223: Best of Day Trading, Pt. 1

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What's going on crew? Welcome to episode 223. This is the best of day trading part one. I've gone back over the years and gathered a variety of my favourite clips that pertain to day trading in one way or another. Some include conversation about technical nuances and unique edges, and some are simply interesting stories. Others may help you to better read the market and develop the skills that day trading demands.

As with all best of episodes, prior to each clip I'll point out the episode number it was taken from. so that if you'd like to go back and hear the full episode, you can easily go to chatwithtraders.com slash episode number. Or alternatively, you'll find links to every full episode in the show notes at chatwithraders.com slash two two three. Now to get things underway, here is Mike Katz, equities trader and managing partner of proprietary trading firm Seven Points Capital.

Mike is a wealth of knowledge and has been on the show multiple times, but these few clips come from episode 205, where Mike actually answered questions submitted by the Chat with Traders audience.

Now just going back to the parabolic moves, so I just previously asked you how to detect a short squeeze once the squeeze is over. Obviously I'm sort of simplifying it here. How do you sense when a top may come in? Okay. So to answer that, let's back up a second. Let's talk about the short squeeze again. What are the precursors for that short squeeze?

If you're trading the low float, let's say there is five million shares that's available on the market, right? There's a float of five million and it the stocks already traded. Twenty, thirty, fifty, a hundred million shares. by 10, 11 o'clock, right? And it's not really going down. What does that tell you? It tells you that there's a lot of shares changing hands. There are a lot of participants that are going in and out. And chances are whoever wanted to sell that,

got the the ability to sell it there. And if the price didn't really go down off of that. We what we see with a lot of stocks that end up squeezing really hard is we have this theory on the desk that there's somebody that comes in, some big player that the float and says, Okay, you will anything you want to sell, I'll buy it. And then when they own most of the float, then they run it up and then they they decide where that

um where where to sell you the stock, right? So the shorts are pretty much in really bad shape. And they're at the mercy of whenever that individual wants to sell them those shares. So when something is running like that and it's it's a real parabolic, it's uh the the slope is accelerating and it's going higher and higher and you know it's halting left and right and everybody's excited over the symbol.

Well, for that in participant to be able to get out, he's gonna leave a footprint behind. And that usually tends to be with a lot of volume also uh at the top. So we look for the the parabolic. How do you know that it's the top? y you look for the big volume. You want the volume because that's where the shorts are being forced out of their positions. That's where they're giving up. And that's where whoever cornered the float is saying, Hey,

I will sell it to you here and they've decided when that happens. And from that point on, I'm guessing that that parti particular participant is now just selling on the way down and unwinding everything else that they have to sell. Okay. This next question may sort of be referring to what you were talking about there, but how do you use order flow for execution on uh reversal setups?

Yeah, exactly. So if it's extended, order flow could come in very, very handy. The velocity which the the tape is printing is important. The size of the prints is important. And um how they're they're being absorbed by the level two is also important. So if all of a sudden

The stock has gone parabolic and it's extremely extended. Let's say one ATR away from VWAP, two ATRs away from VWAP, um, very extended from short-term moving averages. And all of a sudden you have a lot of volume, the velocity picks up. and you have these massive prints that are going off, massive offers are coming in. That tells us that the smart money, the large players are selling there. And then if if you see also

s a certain amount of soaking on the offer. So let's say it is a thousand shares displayed and all of a sudden tens and hundreds of thousands of shares trade at that price without that thousand shares budging. That tells us also that there's a lot of selling there. So reading the tape there does come in handy, but you got to be able to act quick and respond to that. So volume, velocity, and soaking.

When shorting a parabolic move like we've been discussing here, do you scale and slowly add into a top or do you wait for a clear lower high to get in short? So the safer way to do it is to wait for that lower high. Right. So as something is going up, is accelerating and it's it's peaking. Let's say now the top is in. If we try to pick this top, that's a very difficult trade and it's not really for beginners.

But that's where you get the most reward, right? But you have to be able to cut that trade off and move on and close it if you're not right and try it again another time. So that's a very difficult trade and it's not for beginners because a lot of times beginners will freeze up in that spot. And and not cut that trade. And something that's going as fast as it is, as this symbol that we're talking about, that can get far away from me really quickly and it could get ugly, right? So

That top tick is very difficult. Our traders do it. Some like it and some do really well at it, but uh it's not for newbies. If you wait for that drop, right? So if if a top is in. The shorts covered, they gave up. The chasers got caught, they chased in. Smart money is selling there, chances are you're gonna have a big drop because there's that vacuum now. There are those buyers that were chasing it up and bidding it up and not getting filled. Guess what? The volume traded.

And now they're all filled. Who else is there? Nobody's there left anymore to um to buy the stock up, right? So there's a big drop. And that's what the front side traders are looking to catch. But then that lower high that comes afterwards. If it's not able to make new highs on the next bounce. The curl down there, the age pattern, lower high, whatever you call it, that's a safer entry. And now you have a defined spot to trade against that high.

Therefore, if it get does make all, you know, new highs again, then you're getting out. But that's a safer play and um that's one that we like a lot.

Around Kodak and SPI. Uh there's a question here with regard to S R N E. I'm not familiar with the story behind this, but I presume it's probably much long similar lines. When you see a stock like SRNE gapping and developing bullish price action, do you stay bearish due to its fundamentals and filings or neutral and obey what the chart says? Right. So S R and E is that COVID stock that is is working on on developing a drug for for COVID.

It's been in play. It's been it's had a lot of strength. The the fundamentals say that this is a toxic stock. Every time it gaps up, there's an offering. They don't make any money. This this is gonna go back down. And now here you are. You're short and you know that the stock's going lower, but the stock is not, right? It's it's heading higher. So We we are price action traders. We can have a thesis, whether it's fundamental or whatever it is, filing.

But if the price is not adhering to what we're we need the stock to do, then then we have to get out. There's just Thank you. There's nothing else to it. You can try it again another time. Uh maybe at a better opportunity, maybe at a higher price, maybe another day. But you you can't just be in there and say, well, this is a

This is a trash company. It's they're gonna drop an offering. I'm gonna sit here and wait for them to to drop that offering. Or it's such a garbage company that uh every time it's run up, it's failed before. You can have a little bit of bias, but You can't just sit there and and and watch a thing go against you and keep running. You have to have the point where you're getting out. And it's better that you have that spot.

beforehand, you know what that is. Otherwise, if you don't have it, then this the stock's gonna find that spot and get you out. It's gonna force you out. It's happened to me so many times. You know, I in preparation for this, for this uh chat.

I went back and for the last couple of years I I pulled up all my biggest winners and biggest losers and and I just, you know, I started looking at the biggest losers. I'm like, man, every time I get into a stock and and I don't really have an idea of where my stop is, where I'm gonna call it quits on this symbol. Um, that's the one I really get hurt in. And it instead of me deciding where I'm getting out, the market decides that. And I say usually not at a good spot.

What would you suggest to someone who usually scalps out too early on trades? Force yourself to to trail a little bit. Maybe not the whole thing, but some. And and also try to explore what might be causing you to take a trade-off too soon. Is it because you're too big and you see it, you see the number on your screen and you see the PL and you're like, I gotta grab it?

And and that gets you emotional? Or is it maybe that you don't have a predetermined list of of why you're allowed to exit? Right. So make a list. What are the reasons that you're allowed to exit? this particular setup. One might be approaching support. One might be, let's say for short, you're approaching support. Another one might be the trend has changed.

