RISK

BASIC RISK MITIGATION STRATEGY

WIN RATE (KNOW THE STATS)

WHY WE CUT AND RUN FROM LOSERS

ALWAYS REDUCE, NEVER INCREASE, RISK

OTHER TYPES OF RISK

LEVERAGE

PSYCHOLOGICAL ANALYSIS

CHAPTER 14: What Happens Next

THE RIGHT SIDE OF THE CHART—THE ONLY PLACE TO MAKE MONEY

NAVIGATING THE UNKNOWN

THE UNPREDICTABILITY OF MARKETS

THE SMART MONEY LOOKS FORWARD

FORGIVE AND MOVE FORWARD

STOP TRYING TO PREDICT MARKET ACTION (INSTEAD LEARN TO EXPECT IT)

DEVELOPING YOUR OWN WAY FORWARD

TRADE IN THE NOW

CHAPTER 15: Welcome to the Smart Money Circle

START SMALL AND SCALE SLOWLY

THE LEARNING CYCLE

THE TRADER'S HIERARCHY OF SUCCESS

SEVEN TRADING PERSONALITIES

PARTING THOUGHTS

Epilogue: It's Time to Become Rich

ADAM'S QUICK TRADING GUIDE

ENTRIES AND EXITS: BUY AND SELL GUIDELINES

BUY THE BOUNCE AFTER THE DIP

EXITS: BUY AND SELL GUIDELINES

DRAWDOWNS

ADAM'S SMART MONEY SECRETS

Bibliography

BOOKS

MOVIES

Index

End User License Agreement

List of Illustrations

Chapter 5

FIGURE 5.1 Bullish patterns in technical analysis.

FIGURE 5.2 Bearish patterns in technical analysis.

Guide

Cover Page

Table of Contents

Title Page

Copyright

Dedication

Foreword

Prologue: You Deserve to Win and Be Rich

Acknowledgments

About the Author

Disclaimer

Begin Reading

Epilogue: It's Time to Become Rich

Bibliography

Index

End User License Agreement

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Psychological Analysis

How to Make Money, Outsmart the Market, & Join the Smart Money Circle

Adam Sarhan

Copyright © 2022 by Sarhan Capital LLC. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 750‐4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permission.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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Library of Congress Cataloging‐in‐Publication Data is Available:

ISBN 9781119282044 (Hardback)ISBN 9781119282129 (ePDF)ISBN 9781119282112 (ePub)

Cover Design: WileyCover Images: © artmakerbit/Shutterstock, chart ‐ Wiley

This book is dedicated to everybody I love.Including you.

Foreword

I want to thank Leo Melamed, the man who literally created stock market futures, currency futures, and treasury futures after running his “idea” by the legendary economist Milton Friedman. Leo's story is remarkable, and his knowledge, experience, and wisdom is second to none. Leo, thank you for your friendship, guidance, and support during my “journey.” Leo sent me this excerpt from his wonderful book, Man of the Futures, and he shares timeless wisdom about psychology and futures trading. The same underlying principles apply to trading and speculating in just about any liquid and freely traded public market in the world. The lessons outlined in this book are designed to help you thrive in all market environments.

“Do you think I can make money speculating in futures?”

I have been asked this question, in one form or another, countless times. Unfortunately, it is a question without an easy answer. I have seen seemingly well‐qualified people fail in their attempts at futures trading and investments. I have seen the least likely type succeed. Consequently, I have learned never to make a definite evaluation of a person's prospects until after I have had an adequate opportunity to really get to know the person and observe his or her actions and reactions to market situations.

It would be nice if there was a simple test which one could take to determine the issue. Much of it has to do with psychology. In most respects, this is the overriding ingredient that divides winners from losers in futures trading. The type of person you are, i.e., the way you react under pressure? After you enter the market will your judgment be influenced by emotion based on profit or loss? Your philosophical approach toward money? Will other life concerns or circumstances affect your decision making? Will you be foolishly swayed by the actions of others? Conversely, will you stubbornly refuse to listen to good advice? If you find you are wrong, can you openly admit error in the face of defeat? Remember, you will have to admit defeat in broad daylight. Your broker will always know and, eventually, so will your family and friends.

In futures trading, one's personality and emotions are stripped of customary buffers and aids that offer comfort and assistance in most other stresses of life. Moreover, in trading, emotional problems are enormously magnified because you are dealing with money—your money! Here, your personality, your emotions, your character are tested as nowhere else. The normal tranquilizers or accepted diversions which we consciously or unconsciously lean on in other fields of endeavor are not available in this challenging field.

