Managing risk in your best timeframe

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• 0:01Speaker 00

  Hey everybody, happy Wednesday. Thanks for being here. I'm still in New York at this point, even though I'm recording this in July. Not in July, in LA. Why did I say July? Emotionally, I'm still in July. I appreciate all being here, getting a lot of good questions about the cohort. You can look at, check out the link below. It's meant to be a four-week program where we condense an enormous amount of work. It's not a course. It's a, it's a plan-building strategy where I'm gonna be like the captain of the ship, so that by the time the four-week cohort's over, you're gonna be able to walk away with a definitive trading plan. No one's gonna get let off the hook. You're gonna have to be decisive and make decisions along the way, so that by the time we're done with the week, you at least have an actionable plan.

• 0:47Speaker 00

  When I talk to folks in the email, or they make comments here, I think they get hung up on a specific step. And that's because they have indecision. And indecision comes oftentimes because they don't, they don't know how to feel around the decisions that they're gonna make. So it's their emotions and how they feel about being right or wrong, how they feel about making money, that really hang them up.

• 1:12Speaker 00

  I have a lot of experience at that. And two, many of you are probably coming to this show having much more money than I ever had when I started. So I kind of perfected that craft. If you've been here for the show for a long time, you've, you've seen. So you can click the link that's up in the top-left corner. Hopefully, it's this one, or this one, I don't know. And you can learn more about that. We're gonna launch it. It's limited, because I, I wanna give an enormous amount of personal attention to everybody. It'll be as close to a coach, or a mentorship, that I can provide, given the technology that we have. We'll probably do it on Mondays, for four weeks,

• 1:54Speaker 00

  at probably 12 o'clock Eastern. That tends to work very well for everybody. But we can still decide as a group and kind of go from there. I do all the support, so I don't farm it out to AI. I don't have a bunch of teaching assistants. It all comes from me. It's about as close to one-on-one coaching that you're ever gonna get. I don't like the one-on-one stuff, because it takes a lot of time, and it's enormously expensive, and most of you can't afford it. Why? Well, because it takes so much time. I customize everything, right? So this'll be as close, close to the mark as you can possibly get. Anyway,

• 2:30Speaker 00

  when you think about making money in your 5:1 and this and that, you have to make sure you understand what the timeframes mean. I know there are people who look at weeklies for the breakouts, and then they trade on the dailies. Or they look at the daily charts for the setup, the breakout, the patterns, but then they trade it on, say, 15 or 65-minute bars. So when you start to think about the 5:1 payoff, you really have to think about it in the, in the, in the order of magnitude of whatever the lowest bar is that you're looking at. So if you're looking at weeklies and you're seeing 30, 40, $50 bars, well, that's great, but you're not gonna see that on daily bars. So you have to think about the 5:1 as it relates to the lowest bar that you're looking at, that you're trading off of. Does that make sense?

• 3:16Speaker 00

  So, some of you might trade off 15-minute bars, give you an example. And you're looking at the dailies, and you're like, okay, this could move, say, 8 bucks, 10 bucks, maybe. But when then you dumb it down to, say, 15 minutes, you have to understand that the 15-minute, although it's related, the 15 minutes have, is more random. They have a mind of its own. The shorter term, the data, the more random it is. Because it catches all the noise of what's going on, all the bots that are trading off of briefing.com, or whatever the key words that they might be using in the headlines. You know, it's all of that stuff. So you might see some really crazy activity in the 5, 10, you know, minute bars. Some of you are trading off 1, 2-minute bars. It's all good.

• 4:02Speaker 00

  Right? The shortest stuff is, tends to be for scalping. But if you come to the table and say, well, I need to see, you know, I wanna risk, say, 6 bucks to make 30, it's gonna be harder to see that 5:1 in 15-minute bars, and you have a much higher propensity to get knocked out.

• 4:20Speaker 00

  So think of that asymmetry in the timeframe that you're actually trading off of. Now, that could, you might see 30, 40, $50 candles, but you're probably trading a 2 to $3,000 stock, right? Because that's 1%. So that's, that's a little different. But you're also, you know, you might be looking at a $2 bid-esque spread. So if you're trying to risk 6 bucks with a $2 spread to catch 30 bucks, some of you are probably really, really good at that hint. That's a good place to really make a lot of money, is with the higher-priced stocks. You can, the options are gonna be more expensive, but that's where you can really, you know, make.