It's now a positive trend. Reclaimed highs. That's another reason. Um uh PR hits, uh it gets extended to the downside. Uh it gets power at the inverse of parabolic, it really shoots to the downside, volume kicks in. All the longs panic out. That's another reason to exit. So each setup is going to have that set of rules for me and say, these are the ways that I'm allowed to exit this particular setup.

And now I c have something to hold myself accountable to. I have I can grade myself and say, okay, at the end of the day, what do you give yourself? What kind of grade on your exits? If you don't have that list, it's kind of it's gonna be very difficult to know what you did wrong.

Second up, here is a clip from episode one hundred and fifty seven featuring Alex, known as at TaggerTrades on Twitter. Alex is a retail trader from Texas, predominantly going after momentum plays on the long side. Yeah. December last year, I believe, was your best month. It was. And I actually saw you say somewhere that it's not.

December alone was better than the first five months combined uh of two thousand and eighteen uh two thousand seventeen. So um let me just ask you, how come? What went so well for you in in December? So uh basically the first six months of the year last year was me kinda grinding it out, building up the account.

uh getting it to where I had enough cash in the account that I could really, really put some some force behind my trades. And I kinda walked into the perfect storm towards the end of the year with the whole Bitcoin blockchain stuff exploding.

Um I didn't actually trade the the the the cryptos themselves but all these companies were popping up saying that they were getting into uh mining or the blockchain or something like that and they were exploding and I was just well capitalized and well prepared and and had had I guess the training uh the mess ups before and I kinda came into it just just better.

So can you maybe share a few of the the plays which worked really well for you in December, like that were related to this whole uh blockchain mania that was taking place? Yeah, so uh kind of like I I remember last time we talked at the beginning of the year was the shipper mania that was going on. Um and and they all kind of ran together. There's always about four or five stocks in each sector that that fuel off each other and

people think they're gonna go from one hundred one dollar to a hundred dollars and uh there's just so much speculation and I I'd kinda call it like a risk on atmosphere where people are just chasing and and going for everything and buying every dip. So it creates uh a a positive atmosphere for somebody who's long biased. And there was a few few companies um that were pretty much just going up, up, up every day and if and when they pulled back they'd go. So

Uh there was one in particular, uh the tickers M-A-R-A and there's ones D P W and R I O T and about four or five more. And and any day that they opened up week. You could almost kinda track'em all together and see when one's when one started getting bit up, the other two were were not far behind. So it

it really gave you the opportunity to to kind of be aggressive and and use use each other, use them as almost like leading indicators or things like that. So you could I I would wake up one morning and three of them let's say all three of them were down

you know, a few percent, but one of them was down more. And the other two turned green. Well um the one that I always always traded was the M A R A. And I was able to to get in there with confidence. And as the other ones went, I was able to kind of hold those positions longer than I was Normally

I normally consider myself kind of a cash flow, kind of a scalper, but those would allow me to hold them longer because there was just so much uh mania going on. I mean, they were making fifty to a hundred percent moves daily. Um, and so I was just able to get in and hold longer and um put in more size and there was so much liquidity, um you could sell a lot of shares. There's pretty much always somebody there to to to to sell to whatever you bought.

Yeah, it was uh it was crazy. I just remember like I obviously wasn't trading this sort of thing but I I just remember like coming into work in the morning and and seeing the headlines on Bloomberg about how um this this company just added blockchain to the end of its name and now it's up like a hundred percent on the day or or whatever. I'm just like, what's going on?

ridiculous. Like there'd be biotech stocks that were clearly had drugs in the pipeline. All of a sudden they'd put out some kind of some kind of PR saying, Oh, and now we're in the blockchain and it would just explode and it was the kind of things that you were you were able to to risk a little more. um on that because there was so many other people that were just sitting uh you could just tell people had their fingers and their triggers waiting for the next next trade.

Um, so it gave you a higher probability to to go for it. Um they didn't always work and a lot of times they didn't, but you know, the it just you're when your odds are there, you that's when you kinda put more risk on. Yeah. And I really like how you've described this because it's like You know, you've taken everything you've learnt since you've come into trading and it's kind of built up.

you've had that really sound knowledge base so that you've been well prepared for the the next time that, you know, a catalyst like this comes into play, that, you know, you can really hit it hard and make the most of it. Yeah, I've botched three or four of these exact same scenarios in different different sectors, different names, different everything, but the the exact they all

pretty much end up the same and they kind of work a a little bit differently, but but very similar. And I'd botched enough to learn what not to do basically. So I I could still definitely have a lot of improvement. There's no doubt if I could get better at holding longer, holding overnight and things like that. But Uh baby steps. Yeah, yeah. But I mean, how long have you been trading for now? Uh June will be five years, so still still I would be probably considered a young gun out there.

Yeah, for sure, for sure. Um, but how long have you been trading for full time now? It's That's how long it's been, yeah. So Dabbling since Uh but by dabbling I mean putting on like three or four trades a year and just being interested in the markets for I don't know, ten years. Um, but nothing serious at all. Just had a had a healthy fascination, I guess. Yeah. And like you said, you've botched a fair few of these uh kind of themes that come into play in the past.

What did you do differently this time around? I mean, obviously like we just discussed, you were a lot uh better prepared, but what are some of the mistakes you made in the past which you perhaps didn't make this time around?

Preparation. So knowing knowing the names, um I wouldn't say inside it out'cause I try not to get fall in love with any single one of'em, but knowing what's going to launch the next one, knowing which ones are the leaders and which ones are the laggards in the sector,'cause what I used to always do is I would always just go for the laggards um in the sector and

And try to play catch up. Um, but a lot of times those are the biggest dogs. And I I really focus this on this time on trying to find the best few. and and and being the one of the ones that was the front runners on them and so trying to not not wait and and catch the last few percent. I was trying to get the majority of the percent on'em. Um and then also knowing w when when the party stops. That that was a big one that

that hurt me in the past where I would I would do well it's say it was a two week period and do really well for a week and a half or a week and then I would just hold on too long or buy too many dips or or give up too much of that phase. Well this time I I was I didn't catch the I guess the last

couple of days of craziness, I just kinda thought it's a little too crazy, a little too hot, it's time to back off and just protect the profits now and go for much shorter uh shorter trades. So if anything, I guess that was probably the biggest thing, is knowing when to back off because Uh you always hear it's easy to make money in the market, but it's really hard to keep it.

So so knowing when to take the foot off the pedal um and then when to apply it back because as soon as they run they pull and they'll do a second run and just kinda getting the feel and the flow and and and riding the wave versus um I guess getting hit by the wave.

So I'm sure we'll get into this a lot more as as we get going. But, you know, in in this particular instance, you know, the as the blockchain many were talking about, how did you gauge when to get out of these stocks? Like how did you know when the party was over? It it kinda sounds funny and uh I I've seen it other people talk about it, but whenever I guess whenever you get texts from your friends and family uh that wanna get involved and they have never traded before, then you know, okay

the whole boat is loaded one side. Everyone wants to belong these names. Um and that's when it gets dangerous because at some point the buyers are gonna run out and the sellers are going to take over. And it's it's it's a healthy part of the market. that obviously there's shorts that are on the other side. Um so it's knowing when when there's when there's too too much optimism and it's

You know, I guess it's a mixture of technical analysis by looking at charts and just saying, This I mean, it can go further. There's no doubt it can go further and it can always go higher. But at some point the risk reward just isn't isn't there anymore. And when when you're looking for the next, what's the next push gonna be, it becomes less and less likely that it's going to continue.