Here, you cannot adjourn the meeting to think things over, you cannot temporarily turn to a different subject, you cannot postpone a decision to consult with an expert or friend. Nor can you take time out to relax. The market goes on with or without you, the moment of decision cannot wait. Your emotions and your psychological make‐up must be such that they will not interfere with a prudent decision at the instant when you must make it. Your personality cannot be such that it requires some form of diversion before you can rely on your judgment at a critical moment.

These psychological elements are but a sampling of the important essentials in determining your probable chances of success or failure in futures trading—quite apart from luck and being right on the fundamentals. In futures trading, more so than in most other fields of endeavor, one's psychological make‐up is critical.

Best wishes,Leo MelamedChairman Emeritus, CME Group, Inc.

Prologue: You Deserve to Win and Be Rich

This book will help anyone who wants better results in their life, with their money, and in the market. Most people suffer (lose money or are frustrated with their performance) in the market and my goal is to change that by teaching you how to win (make money) by taking control of your mind, so it stops controlling you.

This book has the potential to change your life. Why? Because the stock market has the potential to change your life. Keep in mind, real wealth comes from being fulfilled, by being happy, and by winning (in whatever activity you put your mind to). This book will show you how to think like a winner and bring out the best version of yourself (even when you don't feel like being it).

This book will also show you how to think like a winner so you can help yourself, accomplish more in life, accumulate wealth, compound your returns, help others, do the right thing, and have great relationships with other people, yourself, and the world around you. When you do that, there will be nothing for money to do but to flow to you in abundance.

The first thing you should know is that you deserve to win and you deserve to be rich. Let that sink in for a moment. You deserve to win, and when you win, you will be rich. Most people focus on money and not a winning process. That's why most people do not accomplish their financial goals. If you chase money, and don't focus on a winning process, it will be very tough to accomplish your goals. This book will give you a foundation you can use to build a long‐term winning process that will work in any market condition. The beautiful part of life is that you don't have to be a superhuman genius to win and get rich. You just have to learn how to control your mind so it doesn't control you. That's one of the core principles of this book.

It's possible that you're uncomfortable with the word “rich.” Maybe you prefer to be wealthy. We'll get to that later, but for now, if you have chosen to read this book, I believe you have the capacity and the obvious desire to take control of your life, win more often, control your finances, get richer, and build generational wealth. You can be rich. You should be rich. You deserve to be rich. You just have to learn how to do it.

Maybe you work with a financial advisor who keeps charging you fees while your portfolio languishes and it seems like the market (and everyone else) is taking off without you. Or perhaps you like to trade and are not getting the results you want. If you find yourself watching the market all day or constantly opening up your brokerage account, hoping or praying your stocks go “up” or only get back to “even,” I'm here to tell you there is a better way. The madness can end. You don't have to sweat while you watch the numbers tick up and down, making uninformed, emotionally charged trades, unsure of whether some imminent catastrophe is going to wipe you out or lead you to live in a negative state (angry, upset, frustrated, or any other negative emotion you can think of).

I believe you can beat the market. “Beating the market” means you have the ability to consistently earn more in the market than someone who simply parks money in an index fund like the S&P 500. On Wall Street, they call it “generating alpha.” To consistently beat the market, you need to develop a trading strategy proven to perform well in all market states (up, down, and sideways), and you need the will and mental discipline to stick with your strategy, even when it gets difficult (during the inevitable drawdowns that happen to everyone). In this book, I'll share my trading strategy, I'll give you suggestions on how to build your own strategy, and most of all I'll help you take control of your mind and your money.

SIMPLE BUT NOT EASY

Building wealth is simple but not easy. The key to building wealth is to earn more money than you spend. That's simple. However, repeatedly making the decisions that allow you to build wealth and avoiding the common mistakes that hold people back—that's not easy.

Denying yourself the car you want, or your dream vacation, or the big house you feel your family deserves—that's hard. Putting in the work required to make more money, or finding the courage to start your own business, or making uncomfortable changes to increase your income—that's hard.

