Hey everybody. Happy Tuesday. So this is just a general comment. It’s not based on any one particular video that I’ve done, but there’s probably a few of them out there, and that is when we speak about moving your protective stops, again, you’re dealing with uncertainty. You’re putting your stop in a spot where if you do get knocked out, you’re still making money. So if you’re used to say, well, I take my risk off at one R as my protective stop, you could say, okay, well if I was comfortable putting my protective stop at minus one R below my entry, I could start there and use one R as my trail. So when you get to three R, instead of selling, so say, what’s the example I always use? You buy a stock at 20, it doesn’t matter what the instrument is. You buy something at 20 and your stop is at 19, that’s your R one, and you’re going to, your price target is 23, so that’s three R from your basis, which would be 20.
When you get to 23, instead of offsetting the trade and going flat, there’s a whole bunch of stuff that you can do. You can all the while raise your protective stop, leave it at 22. Why? Well, because say you were going to enter the trade at 23, where would your protective stop be? It’d be one R, which is one. So your stop would be at 22. So you can just put yourself in the mindset like, okay, if I was entering the trade here and think about why people would be entering at 23, it’s probably because they think it’s going at 27 and if they’re right, why don’t you participate in that? Now of course, no one could predict anything, but you could still be mentally prepared to say, look, here’s a trade where if I entered at 23, I’d stop it at 22 and I’d be happy with that trade because that’s part of the probabilistic outcomes.
That’s one part of all the probabilistic outcomes for the trade. If I was going to enter at 23, because you don’t really know that 23 is the place where it’s going to stop, you just made up your mind ahead of time. That at 23 is where you’re going to offset the risk. It might not necessarily be a good exit. There might be more to go. Where does 23 relate? When you look left on the chart, where are their previous highs? You see? So put your protective stop at 22, for example, and then see where it goes. If you get knocked out, you could say, well, I was willing to risk one R on any one particular trade. That’s what you do. But in this case, you actually walked away with two R profit, right? So this is a way that you can develop mental toughness, which is kind of the point I’m getting at today is you can backdoor your way into that.
Now if it goes to 24, you can put your stop in at 23 and just cancel and replace and follow that process all the way up. Eventually it will turn around, maybe it does go to 27, in which case your stop would be at 26. See how that feels, because now if you got knocked out, you put your trade on at 20, you were willing to stop at 19, it got to 23, you held, it felt you were willing to feel new feelings. You still weren’t reckless with risk management because you only had a one R stop at 22. And as the move continued in your favor at 24, 25, 26, 27, whatever it might be, you can’t really tell.
And the thing does reverse in the near term and there’s a wave of profit taking, who knows what it could be, and you get stopped at 26. Now you have after the fact knowledge of what it was like to be in that trade, right? And again, you skew your average winner higher when you take multiple R winners and now you’ve experienced that you can calibrate your system. Most of the time you’re going to say something like that wasn’t that bad. It was a new feeling for sure, but you can get used to it just like you’d get used to eating chocolate ice cream. I mean, it ain’t that sophisticated. You just have to try it and you don’t have to trade it like a whale. Take the tiniest thing, take one share. Just learn to feel those feelings and then process them. Because you might find that your intellectual mind said, oh, only bad things happen overnight, and that isn’t the case when you’re in strongly trending markets and you let the winners won.
I can’t run. I can’t tell you how many times I’ve woken up to gold being up 10 or 15 bucks overnight to sugar being up 50 points to cocoa being up 80 ticks. So again, if you have to figure out if commodities are appropriate for you or not, I don’t know that. But the point is, when the markets are strong, the trends typically persist, and in that case, you can make money from just sitting on your hands, and that’s really a good feeling that if you haven’t experienced, I invite you to invite that feeling when you’re ready into your world. Again, it will backdoor your way into mental toughness and that can only help you. That can only help you. Why does it help you? Let me give you an example. There will be a day when you put on that trade at 20 and you get stopped at 17 point 50. Market opens lower or market trades quickly. You put a stop and remember, your stop order once it’s elected becomes a market order. So there can be significant slippage to me. I don’t care about slippage. I know people when you have a smaller account and you miss a full point on the ein, you fall to pieces. But because 50 bucks is 1% of five k, but that’s what you get when you have an underfunded account. Underfunded to me is less than 25 k.
And I applaud and I admire everyone who’s
Jumping into the game, but there’s certain disadvantages that you have when you just don’t have the capital. You’re the small banana, and that’s just the way it goes. I don’t like to see people develop bad habits because their accounts are underfunded, and so hence they trade many of these micro contracts as day traders. You just don’t have enough money to make any money. You see what I’m saying? So there is a little bit of truth to the fact that you need to start with more money, but at any rate, you will have those moments in time where your stops get hit and there’s slippage. Or if you are trading overnight, the market might open below where you were going to adjust and put your protective stop, and so you will have lost more than you had hoped for. And that will happen from time to time.