Um and and like I said, I I I did miss quite a bit of it, so I didn't time it perfectly by any means, but there's a point when when you kind of have to stop, it's not so risk-on anymore, it's a little bit more defensive. Yeah. But I think that's that's a interesting point that you raise because you say you didn't capture the whole move, but you obviously captured a decent chunk of it and as a result you had, you know, the best month out of the whole trading year.

Exactly. Yeah. And it it comes down to looking at the month even if you broke it down day by day. In any week period it was really like one day or or two even two days in the month that just Really pushed over the edge. And the rest of it was just was just being there, hitting base hits and g and and just and just taking what's there, but not going for too much. And I mean, I'm sure there are people out there that just

slammed it and did way better than me. And maybe I'll be there in another five years. But um where I was now was I was very comfortable with what I was what I was doing. Hm. We'll we'll play, man. We'll play. Now, you've shared your uh your I guess you could call it your equity curve. Uh I've seen you posting that on Twitter and It's just incredible to incredible to me how consistent you've been. Like it's such a smooth equity curve. How have you been able to achieve such great consistency?

Um it looks really pretty really stretched out, but if you but if you look in there, there's there's still quite a few days where there's just not much I can get going. Um so there's again, if you look at any any month, there's some days I don't even place any trades. But the long when you look at the grand scheme of things, it

It's the days that you know when not to go for it. Um, that were my biggest mistakes in the past where um, you know, let's say I just had a bunch of good days and I just kept pressing and pressing and pressing. Now I just kind of know that there's being okay with periods of not doing anything, um, but still being there in case something comes up. I don't just have a couple of good days and walk away.

Um I'm still here, but but being okay with knowing that that I don't come looking for something um to the market. And I think that was really, really big for me last year. Um being okay with just kinda letting a half a day go where there's no trades or a couple of days and not forcing things and just really waiting for

You know, and I know I talked about on the last time we talked kind of the A, B, C setups. There's days that you can go for C's setups and when risk is on and when risk is not on, you really just gotta be patient and go for the A's and maybe just take a couple couple of bucks here and there, but When that compounds, that was the big thing that makes that chart look really awesome is compounding. That the side just gets a little bit bigger, so your small days just

get a little bit bigger and just protecting to the downside and um risk management is is always my is my probably the thing that I guess is my Achilles heel from keeping me to get like the outrageous huge percent win days or dollar days I guess. Um and just Staying consistent, staying focused, and it's trying to say discipline.

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Next, Liam Vaughan on episode one hundred and ninety-four. Lim is a senior reporter for Bloomberg and author of Flash Crash, a book that tells the truly extraordinary story of Navinda Singh Sarao. Nav was a London futures trader who made tens of millions from his bedroom at his parents' house. and later became a prime suspect of the deeply perplexing 2010 flash crash.

From reading the book, it seemed like there was a pivotal point uh where Nav kind of changed a little bit, where he became convinced that Um that he could identify and he was seeing other market participants that were just blatantly cheating in the market. Can you speak to that a little bit? Yes. I mean that was uh for me it was like an amazing find because that had never been talked about, Navad never talked about it, it was never anywhere, but I managed to track down

that he had um an account on one of the major uh trading forums and he was really he's quite funny on there. Like you'll see in the book, but he's a pretty sort of cheeky kind of like borderline offensive character. To to other traders, but at some point in two thousand and seven He basically puts on this trading forum exactly what he thinks of the market and also exactly what he plans to do about it. But it's quite amazing to actually see it because it's two years before he even sort of

built the machine, if you like, the the algorithm that he would go on to use to sort of spoof to such devastating effect. Uh he sort of lays out on this forum his plans to uh to do exactly that. And if anyone was really paying attention, Maybe they could have stopped him, but Yeah, let's speak about the software that he had developed because this is kind of where the spoofing, I think, began to come into uh his trading career, if you will. Yes.

Tell me a little bit about the software that he had developed, his intentions in developing it. And also, if you could, this is something I found particularly interesting and was quite surprised to actually see this in the book. uh was the actual functionality of that software he had developed. Like there were several kind of

triggers that did certain things. So if you could just describe some of the functionality of the the software he had developed and his intentions in doing so, that would be interesting to hear. It sort of evolved over time. Uh the first sort of iteration of it was something that the US authorities would later call an a layering algorithm. And it was pretty straightforward. What it would do is it would place large blocks of orders.

like you could specify the amount of uh ticks away from the current best bid. So he would place blocks of orders, usually four, five and six Price points away from the current best bid, and they would sit there and there'll be very large orders, like you know, 600 lots on each price point. Um and then the functionality that he sort of uh designed and got someone else to create for him was such that every time the price moved, higher or lower.

the this sort of block of sell orders would move in lockstep So they would never get any closer to the current price and would therefore never be hit. And what that did in a quite a rudimentary way is just add huge amounts of selling pressure, you know, to to the market. And if you imagine that algorithms are looking and suddenly seeing that

the amount of sell orders at those price levels is significantly higher than the amount of buyers or whatever, then they'll react to that. And then simultaneously to doing that, he would also be just shorting the market, waiting for it to go down a couple of ticks, and then exiting his position.

So it was almost like a s you know, I sort of use the analogy of a sort of Субтитры сделал DimaTorzok Um, a lot of people are sort of surprised that he could have such an impact, but he would do it for short periods of time, like he would do it in a burst of five minutes or ten minutes when the market was already falling, and it would just add to the downward pressure in the market.

Um and he would be in and out so quickly that he wasn't sort of relying on the market to fall several percent or anything. He would just get in and out after a few ticks, but he was trading such big size at that point. You know, hundreds of lots uh uh you know, going up over time. It went up. But so that you know, that's still a very, very profitable strategy. Yeah.

I'm interested though, just to ask you Uh and I I'm not sure if you have the answer for this button. How much influence did the larger um HFT firms have in pushing forward this case also? Like once it began to get a little bit of momentum, um, did they become more involved in this because Obviously what nav was doing in the market was upsetting uh their systems, I presume. Yeah, it's a really interesting

Interesting point. You know, so there's a lot of people that believe that spoofing is a kind of reasonable reaction to the growth of high frequency trading. And I kind of write about it in the book, but if you imagine HFTs are Essentially just monitoring the order book, looking for signals that the market's temporarily gonna fall or rise, and then uh essentially using

you know, very fast technology to try and get to the front and and capitalize on that trade. What NAV was doing is saying, well, if all they're doing is essentially front running, I'm gonna fuck with the signals. And and confuse the algorithms. And that's what he did. And and so you're absolutely right. The HFT firms, particularly Citadel.

um ended up being like the regulators eyes and ears in the market and they're the sort of regulators best friends because people like nav and there's another guy called Eagle Oystatcher. uh this kind of Russian, huge day trader, um also active in the E Mini. And basically uh the the likes of Citadel end up being witnesses in the prosecution of individuals like Nat.

um, because they were the ones that were getting hit. So there's a sort of slight irony there that these firms that are billion dollar firms that a lot of people think are very controversial anyway, and that are the subject of books like Michael Lewis's Flash Boys. Because a lot of people think, well, you know, what value are they adding to the market are the ones that end up benefiting when guys like Nav get taken down.