Most things in life are simple but not easy. Think about personal fitness; it is simple but not easy. Losing weight is a matter of calories in versus calories out. Eat less and exercise more. That's simple. However, just like with your financial health, fitness is about denying yourself things you desire (eating the cookie) and putting in hard work (doing the sit‐ups) to meet your larger goals. You have to forgo indulgent foods and you have to engage in strenuous physical activity. For most people, that's hard to do. If you have a trained and disciplined mind, however, losing weight is a piece of cake (pun intended). The same is true with becoming financially fit.

TWO TYPES OF MONEY

Capital comes in two forms: smart money and dumb money. The decisions people make regarding how they manage, invest, and spend their money determine whether they are in the “smart money circle” or the “dumb money circle.” Don't worry where you were yesterday; the key is to focus on where you want to be today and to set yourself up for a better tomorrow. Nearly everyone starts off in the dumb money circle and, sadly, most stay there forever. I'm here to change that. Over time, I've learned how to stop making dumb money mistakes, I've entered the smart money circle, and now I find tremendous joy in helping other people enjoy financial freedom and do the same thing.

Cash flows in and out of the market all day long. The same is true for cash flowing in and out of your pocket. Before I go any further, it is important that you know that there are an infinite number of ways for people to make money in capital markets, and you just have to find one that works for you and your personality.

Regardless of your approach, it boils down to one thing: successful people, people in the smart money circle, consistently take money out of the market, while unsuccessful people, those in the dumb money circle, consistently put money into the market. By the time you finish reading this book, you will learn how to join the smart money circle and consistently take more out of the market than you put in. Plus, you will learn my strategy and how you can build your own successful strategy for beating the market.

Perhaps the most important thing that will allow you to consistently make big money, achieve financial freedom, and join the smart money circle is to learn how to make great decisions—objective decisions based on information, not emotions—especially when you are under pressure. Everyone makes decisions, but making great decisions is what separates those in the smart money circle from everyone else.

I have been studying “smart money” since the 1990s, and I've managed to transform my life by moving from the dumb money circle into the smart money circle. People don't get rich by accident, just as athletes don't win championships by mistake. It's not a fluke that Michael Jordan was number one in basketball or that Tom Brady was number one in football: they both were relentless, they both made sacrifices, and they both put in the work necessary to rise to the top of their games. Likewise, it's not a fluke that Warren Buffett, William O'Neil, Paul Tudor Jones, Stanley Druckenmiller, David Tepper, and countless others have amazing track records and win on Wall Street decade after decade: just like elite athletes, they all make the sacrifices and put in the work necessary to become legends in their chosen profession.

In sports, you must have a certain physique to win. If someone is 5′4″, they're at a tremendous disadvantage if they play Michael Jordan in a game of one‐on‐one—but in the market, anyone can compete and win if they are willing to put in the work. Investing your money and placing thousands of trades over several decades is largely a mental sport, not a physical one. Success in this business is the result of your thoughts, decisions, and, most importantly, your actions. In order to win, you must bring out your smart money superhero (the best version of yourself) and defeat your dumb money beast (the emotional, lazy, and unproductive version of yourself).

YOUR BIGGEST OBSTACLE

The biggest obstacle that prevents most people from getting ahead is themselves—not the market, not the economy, nor any other external force. At the end of the day, your success in life (and in capital markets) is determined by one factor: the quality of your decisions. Most people spend their life thinking they are making great decisions, but their actions tell a different story. Talk is cheap; actions matter.

Most people live in a near‐constant state of suffering, and most of the disasters that befall them are the result of self‐inflicted wounds. Dumb money people sabotage themselves, often feeding personal addictions. Dumb money people have no structure, no plan, and repeat the same mistakes over and over.

There is a battle between good and evil going on inside all of us. For the purposes of this book, I will call the good side “the smart money superhero” and the evil side “The dumb money beast.” I've named the beast “Shmelf.” Shmelf is a concept I developed while raising my kids. It's the beast inside of them that doesn't want to take a bath, wants to eat candy, doesn't want to brush their teeth, and throws a fit before bedtime.

Shmelf is consumed by petty desires, fears the future, worries about the past, is highly emotional, is not rational, and is consumed by an endless stream of foolish thoughts. We pretend to stomp on Shmelf, squashing the beast while symbolically destroying the base instincts inside ourselves that prevent us from being successful and achieving our goals. “Squashing Shmelf” is a great exercise that can snap anyone out of a funk, change their mental state, and help them focus on winning.

Smart money people recognize the self‐sabotaging forces within themselves and they make changes that allow them to convert suffering into prosperity.

