How many trades is enough?

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• 0:00Speaker 00

  What's the optimum number of positions that you should have in your portfolio at any given time? Now, this question is a little challenging to give a blanket response to because I think if you're a discretionary trader, you know, it's probably somewhere between one and three, especially if you're starting out. It is possible that a sector could be going berserk and you have, you know, three, four, five names on at the same time, probably because you're trading a basket of names. You know, investment advisors or even like the stuff that, you know, do with Victor, it's a, it's a purely systematized set of rules and it's a basket of securities that's

• 0:45Speaker 00

  consistently in the market long, short, with very small position sizes and very intense risk management rules, including correlation risk studies and this and that. So that's an advanced, you know, way of doing things. I wouldn't start necessarily there. Look, if you're a programmer and you have access to a, a back tester or something that you can back test at the portfolio level, not meaning single names at a time, that's not going to help you knowing or helping you discover if the rules that you have are robust, right? Because you want to test and see how will all the, how will all the names behave when

• 1:28Speaker 00

  they're in your portfolio at the same time. Okay? So I think as you're starting out, even the professional traders that I know, they have, you know, they do their scans, like I tend to look at the stuff Friday night, so I'm ready for Monday morning, I'm looking Sunday night to see how things are doing, then I look, of course, Monday morning. So now I have three levels of preparation before I even think to add any risk on. That alone gives me confidence that, you know, I'm putting the time in and I'm not just winging it, right? So you might borrow from that yourselves, even if the majority of what you want to do, because you're a short-term trader, is, is the day of or the morning of.

• 2:10Speaker 00

  I like to know and kind of have an idea, because, you know, trends persist, you know, something might be up one week, finishes Friday strong, I'm going to anticipate that Monday's open is going to be strong as well. But I think, you know, again, this week, we're talking about the things that are kind of known in the pro circles but aren't really spoken about, because there's no way to monetize it, right? They're always trying to sell you charting packages or courses. For your temperament and your style, I think there's probably an optimal number of positions on so that you can have peace and maintain also the consistency that we spoke about

• 2:54Speaker 00

  yesterday. If you kind of have, you know, you know, for stock indexed folks, it doesn't make a lot of sense for me to have like SPY, QQQ, IWN, you know, because they're all very correlated. So I would pick one and go with that, right? So, so this way you develop expertise. Two, you have to know like when bad things happen in the marketplace, correlations go to one, right? Or they, and, well, they certainly increase if they don't go absolutely to one. So you sit back and you think like, okay, if I'm going to trade more than one instrument,

• 3:38Speaker 00

  I need to have ongoing protective stops, you know, if I'm biased long on any number of those instruments and I have nothing but length in my portfolio, then I absolutely need to think in terms of having protective stops in all the time. I can't just sit there on top of the screen and think that I have some kind of power, because you don't. Markets can move very, very sharply and very, very quickly. And just because you didn't see it happen, right? Everyone likes to talk about black swans. Sure, there's positive black swans and there's negative ones, but when bad news hits the tape, you might not have opportunity to get out before the thing moves 10 bucks against you. And all that has to happen is once before you're, you're crushed.

• 4:23Speaker 00

  Not just financially, but emotionally and spiritually that you're like, how could this possibly happen? So I tend to put the stops in no matter what, and if I get knocked out, I get knocked out. Someone left a comment about, you know, how can you always be in balance whether you're having a winning or a losing streak? It's because the goal is to follow the rules. The goal isn't necessarily to win on every trade. I could not care less about that. I know the wins will show up when they're going to show up. But if you don't stay even keeled, you run the risk of being like, okay, I'm wrong. Now what does that do? It affects my self-esteem? What am I less smart? What am I less of a trader because I'm in a losing streak or a small drawdown? Right?

• 5:08Speaker 00

  Those, those, that's incongruent. Those two things aren't related. But that's how a lot of guys think. They get, you know, despondent, they feel like, well, I'm putting in the work, I deserve the money. Market doesn't really care about how much work you're putting in or what kind of risk you're taking or not. So the goal for you is to say, well, I gotta just make sure in order to become prolific, I have to behave consistently day after day after day. And if I behave consistently, that's the win. That's the win is behaving consistently. You're powerless over the results. You can't guess where the market's going and studies have shown that humans are terrible at prediction. So the best thing that you can do is follow your rules, right? And kind of stay out of the results.

• 5:50Speaker 00

  And if you go to any 12-step program, whether it's to quit smoking, drugs, sex, alcohol, whatever, the, the, you know, the, the addictions could be gambling. That's what they say, work the program. It works if you work it. And so in trading, it's pretty much the same thing. You need to know what your screens are, what instruments are you looking at, how, what's your appetite for risk? At the beginning, you should only be thinking of one particular setup that you're really good at, put that trade on and leave it. Know where, you know, if you're using structure, use that to figure out your position size based on what your daily max loss, you know, risk is going to be.

