Hey everybody. Happy Thursday. I hope you’re doing well. I want to read you a comment that was posted under a video. So I’m going to look at the screen here on the monitor and read it. It’s under the video performance coaching and sticking to your Game Plan. And it’s second entry long, I guess, is the name of the person who made this comment. So thanks again for commenting. I have read your book, the Inner Voice Trading and has become one of my favorite ones. Thank you so much. I have been trying to find my inner voice and keep my losses small, but I have a recurring problem while I do place protective stops. Every time I enter a trade, I find myself time and again moving the stops wherever it probably means. Whenever they are close to getting hit. Worse, I average losers and keep moving stops.
And this has caused me to blow accounts time after time. What are your thoughts on possible reasons? I do this. I am despondent and your videos are about the only thing that give me hope. I know I have to find it within me. There are no external solutions to my internal problems. Someone smart said that, but maybe you can provide some guidance so I can get started with self-discovery on this. So in the consulting side of my practice here, which is kind of a function of how much time I actually have to work with people, we start thinking about goals. What is it that you want your money to do for you? Because typically having a goal in trading, if people say, yeah, I want to make a million dollars, I get it. If you don’t have a million, it’s probably a big goal for you. I understand. Depends on your upbringing too. So it could be good, but typically it’s a very vapid and empty kind of goal to have because what the hell does that even mean? And why pick a million? Why not just pick 50 K because it’s 20 times below, right? It’s easier goal to hit. Yes, you have to get to 50 before you get to a million. So I’d set the goal for 50.
But I think in understand, in order to understand who you are, you have to understand what your money means to you. And in the beginning of your career, the money, if it’s your money, right, it’s really tuition. It’s not even your trading. Yes, you can call it your trading. And yes, it’s your money. You can zip it up and take it out and withdraw it and transfer it to a savings account. It’s your money for sure. But when you’re honing your craft, those are it’s points in the game. And yeah, I’ve been there, man, I’ve been in drawdowns cause I didn’t know what I was doing. And like I said, there was so many things where I’d make money in futures but then give it back in foreign exchange. Or I’d make it in stocks and futures and then I’d lose it in options because I had one loser and I bought a big debit balance, put her a call, and I let the thing go to expiration, which was stupid, but I didn’t know any better and it would wipe out the gains that I’d have in Deutsche marks or cotton.
And so you kind of have to carve your behavior and figure out how does it serve you to move your stops? What’s the emotion? What is the emotion that you’re unwilling to feel? Because those have as much power over you as the ones that you do want to feel. And so when you move your stop, I’m guessing it’s because you don’t want to feel the rejection or the humiliation or the frustration of having put in all this work. I don’t know what quality of work you’re putting in, but if you’re putting in a lot of work, you might feel that you’re owed some kind of due. I’m here to tell you that that’s a fallacy that doesn’t work. No one cares how hard you’re working. No one cares how hard I work either, by the way. The market is there to morph and to steal from you and to kill you and to take your money.
That’s why playing defense is job number one. I don’t care if you’re hell Ben for election balls to the wall speculator job number one, even for the commodities corporation guys job number, if they lost their money, they were out. They had to actually reapply to get more money if they blew out their allocation. And it wasn’t a fun process because I know the guys who, well, one since passed away Frank Fanon, but I know the three guys who were part of the management committee and if they blew out of their allocation and had to reapply, it was a very arduous process and it was humiliating. So no one has a free ride no matter how the trade or their trading style or their asset class. So how much of your money are you willing to lose in order to learn your craft? Because you can’t do it on paper, right?
There’s no burn. And I suspect when you want to move your protective stops, it’s because you’re unwilling to feel the feelings that go around losing money. But to me, you have to fall in love with that feeling because it’s going to be the most frequent feeling that you feel, right? Most people don’t have a high winning percent for small gains. They have a smaller winning percent, like 30 to 50% for bigger gains. We talk about the expected value of a trade. Now there are a handful of people who have a high accuracy rate and high numbers. The problem is with day trading, there’s not enough real unless you catch a move because some last week some name was upgraded, it was up 15 bucks. It’s just being in the right place at the right time. So most of the time though, you’re going to find yourself being in trades and if they get close to your stop, what I used to do, I don’t mean to jump all around here, but my mind’s going a million miles an hour.