To live your dream life, you have to overcome your self‐destructive desires (stomp on Shmelf) and become the best version of yourself (bring out your smart money superhero). If you make a real effort to level up, showing the world your best version of yourself on a daily basis, your life will improve in ways that I can not even begin to explain with words, and you will thrive in more ways than you can imagine!

The easiest way to do that is by living life with a clear purpose, learning how to overcome the common psychological pitfalls that are holding you back, conquer the dumb money beast inside of you (your dark side), and bring out the smart money superhero (even when you don't feel like it) so you can shine!

ACTIVATING YOUR SMART MONEY SUPERHERO

In this book, I'll share with you how I developed my investment strategy, and I'll show you how you can adopt that strategy and customize it to make it your own. The strategy is simple but not easy. During the early part of my trading career, I struggled with some catastrophic losses. Even after I refined my investment strategy, I didn't always follow my own trading rules and continued to suffer losses. That's when I realized that success in the market is 1% mechanics and 99% psychology. Likewise, this book is a little bit about mechanics, but it is mostly dedicated to helping you achieve the psychological mental state to be able to successfully execute your own winning strategy.

THE FOCUS IS ON WALL STREET

The strategies presented in this book pertain to all publicly traded markets but the discussion focuses primarily on stocks, options, currencies, bonds, and commodities. While this book mainly focuses on U.S. stocks, please keep in mind that the lessons, techniques, and truths are also applicable for any of the aforementioned markets.

Throughout this writing you will see me use many of these words interchangeably: stock, market, commodity, currency, bond, and plenty more. To avoid confusion, simply understand that these are all asset classes and that speculators can, and do, thrive in all of these environments. It is your choice where you focus your attention.

Back in the old days, not long after the Civil War, the first stock tickers appeared. They used the power of the telegraph to transmit the moving prices of stocks during the trading day, which were printed out on a seemingly endless ribbon of paper called ticker tape. Smart traders could follow the market trends they saw hammered out on the tape and they learned not to bet against it.

I'll end by saying: always keep your losses small and never fight the tape.

Trade wisely,

Adam Sarhan

PS: Before we go any further, I want to share an important disclaimer with you: Please remember, everything in this book is general in nature and at no time is any specific investment advice given (it can't be because I do not know you personally). My lawyers want to make sure it is very clear that past performance is not indicative of future results; investing involves risk; leverage can be used for you, and against you; and everything I share is for educational, illustrative, and informational purposes only. Additionally, I want you to know that it is of the utmost importance that you take full responsibility for every decision you make. That is one of my main goals of this book: to help you make smarter decisions so you can join the smart money circle!

Acknowledgments

Welcome to the smart money community. I want to start by thanking you for reading this book. When you're done, I invite you to share your feedback and to let me know if you were able to put the lessons in this book to work. I want to hear the story of how you joined the smart money circle.

Before we get started, I want to give a sincere, heartfelt, over‐the‐top THANK YOU to God—and also to a few key people who have made a huge impact on my life:

I want to thank my family with every fiber of my being. The journey we have enjoyed (so far) is by far my greatest pleasure in life. The love, support, trust, openness, honesty, priceless memories, precious moments, and the joy we have savored over the years mean more to me than anything else I have ever experienced. I also want to deeply thank my extended family for believing in me and supporting me—even when I had nothing. Especially when I had nothing.

Next, I want to thank a few people for their friendship, love, support, guidance, and for being all‐around great people who have helped me on my journey thus far (to protect their privacy I will use their initials; they know who they are): WON, SEK, FS, JR, GK, MC, KG, SS, SS, DS, AO, MO, RT, SS, MR, DS, AS, MK, AH, CL, AD, MB, RS, ML, MM, LM, CM, BI, NH, TB, FB, and RI.

I want to thank all of my clients, members, work colleagues, business partners, friends in the media, and the millions of readers who have read my articles on Forbes.com. I also want to thank everyone who listens to and supports my SmartMoneyCircle.com podcast.

I want to thank the wonderful team at Wiley for all of their support and patience over the many years it took me to write this book.

Finally, I have a very special, huge, from‐the‐heart thank you to my good friend Shawn Vincent, who turned this book into what it is today. Some people enter your life at the right time for the right reason. Shawn is truly one of those people.

Years before this book was published, we did some work together (in the legal field) and stayed in touch. Then, years later, I hit a “wall” with this book, and thanks to the stars aligning, he showed up and wowed me once again!

