Falling in love with high conviction Trades

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• 0:01Speaker 00

  This is Fan Appreciation Week, so I want to give another shout out to my man, GP Hammer. Thank you so much for all your comments. I see everyone. I appreciate you. This comes up with another question on the same video that we talked about yesterday, overcoming your fear in trading.

• 0:16Speaker 00

  So let's talk about trailing stops,

• 0:20Speaker 00

  you know, particularly regarding high conviction trades that we can become more emotionally attached to. GP, I love you.

• 0:29Speaker 00

  But if you say high conviction, to me, you're already in love before you put the damn trade on. You've lost your objectivity, right? Because when you say high conviction, to me, that means emotional attachment. Because a chart pattern is a chart pattern is a chart pattern. And you should be, each one's going to be 1% of my risk. Now, how you chop up that 1%, that again is a scalper, day trading kind of a thing, and it's legit. But if you're looking to swing trade or hold things overnight, you're typically going to put on your entire, whatever that risk unit is, on a per-trade basis and leave it alone. So, let's look at, I'm an advocate of reasonably trailing stops. Well, what does that mean? What is reasonably?

• 1:12Speaker 00

  Is that 1 ATR? Is it a half? Do you change that, like, based on how you feel? Because this is how people F things up in their lives, is they don't have absolutely black and white, concrete definitions. And folks, this is coming from a rock star who's doing the work, right? This is not a dig. This is, all the comments that I make are from actual experience from me. And what I don't want you to do is overthink things. If you have a high conviction trade, it means to me you have a higher expectation of what the thing should do. And to me,

• 1:48Speaker 00

  it all comes down to expected values. And so, what does that mean? That it works 60% of the time? Or is it less, not going to work maybe as much, but it is a 5 or 10 to 1 payoff? Because even those are going to have a certain percentage. Maybe you do 2 a month, super high conviction, so you've got about 2 dozen of them a year. Okay, and so with that, maybe, maybe 16 of them? Maybe 16 to 20, break even or lose money. So you're still dealing with, once a quarter, you have a move that really makes your day. It's not, it's not anything that I would be, I'd go nuts about, right? It's like going on a first date. First date could be great, but you don't even know the level of craziness that could, that could show up.

• 2:33Speaker 00

  You know, because everyone, you know, puts on their game face for the first date.

• 2:39Speaker 00

  Right?

• 2:44Speaker 00

  He's trying to talk about other people now. You should definitely focus on yourself, because who cares what other people do?

• 2:55Speaker 00

  I'm reading this here. So,

• 2:59Speaker 00

  so, okay, let's talk about the intel trade that I have. Right, I'm still in it, even though today is Tuesday. I don't know if I'm knocked out, because today is, is in the week before, and I'm still in the position. I could be knocked out by the time you see this. But, say I'm up, like I said yesterday, I'm up about 1 and 1/4% on my equity, right? So say I have 100,000 and I'm at, because of the intel, I'm up 1,200 bucks. When you say give back 25 or 50%, so what? Like, you think I care about giving back 600 bucks on a 1,200 dollar trade? That's not where my head's at. So, you have to think about, what is, trade your equity curve. What is the position doing for your equity curve?

• 3:44Speaker 00

  It's not about, I've got to give back 25 or 50%, and if I do, I'm going to fall to pieces. To me, that's the wrong approach. We have to trade your equity curve, which means your account balance. You can't, I can't start saying like, okay, I'm up

• 3:59Speaker 00

  500 dollars on a particular trade, I'm up 1 and 1/2, I'm up 1/2% on my equity, and I'm going to fall to pieces if that comes back to zero.

• 4:08Speaker 00

  Right? Now, again, if you're a short-term trader and you're a scalper, the words are going to mean something different. But,

• 4:19Speaker 00

  you know, as you've mentioned, and he says, I don't think that there's an easy answer or a perfect answer. Or a sports team being up 21-0 at halftime and then losing 28-21. Well, you know, that's going to happen. I have had winning trades become losers, just because the market moved quickly through my stop, and I couldn't do anything about it. But it happens so infrequently, like, you shake it off, because you're a pro.

• 4:46Speaker 00

  You know, if that happens 3 times a year, like, I don't care about that. You know, that's not enough for me to worry about selling stuff at the close and not taking risk home overnight. Because the money that you end up making, when you think about everything net-net, is still so much greater. But, so I think it's perspective, and that, like you said, is unique across the board for all these different people and traders. If you're a short-term trader, then every penny matters, right? It's a different mindset, though. You're locked on the screen, you've got your hotkeys, you've got your mouse, you know what you're doing, you've got the headset on, you might be in a pod, you're on a team. It's a different game. I'm talking about catching 10 to 20 to 30 dollars of a move. And in order to get into that position, you've got to, you've got to have risk on.

