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Transcript 0:00 Speaker 00 Everybody, what is cracking ma? Good to see you. You look good today. Good, good. Question came in, in the comments about when I was talking about equity curve and having that help you be a bit of a governor to know when to start backing off, trading less frequently, and especially cutting position sizes versus your equity ramping up. Nice slope to the curve, perhaps even going parabolic, giving you an indication that might make sense to trade things a little bit larger because it seems as if, at least through the evidence, that the market is amenable to your trading style.
0:41 Speaker 00 And the markets have seasons, commodities have seasonality, but there's different days and weeks and months and time periods where we want to go through our trading and evaluate when we lose, is it us or is it the market? Like, did we do something that was off kilter or not exactly in model, if you will? I'm not going to rehash that. But the question came in as like, should you just use closed trades or open mark-to-the-market equity? And I think that's a great question. So, thank you.
1:22 Speaker 00 Because I can't see the names on like, sometimes it's like a jumble of alphanumeric stuff from someone leaving a comment and they don't type their name. So, thank you for leaving the comment. I wish I knew where you were and I would shout you out and give you props, but thank you for the comment and the question. I would use your account balance. And why is that? Because I thought about this even before I answered it in YouTube. When you see your open trade equity and then you plot it that way over time, you get to see the effect of having risk overnight and over the weekend.
2:02 Speaker 00 And it can, that, that data can give you a lot of information that can help you make better decisions. You know, for example, you might notice that you're worried stiff about, you know, taking risk home overnight. But when you look at your equity curve, you can see that there's a payoff to it. That's objective. You might have very, very strong feelings, you know, and I've been there, right? I mean, look at the grain markets, you know, I'm taking risk home. And I know it's weather driven, but you gotta stay with the trend and the stuff's all over the place. So you can just put your stops in and where the market's gonna go, where it's gonna go, you know, at the end of the day.
2:42 Speaker 00 And I can't get upset because I know over time I've done the right thing and I'm just gonna continue to kinda do the right things. And the, the trades are gonna go where they're gonna go. I don't wanna steer them and I don't wanna look at any one particular day and say, okay, you made seven cents here, you made sixteen cents here. And then you made another seven cents and then you gave back five, like I don't, and then got stopped. Like, I don't look at that as failure because I can't predict on any given day where things are gonna go. I mean, I know if you're studying commodities, you know, you have to look at term structure. Cause there's things in term structure that you're not gonna see on the chart, right? Cause there is, there is a, you know, they, stocks are more secular, right?
3:27 Speaker 00 There's sectors, then there's industries, then there's the tickers. With futures, there's like a seasonality, especially to the physical stuff.
3:35 Speaker 00 There's crop years, right? And so you can see there, there's, there's history in there. That doesn't necessarily change on a dime, you know, the billions and billions of dollars that go into the production and consumption of commodities and commodity products. You know, meaning like bean meal and, and bean oil from beans, it would be like a product. Or like ultra-low sulfur diesel fuel and gasoline are products from crude oil, so is jet fuel. So you get the picture, you, so you can see those relationships and how, and what they were and how they've acted historically. And then when do they get out of sync? You know, if you're studying natural gas, you can study, there's really five months that matter. In natural gas.
4:20 Speaker 00 And then you can see consumption, you know, how is the heat affecting things, the temperature, liquid natural gas, this and that. So you can build models that way. Going back to your equity curve, though, you can see. Like if you take partial profits, that's going to show up in the shape of your curve. If you leave profits open and don't decrease, you know, your position sizing until it gets to specific spots, then it has, your curve's going to have a different shape. So you get to see like the shape really is a function of the market, which you can't control, and your behavior, which you hopefully can control. Right?
5:01 Speaker 00 And so that will lead your curve, your equity curve, to have a certain shape. And then you get to determine, do you like the shape of it? Is it moving up? Is it sloping up fast enough? Because then you could use it, and I'm not saying it's regression analysis, but if you want to grow your account to a certain level, you can kind of project like when it's going to get there. Because you can see the equity growing over time. And if you're running out of space, you can do it then by how did you do every week? And then condense it and say, okay, I want to get to, you know, 300K by a certain type of time. I am not on that trajectory. So what do I have to do to change my behavior? Do I have to trade larger? Do I have to use margin, which I don't know that I would do just starting out?