Without his help, this book would not be published in its current form. Shawn rose to the occasion, pushed himself, and went above and beyond at every turn as he brought out his smart money superhero, made time to work on this book, sacrificed other important demands on his time, and got the job done.

Shawn, thank you, and hats off to you; here's to many more great decades of bliss together, my friend!

About the Author

Adam Sarhan started from scratch and is living proof that anyone can make it on Wall Street. He opened his investment firm in his dorm room as a graduate student, overcame many personal and professional obstacles, and has since advised numerous multibillion‐dollar firms, some of the largest celebrity billionaire investors in modern history, several of the country's largest banks, a slew of hedge funds, exchange‐traded funds, and mutual fund managers. He also works with countless businesses, institutional investors, and a large number of individual investors. Adam has been quoted in every major financial media outlet, is the host of the successful SmartMoneyCircle.com podcast, and is a contributor to Forbes, with millions of readers.

Adam is passionate about helping people join the smart money circle by destroying their mental walls (overcoming their internal obstacles) and making smart decisions (especially with their money). Adam developed two powerful concepts that are outlined in this book: psychological analysis (for trading and investing) and mental walls. Psychological analysis was developed after he discovered that the traditional approaches to the market—fundamental and technical analysis—are only two pieces of the puzzle, and they are not enough to allow a trader or investor to consistently beat the market. The term “mental walls” describes the psychological barriers that stop people from accomplishing their goals. In this book, Adam shows you how to identify your mental walls and how to destroy them.

Adam is an investor and a trader. He runs several businesses, including but not limited to a family office, a consulting practice, FindLeadingStocks.com, and several other stock market membership sites, just to name a few. You are invited to visit Adam's FindLeadingStocks.com and his SmartMoneyCircle.com site for more information.

Disclaimer

This book is not a source of investment advice. All the information and any opinions expressed are intended for general informational and educational purposes only. The information, opinions, or any other content provided herein should not be interpreted as specific investment advice or a call for engagement in any transaction involving the purchase or sale of any security or investment product or service. You are solely responsible for any decision you make. All the information comes from resources believed to be reliable but are not guaranteed as to accuracy or wholeness as of the date of this publication. Past performance is not necessarily indicative of future results. There is always a risk of loss in trading and investing. Opinions articulated are subject to change without notice. The risk of loss in investing and/or trading can be substantial, and traders/investors should carefully consider the inherent risks of such an investment in light of their specific financial condition and consult a qualified professional. The author, firm, associates, or the author/firm's clients may have a position in any of the investments mentioned and their positions are subject to change without notice. Any reproduction or retransmission of any portion of this book without the express written consent of 50 Park Investments is strictly prohibited.

Dumb money puts money into the market; smart money takes money out.

CHAPTER 1How to Think Like the Top 1%

One of the big goals of this book is to help you bring out the best version of yourself (your smart money superhero) and join the smart money circle. I will call that the alpha version of yourself. On Wall Street, alpha means above‐average returns, so the alpha version of you is the best version of yourself. Everyone starts out in the dumb money circle—even the children of wealthy families that are in the smart money circle. That's why most family businesses do not last past the first or second generation. The good news is that anyone can learn the skills necessary to bring out the best version of themselves, learn from their mistakes, live their “dream life,” and join the smart money circle. Once you do that you will accomplish more than you ever dreamed of and enjoy life at a completely different level!

I started out in the dumb money circle. I began my professional life saddled with student loan debt and not having a clue about how to make money or how the market actually worked. For years, I toiled at thankless jobs for lousy wages. Some of my first forays in the market resulted in spectacular, soul‐crushing losses.

I was in the dumb money circle, but I had an overriding need to break out; eventually, I did, and you can, too. It started when I had my first realization that there is an endless battle raging inside all of us between (what I call) the smart money superhero (your good side) and your dumb money beast—a.k.a. Shmelf (your bad side).

ENTREPRENEURIAL SPIRIT

In order for you to properly understand the timeless concepts I discuss in this book, I give you some context by sharing some important stories with you.

I was born in New York City. My mother taught elementary school, then later ran her own logistics business, and my father, an immigrant, ran a small business selling men's suits a few blocks from Wall Street. I remember seeing “Wall Street” guys come in and buy dozens of suits, shirts, and ties, and from a young age, deep in my subconscious, I felt the allure. My parents taught me the value of education, they taught me the value of a dollar, and they instilled in me a work ethic that propelled me through college, graduate school, and into my working life.