• 5:01Speaker 00

  So, don't cross your lines and get upset, right? Because that's another way that you can alleviate yourself of the duress, or any of the, the, the bad feelings that you might feel in your body, is because you're really comparing apples and oranges, and you're doing it on your own. I think it's definitely legit, but then you need to have the staying power. So, Mike, how do you do that? That's a good damn question. I'm gonna tell you. I piecemeal my way into my positions. I don't cannonball. Why? Because when I look at 15-minute bars, guess what?

• 5:33Speaker 00

  I'll do Jerry Carroll. Remember Jerry Carroll? Their prices are insane. You can go look them up. Rest his soul. So, we're all looking at the same 15-minute bars. I don't have special 15-minute bars that come to me. So,

• 5:50Speaker 00

  again, you have to conjugate that with your emotional intelligence to say, okay, here's what I'm gonna do in the position. Here's how I'm either gonna make a bracket order, or I'm gonna manually adjust my protective stop, because I'm gonna set an alert, or however you wanna do it. Again, short-term traders, it's a different ball of wax, because you're really affecting the trades with probably your hotkeys, maybe a mouse. I don't know. Maybe you're using,

• 6:16Speaker 00

  what's that place now that allows you to kind of create stuff? Bookmap, something like that? I haven't used it yet. I don't have any relationship there. No conflicts of interest. But you can look at those types of things to better program your ideas, and so that you won't miss trades.

• 6:34Speaker 00

  But again, if you're looking at weeklies and you're trading off of dailies, then you really have to manage your risk off the dailies and, and have that expectation, that emotional expectation, right? Because you have two expectations. You have mathematical expectation, which is the EV of your trading, but then you have to have your emotional expectation. And those two things have to be like husband and wife.

• 6:57Speaker 00

  It's very difficult to trade with these gigantic expectations, but you don't have the skills or the chops to, to, to play with Eric Clapton, if you know what I'm saying. So, get it down to the point where you're comfortable, because guess what? The scaling is the easy part.

• 7:13Speaker 00

  You buy two contracts, it's just enter five. You're buying fives, and you're making a lot of money? It's easy to buy 10. The goal is to have the discipline and have the emotional constitution to not freak out based on the results, which are, in the short-term, random. You see? That's why I said, that's why I like the sim, because then you could test yourself and say, okay, obviously, there's no money involved, so the stakes are very low. However, what I'm really testing with the simulator is can I do this day after day after day, and have the resolve that I need to stick to my discipline? Because the discipline is part of your behavior. And what, what do we say about behavior? Chorus? Behavior predicts where you end up, Mike. Don't be a jackass. We've heard that a thousand times.

• 7:57Speaker 00

  Well, it all kind of comes together. Hopefully, the light, ding ding ding, the light bulb. This is the same coffee that, tea that I had the other day. It's just done. Little light bulb going off, right? It all comes down to your expectations. Like, for me, my expectation would be, you know, to make greater gains. Okay, how do you do that? Well, I need more risk. You can't make greater gains unless you have greater risk. But the greater risk comes with more uncertainty. Well, Mike, I don't like the feeling of uncertainty. Trading's a tough business for you, then. You either gotta thicken your skin, or you gotta, you know, maybe be a debit buyer with options, right? So you can calculate. You don't have any of that uncertainty. You know what your max loss is the day you put on the trade. I don't have any judgment,

• 8:43Speaker 00

  but there's a mismatch there. And I'm a Buddhist. When it comes to trading, I'm an absolute Buddhist. And that, that means this. Man is the cause of all his own suffering. Now, sometimes you have to learn by going through it because trading is experiential. I believe that too. It's like sports, or sex, or anything that you have to perform. And the best way to learn how to perform better is to do it. Right? So, when you start to think about what it is that you want your money to do for you, then you have to think about, well, what's my behavior around my money? Right? So, start to think a little bit more realistic, realistically, and start to think like, okay, if I'm looking at the daily chart for this particular cup and handle pattern,

• 9:28Speaker 00

  but I'm actually going to trade it on a 15-minute bar, to me then you have to think about the 5:1 payoff based on what's going to happen in the lower timeframe. Because that's what you're watching. And that could very well psych you out. Or, you know, wick you out, if that's an expression that you use. So, how do you do it? Well, you could trade smaller, or you could do it like I do it. I kind of trade it smaller, but I just know like I have a starter piece on. And then what I'm going to do as I make money, I'm going to just reinvest my gains into my protective stop. I'll acquire more, at higher prices. Because at least now I know that thing's moving in the direction that I need to go. It doesn't mean it can't pull back, and it often does.