Cause I’m trying to think back over 35 years in experience so I can be valuable to you. So let’s just say I bought a stock at 25 and for whatever reason my stop is at 24. And if it wasn’t making me money or it started to leak and my timing was off and it was 24 75, and then because again, this was in eighths, so 24 5 eights, five eights a half, right? Then three eights a half, I would sell it at three eights because I’m not going to let the thing come all the way down and stop me at 24 when I’m clearly my timing’s off because the better
Trades typically have a lot of slippage in skid and they start making money with you for you right away because you’re buying when there’s other buyers there. So if I put in an order to get it, a big 2000 shares at 25 on a stop and I get filled on all 25, on all 2000 shares at 25, my first reaction is uhoh because that’s not a good sign. I want to see at least half of the fills go into an eighth to a quarter because now I’m on the right side. There’s people who have enormous amount of size pushing the market, higher people are reluctant to sell. And there you have it. But I also used very, very early on, not at the very beginning, but very early on within my first two years, I also learned the importance of what we call time stops.
And that would be where I look at the same name by 2000 at X, Y, Z at 25 and over the next say that’s a Monday. If Wednesday ish Thursday I’m like 24, 7 5 25, 25 and a quarter and I’m not really seeing any movement. I unwind the trade, I don’t care about the price because something stalled or the momentum never showed up that I thought was going to be there. And after diversification, we all need some level of momentum, even if you’re not a momentum trader, you see? So part of this problem might be you don’t know who you are as a person yet when it comes to money in general, I don’t know what asset class and I don’t know what kind of timeframe you’re trading, but you might be looking at this as opposed to saying, okay, I have 10 trades and I’m going to lose six, seven times out of 10 and I’m going to take that failure very emotionally and I’m unwilling to, I want to change that ratio.
So I want to stay in the trade longer. So what do you do? You’re coming down again, you’re longer at 25, it’s 24 and 30 eights. I know I’m using old language, but this is what I was going in my head when I was younger and I would just basically say to myself, it’s not wrong. I’m going to preserve my cash because that’s job number one. Sometimes I’d even blow it out at 24 and a half because money was hard to come by. Plus, don’t forget, the spreads were an eighth to a quarter. So it was like the thing was going 24 bid, I was going to get stopped. So I figured if it was three eights to five eights the market, in other words 24 3 eights bid offered at five eights, I would sometimes call the market maker and say, I have 2000 shares to sell it a half. Can we do it? And he’d say, yeah. And I’d be like, okay, I took my 50 cent loss again, plus the commissions which were astronomic compared to what you’re paying today. So I learned the importance of playing superior defense. If you’re frustrated with the frequency with which you’re losing, then you have to trade smaller and get into some kind of a groove and do it with a small amount of capital because anyone can scale. Once you figure out what works and who you are and what works for you,
Then that’s easy to scale. But I wouldn’t be trading your optimal size at the beginning if you don’t know what your edge is. And again, if you don’t know what your edge is, then there’s no reason to trade at all. We only want to trade when there’s an edge. But Mike, I’m just starting. I don’t know what my edge is. All the more reasons to trade smaller risk 10 bucks. One of my buddies who runs a prop firm, I don’t know cause I haven’t spoken with ’em in a bit, probably owe my call. I think they only let their traders lose 10 bucks at the very beginning. And only, this is brilliant smart idea because it doesn’t say anything about the person. If you’re looking to print wins where there’s a comma, you’ll get there. But not if you blow up, unless again you make enough money where you can just roll the dice and bet half your account because you make 400 K a year, then it really doesn’t matter.
You don’t need to trade, right? That’s just like an ego win. So I would trade small and really evaluate your process, keep good records as to what kind of trades you’re putting on while you’re putting them on. And also understand what does money mean to you? Who taught you the rules around money, right? Because unless those people were Ray Dalio, you might not know anything about money. And that’s not a, if you come from a working class background and those folks will live and check to check to check, they might not have even had an investment account. Their biggest investment was probably their house. You see? So you inadvertently learn these rules around money and how to take chances. You could be super academic where you think of losing money as a failure because you live in an or you come from and have been reinforced.
Look, by the time you graduate high school for 12 years, you’ve been conditioned to think that being correct is good and being wrong is failure. So if you lose money on trades, you associate that with failure, which it’s not. That’s how the game works. So get clear on what your money means to you and what you want your money to do for you. And it’s typically not a dollar value. It’s usually associated with what you can do with that money. Does it give you liberty? Do you want to be a philanthropist and give it away? Do you want to convert it to a different asset class and create passive income that might have more favorable tax treatment than buying and selling securities on a listed exchange? I don’t have enough information here. Let me just go back.