I inherited my parent's entrepreneurial spirit, and even as a kid, I envisioned myself as a “businessman.” I loved the idea of buying and selling things, and I was intellectually fascinated with the idea of solving a problem, adding value, and making a profit. I loved using my mind to make money. While in middle school, before Costco and Sam's Club were “a thing,” I found a local source where I could buy candy at wholesale prices, and I sold the treats at school between classes. Blow Pops were my number‐one seller.

Eventually, I was forced to shut down because the “business” grew and attracted the attention of the principal, who told me that I had to stop. He called my parents, and I was terrified that I would be in big trouble. In the meeting, my parents asked him, “What did Adam do wrong?” He stumbled and couldn't find something to say (because, technically, I did not break any rules), and he finally proclaimed, “He's competing with the cafeteria!” To my surprise, after we left, instead of being in trouble, my parents said the incident offered a very important lesson about monopoly and power. “Next time,” my parents said, “don't get caught.”

For my next “business,” I sold fireworks but stopped when I realized that, in the wrong hands, they were really dangerous. I knew that if someone got hurt I would really be in big trouble. Unbeknownst to me at the time, the big timeless lesson there was always respect risk.

AN INVESTOR IS BORN

I had saved some of the profits from my early businesses, and by high school, I had taken an interest in the stock market. I looked around and asked a lot of people: “What is the biggest business in the world?” What did the top 1% of people do with their money? Some invested in real estate, I discovered, but the most common answer always led me straight to Wall Street.

Back in the 1990s, the crash of 1987 was still fresh in people's minds. But the market and the economy were on fire, the flames fanned by dot‐com stocks and the rise of the internet. The U.S. economy seemed unstoppable. Cell phones were becoming widely used and telecommunications companies were hot. I consolidated my little horde of candy and fireworks money and bought my first stock: SprintPCS.

For a period of time, the stock did great, but then it collapsed, and I didn't sell it until it was too late. Years later, as fate would have it, my first “real” job during college was working for SprintPCS, selling cell phones at the now‐defunct Circuit City.

After my freshman year at Pace University in Manhattan, I transferred to Florida to escape the high cost of living in New York City. As luck would have it, and thanks to grace from above, that turned out to be a very good move because, back in New York, I would literally walk through the World Trade Center every morning to get to school. I transferred in the summer of 1999 and, had I stayed, I would have been there on 9/11.

To get by, I worked five days a week and I went to school five days a week. I tell people I work with (and my kids) that makes 10 days in a seven‐day week! At first, most people do not believe it, but for most of my 20s, I never had a weekend off, and that's what I did to get ahead.

One day, about a week after I moved to Florida, I was standing at the bank at 4:00 p.m. waiting for a friend to pick me up. The lobby had just closed, so I was forced to wait outside in the hot Florida sun (and I mean hot). A red Corvette pulled up and a beautiful lady hopped out.

“The lobby is closed,” I said.

“I know,” she said, but walked up anyway and knocked on the door. The door opened, she went inside for five minutes, and when she came out she asked me what I did for a living.

I told her I had just moved to Florida and I was studying political science. I asked her what she did and she said she was an executive at SprintPCS. I said, “Wow! What a small world. I own your stock.” She was not expecting that from some random kid waiting for a ride outside a bank. We talked for a little while, and then she asked if I wanted a job at the corporate office. I said sure, we met the following week, and she offered me a position: I was to help increase sales at Circuit City in South Florida. I worked there for the next few years, helped open the first Circuit City in Boca Raton (which later became Barnes & Noble), and my stores became the most profitable in South Florida.

MARKET TUITION

The late 1990s was the era of the dot‐com craze. I pumped money into the market speculating on the euphoria that drove stock prices for internet start‐ups ever higher. They had no earnings, no sales, but all you needed at the time was a “.com” in your name, and people would buy the stock! At one point, on a golden afternoon around the turn of the century, I felt invincible while staring at my brokerage account, proud to have doubled my tiny fortune at such a young age. I've learned that money is all relative. To me, a kid who started with less than nothing, $500 was a lot of money, $5,000 was crazy, and $5,000,000 was a dream. It is amazing how your perspective changes over time.