So what was nav actually charged for? Like there were there was something like twenty two different charges, I think. Yes, so Nav was kind of unlucky in the sense that he was only the second individual ever to be charged with spoofing. Because spoofing was a brand new law that was brought in or anti you know, anti spoofing law was brought in with Dodd Frank.

And so at the time they needed to charge him with as much as possible because they didn't know what was gonna stick. So they charged him with wire fraud, uh, and they charged him with market manipulation and with spoofing. And they've all got sort of different requirements to to prove. But spoofing's quite a sort of blanket

thing, which is like you're not supposed to place any orders that you intend to cancel. And uh at that point it was completely unproven. And there was a lot of people that were saying, well, that's ridiculous because if you place a stop loss, for example, or an iceberg All of these things, you know, you hope or intend to cancel them. So Throughout the his case was there any consideration given to the fact that he was also an incredibly talented trader? Like he was spoken about

You know, he was in trouble for spoofing, etc. Like sure that probably helped to some extent. But I think there's also no denying that he was just a brilliant trader. What yeah? you know, I am a fan, a fanboy of nav, really. Like by the end of the book I was just totally and utterly on board. Not to say that what he did, you know, he he shouldn't have got caught for, but ultimately he was just an incredibly

gifted and talented trader. And it, you know, I I'm sure I don't need to tell you, but it's so hard as a day trader away from like a trading desk at a major institution to consistently make money. And Nav just did it from from the word go. And even when he decided to sort of go over to the dark side and build this spoofing algorithm, it was kind of genius. Like the way that I see it was like

he kind of saw a flaw in what the algos were doing and he he off his own back, with no sort of prior training, designed his own algorithm to fight back against them and it worked incredibly, incredibly well. So You know, I hope that readers of the book will come away with that sense of like. Even though what he did was ultimately illegal by the letter of the law, he was a fucking great trader and a really unique talent in the markets.

Yeah. And was his broker ever scrutinized for You know, um a lack of oversight, I guess. Well, I think they got away with it a bit because his broker was MF Global and in two thousand and eleven, MF Global I think it was twenty eleven, was declared bankrupt. His sort of most egregious or biggest trading periods of time was with was MF was with MF Global. Um but it's definitely true that his brokers were pretty slack. And even sort of knew what he was doing. Uh Anecdotally it seems like

But basically just were like, this guy's just absolutely creaming commissions for them. So they just sort of shut up and let him get on with it. I think there's been a couple of examples now in the US where brokers have actually been uh charged alongside traders Um and the other you t other sort of corollary point on that is that Nav, even though he came up with the designs for these algorithms, wasn't a computer programmer, so he he had to hire developers to build the machines for him.

And and again it sort of raises similar questions, like if you build um an algorithm that's so obviously going to be used to to spoof the market or do any kind of manipulation, to what extent are you Aiding and abetting that? Are you part and parcel of that? Or is that just the responsibility of the trader? And that's a question that comes up in the book as well.

I'll now share with you a snippet from episode one hundred and ninety one with Nishant Purbandowella, an equities trader at Kirschner Trading Group. This was a special episode we recorded in March twenty twenty amidst the coronavirus market turmoil. Yeah. On that subject, there seems to be almost like two mindsets around trading during these conditions. There's one where it's, you know, these conditions are too abnormal. It's time to dial back the risk.

And then there's the other mindset, which is this is a very rare opportunity right now. It doesn't come around very often. Increasing risk is actually justified during periods like this. How would you encourage a junior trader to think about, you know, which side they might be leaning towards? I mean, I do have a student. He is a junior trader. He's only been in you know it for six months and I'm like, listen

This is the market where you stand up and you know you show me how you know you have the balls. It doesn't mean you go and be stupid. It means you do a calculated risk, right? If you see something, that you like and you think you know you can surely make m there's a good chance you can make money, you go step on it. Don't worry, because in this market, right, there's gonna be so much opportunities that if you're wrong, you can always come back from it. Right. In a dead market like you know

Two months ago. You know, if I was down thirty, forty thousand, I'm like, Yeah, my day is done. Today I'm like, listen, if I'm down twenty also down I mean I was down I think I was down sixty yesterday and I finished the day up twenty. You know, so r you know, it's just like in in days like this, I'm not worried about being down because I know there's enough opportunities to come back.

When when when there's not opportunities, that's the day when I'm like, listen, you know, you're gonna manage risk even harder. Right now I'm like, you know what? If the opportunity is there, you gotta take a you gotta take the risk. Uh you might be wrong, but there's other places where you can be right and come back from it. You know, so what of one of my students is doing is like he's looking at my you know my trades and

trying to like emulate the same thing and that's the way to do it, you know. I mean, um, you know, he's I mean it's tough because he's s he's seeing the the craziness of this market very early in his career. The next time he sees it, he's gonna be, you know, even more aggressive and he'll stand up even more. But right now he's like, Oh, you know, this guy's doing it, so I'm just gonna like, you know, stand up because he's doing it and he probably knows it's right.

But eventually that's how you learn, you know, you just have to, you know, hold someone's hand and walk and soon they'll start running. themselves, you know. End of the day. So I so to yeah, sorry, to answer your question, I would say yeah, you gotta take on risk. It just depends what kind of trader you are, right? I'm a day trader, I'm in and out of positions quickly. If you're gonna sit on positions overnight and things like that, nah.

You gotta you gotta be more sensible. You gotta be more you know, maybe take a hedge or things like that. Right now I I mean I don't clean my slate every day because I mean either we are up a thousand points or we're down a thousand points. Forget up or down or maybe two thousand points on the down. Yeah.

Yeah, I think that's that's really wise, Nish. How are you more specifically actually managing risk through this? Like are there any rules that you are enforcing upon yourself? As I said, you know, I mean, not to be stubborn about things, you know, unbelievable situations are happening around you. At the same time you like you just have to say, listen, you know what? You have to cut your losses. That's something which is ingrained in me. You know, I just see red and I just start.

I start selling, you know, and just like I start covering my position or whatever I have to do. I get out, but I might get in again maybe like fifteen minutes uh later again and you know, trade trade the same stock again. But I don't know, my mind is conditioned, yeah. You know, it's just like it's just repetitive, you know, sixteen years of you know trading and continuously doing it. You just it it just comes automatically to you now, you know, I just don't have to think about it as much.

At the same time, you know, I just If you're if you make one wrong move in this market, you can get hit pretty badly. So I'm just trying to I double take on everything. I'm like, you know what? Should I take this amount of size? Yeah, okay, fine, let's go do it. You know, just have a second thought before I do sometimes, you know, in this market because it's such cr so crazy. Let me tell you one thing also, right? In this market I haven't seen

Crazy panic yet. Yes, we have been gapped down. We have sold off all that. But the panic of a flash crash. It's not been seen out here. The panic of 2008 that I saw. hasn't been saying senior. And I feel like when that happens, that's going to be the bottom of the market, or very close to the bottom of the market. And that's my personal view.

Because it's still been orderly selling, you know. It hasn't been it's just been a lot of selling, but still been very order, you know, orderly selling. Like, you know, I remember in the flash crash, I'd bought um Home Depot about you know six seventeen, eighteen points, you know, it fell eight you know in about a minute. Uh today Home Depot is down eighteen, twenty points, but it's down over the whole day. So you see the difference?

you know, the the quickness and like the lack of liquidity that was there in flash crashes is not is is is is not senior right as of right now. It's still there's a lot of liquidity to get in, get out. uh of positions but yeah, there's a lot of I think overnight, you know, there's a lot more happening than it happened back then. So you feel like we haven't seen that real big volume capitulation which often signals a bottom coming yet? Exactly.

