I started my trading career with $5,000 and damn I didn’t have any money. So I know some of you who are trading the minis and the micros are kind of feeling the same way. You’re backed into a corner. The good news for me is that those didn’t exist at the time. The E-mini didn’t even exist at the time. The S&P 500contract was $500 a point. Margin – I remember like it was yesterday was $39,000. It was clearly an institutional product, and I remember breaking up my money. I kind of talked about it in the live stream. I put some money in Reg T for stocks and the rest went to futures margin and I was trying to trade upwards between $35 and $50k of notional value across both asset classes. I knew if I could do 10% on the notional value trading like $40k notional and I did five or 10% there, then my own account could be up 40 to 80% on my own equity and that was what I needed to do to give myself some more room.
You can start with $5k for sure, but you have to be highly selective. I wouldn’t be trading the minis or the micros because there’s not enough points in it to build your equity to make a difference. Now, I do agree that playing defense is job number one. I think all traders should be thinking about learning how to play superior defense first before going out and trying to make their fortune. But ultimately what really made me money was taking the risk home overnight and over the weekend when my trades were working out. That’s going to seem like it’s an impossibility for many of you because you’re afraid. In lesson 12 of the mastermind program, we actually take a look at securities and I isolate what actually happens overnight and over the weekend from all other price action, and we look at that and we study it and we kind of try to figure out, well, who did I hear this from and why did I take this on as my own belief without having experienced it on my own? So we actually take your favorite ticker and we put it in as an exercise and you might be surprised what the results are.
In 80% of the instances, the money that’s made is made overnight. That flies in the face of what you think is practical, but you could do that exercise on your own. You don’t need me, so you can do it with 5K, but I was embracing the overnight risk and that made the biggest difference because again, lucky for me, the minis and the micros didn’t exist. Lucky for me, the commissions were very, very high. Since then, they’ve compressed 95 to 99% and in some cases of trading with certain apps, you have no commissions. They’re probably still color in your
Trades or picking you off with their high frequency trading. So there is a hidden cost on the execution side. There just isn’t a markup or a markdown on the trades. So the environment that I was in really helped shape me for the better. So I totally think you can use a small account, but my goal was to grow it as fast as possible and when I took the data, the open, high, low close data from the chart and put it into the spreadsheet, and then were able to see if I had gotten in on a particular trend early on, and then I just sat on my hands, what did I have to live through in terms of surges in my equity as well as near term pullbacks? I became emotionally comfortable. It was kind of like an emotional back test, if you will, on the equity and what I needed to do.
And I said, okay, I think I could live through this. Let’s give it a shot because my friend, I trained with Boss Rudin, not with him in standup, but at doing Jiujitsu at one of his schools. He would kind of say, it’s only pain. It can’t hurt you. And I kept saying to myself, it’s just money. If I lose some, I’ll just earn it back somehow. I always, at that point in my life, I had known I was a hustler. I knew how to make money, I knew how to work hard, so I knew I’d always have money and I knew I wanted to do this business and be a full-time trader and then eventually make a living as a trader, not make a living with commissions and fees on client transactions. I was commissions and commissions as a way of making money on Wall Street as a financial advisor, financial consultant, whatever.
I think I was kind of like in the third quarter of that, I left in the third quarter of that game when I went out on my own and then I got two and 20, right, 2% management fee, 20% incentive fee because at that point I was good and I knew how to make money. So I was like, okay, I’m going to use other people’s money to grow my own money at that point. So then I would just pull all the cash, put the trades on, grow my money, but at the same time earn 20 cents on every dollar that I helped somebody else make and then that kind of compounds. That’s a really cool way to build your own wealth. That said, if you’re underfunded in that regard, you kind of have to figure, I don’t want to say you have to wing it in terms of your behavior, but you have to adopt a wing it mindset in that you’re underfunded by definition, so you have to be super selective in what you’re picking out.
I wouldn’t pick stuff that’s limited, like whatever it is, the MYM or the MNQ, a lot of those, I wouldn’t go to choose those. Those products were created for you and you’re like, well, I don’t understand, Mike, you just said that things were created for me, but you are trading against professionals and so you are the fish in the barrel. You’re not the one doing the shooting. You see what I’m getting at? So despite what the features are of your trading platform and how you can create buying zones and color this and doctor that up and add lines for where you’re going to enter, and here’s where I’m going to add and here’s where my protective stop is. This isn’t art class, right? Features aren’t benefits even though you think it’s kind of cool. I haven’t really seen a lot of people do that in real time and use it to their advantage.