Then, in March 2000, the dot‐com bubble burst; the market crashed, and I was in a state of shock and disbelief as it imploded over the next two years. I made every mistake under the sun. I did not have a plan to sell if the stock went down, I did not have a clue about risk management or position‐sizing—and thanks to my naivete, I couldn't imagine that stocks could go down so far for so long. I also had no idea that it was possible to actually make money in a bear market. Looking back, I realize I was clueless.

My investment portfolio was bankrupt. But to me, it wasn't just money that I had lost. It was deeper. I lost my Blow Pop profits, my fireworks sales, my cell phone commissions—all the fruits of my early entrepreneurship had evaporated. Essentially, my life's work had disappeared. Gone. All my sacrificed college weekends spent selling cell phones while my friends partied—vanished. It was a gut punch like no other. It was personal. It was emotionally devastating.

On The Street (Wall Street, that is), they call that kind of experience “market tuition”—provided you walk away with some lessons. I knew I wanted to win. I also knew I had no idea what I was doing so I had one job: to learn. Knowing what I don't know became (and still is) one of my biggest strengths.

THE ALLURE OF SPECULATION

Around the same time, my childhood friend Stephen Klein (my business partner in my candy and fireworks ventures) scored a great six‐figure job working at a huge commodities desk in midtown Manhattan as a futures broker. Within a few weeks, he turned $5,000 of his own personal money into over $100,000. As you would imagine, I told him I wanted in. The timing seemed perfect because Stephen's bosses had realized he was conducting personal trades, and they wanted him to stop and focus his attention on his “day job.”

To get around his bosses, we concocted a plan: I would open an account in my name, he would trade it (the same way he had been trading his account), and we would split everything right down the middle, 50/50. My only problem was that I was wiped out from the dot‐com crash, so to ante up, I had to scrape together some dough. I managed to borrow $5,000 from my father, and then I held my breath and jumped in with both feet. I wish I could tell you that I took that $5,000 and turned it into $5 billion, but this story has a completely different ending.

In an ominous sign of things to come, the day before I opened the account, Klein lost $25,000 of his own money in one day—not fun. Our trading account number ended with the digits “69,” so with all the maturity of a couple of recent college graduates, we dubbed it “the infamous 69 account,” and as a testament to our friendship (considering what was about to occur) we still, every now and then, look back on this adventure and laugh.

We filled out the paperwork (at the time we still had to open accounts with paper), and we funded the account on a cold Monday in January. The plan was that Klein would do everything—buy, sell, handle the position sizing, and so on; he'd make all the decisions. Back then, I didn't have access to real‐time quotes, and I could not log in like today and see my statement in real time. Everything was delayed. Essentially, I was flying blind.

At the end of that first day, I called him to ask how we did. Without skipping a beat, he said it was a good day. I asked him how much we made. A little over $8,000 on a $10,000 account, which he added, constituted an 80% return in just one day. “How much do you think we'll make by the end of the year?” I asked. To this day, I can still hear Stephen's voice in my ear, crackling on the other end of my SprintPCS cell phone. It was one of those pivotal moments in my life—one that you just simply never forget. He responded, very casually: “One million dollars.”

I was overcome with joy. Remember, I started with nothing but an insatiable hunger to learn, and for me, at the time, a million dollars was more money than I could fathom making, and it was all happening without me having to lift a finger.

Blinded by emotion, my naive and flawed logic went something like this: Stephen just turned $5,000 into $100,000. Why wouldn't he be able to do it again and then grow $100,000 into $1,000,000? If he could multiply his portfolio 20‐fold in just a few weeks, why wouldn't he be able to multiply it by a measly 10‐fold in a year?

This, by the way, is dumb money thinking. Anyone who knows anything about trading, risk management, or returns knows that while periods of rapid, exponential growth are not unheard of, in the long term such gains are simply not sustainable. The best traders in the world average 20–30% annual returns; realizing 80% gains in one day is not sustainable. I suspect you've guessed where this story is headed.

On Tuesday, the very next day, the market corrected, we lost all our profit, and we were left with our initial investment: the original $10,000, which included the $5,000 I had borrowed from my father. We both wrote it off as “just a bad day,” and didn't think anything of it. On Wednesday, day three of our misadventure, the market gobbled up our principal. The account was bankrupt. Not only had we lost everything—we had a margin call, which meant we owed the firm money!

Fueled by Klein's early success—the promise of one million dollars resounding in our ears—we decided that our failure was just bad luck, and we kept on trucking. I “borrowed” $5,000 from my credit cards and wired money over on Wednesday afternoon to restore the account before the end of the day. Boom! Just like that, we were back in business!