Exactly, exactly. We need to I mean this is what I think is that we need to open down you know, swoosh down and then finish higher for the day and then come back and finish higher for the day. Get all the shots out, you know. Uh and when the day that happens, I think there's a pretty good chance that we're we're down to the close, you know, the a the bottom of the market, I feel.

But it has to happen at the open, you know, when you fall down and you retrace back all those losses and you know finish up high. The day that happens, I think we might be at the bottom.

This next bit is taken from episode two hundred and four with Brian Lee, a former esports professional who now plays the stock market. Brian has developed a talent for shorting the backside of inflated moves with an extreme emphasis on risk management systems. Three things you would go back and tell yourself on day one, knowing what you know now. Number one would be max loss. Just set it with your broker because

You have to have that fail safe as a as if you're a retail trader and you're just responsible for yourself. You need that moment where You get rejected on the level two and you have to take a pr a breather and recognize this isn't healthy. Whereas like if you don't have that, you would you might just fight the sock all day. And I think that's what causes most people to actually get killed.

The other thing is I would focus on systematizing my entry and exit because I feel that you know if you can create a very simple Entry and exit trigger. then you can apply that to back testing, you can apply that to just Optimizing that and making it as good as it can be. And that way you don't have to deal with those emotional components of being f afraid.

Or having random results. And that way you can really measure where you're going and how you're gonna improve. And then the third thing would be. Let's see. I would focus on wrist reward and make sure that I normalize my wrist. Keep a small, small R at the beginning and it's all about the

process and it's less about the result, because if you trade well, the results will follow. And you need to give yourself enough time to make all the mistakes you made. And I would say If I if I think about it in terms of uh if I think about the journey, at least how it was for me. The first year you're gonna flounder around and not know what you're doing. And there's gonna be situations that you didn't account for, like sometimes the brokers

have error sometimes. You know, there's all this type random things like your power goes out, whatever. How are you gonna react to that? You can't be sized in so big that you can't deal with an emergency situation. And then in year two you might Find something that you like, something that you can stick to, stick to that. And grow that consistently and then once you hit that third year, it's just whatever it is, all my peers, all the people I grew up with

in trading, once they hit that third year where they were consistent and they started scaling up, that's when a lot of them really hit their stride. And, you know, for all the pain that you go through, once you can get to that point, it's all worth it. It's really all worth it. And the money that you lose now in in the meantime is just not gonna be significant towards compared to what you you will make in the future. As long as you just give yourself enough time to experience the market.

and ex experience all the mistakes that you need to make so that you can learn and be your best trader.

Now I present a clip from episode 77 featuring Dennis Dick. Since the late nineties, Dennis has been a trader at proprietary firm Bright Trading. He's also a co-host on Benzinger's pre-market prep show. What is it about trading the open that really appeals to you? Um, like where do you see your edge coming from during the first few minutes of the session? Why why do you like trading the open? I love the open and I will tell you that I probably make at least

50% of my money in the first five minutes of the day. Why is that? The open is the price discovery phase of the markets. I love price discovery. And you know why else? Because your high frequency traders hate price discovery because they, you know, besides the ones that are actually trying to move the prices, your passive market making high frequency trading systems are hands off at the open because there's a lot of risk.

And imagine you being a high frequency trader and you have um your your profit margin is fractions of a cent, like a half a cent. All of a sudden you, you know, buy a stock like Microsoft and it falls twenty cents on you.

Well, you're in big trouble. If your average, you know, profit margin is only half a cent, you can't be taking risk on that, you know, where the stock moves twenty, thirty cents and the opening bar. The the opening bar meaning the first minute or you know, depending on what, you know, chart you're using. But

you can't be taking on that risk. So the high frequency traders are kind of hands off. I always want to be trading, you know, when they're not around because they're competition. There's not that much competition at the open. You know, there's and there's a a lot of price dislocations as well.

Because you have institutions that are coming in. There's orders, you know, that have been sent from the night before, even from re little retail traders. They all pool them together. And the other thing about the open that I like, especially on the New York Stock Exchange stocks. is that's the one time of day where the designated market maker, the specialist that I was talking about before, uh and they call them designated market makers now.

That's where they actually are putting together that opening print. They have some automated help with it, but there is actually still a human element of involvement. with that opening print. So a lot what I talked about and Don Braight taught us back, you know, in nineteen ninety nine still applies. You can try to get on the same side as maybe that guy on the floor.

And there might be an advantage to doing that. But basically the open, there's going to be the biggest chance. And if you look at any chart, intraday chart, a lot of times that opening bar, you see the biggest for the most volatility. that's what I like. You know, that's where the most action is and that's where the most uh chance uh of uh you know making a decent profit. Like if I'm trying G E during the middle of the day from like noon

The thing moves to you know, if the SP futures aren't bouncing around, if they're just staying still, geeze trading in a one cent range. Well, as a scalper, that's great, but if you're not a scalper, that's not very good. You can't kind of make money on a one cent range.

I was sorry, I was saying earlier, you know, the high frequency traders are making that one cent, you're paying that one cent. So if it's only moving a penny, you know, back and forth between thirty twenty three and thirty twenty four, there's no money for me to be made.

But at the open, there's a lot of movement. Even on a stock like GE, there might be a ten, fifteen, twenty cent run. And, you know, and then it goes into different types of trading. Like I prepare for the open three hours before it actually opens. So my trading day doesn't start at 9 30. My trading day starts at 6 30 in the morning and my trading a day actually starts the night before. So if I look even for my notes here, my notes for tomorrow.

So I've been watching the after hours action to know what to trade tomorrow because I'm watching what the news is, what stocks are moving. So I've gathering a lot of information. I'm trying to inform myself. I want to be an informed trader on that open. And you know, once I have that information, I can, you know, try to put a projection on where I feel that stock should open, where fair value.

where I've deemed the fair value of that stock. And if the stock opens way above the fair value, I'll short it. If it opens way below the fair value, I'll buy it. And I'll do that on a number of stocks. You know, sometimes I send fifteen, two hundred you know, orders there at the open.

So and you know, I I use a little bit of automation to help me do that because it's tedious to do it manually, but some of my best ones are manual. And you know, I'm sending all these orders in there trying to, you know, get these opening print. And the opening I I use mostly OPG orders. And what an OPG order is

It's an opening order that says to give me the opening print or immediately cancel the order. So that I'm not sitting out there like a sitting duck. You know, if I have, you know, a limit order out there and I forget it out there, market tanks, I'm gonna get picked off and lose some money. So the OPG order is nice. It just gives you the opening print or it automatically cancels that. So GE, hypothetical example, GE is trading at thirty twenty three, close at thirty twenty three.

SP futures are opening up one percent tomorrow. GE's beta is approximately one. So it moves approximately with the market. So if that's the case, 30 cents would be about 1% move. So I would say maybe the fair value of General Electric is$30.53. I might put an order to buy GE below that fair value, say I'm gonna buy at 3040. I'm gonna put an order to sell short GE maybe at 3065, both OPG orders. If it opens at 3070, I'm gonna get thirty seventy.

If it opens at 3060, I'm not going to get filled. The order's going to automatically cancel. So it all just depends on how I price those opening orders. But you know, if a stock opens too high or too low, a lot of times it will draw back into where that fair value is. That's a simplistic example.