• 10:13Speaker 00

  But I know where my ouch is. You see? And at that point, to me, I don't mind getting knocked out. Can it be aggravating? Well, earlier in your career, it could be frustrating, aggravating, it could be a lot of things. But it all comes down to your perspective, because I know if I do it my way, say, even 4 out of 5 times, I have a 1% unrealized gain, 4 out of 5 times I get knocked out flat, that 1 out of 5 times, or 20% of the time, it might rip for 5 to 10%. So, net-net, I end up with more money. What are you doing this for? Do you want the accuracy? Are you going to feel better about yourself? If you talk to your spouse, or your loved one, or your partner? I've let go of that need for acceptance.

• 10:58Speaker 00

  I don't need validation, and I don't need acceptance. I'm a very secure person in my own skin. So, where are you? We're all on the journey together. Right? It's not good or bad. I just want to make you aware of it, if you're not already aware of it, to understand that, you know, sometimes your subconscious could be what's really driving your motivation and your behavior. So, the more you can bring that to the surface and just deal with it, because we're all humans, I think the better off you can be in your performance. Because now, it doesn't own you. Right? Right? There's one thing I remember learning from Ed, is that it's the, sometimes the feelings that you don't want to feel have as much power over you as the ones that you do.

• 11:43Speaker 00

  So, around that part, I don't mind, and some of you are going to look at me and say, "He's a complete moron." And if you look at some of the shorter-term traders who are doing very well, they might feel the same way. But I can't trade based on what they think I should do. I have to do it the way I did it. Plus, I have repetitive behavior. I've been doing this for a long time, and the style works for me. Your style's going to work for you, and I fully support it, even if it's nothing that I would ever do. It doesn't mean it's not legit. And I'm dead serious when I say that I could have, between now and the end of the year, say, 5 trades where I'm up 100 basis points to my equity, and 4 out of 5 of them come back as a break-even. That, to me, is not a failure.

• 12:27Speaker 00

  Because I know when they go, they're really going to go. And that's when you print. And so, I don't take that give-back, if you will. Or, like GP Hammer said in yesterday's episode, that you feel a sense of failure if you give back 25 to 50%. Man, I'm giving back 100%. So, GP, you might be suicidal. I hope you're not. Don't. I didn't mean it that way. But, despondent is a better word. I'm not despondent, because I am anticipating that, in order for the trend to go, higher prices need to occur. And I don't mind buying into those higher prices, because I'm adjusting my protective

• 13:11Speaker 00

  stop all along the way. So, if the market reverses back on me, I'll get knocked out. It's not reckless, it's just a different mindset. So, you know, understand that, and understand what timeframe, what you're asking of the timeframe. I don't believe you have more control over things in lower timeframes. That, to me, is bullshit. You might think that you can, but to me, there's also a lot more noise there. Now, can you learn how to time the market that way? Yes. But, there's no control involved. It's the people with the biggest bank accounts that are really moving size. To me, those are the people that control it. We have smaller accounts, you know, even if you have a million bucks, you're still

• 13:56Speaker 00

  tiny, compared to what the institutions have when they need to go on a buying spree, or they have, feel like it's time to move inventory. So, you have to adjust your expectations to the timeframe that you're actually trading, not necessarily to the one that you're doing the analysis on. Two, if you drop down and look at 15-minute bars, make sure to understand what the new vol is going to be, based on the 15-minute bar, so that you have a better idea for position sizing, and if you're going to use either a percentage or a structure. That'll help you better position size as well. Anyway, I appreciate everybody. Don't forget to check out the cohort, and I'll see you tomorrow.