By Thursday morning, the infamous “69” account had doubled (if we ignored the money we had already lost—which we did), and we now had around $20,000 in liquid cash. I was immediately reminded of the line, “Mortimer, we are back!” from the classic movie Coming to America, which was a reference to the legendary trading movie Trading Places.

By Friday, the account was bankrupt … again! Emotional roller coaster? Sure. Fun? Not really. Devastating? Painful? Borderline soul‐crushing? You bet. Broke and 10 grand in debt, I was forced to shut down the account. Back in the “real world,” I wasn't making any significant money at my “day job,” so it took me what felt like forever to pay back the money I owed. Plus I had to tell my father that I failed, which stung more than losing his money.

As traders, we count our wins and our losses—our “W”s and “L”s. At face value, the infamous 69 account looked and felt like an L, but thankfully, we both turned that experience into a major W. I chalk it up to more “market tuition” because that week's experience was the proverbial seed that was planted that sparked my entire career.

TAKING CONTROL

Now that I'm a husband and a father, I am thankful to have survived that kind of devastating setback early in my life—at a time when I had time to recover from the loss, and the consequences were mine alone to bear. That Friday night, I felt stunned and beyond shell shocked, but the very next day, I woke up with a drive that I had never felt before. I made a decision that changed my life forever; I decided to take control, to figure out how to trade successfully, and most importantly how to go from the dumb money circle into the smart money circle (and stay there). Everything I did from that point forward was to accomplish that one goal: learn how to win. In order to do that, I had to rewire my mind, conquer my (former) self, bring out the smart money superhero inside me, and learn the laws of the smart money circle!

I was at my lowest point financially, and I decided I only had one place to go: up! Thankfully, I knew at the time that I didn't know how to join the smart money circle. I had tried a couple of times and failed, so instead of repeating my mistakes (which is what the dumb money circle does), I went on a quest for information and knowledge—and the wisdom to use them properly. I read just about every investing and trading book I could get my hands on. I attended seminars all over the country and did my best to meet some of the greatest financial minds I know of.

Years later, I learned the phrase “I know that I know nothing.” It comes from ancient Greek philosophy, and the saying is derived from Plato's account of the oral legal defense Socrates made for himself during his trial in 399 BC for impiety and corruption. Socrates himself appeared wiser than he actually was, he argued, because he “does not imagine he knows what he does not know.”

It is the foundation for intellectual curiosity because, if you think you know everything, then why would you spend any time learning something new?

Intellectual curiosity is the spirit of just about everyone who is self‐made in the smart money circle (the top 1%), and it is the spirit I want you to adopt as you move through the pages of this book. If what you've been doing hasn't been working for you, challenge yourself to approach the subject anew—with the spirit of a beginner. Live your life to the fullest, become intellectually curious, learn more, do more, and achieve more!

The American Tailwind

CHAPTER 2Why You Aren't Beating the Market

HOW I ACCIDENTLY STUMBLED ON MY SECRET WEAPON: PSYCHOLOGY

Early on, I learned that your psychology (a.k.a. your mental capital) and your psychology alone will determine your success in life and in the market. Life, and the market, are filled with endless opportunities, more opportunities than any one person can possibly enjoy. Trust me, there is more than enough to go around a few trillion times. Your job is to be open‐minded, train your mind to recognize opportunities, and act on them whenever you can—because if you don't, someone else will. Even if you don't act on one opportunity, just like an elevator or the proverbial bus, there will always be another along shortly, guaranteed. It's illegal for anyone to guarantee results in the market, but I can guarantee you that there are what feels like an infinite number of ways to make money in the market, and your job is to find one that works for you and run with it.

Throughout this book, I will share with you what I've learned, but the key is for you to think differently, demand the best from yourself, and commit to doing the right thing, even if you don't feel like doing it. Your future self will thank you. Again, thanks to grace from above, here's how I stumbled across the connection between psychology and winning.

After my initial, gut‐wrenching losses in the market, I dedicated myself to learning everything I could. I read every book about trading I could get my hands on. Over the next six years, I earned an undergraduate degree and a graduate degree in political science, but my “real” education was in capital markets and psychology. I stumbled upon psychology and how it impacts just about every aspect of our life when I realized how psychology was a major force that impacted both political science and capital markets.