Now there's a whole bunch of stuff that complicates that where trades can get crowded and other fun things can happen, but that's the basic strategy around the open is projecting where the fair value of the stock is and selling it short if it opens too high or buying it if it opens too low.

Okay. And did I hear you correctly when you said you might place between fifty to two hundred orders, like two hundred trades on the open? Uh orders. So not necessarily getting fills on those. I'm placing orders where, you know, they're gonna either they're gonna fill or they're gonna cancel. So when I'm placing an order, a lot of stocks will open right around, you know, where their fair value is. So I'm not gonna get filled on those orders.

Um, but I would say, you know, back, you know, uh, you know, going a few years ago, I'd probably easily pl place three to four hundred orders prior to the open, opening only orders, and maybe get filled on twenty stocks, twenty, thirty stocks.

And then I would trade out of those positions. All in the opening print. First minute. I got 25 positions. Okay, let's go. You know, let's, you know, and and sometimes, you know, something funny happens like on an option expiration. I can fill in like 75 orders. So now I've got like 75 positions.

Okay, now this is fun. You know, when I get filled on that many positions, I don't even care about the individual positions. All I care about is my net market exposure. So what I would then look is okay, I'm I'm long a million dollars worth of stock.

I need to hedge myself here because I'm trying to extract the alpha from the missed price opening. If the SP futures tank on me and I'm along a million dollars worth of stock, the alpha's gone. So what I want to do is sell short an equivalent amount of spots.

to uh the beta of my portfolio. So, you know, a lot of the there's a lot of figuring that goes on in this, but you know, a lot of math behind it all. But basically, you know, simplic from a simplistic, you know, if I give you simplicity here, um if I'm long a million dollars worth of stock, I'm gonna sell short a million dollars worth of spot.

And now I'm hedged. Now I'm market neutral. Now I can let, you know, my arbitrage portfolio, because I probably, you know, bought a whole bunch of stocks that opened too low relative to where the futures were, now I can let the natural arbitrage bring it in and slowly work out of those positions.

But you know, if I'm long long one or two or three positions, I'll just trade out of them and not even hedge it. But if I get long 20, 30, 40 different positions, or I'm too um uh unbalanced, like if I'm long 20 stocks and short 20 stocks, that's a natural hedge in itself. But if I'm long twenty stocks and short nuts.

That's where I've got a lot of market exposure. And I like to trade market neutral, where I'm always eliminating the market risk because market tanks here in the next two seconds, I'm not positioned for that. So that's the whole key with almost all of my strategies is trading market neutral.

And that sounds crazy to a lot of people because they think the market's got to move to make money, but I'm trying to extract that inefficiency of where a stock is open too high or too low. So that's the alpha that I'm extracting. from the market is that inefficiency of the opening print. And the opening print is often inefficient.

I mean one institution that says, hey, I want to buy this stock and they put in a buy order to buy five hundred thousand shares might press the stock up way too high. Or one institution might you know say, I wanna sell five hundred thousand shares in the open. That might push a stock way too low. I'll provide liquidity to those orders. And then, you know, um and that's the alpha that I'm extracting is, you know, I'm I'm providing a service really to that institutional order.

by providing liquidity to it so that, you know, their order isn't going to, you know, it's there's gonna be less price impact with the order. And there's I'm not the only trader doing this. There's all, you know, all the other prop firms are doing this too. So you know, as a whole, those or those stock you know isn't going to open nearly as low as it would without those liquidity providers.

Next off the rank is Phil Godecker on episode 158. In simple terms, Phil has earned his stripes by aggressively shorting overhyped parabolic stocks. Yeah. This might be a little bit of a silly question, but I I'm curious to hear what you you say anyway. Trading the size that you are trading, you know, when you get these golden opportunities

And your experience, your knowledge of, you know, level two, the order book. And because these stocks that you're trading are low floats, are you ever able to kind of bully the price a little bit? Well, you mean do I ever try to manip or do I ever manipulate it or do I do do my orders just move it, is what you're saying. Well I wasn't gonna use the word manipulate but Yeah.

No, I mean, um, no, I I will say that your orders do move the stock. I mean, yeah, I've placed, you know, a lot of times, you know, I have traded with p traders, um, good short sellers. You know, we'll have a big front side of the move, stock up 200%, 300%, 400%, and they'll say, you know, the the the downside will start and it'll it'll happen faster than any of us think. And they'll say, oh, that just missed my entry by five cents or missed my entry by ten cents.

And I say, Well, shit, it didn't miss my entry'cause I slammed the bid. I mean I slam it over and over and over again. And I have no problems taking liquidity. And yeah, on something low float, if I'm slamming the bid, I will cr I will

You know, I I will you'll definitely see that. I mean you'll definitely see on something low float that I'm moving the stock. I mean there's no doubt about that. Do I ever get in and try to play games on level two? No. I mean I've You know, I've probably you know, I've placed a few orders in my time and you know, i and and uh Yeah, I I don't really mess around with that too much.

Okay. Okay. So I I think you may have mentioned this a little earlier, but This going really big on certain trades as opposed to other trades when you think that you have a golden setup, a golden opportunity. Would you advise that this is something for slightly more experienced traders? Like it's not really something you should be doing if this is your first year of trading. Is that a a fair statement?

Well, yeah, and I think in your first year of trading, I don't know that you're gonna know what your golden setups are. Again, because, you know, I'm a I'm a firm believer in the market that You know, the the market's difficult, right? I mean ninety to ninety-five percent of traders fail. And, you know, I think why do they fail? They fail because they lose money. I mean they lose too much money. They don't fail because they don't make money, but you know, they fail because they lose money and

You know, they fail because maybe they don't have their niche. Maybe they they they they they you know, we follow people on Twitter that that tweet You know, all these new ideas every thirty seconds long and short and swing trade and day trade and a buyout opportunity or w whatever it is and

You know, I think if you're especially in your first year or you're just starting out in a couple of years, I would say, you know, number one, find your niche. You know, find what you're good at and then try to perfect that. Now after you've perfected that, maybe you can try to move on to something else. But um yeah, I would say

it's gonna be very hard to, you know, add to your your top setups until you at least know what they are. And then after you know what they are, I would say you can definitely add to them, but do it with appropriate size. So if you're used to putting on Maybe fifty thousand dollar positions and you have a top setup. Well maybe add this maybe put on a sixty or seventy thousand dollar position, you know?

Don't just go from fifty thousand position to a five hundred thousand opposition or whatever it is. You know, add accordingly. You know, increase your size maybe ten to fifteen percent, you know, if those work and you know you're still making money consistently on these top setups, we'll increase it to twenty five percent, thirty percent, you know, fifty percent, whatever it is. Take it slow, take it in stages.

And then you know, and then go from there. Um, and just going back to another thing you said uh earlier on. Uh multiple brokers, can you just um shine a little light on why you are trading through multiple brokers? Like why do you have all these various accounts? Yeah, I I trade with probably, you know, um seven, eight brokers. I mean, for for a couple of reasons. It depends, I guess, whether you're a long based long bias trader or short bias.