How frequently? I don’t know, less than once a month, but it all depends on your trading style. But when those instances happen, you can still look back and say, well, I was able to take that six R trade out of Wendy’s or whatever you might be trading. I’m just throwing a name out there. You know what I mean? And this kind of lessens the emotional blow to you when you have that happen to you on the losing side, it doesn’t feel that bad because you had opened yourself up to the abundance to just sit on your hands and let the market do the work for you. At least that’s what happened for me. Then I really became kind of addicted to that feeling like the world was abundant. There’s a lot of money out there. The money that I want to bring to my account in the form of net credits or credits are, or the money’s already in somebody else’s account.
The question is, who’s got stay in power? Who can play that game of chicken better? So again, position size to where you’re comfortable and adjust your stops, can’t reiterate it again, it’s the best way to start making more money is to let the forces of the market do the work for you. Otherwise you’re turning trading into a blue collar job. And the way I look at this whole business, and I always have again because I was lucky I was born with this type of insight, is I don’t want to be a business manager. I want to be a business owner. So the idea of sitting in front of the screen all day is a fucking snooze. I have no interest in doing that because then if I’m not there, I can’t make money. You see what I’m saying? Whereas the broker dealers and the fcms that you might be using to clear your business, they’re all incented to execute your trades for you how they get paid.
So I can trust that my stops will get hit if they’re elected. I don’t have to sit and watch it. Now, I know that there are people out there like two dozen who were able to take a thousand bucks and trade it up to 10 million and I applaud them. Everything lined up for them and they were willing to put in the time, the money, and the effort. But that is so atypical of how the world actually works. And so you have to have perspective of what the reality is for you. You see, you can’t deny anyone’s success. And again, I applaud them. It’s great work, but the probability of anybody doing that when their account is too small, so much of it has to do with timing. We also have to consider what happens when you do bleed and bleed and bleed and bleed. You have to refund your account.
Maybe that’s where you’re at. But I was never a guy who wanted to shovel sand against the tide. I wanted to make money. And so once I learned how to hold onto my winners and catch the moves, I knew I was smart enough to stay out of my own way. And that mental agreement that I made with myself was all about emotional intelligence. It was in the scales of my justice. Which feeling do I want to feel? Do I want to feel like I was in a trade where I want it, I won and I got the dopamine hit from the win? Or did I want to be in the trade to exact the most amount of money that I possibly could as a rate of returner on the risk that I was willing to put up to be in the trade in the first place?
And once I learned that and I could conjugate it in my brain, I went to the side of making the most money portrayed that I possibly could. It’s all nice and neat when you could think of that and you got your price targets and this and that and your precision and your sniper exits and stuff. That’s all bullshit to me. That’s all a mindset. Yet you talk yourself into, you can play a little bit loose and still have very solid and rigid protective stops. So it’s either you’re going to do the work or you’re going to let the market do the work, and do you want to be an ass who carries or do you want to be a man that loads them? You see what I’m saying? And so it’s really up to you. But anyway, I’m just answering the question of how do you make more money?
And the best way to do it is to stay in the trade. You don’t get paid if you don’t have risk. And if you have a good risk, which is to me, a good risk is when you have unrealized gains in a winner and then you let the market do the work for you. You’re already in the winning trade. You don’t need to do any more work. Now it’s just a game of chess. Where are you going to move? What piece? And there’s only one piece to move. It’s your protective stop, right? It’s not a stop loss. You’re making money. It’s just a protective stop. What are you willing to risk of your unrealized gains in order to stay in the trade? A good place to start is one, one r, because that’s what you were willing to risk in order to be in the trade in the first place. But at any rate, the mental toughness part is part of it because you have to have the inner fortitude to stay with your winners. One in a thousand trades, you will have a three R gain that will go back to zero. It’s just the way that it works, probabilistically. You can figure that’s going to happen, but who gives a crap? It’s one
Damn over 10,000 trades that you’re going to do. You cannot fault to pieces over that, what small minded traders do, in my opinion. Okay? Anyway, please like and subscribe and click the little bell thingy, whatever that is. I don’t even know where it is. It’s somewhere on the page. There’s a bell and you click it. Then you get alerts. Anyway, thanks for being here and I’ll be here. We have a really great episode. We already recorded it tomorrow with ganja, so I’ll see you there.
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