• 6:35Speaker 00

  And then know where your exits are. Then if you start making money, don't worry about taking it off, leave it running and focus on where you're going to adjust your protective stop so that if it does come back on you, you don't give it all back. Those are all the rules that you kind of need to get going and to be consistent with. There are nuances, obviously, but I think you start to tackle them later on. You know, people make things much more complicated than they have to be. And I think they think that successful trading must be super sophisticated and there's got to be neural networks and artificial intelligence and all this other stuff. And it's really not, you know, when, I don't know if it was Richard Dennis or somebody

• 7:20Speaker 00

  like that said that you could put, you know, or write their, their, their trading rules on the back of an, of an envelope. They don't have to be all that sophisticated. The key is to find a system of risk management that's suitable for your personality. Yes, that can evolve. Your personality is going to also evolve, but you have to keep it simple and start somewhere. And it doesn't have to have a lot of sex appeal. It has to be executable. It has to be something that you could do day after day after day. And here's the thing, don't second guess yourself, right? Hindsight's going to be 2020 in every aspect of life, including all the trades that you do. The, every trade that I put on, I could look back and think like, wow, like this would

• 8:04Speaker 00

  have been a better entry than the one that I got, but the one that I have sufficed. My exits could have been over here, here, here, here, here, here, and this is the one that I got and it sufficed. So the goal is to not beat the living crap out of yourself and be hyper judgmental, right? Because whose voice is that? Right? There's your upbringing, right? Whose voice is that in your head? You got an A, how come you couldn't get an A+? Stop your crying or I'll give you something to cry about, right? It's epic bullshit. Like who need, who needs that in their lives? So I would think at the beginning, keep it simple, keep it to one or two names, because it's very difficult to keep track of two things at the same time when you're just starting out. Again, don't make this harder than it has to be.

• 8:49Speaker 00

  Focus on one thing or one setup across many, many names and you'll have ideas every day. If you're just looking at QQQ, SPY, MNQ, whatever they are, you know, you could find yourself forcing trades, right? And then, then, you know, because you want to get in on the action, but, you know, then you're like, okay, well, if I just trade MNQ or SPY or whatever it might be, there's no, to me, there's no difference in any of them. You might find yourself forcing trades because there's just no activity that leads to a long entry. To me, it also means that you might need four or five different setups on one particular name. I would say focus on one setup across any number of hundreds of names.

• 9:34Speaker 00

  Because the underlying doesn't matter. You're not falling in love. These aren't, you know, women, whatever, or people who you're attracted to, if, you know? So that's what I would do is keep it simple and don't, don't try to specialize just yet. I don't, I don't agree with that. Some other traders might disagree with me and I respect that, but at the end of the day, you know, I know what I'm talking about and I know I can get success for people if they listen to what I'm saying. So anyway, I feel when I was starting out, you know, again, environment has a lot to do with, with your success.

• 10:17Speaker 00

  My capital was limited, there was no, when I started, there was no day trading buying power. You had regulation T, which meant you could trade 2X, your, your, your assets, you know, if the things that you were buying were marginable, right? Options weren't marginable, but you could use margin to pay for them in full. So I tried to between futures and stocks, make sure that I had ample amount of leverage, but that I was catching enough trends where if I put the trade on, the thing could move. But my activity was very low. And it was, yes, the commissions were punitive, but even if the commissions were lower, the way for me to make money was to have the risk on for as long as I could possibly tolerate it.

• 11:00Speaker 00

  So again, one of the things that we do in the coaching is we start with a goal setting. What is it you want your money to do for you? Right? Do you like the feeling of buying and selling and buying and selling and you want to do that every day? That's exhausting. That's, that's making this job blue collar. And you don't want to turn this into a blue collar job. You want to make a lot of money for doing as little work as possible. In fact, the work should be the screening and getting your list ready, you know, whatever you're going to, wherever you're going to try to add, add or remove the risk in your portfolio. That to me is the easiest way to get, get started. Put the trades on, move your stops along during the day and then try to sit with them for as long as you possibly can.

• 11:42Speaker 00

  That to me is the quickest way for you to, to get wealth, when you focus on the consistency like we spoke about yesterday and then keeping, you know, your number, your number of names down to a manageable diet during the day so that you can focus. Because if you have too many things going on at the same time, it becomes very, very difficult to focus and build your skill set, in my humble opinion. Anyway, that's all I have for you today. Please like and subscribe. If you'd like a free copy of my audiobook, go to Trader Mindset, you can download it for free. I'll see you tomorrow.