259: Lukas Frohlich (The Short Bear) - Executing Agenda Trading Strategy for Stratospheric Returns

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Now without further ado, I am so happy to introduce our next guest today. His name is Lucas Frolich. best known as the Short Bear, and he speaks with our host Ian Cox. Lucas came from humble beginnings without formal education, mentorship, or financial resources when he discovered his passion for the financial markets at the tender age of thirteen. Saving everything he could from jobs, he started trading before he could even legally drive a car.

He created YouTube and Twitter accounts to share strategies, victories, and defeats to help fellow traders improve their game. Obsessed with learning from mistakes, Understanding gains and improving his process led to just outrageous gains in twenty twenty.

with his agenda trading and quantitative pyramiding strategies. The changing market conditions propelled Lucas into innovating new strategies quite different from what he started out with. His focus His dedication and discipline for self improvement allowed him to branch out into new business areas, helping others that go beyond just the trading world. Ladies and gentlemen, we are so pleased to present Lucas Ford. From the Jersey Channel Islands.

perform during that time and it takes a toll on you after some time. So I just decided that it would be better for me to just be closer to my family and just put myself in almost an other environment. Yeah, that's how it evolved.

uh dreaming a deep uh just a bit. But um the teachers told me I wouldn't make it in school. That's kind of the message I got over the years. And I just thought, well, if I can't make it in school, I'll just make it making money. So it just it it really much started like that, a naive type of of approach to the markets. Just when you type onto uh just into Google, um ways to make money trading is pretty much the first one to come. Of course, a lot of the time just through pure scams.

But um I kind of started trading from there and and saw that I was getting better and better and better, even though it took a long a long time for me to be profitable, I'll say. But you just you noticed a growth. And I think that that growth really kind of led me to to sticking with it.

of me trading for X. And I was trading, trading all of that with a lot of leverage as well. So I think it was a hundred, a hundred X to 400X. So a lot, a lot of leverage. Just uh yeah, you were able to to blow up an account within a day. I I actually remember one time when I went into a DAC.

uh future. So it's the German stocking next um trade overnight with the leverage and uh the stock gapped up two percent. And I lost more than my entire account. Uh so I had I had early lessons with with leverage and just risk in general.

Um, but that's kind of all fake as we know in the markets. It's not that easy. You can't just buy a breakout every time and expect it to work. So I think that was kind of the the earliest mistake, kind of. being being naive on that side and then of course risk management with the sides which which we just talked about before.

And then I think not having a type of routine or anything like that, just randomly starting throughout the day. So I might not be able to trade the open, but I'd come at like 6 PM, just trade one thing quickly, even though I didn't have time. So It was it was not seeing trading as as a business, more just a quick way to make money and then through it. So forgetting everything that doesn't go hand in hand with with a business type of approach to the market.

Um I think it wa it was destructive. Like I thought I thought I I lot that money and and just money in general forever. I thought I thought I wouldn't have anything left. That was the feeling I I got back then, kind of oh, this is the end of my life type of deal. Um but I think I think it just makes you stronger and stronger. I think the only way to truly learn is is really through

big mistakes and just big negative events almost. Those are like the biggest lessons. I think it's something probably that most people just in general, no matter the level, might not appreciate enough. Um, I think losses are just um it's like taking a step back in order to gain gain more momentum to to be able to jump like three, three stairs higher or something like that. It's just it really helps you to

to grow down the line. And so I think back then I didn't understand that necessarily, but all of those blow ups had had a specific reason. So might be risk management for one, um, then not having a strategy for a second one, then

So I think starting early was actually a good thing because it I think my brain was also evolving as well. So I think some lessons are easier to learn when you're younger and and you just get molded almost into a trader when you start early enough.

And knowing all the way that you just made through the tunnel already, that kind of keeps you in the game until until you finally make it to the other side.

Um that was a big part of what made 2020 happen. And I think prior to it, I remember I went on vacation just before the market started crashing. And I told traders, so I I'm in a few private rooms with other traders and and I told those traders, I think we might be in for for a few years of pain here. Like I don't see how the market crashing could be good for us.

And um what I failed to understand back then, back then I I didn't really know about economics or any type of liquidity. Um driven by the Fed and so Naively, I just thought, okay, we're we're kind of done. But what happened then is they started to, as, as people might call it, print money. So they started QE, uh quantitative easing, and money started flowing in.