Again, features aren’t benefits. What you need to get good at if you’re going to trade the short term is have a really phenomenal good sense of timing, but I would trade bigger contracts that can make you more money. Obviously you still have to use protective stops, but if you do the math and you start to see based on the frequency, or excuse me, the number of trades that you’re putting on, the frequency with which you win and then what the expected value of the trade is, you’re never going to grow your wealth with an expected value of say, $25. Even if that’s on a $2,500 account, you’re like, Hey, it’s 1%, and you’re right. It is that it is 1%. The problem is is that your losses and the mistakes that you’re going to make when you’re starting out are going to eat up whatever little gains that you have.
Now, I did a video on this. You can go look it up on the channel, but I think it’s called the problem of taking small consistent gains. You’re going to eat yourself alive with that strategy, doing a lot of work, putting the work in, but you’re not going to make any ground. You’re shoveling sand against the tide. So my goal is to help you understand the nature of risk, and that risk is like fire. It’s not all bad. If it runs out of control, it can be bad, but most instances, your interaction with fire is probably in a situation where it’s controlled. And so that’s what you need to embrace. I think if you want to grow your account as fast as possible, stop taking small winners, learn to embrace risk either with smaller positions or longer holding periods because some of my biggest trades were the ones that I didn’t offset and I just let them keep going, and I had no idea when I started.
Just like I talked about on Monday, when things don’t go as planned, it can go as planned on the good way too. It can go as planned and work against you for sure, and we saw that last week. But if I was telling you when I was getting into the sugar at 8, 9, 10, and then I bought more at 11 and 12 and this and that, I had no damn clue it was going to go to 19 within the next couple of weeks. Didn’t have a damn clue. I just stayed with it and that was a trade, and I pulled out over a hundred K on that trade, and that account was a 401k rollover that started with like $50k. So I know you can do it. You just have to think big. It’s all mindset. The trading tactic parts are kind of easy when you calibrate your system to say, Hey, I’m in a winning trade.
It’s going up and down in a winning fashion. I just have to learn to deal with the pullbacks. Pullbacks don’t mean corrections. They could over time, but if you look at any really good trend, there’s upwards and downward movement in an overall upward manner. The key is what can you live with in those moments when it stalls or when there’s a slightly down day in an overall upward trend? You see what I’m saying? And that’s why I put, again, if you go back to the replay of the live stream, that’s why I put all that data in the spreadsheet because I wanted to kind see like, okay, let’s talk. I can talk to talk. Let’s see if I could walk the walk. We don’t get paid to know stuff. We get paid to execute. So I had to put in those numbers and see, okay, at the open on this day, I was up a bunch, but then I gave it all back intraday.
I gave back, I could be up $200, which for whatever, that’s 4%, and how would it feel like if it closed flat or if it closed down and I gave it all back after having opened strong, how would that feel? So by studying the data, I could understand the nature of price action itself, which was the whole rub. That was the whole value of the study. So then I was able to calibrate my emotional constitution and say, okay, in order to catch a gigantic move of say 30 cents in corn from here to here with all these little up and down moves, here’s what I had to have lived with. How bad is that? Why would you fall to pieces? Now, again, it’s not predictive, but I needed to put myself in a what if scenario because there wasn’t the back testing engines that existed.
So I had to use the spreadsheet, right? I was using Lotus 123, and I was putting in the open, high, low close data for that particular day over the course of a two and a half, three week trend in a commodity future contractor stock, and I multiplied it through, if I had X amount of shares or X amount of contracts with this cost basis, here’s what my account balance, how it would’ve fluctuated given the open, high, low close for that particular day of that instrument, and then keep a running total of my account balance. And I studied like, okay, it tends to move up three or 4%. It pulls back 1%, then it moved up another three 4%, then it kind of pulled back.
What is the nature of the behavior of this instrument? And you can do that by looking at the prices. It’s a little harder to do it on the chart. You’re looking for cloud formations and this and that, but if you actually look at the prices, you can say, okay, then the next campaign and the next leg up and the trend, it was up 8%. It came back three consolidated for a few days, then it went up another 6%, it came back 2% or 3%. Then it rallied back up the next day. And I got to understand price action and how things unfold in those larger campaigns. And that calibrating those financial moves with my emotional constitution was how I really designed and developed my own system and sense of position sizing, how do I move my protective stops? That was from really looking at the data.