Yeah, I don’t have enough information to know about the asset class or whatever. I appreciate all the compliments, but again, you’re despondent because you’re breaking your own rules when you probably know better, and I don’t mean to sound that way, but this is what you wrote. Don’t change your stop trade smaller and give it more room. Cause if you’re trading 2000 shares, risking a dollar right trade, that would be the same equivalent of trading a 10th of the size 200 chairs and giving it al that much more room. So do the math and figure it out. Give yourself more room to breathe, right? Or even and then cut it in half, right? Isn’t that what Bruce Kaner said in market Wizards, whatever you think your right position size is, cut it in half and then cut it in half. Again, this is probably the smartest thing written in any of those books, right?
Trade small at the beginning because until you can define your edge, there’s really no reason to trade If you’re panhandling for the gold because you’re just getting started, yes, it’s true. You have to be in the business. I’ll leave you with this. I don’t know enough about these funding accounts. They come across as terribly slippery. I’ll give you that much. And I don’t think it’s a Ponzi scheme. I did an episode on it. Chances are you’re getting, if the winners, they’re getting paid out on other people who are paying their monthly fees, right? Cause I don’t think there’s actually any trading going on. It’s all paper trading and somehow they’re netting out the books. Sometimes you have to wait, sometimes you need a bunch of green days in a row of a hundred bucks, five of them before you get paid from this one outfit.
I was going to say racket, but I’m not being condescending. I don’t know who many of these people are, but it might make sense for some of you. And again, I don’t have any financial stake, I don’t have any affiliate commissions. So truth is I just don’t even care if the funding companies exist or not, to be frank with you. But if you don’t have money and if it bothers you to lose your own money, it might make sense for you to investigate one of these funding accounts traded super small and super conservatively, right? Again, there’s a lot of rules that I don’t like about them. You make 9,000, you can’t have more than a $3,000 drawdown. Well, I would never make it even today, I would never pass with those rules because if I have nine K in gains, I might be willing to risk 4,500 of that to stay in a winning trade might not work for you. I get it. It’s different emotional constitution. So imagine I come out, I’m super lucky. I buy a bunch of nqs, I’m up 13 K and I want to ride my winners, but I draw it down to nine. Guess what? I got to reset because I lost 4K and I was only allowed three K in the program. That’s a bad rule.
I think that’s apex by the way, but I’m, I’m not a hundred percent sure. I think that’s a bad rule. If you’re making money and it’s especially, it’s on paper, but it might make sense for you to look at having a small monthly fee. Don’t go after the big three, 400, half a million dollar account sizes because it makes you feel bigger. Trade the smallest one possible and learn your craft. Pay the smallest amount of month that you possibly can because that’s like a call option or a put option. It was a call option, right? Because it’s a set monthly fee, it’s paper trading. You’re not really losing any of your money and you’re able to learn your craft. I do think
It’s not exactly the same though because you’re not feeling the burn of losing money. The benefit of what you’re going through right now of actually losing your own money and being despondent goes to the quote from Anaya N. And then the day came when the painter took to remain tighten up ball was greater than the painter took to flourish. Sooner or later, all this Deon is going to motivate you to stop making bad decisions and moving your stops. And I say that not to be sarcastic or snarky because I’ve been there. There’s no feeling that you’re going to have to feel or will feel or have felt that I haven’t felt for one reason or another. We might not have come. The orientation to those feelings might from our behavior might not be the same, but I know what it feels like to be despondent.
So the key is to lose less. How do you do that? Trade, smaller trade. Not frequently trade one of these funding accounts. Again, I don’t endorse any of ’em cause I don’t know, but at least you’re not really losing your money at that point. Then if you can determine that you have a small edge, go to the cash market where you’re using your own money and start there. But identify your edge. And if you don’t have an edge, just understand that you’re going to roll the dice and you’re going to crap out. It’s the way it works. No one’s immune from it. Okay? Anyway, please like and subscribe and click the little bell thingy so that you get notified. I appreciate you didn’t hear, keep all your comments coming because it’s really good. It kind of keeps this conversation going and I appreciate you all being here very much and I’ll see you tomorrow.
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