And what it meant, so specifically because we were at zero rates, was that smaller unprofitable companies had a lot more money available to them to raise. So a lot of the companies that didn't have cash. they started to pump up the price of their stocks, for example. So they they gapped it up or they started to play around with their stock with news or anything else, people would buy it up. And and the way I made a lot of money was just understanding

um SEC filings, understanding when companies needed to raise. And that gave me the confidence to understand. So the agenda of a specific move, why would this move up? Why would they do this? How far could we go? Where do I meet sellers? And then understanding through data as well, because I track a lot of my data and setups. understand the expectancy of a move. So we went from having average fades of maybe so when I went short, because I'm I'm primarily a short seller or I was at least.

Um when moves prior would be maybe 15%. So if 15% fade, they would end up being now 40%, 50%. The liquidity was insane. We went from trading. Maybe twenty million per day to twenty million shares to all of the sun trading Hundreds of millions. Um so it just allowed

an approach that I started, which was pyramiding, which is I think what most people might know me as. So a pyramiding trader on Twitter. It's just the the way I traded was I understood the stocks had a lot of range. But once they actually put in their high of date, they would fade a lot and they would fade continuously into the close. Uh and so what I would do is I would start in as at at a likely level that I had from just my data. And if it didn't work, I would cut.

that size right away. So I might take whatever a ten thousand dollar loss or whatever. And then I would take maybe two or three of those cuts on on the way up. But what would happen is once I had that final entry and we actually started to fade, I would add to my position. and add just enough size so that my average would align with prior structure. And I would just keep on adding on the way down, just moving my stop to an area where if that stop was hit, I just knew the trade was gone anyway.

So it allowed me to stay in all the good trades and every time I would win, I would win so much more than stopping out just before. And it would just end up being very consistent over time.

At some point that I could move my stop down. And so rather than to say, okay, I'll lock in open profits, I would use that open profit to really add more into the position and I would move down the stop so that the ads I would add to a position would would amount to a bigger win while not decreasing my odds of that fate in general.

So I think a lot of companies start the the just the it's also the crappiest companies, the companies that have the the smallest amount of cash. Um I think all of those started to kind of rush toward Diluting their their shareholders or at least kind of preparing for an offering. And so it created a lot of of um of opportunities. I think it's that, but I also think it's I started off with with a good performance from the get-go and I and I thought

I have all this cash now, I can use it to actually really press now. Whereas before I might not have had that that type of year and I would think, okay, let's let's take it more conservatively. Whereas then I was more thinking, okay, I'm already here. Let's see what can actually happen now. And let's let's try to see what I can do. So I had a lot of reps by then basically. So that allowed me to really go for it.

try them out, but even without incurring the risk yourself. So you see others being successful at different things and you might really like some something that someone's doing, or you might really dislike what someone else is doing. And so it creates this this constant flow of ideas that you can see.

So I think through time you want to just create an environment where you have a lot of success around you and a lot of successful traders to get ideas from. So that's one. Um another one comes just through through time and through trading. So the more you trade, the more mistakes you make. And it's funny how that works, but you're you're gonna start to see patterns within the way you stop out. So

It might be something like like we talked about the breakout that continues to fail. Every time I get long, this fails. That kind of that's the idea behind it. So you start to go, wait a second, if I enter those positions and I lose eighty percent of the time. Why don't I just short those or at least find a way to be able to take advantage of that skew?

So trading in general is is very much about being aware and being being being hyper aware of of SKUs. So when something happens often, is it something that's just seasonal? Is it a pattern over time? Or is it just random? So I I think that's super important in general. It's it needs to be there constantly in trading.

in order to only see those plays. That's when you know you actually have an edge. If you can't do that, if you can't pinpoint exactly what makes that trade a viable trade and you can just get rid of all the rest that's that's random. you won't be able to um you won't be able to trade them. So that's the first step. So creating some type of bucket. So you see only those. That then creates an ex you can create an expectancy based on that. So what's the average high of day from the open?

What's the average move from the open until the close or until the low of the day? What's the average move from the high of day to the low of day? Or vice versa for for long, right? So those are your data points. And then you want to create kind of a median or average move for that stock. And so if you had a hundred different stocks, there are not random that you could track and you have that bucket.