If you're a long bias trader, I don't really know that I see a reason to to have more than one broker. I mean, for ease of use and ease of purpose. Now a a a short seller's is A lot different. You know, number one, your broker has to have the shares. And the stuff that I'm trading, the low floats that I'm trading, well, a lot of brokers don't have them. I mean, so the more brokers you have

The more uh the increased uh the amount of chances that you're gonna get those shares. I mean, that's that's the main reason right there. The second reason is one broker might have something easy to borrow. And um well, if one broker has it easy to borrow, then you don't have to pay for locates. You know, different brokers will also charge different fees to either locate these stocks or to hold these stocks short overnight. So

Um having multiple brokers on the short side is really, like I said, two faceted. You know, number one, to try to get that locate. And number two, try to decrease your fees because as a short seller, something you have to think about are fees. I mean short locate fees are extremely Extremely high. Short interest is extremely high.

And these overnight, um, charges are you know, I mean they they they're gonna take at least ten, fifteen, maybe more percent of your you know, percent of your trading profits. Yeah. And I guess maybe if you want to throw in a third reason, it probably mitigates your risk a little bit as well, you know, in case one broker, you know, touch wood goes down. Right. Sure. Or your capital's not tied up.

Well, and it also again, um, like you said, mitigates your risk for for that reason or for another reason in case you get a margin call. I had an instance where I was actually long uh GBT C which is a um It's a it you know, it's a Bitcoin ETF about uh several weeks ago when it dipped down to eleven hundred and and one of my brokers that I went long in, I had no idea it wasn't marginable. So the next day I had a a monster margin call. So that broker was down for the day.

And I had a wire in from another broker. So yeah, the you know, I you know, I would always advise having even if you're long biased, having two brokers never gonna hurt you, but if you're short biased,

Yeah, I would say, you know, the more brokers you can have, the better. You know, if you're just getting started out, you know, it it's not really wise to do that because you you may not have the funds for it. But once you get a little more advanced It it helped my trading dramatically, you know, to have more brokers and fewer.

Taking us out on part one is Jeff Davis, who appeared on episode seventy. Jeff specializes in trading S P futures predominantly using a mean reversion strategy which is built upon statistical probabilities. Yeah. You don't read a lot about range out there. And I always thought one of the reasons why is because a lot of people that are using range, it's working for them and they don't want it to go away. So you don't read a lot of stuff about range.

And I, you know, so I got into range way back reading Jeff Cooper, Tony Crable, Linda Bradford Radchke, and that. And it's stuck with me ever since. It's consistent, it's always expanding and contracting. Those are the regimes I look at. And there's different trades, different setups in those regimes. And, you know, when you're developing a strategy or any kind of trading system, whether it be discretionary or anything, nothing is going to work in every regime.

It's good your every system most likely is gonna have a period of time where it really makes money, a period of time where it treads water, and probably a drawdown period of time. That's it. I like to know where we are in all those different things and I can then adjust, you know, how I trade, how often I trade and that all to the regime or whether or not I trade at all. That's it.

And I didn't go down the rabbit hole looking for turns. You know, I just listened to your podcast with Dr. Steenbarger and he was talking about learn from your losses. Well, I know we're getting close to turns when certain when one part of my strategy starts to take on losses. I know we're going to the next regime most likely.

Why? Because I was just going through a period of really, you know, having big time performance and now it's sputtering a little bit. Guess what? Regime is most likely changing. Do I try to find something I went down that rabbit hole? To pick the turns is the holy grail. Don't try to pick the turns in the regimes. Just let your trades go out. And when you're near, when you know you're at the time frames where

probability is that the regime could be running out, maybe you lower your size or something, but you don't just s try to, you know, go against it. I don't try to predict in that way. That's it. And then everything for me now remember, everything is on a day trading time frame also. But these regimes still play in. We were in when you're in high volatility, most people try to, you know, talk about it as a volatility regime.

I never settled on that because of all the hedging that goes on. Cause the VIX and everything just opt, you know, has days where it just isn't d going with the market because of the hedging. Hedge hedges being put on, hedges being taken off, and it has that decoupling. So I just use, you know, everything I do is off an average true range. What is the market moving? How much is it moved? How far will it likely go? And there we go.

So I do everything off of that. And I track everything off of, you know, a certain ATR and percentage wise, keep apples to apples and everything. I mean I can tell you right now 40% of the ATR, 14 day ATR is done on 94% of the days. If I'm gonna do most mean reversion trades without some other good reason to do it.

I need to see 40% done because 95 out of 100 days, you're going to do more than that. So why am I trying to fade something before that unless there's some other big level or something comes in? That's the way everything is put together with that. You know, I know. You know, there's just like the spikes. I'll give you one. A twenty-two handle spike in less than an hour has a seventy percent chance approximately of reverting approximately five handles.

You know, does that happen in low volatility? No, they don't happen. In high volatility, you can get five of them in a day. You know, so you have to know what what part of your system and in what regime is going to be active and where you're going to be trading it.

That's it. And everything I do is, you know, off a range and I got my algo running, which shows me it's tape reading, you know, all these stocks and the SP 500. And that's giving me buying and selling levels where I have a look that nobody else has. I don't use any of the technical indicators out there. It's pretty much built my own indicator that I'm looking at for buying and selling levels.

And if they match up, sometimes they just make me hold up a little bit. Then it's just design your system to where you can execute it. That's where lots of people fail. They try to design a system. that is gonna look good on paper where they think is gonna play out, but they can't stick with. You know, everybody's goal. They think they're gonna I'm a day trader. I'm gonna trade with these very tight stops and I'm gonna have four four to one risk reward on my wins in that.

You're trying to design an automated system, that's probably not going to work out too well for you. You know, you're not gonna you're you're just gonna get stopped so many times. You're you're gonna have periods where you get stopped, and then what are you gonna do? You're gonna fiddle in it. And you're going to change it. And what are you going to change it to? To what's just happened recently most most likely. Recency bias is just so huge among, you know, newer traders.

The the older traders were boring. We're we're bored. We just execute. We come in the same day and every day and we do the same thing over and over. That's what we look to do. We we don't care about excitement. We're not chasing, I like to call it, you know, on social media, Twitter and that, that, you know, that stock flavor of the day.

We're looking at our strategy. That's it. And we're executing it regardlessly. You just execute relentlessly. Sets up. It's never just one trade. It's the whole series of trades that's going to play out. That's it. And you execute. And that's how you get good at the execution. That's how you get good with your psychology to be able to stay in the trade. How many times have you had a stop? And let's say you take a three-point stop. Thank you.

The price of the product you're trading now moves to two points against you. It's one point from the stop and you're sitting there and you're feeling like, oh, this isn't feeling good. It's not looking good. You know, ah, what the heck? Let me just. Take it here rather than letting it hit the three point stop. I'll save the point. Boom, you exit and what's it immediately do? Goes right back in your favor and goes on to what would have made money.

That's bad enough. But what most of us would do, I did it in the past. Now you get a revenge trade because now you, oh, I was right and I'm out of it. Now you chase in and you're in at a worse spot than you were in previously. And now you try to trade that with the three-point stop and you're offsides and you're stopped out. And that's where until you know your personality and you are convinced you're not gonna do the stuff that's gonna hurt your account. And it's just

You know, that's what patience is. Patience is just saying, I can take this pain. I mean, I was just looking today and I read a quote that I had. from Jeff Cooper, who I don't know if a lot of people know who he is. He's been around a long time. He's got books out there in at Jeff Cooper Live, I believe, is his Twitter handle for anybody you want to look him up in that.

And I was reading this today, and it says, Trading is more about knowing when not to trade than it is about trading. Trading is timing. Waiting is painful. Pain brings wisdom. Wisdom brings balance. Trading can be excruciatingly exciting when done wrong and tauntingly tedious when done right. And that's the truth.