• 5:31Speaker 00

  The key, the key is to, is to make sure that, on the emotional side, that you don't flip out, because you gave back 600 dollars on a 1,200 dollar unrealized gain. Because if the move is just getting underway, that's going to happen. There's going to be some ebb and flow. So I would look at, like, what you think is material. If you're a short-term trader, then yeah, 25-50% is going to be too big. But if you're a position trader, then that kind of goes with it. Then, as you add more, it could go in your favor and you could be up 8K. And then, if you're up 8K on 100,000, you can't fall to pieces if it comes back 4, because the goal is to try to make 20-25K. Right?

• 6:16Speaker 00

  Or am I stupid? Like, you're stupid.

• 6:21Speaker 00

  I mean, what is your agenda? Again, I don't want to make 8K to be like, look at me, I made 8K. Emotionally, I've let go of that. I just don't care. What I'm trying to do is maximize the gains, and that means I'm going to have to stay in and give the thing some wiggle room. You know, if I get it right on my additional entries, you know, then hopefully that wiggle against me isn't going to be as profound as the move in my favor. But, you don't get to choose that. Like, that's just the way the market works. And if I don't get it this time, they'll get it next time. That's okay. It's just money. It doesn't say anything about me.

• 7:03Speaker 00

  Or my intelligence, or what a good guy I am, or whether the YouTube channel is good, or whatever, because everything is about perspective. And if this channel has any value, it's to help you design your own perspective on things. Because it only matters to you. No one cares if you win as a trader. No one cares if you lose.

• 7:24Speaker 00

  You know? It's really up to you, and what do you want out of it? I have let go, a long time ago, decades ago, of the need to be correct. When I realized that my education wasn't going to have anything to do to really help me perform better, there wasn't some informational asymmetric situation that I could pull from my college experience to trading, that was an undressing. And even though I was alone by myself, and I didn't really share that with anybody at the time, it was still humiliating to think that I was just so completely wrong on what I thought mattered. And then I realized that one of the best traders in my office was a former paper salesman,

• 8:08Speaker 00

  who didn't know his ass end from a hole in the ground, but he could trade like anybody. So then the light bulb went off and said, oh, I need to change my perspective. Because the things that I thought were important, because again, there wasn't, there wasn't prop trading. There were 2 prop trading firms. There was, might be more. But there were basically 2 firms that were known for prop trading. David Shaw, D.E. Shaw, and Bear Stearns internally had really good prop trading.

• 8:36Speaker 00

  And other than that, it was, it was kind of hit or miss. And then the firms very quickly kind of got out of that because of the variability of returns. They didn't want the, they were all publicly traded, and they didn't want the prop trading to hurt the earnings, because all the fat cat execs were mostly getting paid from having stocks and reload options. Right? For as part of their executive compensation plan. So they kind of chopped down prop trading, because they were there to make the money. They didn't really care about prop trading, which to me is really what the Wall Street should be about. It should be about trading.

• 9:10Speaker 00

  To me, the traders make the world go round.

• 9:15Speaker 00

  So, what I would do is, is, when you talk about feeling a sense of failure of giving back, if you're a scalper, then yes, I would say you have to tighten up your stop somehow, or be a little quicker to know when to pull the trigger, if you're trying to risk a dime to, say, make 50 cents. There's your 5 to 1 asymmetry, and if you gave back half, look, someone could do a rug pull and come in and puke out 10 million shares and dump it on the market right in front of you, and that's going to happen from time to time. But if you're taking risk home overnight, 25-50% should kind of be the norm, to be frank. But, GP, you're a rock star. I appreciate your contribution to the channel so much.

• 9:57Speaker 00

  You know, I wish I could meet most of you

• 10:01Speaker 00

  you know, socially to say hi. I don't want to talk about trading. I don't do that. Because that's all anyone, hey, would you want to meet for a coffee? I'd be like, yeah, but I don't want to talk about the markets. You want to talk about how great a hockey player Clark Gillies or Mike Bossy was? Let's do it. Or Brian Leach, who was the best Ranger ever? Or the million ways Michael was better than, or is better than LeBron? Let's do that. But I don't want to talk about trading, and that's all anyone wants to talk about. And talk about art, or musicals that you've seen, that would be meaningful for me. But, GP, thank you so much for all your contribution to the channel. I mean, it means a lot to me. And everyone who contributes, even if you don't make comments, you're still legit. I appreciate you being here.

• 10:45Speaker 00

  And with that, I'll wish you a happy Tuesday. I'll see you tomorrow.