You can create an expectancy for the move. So it creates an average chart. And that's the way you want to trade the setup. And The way you you then create your stops and you create your your profit target and everything is based on those points. And then specifically the stop is based on the divergence.

from that average move. That's the way I like to think about it. So I want to trade an average pattern and I want to know when I'm actually wrong. So when does an average setup become a loser? And that's the point I want to stop out at. Um and then the way I want to enter is potentially like the the average high up day, for example. Like this is where we usually top out. And then we go to the low up day. So where's the average low update? So it's about asking the right questions and then

Once you know that, um, the only way to truly refine it from there is uh pyramiding. So it's how do you actually add to this position without reducing my odds of of this trade working?

specific strategy buckets that's one type of odd I want so the average move this stock is going to do and then I'll look at stock specific odds as well. So if this stock for example moved before so if if I had this specific setup And I can pinpoint it. I can pinpoint it through throughout time. So throughout history. If we if I saw the setup show up seven times on this stock, how did it react on this specific stock? A lot of the times stocks get moved by the same um people.

So it's usually gotta be the underwriter of an offering that kind of moves the stock and and makes some volume happen for the offering to be successful. And so they're gonna move it in the same manner. So I combine the odds of the setup as well as the odds of a specific stock. in order to form the overall odds and the overall like expectancy of the trade. And that's very much what what gives me the confidence to go after it and really size up.

So that's one and then for the other setups. So I trade multiple setups, I trade small caps is what people know me for. So that's what what I'm focusing on here. But I also trade mid-cap uh swing longs, which are great for uh momentum markets and where the liquidity is really there. So that's what you saw from I think you had uh Christian Kola Magi as well on on the podcast. That's that type of strategy.

So really playing the longs, which works great within bubbles, but afterwards it's very complicated to actually um make very successful. Um and then I also have uh big cap swing longs, which would be more based on um Moving averages and trends and level reclaims. It's more, it's understanding how the market makers work and then really building a trend off of it.

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It's just the liquidity was so insane that there was no need for to sell you anything else. And then as the account grew, I still wanted to maintain um my main goal was percentage growth, not dollar growth in general. I wanted to be able to continue to grow. And I think that's my motivation in life just in general is being able to continue to grow as I think we all kind of feel, be it the money or personal life or anything. And it turned into make mid-cap swing long.

over the second second part, third part. Um, just because You had stocks trading 70 million shares just moving 30-40 dollars at times over a few days. And uh it it made for just the the the amount of money that that you could make during those times was insane. Nothing like what we see now.

the most amount of new newbie players coming into the market through just the stimulus checks that everyone got. So everyone that got their$1,000 check or whatever the check was back then just came into the space. So it was the biggest moves and the people you were playing against were the most, yeah, the the just the newbies. So it allowed really for

I think the combination of both was was really what made it happen. Not one thing. I just think everything came together perfectly and the expectancy wasn't there either. So it wasn't like, oh, we're gonna have a great time. The expectancy was more we're gonna have a crappy time. So I think it's like those parts, it just it came into a perfect storm.

and say good companies in general with a track record, they're gonna have a higher institutional ownership. And so the institual ownership it's not because I'm playing against those players that I won't like it, but it's more we trust this specific company to grow. And so it's not as crappy of a company as I might think it is, which then means I might not get the fade that I'm looking for or the move in general I'm looking for. Mm-hmm.

And um that's what 2020 was like. So even though there was big drawdowns or anything or things of the sort, if you have three tickers every single day and you're profitable with a positive SKU, be it the risk reward as well as the win rate. After a week, if you've got three tickers per day, that's fifteen stocks. So even if you make one mistake during one day or even two mistakes, at the end of the week, you're probably gonna be green. And then if we're talking about a month in general,

um I think it it just bounces out. So I think it's the amount of hits we got, the amount of opportunities we got that just allowed for more of a um a consistent um growth throughout the month.

uh before anyone was really talking about it. Um that was a a big thing for me. Um, because while everyone was just looking at the stock, even if they went short. kind of going short randomly for certain stocks, I would look at it more out of the perspective I know this is likely to fade from a technical perspective. So from my setup. And then on top of it,

I'll understand why some something should go down in general. So I look at something, let's say a stock has two months of cash left and they're gonna they're they will have no money to run their business anymore. And the filings tell me that I'm that they're able to raise. money. So they've got a shelf, for example, of 200 million or something like that. What it allowed me to do is just the closer the time to running out of the money was and the more available money was, as well as

the company having a history of raising money during that period because most companies don't raise once. They raise every couple of months or once per year. So you can go back in history and understand, okay, what how do they react to not having cash? It just gave me that understanding and and that super high confidence of they need the money, they have the setup so they they gapped it up. They've got everything in place to do it.