When you're doing it right, it's boring. And it's not all this excitement and jumping from one thing to the next. It's finding something, getting in it, and coming in here day after day and executing it. And that takes a little time. You're gonna have to get some screen time. You have to think outside the box maybe a little bit, and you have to throw away what the crowd is doing. There's so many trading wisdoms now that

don't apply on the shorter time frames. That may still be applicable for the long timeframes, but in my opinion, on the shorter time frames, they just don't even apply anymore. And, you know, that's just trading. Trading is always changing. And all these kind of wisdoms, like, you know, the trend is your friend. You know, I know good trend traders in that on the day trading timeframe and an index product.

It trends like 15% of the time. If you're going to aspire to the trend as your friend and try to always trade that on the trend, you're not going to get very far. You're going to be the hamster on the wheel most likely. You know, you have to know your product, you have to know the regimes, you have to know when the probability of trending is higher rather than lower.

And that's the truth of the matter. None of those old trading wisdoms you can just take point blank and think that's gonna, you know. be the your holy grail for trading, your path to profitability. It's not going to be. You have to know what fits for you. And that's the one thing like with the guys I work with, yeah.

Always harping on them has to fit your personality. You have to understand your system so you can stick with it. You have to know where it's likely to draw down. You have to know what regime it's gonna make money in. That's when you can maybe do size, you know. Those are the things. It's so so much with psychological. You know, I just uh I can't stress that enough, you know. And I go back to tape reading all the time, you know.

And you know, in my strategies, it's it starts from tape reading and you don't really read the tape anymore with these level twos and that with the algorithms, the HFT, that's kinda gone. But it's just to me, tape reading is knowing your strategy. and just sticking to it and executing it all the time.

That's it. You know, in the old days it was a book written nineteen twenties or something on tape reading. And one of the things he said in it was, averaging does not come within the province of the tape reader. Averaging is groping for the top or bottom. You know, so when I go into a trade, I just I'm in. That's it. That's not that's part of my strategy. Maybe other people can find scaling in and that.

I'm on a day trade time frame. Time is against me. I have to go in with my size and do it. And you have to have confidence to do that. That's the truth of the matter. You have to, you just have to know you have to see it, know it, and then execute it.

And that's the you know, to me, that all comes from Us first just you know. Knowing yourself and knowing where you're supposed to push the button to get into that trade and not letting anything else take you into it. I mean, just this past week. came within ticks of a spot I wanted to get in, but in the type of tape we were in, in the regime we're in, I've learned I have to wait, it has to get to my level for me to trade. gets within two ticks, turns, and goes all the way the other way.

I'm not, I'm not in the trade. I can't get upset. I don't chase. Nope, it didn't get to where I needed to be. That's the thing. This year, this month in March, I was just looking at my numbers before. In March, only traded of the, I think it was approximately 20 trading days in March. Only traded 13 of them. And I'm a day trader. But sometimes we had really tight days here. No movement really. Not nothing sets up. Don't push the button. Come back the next day.

Is that it's very hard to to be crystal clear on your probabilities and know your statistics when you're trading a whole basket of stocks um or basket of futures markets or whatever it may be. What would you say to other traders who are who are trading a whole range of different stocks. What should they consider? Like, should they think about maybe specializing in in a single product? Yes, in one word, yes. I will say Do I demand or do I think you have to nar narrow it to one product?

Maybe not. I choose to do that. I like the futures now. I I trade that. You know, the leverage is there. It's just a good product. You don't have slippage on your stops. It's just, it's that seems to, that fits me very well. And I can get stats going back. You know, the stuff holds up. That's the market, the SP.

I don't have to worry about anything else. I'm trading the market. I don't have to worry about, you know, sectors and stuff like that. But I would think that it's fine to specialize in some niche. Some, you know, when I was at Bright Trading, there were guys that traded opening orders only. That's what they specialize. You know, there were guys that traded back then you had the AOL Time Warner merger, and there were guys that were just scalping against the spread on the ARB of the takeover.

And that's what they did every day for however long. That thing took like over a year to close or something like that. Came in every day and just scalped against, you know, that that spread. And they specialized in that. There were other guys that specialized in trading only the high priced stock. You know, that's you you have to specialize. When I was going to Bright, I rode in a train car.

And in the last car on the train, tell you about traders, how much they take. These were all pro traders. Want to know how much they cared about risk? They sat in the last car in the train. I used to joke with them. Why you guys all back here? Some of them had been riding the train a lot longer than me going to the going to the city. Know what they said? Have you ever seen a derailment? If there's any cars left on the track, it's the last ones.

When the train runs off the track. They had they were taking care of the risk on their train ride to work. They didn't sit in the front car, they were in the back car in case the train derailed. Yeah. I mean, they they specialized. I saw these guys. I met execution block traders. The tra the car was filled with like the specialist clerks from uh SLK, the the the the clearing firm that Spear le spear leads Kellogg and that I used to see the runs.

From the specialist post at the end of the day, these guys say. The thing you learned was that was obvious right away was low-volume stocks, the specialist never lost money. Only chance he had of losing money was in his high volume stock where news could come in and the whole market could go one way and he had to be the guy taking the other side of it. You know, I saw there were NYMEX traders on there. These were the locals in the commodity pits in New York.

And that. You know, their whole game was on specializing. You talk to'em, they didn't say, Oh, I trade this, I trade that, I trade that. They traded, you know, one guy was a spread trader, he traded spreads. Another guy traded the crack spread in just oil. You know, and time and time again when I looked, the guys that were making real money and real livings somehow specialized.

in either an area or a type of product, but they did not try to be a jack of all trades. They were a master in in one trade. And to me, you know, I choose to do just one product because With the statistical probabilities I do, it's just that's where they are. I can know my product intimate. And so I can have I can get to that confidence place sooner to get to bigger size. And to me

That's what matters. It's all about, you know, if you're if you're trading and you're not your strategy isn't allowing you to be able to raise your size and get to size, then what's the sense? You know, why? Because everything's changing. It's not going to last forever, whatever your edge is. You have to, when you have the edge, you've got to be able to start to push the pedal. And you know, most guys

You know, when their focus is spread wide, I don't see them get there. That's just the truth of the matter. That's what I've seen. The best traders I see, they focus. They know, they specialize. It may not be one product, but it's one niche, one type of trade, one pattern. You know, however you're going to break it down, but they are good at it. They don't try, they don't trade, you know, guys that trade high dollar stocks don't trade single-digit midget stocks.

You know, that's just the way it is for the most part. You know, you you you trade what you're comfortable in, where you get that confidence. And you get that confidence by specializing. You know, would you go to you know to your doctor for, you know, heart surgery that's your GP, that's your general practitioner?

No. Well, in trading, it's the same thing. You got, you know, you're gonna, you need to specialize in some way. I mean, I've heard other guests of yours say it. Morad, I know Morad. I've had conversations with him, Future Trader 71. you know, specialized. Dr. Steinberger, I've had conversations with him and email conversations and that for the last couple of years and that his whole thing has come around focus. Focus on what you do best, what you can do it. Nobody

that I know is talking about trying to trade this wide spectrum of things. It's it's figure out what fits your personality in the product and then dive in and put your focus there. If you enjoyed this episode, if you got something out of it, please do me a favor, share it with your friends and followers. Also, make sure to subscribe or follow Chat With Traders on whatever platform you're currently listening. That way you won't miss part two coming up next. I'll catch you then.

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