Man, when I started trading, I had all these preconceptions of what it was going to take for me to make it, and guess what? They were all wrong. I was wrong on every front. In fact, I had to flip them 180 degrees to make any sense out of ’em, which was both humiliating and emasculating at the same time. But the good news is I fell fast. I fell forward, and I learned the hard way I wrote about them. By the way, in the inner voice of trading, you can get the audio book for free. Link is in the description. The first thing that is, it’s almost comical, right? Which is why I say it now because I don’t have any ego. The first thing that I came to find out, which was again, very humiliating, was that indicators are largely useless. In fact, they’re all useless. I don’t care what one you use, they probably make you feel good. I call them emotional. Yes, you can use RSI, yes, A TRI don’t look at that as an indicator as it is a measurement. You know what I’m saying?
And I’ll be, if you have a back test than a study, don’t say nine out of tens. That’s bullshit. So if you have something that’s back tested where you can use an indicator as a trigger that’s better, that outperforms price itself, then please send it to me and I’ll give you credit for it. But for my style of trading, which probably is very different from yours, in many ways, I found that the indicators didn’t help me at all. But here’s the problem with indicators. For the most part, they’re free. You know what I mean? So it’s like, let’s just put ’em on. You got nothing to lose. I can throw on 1, 2, 3, 4, 5, overlay the chart. Sometimes they’re below, and next thing you know, you’re trying to read an eight point font. There’s so much crap on the screen, and I found out I was using them because I was unwilling to feel certain feelings.
And the more personal and emotional power that I developed over time, especially when I was starting out, the less I needed the indicators. I didn’t need to just make sure, because that’s the impulsive side of me serves me well when I have a governor on it. And the governor really comes down to the second thing, which is position sizing. Position sizing, despite needing to sniper entries and all that kind of stuff you make and you lose your money by position size. Your entries, in other words, can be super sloppy. You probably can’t handle that emotionally, right? It makes you freak out if there’s, again, if you’re scalping for small, we’re going to talk about scalping this week. There’s a few misconceptions about it. I know some people can do it very, very well. Most people can’t, and especially if you have a small account, it’s just not worth it. You can’t make any money. But position size was something that I needed to figure out. I didn’t know because back in the day, you have to understand that they would penalize you if you bought odd lots. So if your account was a certain size and you couldn’t afford a hundred
Shares, they actually penalized you, I think a quarter or a flat rate of an extra 50 bucks. So I started to think like, man, these places aren’t really there to help you at all. They’re there to find new ways to fuck you out of your money with all the fees. You think the banks are bad with bounced checks or insufficient funds. I don’t have that problem anymore. Obviously I did when I was a kid, but at the end of the day, they had these odd lot fees, and so now it’s like, man, I’m trying to manage the risk in the most appropriate way. I have funded a certain funding in my account. I think I started like five, $6,000 before I really started trading full time. And I just came to realize that the position size, there’s a couple of ways that you could make big money.
I wasn’t interested in making peanuts. I needed to make big money again because of the cost structure, right? So go back. You have to know your history. You can’t judge me based on today’s data. It didn’t exist back then. I was already in the business for six, seven years before Decimalization even came about. Same thing for the ein. It didn’t exist when I started. So you find that you have a small position and you hold it for a longer period of time for a larger move, you can make big money. That’s kind of what I fell into, is buying good instruments in trending markets, holding them for as long as I possibly could in stocks and futures. The other way is to take a monster position and try to scalp it for a smaller move over several minutes. You can do that too, but you need to have a fantastic sense of timing.
If you watching people over the shoulder, that’s great. You could look at it, you can see it. You could learn it intellectually, but that does not mean that you could pull it off by any stretch of the imagination. Accuracy is a mind fuck. Like I said, that was number three, the accuracy game. You kind of come in from an academic standpoint, and you’re used to being, right. Nineties are better than eighties are better than 70% test scores. But you find out that slippage tells you a lot about the type of trade that you’re in. It tells you a lot about who else is there, right? The last thing I want to do is put an order for 200 gold contracts on the floor and get everything filled at one price. That’s a big problem. You don’t until you get there, you don’t know. But getting super clean entries is not necessarily the goal.
To me, that’s an emotional issue, not a financial one. So I stopped caring about being correct all the time, and I knew that if I was right, say 30, 40% of the time that I had to learn how to expected values and mathematics of expectation apply to trading because it didn’t occur to me naturally. I knew it because I had studied it in school. I studied econometrics with Febu Drime, who’s legendary in econometric space, rest his soul, and I’ll give you an extra one. The fourth one is that if you can catch the moves early on, you only really need two or three, maybe four trades the year to make your year if you know how to position size accordingly and stay in the moves for longer periods of time, right? If you look at some of these guys who compete, they’re not scalping in these contests.
They’re putting and using leverage, and they’re dividing up their capital. They’re putting for every a hundred grand, they’re trading 200,000 a capital with $50,000, position sizes with a hundred thousand in equity. That’s how they’re making these monster gains. They’re not day trading it. They’re position traders effectively building into positions and letting the names move. So if you can catch a handful of those over the course of the year, they can really make your whole year. You don’t need to fuss about knowing what’s moving every single day. A $5 move doesn’t necessarily mean that that’s a missed opportunity for you. So you have to do your diligence, you have to manage your lists, and you have to use alerts. These were all very painful lessons because the opportunity cost was high, as well as the actual financial losses. But all of that stuff goes into the tuition part. You have to account for the emotional growth that you’re going to go through, because trading is going to push all of your buttons. Whatever your biggest character defect is, trading is going to find a way to put you face to face with that. So you might as well make friends with it.