I don't see why they wouldn't do it right now. And it's the combination of knowing what's likely to happen as well as what is logical to happen that allows you to really size up with confidence. Otherwise, you're kind of sitting in a stock almost. thinking if it goes a bit against you, right? So even a a pop or some type of of counter trend wave, you might get nervous, which I mean you get nervous in general, but you might get nervous to the point of covering.

And knowing what the like the likely outcome is and understanding why something should happen helps you go through that and have the confidence what others are covering around you and others are doing different things to really stick to what you know and believe in.

times and times again up I I usually have a stop at three times. So if I try something at three times, I'm just off. I'm just trading crappy. So I will I will leave it and I and I won't trade for the day. But I would yeah get an entry and then as it continues to fade or starts to fade and continues

to fade and break down, I would add to the position and start really scaling in. So I would start with something maybe like Let's say I had 50,000 shares as a starter on something that I expected um a one dollar range on.

I would start with 50,000, but I would end up trading something like 200,000 shares into my target. So that's really like that's the balance because I can lose multiple times with 50,000 shares. Say it goes against me 20 cents, I lose$10,000. I do it three times, I lose 30 K. But as it started breaking down, it would be even on the 50,000 shares, I'd make 50,000 in theory on a$1 range.

But with 200,000 shares, I'd be able to make 120,000 or something like that because like my average would the ads would be lower, right? So I wouldn't get the$1 range. So I would add to uh through the fade. And um and it would just bounce. So I had the thirty thousand loss, make a hundred and twenty, and then it would end up being uh a ninety thousand day type of deal. So

Would be that. And then two, let's say one ticker wouldn't work, the two others would work. So during the day, if I treat three things, you would end up with a net positive at the end of the day.

a company has warrants, for example, so stock gaps up from two to let's say five, they have warrants at four. As long as they're over four, they're making free money basically on those warrants. So they make money. And then as we reach four, they reach kind of their average. And so in that case,

maybe less likely that the selling pressure would continue at the same rate. So it's driven also by by the liquidity. And that's part of the agenda, right? So understanding why something should fade and when something should maybe not fade anymore, not as hard.

Let's say something again gaps are from two to five, only fades to four, but there's so there's intraday setups and there's also multi-day type of of fades. There's different setups. And so I would I would also swing. So up to about four days. Um and that would be kind of a a swing short and there's setups as well on on that side.

And what ended up happening was because of that, I just didn't notice for for a while. So the way my data is set up and the way I track my data and my edge is it's trailing. So I've got the entire data set through time and you see it almost as a trend. So how much we fade, almost as a wave. You really much have like trends within the setup numbers as well and everything. And so

There's there's a period almost of of a month when you track where you can't notice what's actually happening because it might just be a fluke within the data, just one day and and you don't understand it. So That's the biggest risk just in general, even to like adjusting to new markets, is whenever you have a period like that, you won't notice it until the end of the next period or the start of the next period, let's say. Um, and so I think it's

Yeah, I I think it's it's very much that that led to drawdown. So not understanding that times were changing. Uh and it also made me even more aware of cycles in general, like just understanding that you have to be hyper aware of things not working out. And I think

There's an aspect where a lot of the traders are very hard on themselves and they don't necessarily understand, is it me that's changing? Is it me trading bad? Or is it my data that's actually changing? And sometimes you just don't know until after the fact. So you need to like limit the drawdowns as a general and it doesn't really matter if it's a setup or yourself. You have to be almost careful with with specific percentage drawdowns.

Um so that's one aspect of changing the risk management to be able so I might cover a bit earlier rather than letting it test, let's say the high of the day or anything, I might take that liquidity because I know there's stuff. Um, that's one aspect. Then the other aspect is my risk management always evolves. And what I mean by that is just like we talked about tracking data and seeing it as a trend and a wave through time.

The way I manage my positions is based on the average behavior of a specific pattern. And so as time evolves. evolves and as setups evolve, my risk management starts to shift. And I might, for example, not even trade a setup anymore because let's say the win rate even decreases too much or the average fate. Because and I think that's a mistake that most beginner traders make for trading when changing the the the risk metrics and just the process of entering a stock even.

um is they don't understand there's win rates and there is the win ratio. So most people focus on either or, but it's actually the profit factor that matters. So it's the combination of win rate and the combination of risk reward that matters. So through time, as the win rate might change, I might be able to continue to trade a setup because my risk reward is still high.