5:45 Speaker 00 Do, do I have to let my winners run longer? Or do I need to increase the number of positions that I have in my account? So that's why this is very, very valuable, is because it helps you, it doesn't help you predict, but it gives you an idea like, are you targeting the very goals that you set up for yourself? And then at the end of the curve, draw an arrow on it and see like which way is it pointing? Because that, that's an indicator of how things are going.
6:13 Speaker 00 And that to me was a diagnostic that I used. You know, again, I was using what was then called Lotus 123, which was the prevailing spreadsheet of the day to keep track of things because I'm like, the people that work with me were never going to come over and help me out with this stuff. They were all working on tips and selling stuff to make commissions. They were not really concerned with being either proprietary traders or like portfolio managers. I know they kind of thought of themselves as portfolio managers, but they were really just asset allocators making their commissions and their fees. You know, as an aside, I think that industry is going to come under an enormous amount of pressure. Why? Well, right now, we have the advent of AI.
6:57 Speaker 00 We've already seen commissions have basically gone to zero. So what's left? You know, if you have, you know, well, it's an aside. I won't get into that now. But I think that the RIA industry is going to be, there's going to be a lot of changes there as well. So that's what I could do. You know, you could, you could probably keep track of everything if you wanted to get super about it because Excel and Google Sheets can do this. Like if you looked at your accounts, you could say, okay, there's three parts to it and kind of come up with those barometer looking things and kind of create your own bars and say, okay, this was the composition of my account as my account balance so that you can see the bar
7:41 Speaker 00 where you can be like, okay, I'm 60% cash. That'll be blue. The yellow part will be the closed equity of gains. And then the next color that you can pick, make it, you know, red or green. This is the open trade equity. And then watch that as you plot your equity curve and then see what is the composition of each particular day or month, if you will, and keep track of all of it. What is at risk? What is cash? And what has been booked? And this type of data to me can be very, very valuable. You know, we kind of use that in the coaching, you know, to help people make better decisions and to let their winners run for as long as possible. So that this way, they oftentimes will find that they can hit their goals sooner.
8:26 Speaker 00 Right, it's hard to take open trade equity, big open trade equity, home overnight because it can make you anxious. The anxiety has nothing to do with the finance, right? As long as your trading rules are set and you know what you're doing, right? So you don't want to let your emotional constitution psych you out of a winning trade because you're scared about giving back too much of your open trade equity overnight. I mean, this is why goal-setting really matters. Like, is your behavior aligned? The fancy word is praxis, putting your beliefs into your behavior and then acting accordingly. Nowhere in the model does it say, "Okay, I'm gonna buy on a 55-day breakout with a full
9:06 Speaker 00 1% risk unit and then it just might stop after one ATR up. Then if it gets to three ATRs, I'm gonna shit my pants and puke out the position because I'm scared." It's not a trading rule, but that's how, if you read the studies like I do, that's what people do, right? What's the Dalbar study on mutual funds? The average hold is like 4.3 years? I thought these things were built for 20-plus years to be held, like, so anyway, I don't get off-target. So these are my thoughts, though. I think the information can really help you make better decisions, which is really the whole point of it, is right? You get to go to school on yourself and say, "Okay, here's the sum total of all my decisions through this period of time. Now I can see, like, okay, now I have six months, 12 months, 18 months, whatever it
9:51 Speaker 00 might be. I have enough data to see I know what I'm doing. I know I can make money, but I'm not, I'm not making enough when I'm making for me to hit my goals." So you don't want to fall into that kind of, you know, you're kind of stoned about it, where you're making money, but you're not kind of making the traction that you need to make in order to hit your goals. Because I think you're entitled to hit your goals, you're entitled to financial abundance, it's not greed at all, that's something different. And, you know, you deserve it. And if you put the work in, you absolutely deserve the results. So, thank you for watching, and I appreciate everyone's comments and questions. You go to Trader Mindset, you can see there's a lot of resources there, and you can get
10:34 Speaker 00 yourself a copy of my book, the audiobook version, at tradermindset.com. I'll see you tomorrow.
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