Other times it might be my win rate goes up a lot, my uh risk reward goes down. So I might still be able to trade it, but it's really much the combination of both. So the lack of range and follow through as well as how likely a move is. that leads me to to for example completely cut strategies out of of my routine.

And you just blew up the the whole account. I'm talking millions and millions or tens of millions that you can lose randomly without planning it at all. And I just started to understand that that wasn't worth it to me.

Um, so that risk. So I I kept my size to a specific level. I could push my my size probably a bit more, but I'm just like, I actually just don't want to blow up. I made it once. I don't need to do it again, in a sense. That's kind of the thought behind it. And so As time evolved and as my liquidity buckets kind of evolved, um, you start to navigate or gravitate.

to bigger liquidity buckets, which is found in mid-caps and big caps. And whenever you play big caps or mid-caps, um, so mid caps are more like the breakout type of setup. Whereas the bigger caps are more trending type of approaches. And for those, you need to kind of understand the macroeconomics of it all. So when is liquidity injected into the system? When is it withdrawn?

when I don't know, it could be even a a a type of of event like like China and and and and the US right now, the tensions and and and everything that reduces the the the risk people are willing to buy an asset at. And so It's it's almost a the valuation metrics change based on liquidity intentions and and how people just um the ties between people. And so all of that together makes for the need of macroeconomics. That's kind of how

So that's how I see everything. It's it's a very short and and easy answer on on that front. Uh I just trade my odds uh with an agenda and I maximize those odds. So it's a combination of those.

Um so when when a stock reaches the price, which I know from my data is the likeliest to reject. And so I'm more of a contra uh contrarian trader when it comes to small caps. I'm more of a trend following trader when it comes to the big cap.

For the small caps, it might be something like a range, a type of breakout where everyone goes, oh my God, this is going to continue. Let's get long, even though they had no plan too long whatsoever before. And a reject of the breakout, for example. So that would be to create liquidity for the agenda itself. So if companies wanna um if companies want to dilute they need volume to do so and the shares that they have to sell onto the market.

They will create the liquidity exit for themselves. So if something breaks out of a range, I know everyone would get long. Now I know everyone's on the same side and it doesn't work. So it it just stuffs, it doesn't go anywhere. There's a hidden seller that gives me a reason to add or to really start a big position into something.

The likely probability is it probably won't go past this certain price or this certain volume on the upswing. Do you do you look at that?

So it's it's that balance between how much money a company needs and how much money you want to use to achieve that money, right? Um, I think it's it's the combination of those that gives you insight.

Understand that it is okay to lose, first of all, because it's part of the game. A lot of the days are not going to work out the way you think. And then on top of it, You need to be able to maximize when the good days come. So you don't know exactly when those days come, but when that day shows up, you will know that it is.

So it might be like it's gapping up like a thousand percent or something with massive dilution or it might be even like everyone is so long biased and it's like such the it's such a perfect opportunity for for short and uh Yeah, it's it's understanding the balance of w where the gains come from. I think most people have that idea of traders make money every single day.

And it's just not the truth. Like probably for me personally, 90% of my gains come from maybe like five percent of the days, if even. Um, it's just yeah, um people need to understand maximizing is not just an option. Maximizing and and really pushing when the odds are with you makes you as a trader. Like it can make or break you. If I didn't have those days, the big outsized days, I don't even know if I'd be profitable. Like that's that's the cost of trading.

And by then you will forget that it was that work that actually made it happen. So it's the sum of all the work you you did last year that's gonna add up this year almost. So I think that's a that's a major thing. And and that's really what shifted my training from unprofitable to profitable as well.

It was that understanding that I need to run my trading like a business. So how would a business react? Is the business gonna show up at any time of the day, just do random business with other partners they don't know and just sell paper even though they're selling cars or something? They won't.

They will stick to what they know. They will show up at a specific time to do so. They are prepared. They know what they're doing. And they have to reconcile everything at the end of the day, end of the month, whatever, look at the numbers and and formulate new strategies based on that. So it's um so much different than what it is portrayed uh as in general. I think most traders will understand that really quickly though I said, but it's it's important to put those things in place.

And um even if they have an edge, even if they have those things in place, they're gonna end up succumbing to like all this noise coming at them from all the sides. It just makes them so much more likely to lose.

based on on on an emotional response. So what I mean what what I liked about that book specifically was to boil everything down to what you actually need, which then allows you to open up so much more time for other things to grow into rather than losing your time on the 90% that actually doesn't matter and all the noise and everything that You just don't notice, waste your time.

Um, and um that's the way I kind of live my life in general. I do business with people I like. I only trade the setups that I know I have an edge on. Um I just spend my time doing meaningful things. Well, I try at least. It's a journey, right? But I try.

Um so for people that might not not understand what I'm saying is if you have a loss, it might not be a bad one if it's part of the expectancy of a positive skew, but it it could be a bad one if you're just not respecting the plan, you're just doing random stuff. And so part of my habits that I that I try to to work on is

If I make a mistake, for example, that I shouldn't have made, I will punish myself to a certain degree, but punish myself is in a in in a positive way. So I would I won't just do something that's like it's like I hurt myself or anything like that. What I'll do is I might go for a jog, for example.

So I might actually work on getting some some um let's say some serotonin. So in that case, so it would be the the happiness feeling that you get from running a lot and it makes you fit and so it makes you more energetic down the line for future days.

And um and that's a way to positively take a mistake and actually turn it into, well, it turns it into something positive. Then on top of it, I might do a review that's two hour instead of one. And I might really hammer down on how can I make sure this doesn't happen anymore?

So that that's that's a habit I use as well. Then on um I also try to take time to think a lot. I think most people don't take time to think in general. They just do do do and just don't really take time to plan. I think if people actually took time. Let's say a task takes an hour. If people took an hour to actually just think, they would end up with such a better work product at the end of the hour.

It's it's pretty mind-boggling. I think most people just randomly start, they'll they'll have to redo it multiple times and then just end up with something that's so bad. Um so I take a lot of time to read. So as

you mentioned the book just before, I'm I'm doing this new type of uh of routine where I'm trying to instill a new habit where I'm I'm trying to read a a couple of books per month and um and write a few blogs and everything, which um people can find on on my Twitter and my Substack. And um I'm just trying to trying to do the best things and trying to have the best habits today in order to grow within the next years and decades.

very much truthful. I think we we we humans specific, we love to be to lie to ourselves regarding a lot of things because it m it it's just easier for the mind to to comprehend that way. So you have to have people around you that know you enough and that understand what drives you and what you want to achieve.

And they will put the priority of your plan of growth before your emotions almost. And those people in your life specifically in trading are the people that bring you the most growth, which is again why Having a pod is so important because you have the idea the idea flow, you have people around you so you feel more socialized in general. And then on top of it, they just keep you grounded.

just going to bankrupt like bankruptcy, they might not even be able to raise money. I think that's part of it. And then the people even that on the right offerings, they might not have enough money or not the same amount of money to actually pump up something or gap it up or whatever it is.

Um so it just reduces the range in general and the the likelihood for a trend to continue. So it that's my understanding of it. That's my thought behind it. And then it just shows in the data. It's just far more scattered around. There is less. There is less um continuous trend within those opportunities, which then makes the way I size into things harder to do. And so the thought behind waiting for for a pivot to truly to potentially get fully back into it is

us having more more opportunities and and better opportunities then. And um there's all there's just a specific amount of

Um I think the hard the one of the hardest things for a trader to do is just stepping back and not trading. And and that comes from specifically the more you trade, it's just, oh, if I don't trade today, I'm gonna lose out on XYZ that I could make. And the truth is there needs to be almost a stage where where you want to have a minimum type of salary in your head that you put your value at to just go, if if I'm only going to make this much.

And that's not that's just the thought of seeing the data and how it is and just calculating kind of what could be like the final amount. If this is not higher than XYZ, it's just not worth it for me to trade. I'd rather spend my time on other things and grow in other manners.

I mean I've seen nine hundred percent, for example. And what nine hundred percent means is you're gonna pay nine hundred percent of your position, so the the dollar amount of your position at the end of the year if you held it through the whole year. And so it ends up being The the cost becomes a very uh important part of if something is worth swinging or not. And so this new rule allows you to basically swing for one day more than before without incurring the cost of the weekend.

So yes, it plays a role. And I'm I'm great I'm very grateful they did it.

AMC and JME wasn't really necessarily about the shorts. It was more about the option dealers not having an opportunity to actually hedge their risk. So even there, yeah.

Um same thing of the shorts and what we talked about before. So the crap you're a company, the more likely it is to actually come back down and the more likely they are usually to raise money as well. So it gives you a better agenda. Yeah. That pretty much covers it.

If we need reserves, if we need cash, we need it on the balance sheets and we need it for the deposits as well. And so let's maybe not endure the risk of lending to riskier assets or smaller companies or anything like that. And the issue with that is just You don't feel that lack of funding until months after when the companies report or when the companies actually need the cash. And so it creates that lagging effect of not having enough funding.

Um that that's definitely the the the main aspect. And then the part with deposits is just So what led to to the failure of um Silicon Valley Bank and and other banks now, like um FRC is not looking good, for example, and and other banks is just the bonds, so the bonds exposure was too high and we had the biggest bear market within bonds.

I think pretty much ever. And that just leads to to massive losses. And and it's it's pretty much panic because a lot of those bonds would actually just expire and um so mature, is what I mean? And they'd get the cash back. But I don't think people fully understand how these work. So it's almost it's the panic of what could happen that leads to people actually making it happen.

Um it it kind of changed it and VIX is pretty much that. So it's a volatility. And I think We're just comparing almost other times, so different times with this one, even though this time is different. I mean, every time is different. That's the thing. Every time is different. But I think the the mechanics of QE really changed things. And and the way I truly noticed it and the way and and the person I listened to in terms of bonds is

uh drunk miller. Um so one of the greatest investors of all time, of course. I think most people know him as well. And he used to like listen to bonds, for example, for that message. Uh and and just to time the market if you want. So we're going back into bonds just a bit here, but I think we're just we're we're entering a phase where we don't have that QE to really play the old pattern. That's kind of the answer. I don't know exactly is also a good answer to this.

So it's we're likely to almost over tighten because of it. And if we over-tighten too much into a recession on top of it, we might go into one of those very deep recessions. Um, and and that would be the main issue because then funding becomes a a true, real systematic issue for companies, which then reduces the the amount of of opportunities out there. So I think

That's a huge part. And as for what I'm doing against it, um, we talked about setting up scanners to see exactly the the trades I should be taking. So my system basically automatically out of itself, the way it works, just won't show me setup. So my biggest risk is just I won't I won't make money because it nothing shows up. Nothing nothing lights up.

Um, and so there's less money. But I think the main risk for people then because of that is I don't think most people do it that way. I think most people just trade whatever is in front of them, even though it's not a setup. And um and that just compounds. So it's mistake after mistake, setup they shouldn't take after setup they shouldn't take.

And it just compounds into this thing of a period. And and I think the longer the period of dryness, I'm gonna say, right, where you have no opportunity, the more prone you are to actually making huge mistakes because the more frustrated you get and there's a there's almost a rage that builds up inside of you of going like, why the hell is this not working?

And that's when it it just takes one day. One day of just being at the desk and being so angry and just, I don't I don't I don't care. I want to win today. And then and then yeah, then you blow up. I think that's one of the biggest risks. Uh-huh.

pinpoint exactly what a mental model is, but it's the way you interact with a specific set of problems. Almost as if you grouped all your issues or you grouped, okay, this is um this is the way I think about investments and that's your philosophy and that's the only way you do it. That might be a mental model. Or this is the way I learn the most efficient, like the most efficient manner of learning. Or this is the most efficient way to do my prep. Or it's basically the idea of

being efficient at whatever you do and formulating almost the best way out of all to do it. And so over time you use those models, those pure efficiency models, to tackle any type of issue. Uh and it just makes you, just like training the best setups makes you likely to succeed. Using those mental models makes sure that you're fully optimizing the outcome of whatever you're doing.

Optimizing. And when you're optimizing, have the understanding of you're not aiming for 100%. You're aiming for the highest score. And usually the highest score is somewhere around. Seventy. So if if you had like this is the perfect outcome, so a hundred. I completely blew up or this isn't working at all. Zero, you want to be somewhere at 70, but aiming for a hundred at all times. So it feels like you you're thirty percent behind at all times. So I think for me personally

I struggle. It's not really a struggle. It's more like growing pain almost of um getting to the next stage. So getting um all the knowledge I need and the experience I need within um swinging and then on the on outside of the market, it would be um I'm I'm building more of a cash flow type of system. So picture it as a Berkshire or a Merkle type of business where

I have cash flow coming in from multiple sources, which I can fund from through my training, which then gave me continuous cash flow to be able to reinvest into the best businesses. So I'm trying to build almost this. investment firm type of approach to to my life where

That that is in multiple spaces. So um I've started investments in private equity, venture capital. Um, and then just businesses that I grew from before I still get cash flow from. And being able to put all the pieces together to make it the most efficient, as well as finding the right people to make that vision come true is the biggest challenge right now, my last.

Because when you're prepared, when you know what you should do, when you know what the different outcomes are whenever you enter a trade, there's really no reason to be Stressed a lot. You're stressed more because of what if this squeezes? What if this goes past and I can't cover like these type of things? And then a bit, of course.

It's easier, it gets easier with time being able to lose money and bigger sums and everything else. So there's an aspect of experience is really what you need in general. Um, but when you know the outcomes and you know how bad it could be or how good and you you truly trust your positive skew over time, it gets easier. Same thing with

big bigger d drawdowns. When you first experience those um specifically like very like bigger sums where it adds up to, oh, I just lost the equivalent of a cart within this last week or whatever it is. And you start to like think almost that way. Um it's really hard at first, but I think

Every you you just make it back to like break even and then new highs every single time. And I think you gain confidence over time and just more of um objectivity if you want towards those type of drawdowns because you just know you'll make it back eventually.

Um, but that's really what I'm excited about now. So it's again, it's that cash flow type of business I was talking about earlier. It's being able to have multiple sources of income through different type of of investment philosophies. So it might be, oh, I'm I'm lending money, right? And getting cash flow through that. I'm uh building so on on my island now we're building a a gym and a hotel and and different things uh that will allow me to have cash flow in the future.

So that's a different source and then bringing all of these things together within a core business that then uses that money to um redeploy it into even better investments. So it's Planting seeds now for tomorrow and next week and you know, next years and decades and uh making sure that I stay true to my values and that I help people while doing it. And also I'm excited, I'll say, about the networking aspect of it because training is so much of a

It's a lonely sport. The more people you have around you, the more noise there is. So you need to really filter it down to the most important people and vital people that actually bring you a positive SKU. And so other businesses like venture capital, private equity and all of these things, you are you're actually just talking more with like two people. You're seeing growth. You can go there, it's physical, most most likely it is, and you

Yeah, you just you you learn a lot more. You're just part of the action, whereas trading is more odds and it's almost like um a positive screw like a casino has.

A great trader that isn't feeling well and not that doesn't want to be at the desk not trading and takes a vacation for two weeks, he pays it, he paid his dues to to make that happen. Whereas a beginner trader just thinks he can leave and not do the prep or not do the the review or do this and that. And and it's it's a huge it's a huge red flag. Like you you want to be there at all times. But the more you grow

It's about the security of I made it in trading. Let's just make sure that I'm not giving that back. So building different sources of income kind of gives you more security overall. It's more just more of a robust type of approach.

There there's definitely a few other like misunderstandings. I think a big one could be something like win rate and the profit factor that we talked about. So it's people kind of focusing where can I get the highest win rate or how can I get the biggest risk reward and just not really understanding the profit factor behind something. I think that's that's a big one. Um and then for more like experienced traders or or well, yeah, actually experienced traders.

Um there's a lack of understanding of the risk of black swan. Like I have seen traders in in the eight to nine figures blow up and it is not fun. And I think most people take that risk on, even though It's not needed and I think that it's just because of the misunderstanding for the risk they're actually like taking.

on paper at first seem the most profitable, but they only work so well because they entail a specific fat tail risk. So it's for example Uh and I'm sure I'm sure a lot of people saw Rogue Trader, for example, that movie, where um I think it's played by well, whoever it was. The the stock market, the Japanese index starts dipping and he keeps on doubling up as it goes down and it comes back up and he makes a 10 million profit, which equals 10% of the of Bearings, the bank that he works at.

Great, everyone sees him as as this hero. He made the money, blah, blah, blah, biggest trader at the bank. And the the the lesson is he did that again and again and one time he just kept on doubling up and he lost more than a billion dollars for the bank. And he ended up blowing up the whole account. And so that's kind of why so many experienced traders seemingly blow up and what happens to them, it's they use a strategy that works.

You just learn from some people through time that use that black swan risk in order to have game. And you will never understand that risk until you actually blow up. And that's the nature of them. You can't really predict them. It's uh it's the outlier of the outliers.

that bring you out of the game. So I try to do my trading in a sense. I don't try to be the highest performer out there. At least not anymore. Um I used to have that mindset a lot. Um But I try to just maximize within the normal risk, with putting aside or minimizing the black swan risk as much as I can.