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Episode 1 Transcript: The Day of Reckoning
- PART: 1 of 4 out there, but we also expect we¶ll have a lot of new people talking here or listening, I should say, as well. So that¶s our backgrounds. Remember the email address as well, you know, firstname.lastname@example.org. You know, things that we talked about today, kind of raise some big questions that you¶ve got like something that¶s really -- you feel preventing you from being a successful trader, certainly send it on at any time. So Brian, what I want you to do now is we want to have really a section of each episode that we do where we either talk about a big current event that¶s having a major influence on trading or we discuss a post or a blog post that one of our staff has made at our trading tips website and kind of just sort of go through that. And I noticed there was one that was posted here just -- really just yesterday. All right. So there¶s an article James Kessick, one of our coaches, posted there and if you guys are checking this as you listen. It depends on when you listen to this. It may be a little buried by the time you get there, but it¶s called flexibility in your trading. And what James is writing about is really the -- he kind of calls the key to your survival as a trader and he talked specifically that you have to have a plan that human emotions can really get in the way of trading and many times, you know, they prevent us from what he¶s had seen, deviations in the market that can actually change a trade plan. You¶re going to hear us talk a lot about having to have a specific plan. In fact, Brian mentioned one of his inspirations that he learned from getting involved in NetPicks early on was to have and to develop a very specific strategy. Meaning, you can¶t just know how to buy. You have to know how to sell and how to get out. But what James is trying to say here is, you know, that¶s free. ³You know, hey, I agree with you. You got to have a trade plan.´ But trade plans have to change over time because markets change and I think I see this happen a lot. We¶ll talk to people who have had a short run of tremendous success, probably the type of success that blows away maybe what I¶m having or Brian is having in the same amount of time, but it¶s very interesting. Usually, we either never hear from them again or we hear from them a few months later and they just had an awful go of it, just recently, their entire profits got wiped out. I mean, Brian, you just kind of told the similar story where you had this amazing run and then what happened? Brian Short: Yeah, the profits got wiped out and you kind of reset. I think what happens in that whole winning process, you get -- you start to build confidence like you¶re invincible. And part of the problem for me back in the 90s when I made that mistake was I didn¶t take profit out of the market. I just kept -- of course, my broker wanted to keep the profits and reinvest those. And you got to kind of learn that the hard -- I learned it the hard way and it¶s very key and critical to take your profits out of the market when you
make them and then also the other key there is don¶t get over-confident when you have those series of wins. Just -- you got to stay neutral in this whole process, both on the upside and the downside. Mark Soberman: Yeah. I think that¶s important, but I also think it¶s important to realize that you have to be flexible. We need to realize that what is working for us today if we were having the same discussion a year from now -- we may be speaking about a little different markets, we may not be involved in some of the markets that we¶re talking about because look, it wasn¶t always amazing to trade silver. There was a time that silver was a tiny, tight, spiraling range in single digits. Brian Short: Yeah. Mark Soberman: There¶s a time and a place, right, for certain things. When, you know, I started NetPicks, nobody was trading eMini futures because they did not exist and certainly, no retail traders were able to trade forex at that time. I was also like you, Brian, very involved in OEX options which I guarantee a big part of our audience has no idea even what that is. I¶m sure some of you do, but a lot have no idea. But that was like if we go to active trading, even day trade that market for a long, long time but, you know, these markets do survive and I think what James is trying to say is a key to survival is realizing you¶re going to have to be a little flexible. Yeah, you want to be reaching on a plan, you want to have a specific plan, but there are going to be things that you¶re going to need to be able to adapt to change. I know like I went to a very, very expensive course a number of years ago before I started NetPicks. I think it cost me $6,000 and it was a good training. I was there for two or three days. I felt like the system was good, but I remember we were going for like 8 or 10 points back then on some of the futures contracts. Before the eMini, we were trading full size if you can believe that. Well now, when I think about that, trying to day trade and get swings on the S&P or the Russell eMini of eight points, it¶s ridiculous. It¶s virtually not possible for an active trader to do that during the day. I mean, there are of course times that¶ll run 8, 10, 12 points, but most people with any kind of day trading system are not trying to or expect to get those kind of -- you know, gains are probably like one point, two points, three points. It¶s just the ranges were so different, you know, back in the late 90s really than they are now. You have to be dynamic. So some of the things that James talks about, Brian, is -- one of the things he says is, you know, ³Don¶t trade when you haven¶t prepared thoroughly because if you haven¶t prepared and you don¶t know what to expect, you are less likely to be able to adapt your view of the market quickly and appropriately.´ I think what that sort of says is people jump in to the hot market of yesterday today. And then what happens, they don¶t really know anything about that market. They don¶t know that yesterday was an exemption to the rule and then it just leads to -- you know, it leads to loss. And the second thing he says is, you know, ³Don¶t trade when you¶re tired or emotional.´
Brian, I know you, you know, over the years have done a lot of trading when you¶ve been -- I¶m not saying emotional. Maybe you have been. You haven¶t told me you cried when you traded, but I know you¶ve been tired. You used to really try to do a lot of forex trading in really rough hours. Brian Short: Yeah, yeah. There was a period of three years where I would get up at 2:00 in the morning and basically trade the European shift. And, you know, for us here in the United States -- I¶m on the Eastern Time zone. That¶s pretty early. That¶s like working third shift and probably not the most effective time to be working. So I did it for a period of three years and it was okay, but it definitely wasn¶t my most -- you know, you want to be at your peak performance and I can say that during that period of time, I probably wasn¶t at my peak performance. Mark Soberman: Yeah. I think it¶s essential. I think another thing I can probably add to this is, you know, don¶t trade while on drugs -- and I don¶t mean recreational drugs. I mean, prescription drugs. Maybe in a future episode -- we discussed this just before. It reminded us of something. I¶ll talk about the time that I was taking a certain drug for something that -- a side effect was it kind of hurts your self-control a little bit and I traded without any self-control and it led to a five-digit loss. So we¶ll talk about that one of these times as a big lesson. But crazy things can happen in trading. Trading is hard enough to do it when you¶re going to be like just an emotional wreck or you¶re really tired and you¶re not sharp. It¶s a big mistake. You¶re absolutely going to lose money. He also goes on to say, you know, ³Be aware of the big picture as well as the small.´ You know, having adaptable plan is often looking beyond just what -- you know, what and how you trade. Understanding the market from different types of participants¶ perspectives can give you a variety of ideas to study and I think it is important. When we day trade, we¶re looking at the sort of microcosm of the day like a few minutes. I can¶t tell you how many times I¶ve traded, let¶s say, the stock market in an equity futures and I¶ve taken three, four, five trades. I made some money, I lost money or whatever and then later on I would be out with somebody and they go, ³How was the market today? Did it -- was it up or down?´ And I was like, ³You know, I have no clue. I have no idea,´ because I¶m literally looking at the small moment in time as a day trader. I don¶t even know what the big picture is and I would think at those times, you know, I should have some feeling what the big picture is. While I¶m trading, I don¶t want to be influenced by outside factors. But after that, I think you need to take a step back and try to just understand what is influencing the market because again, you got to be able to identify a big change or something that might break on the market that you¶re trading, and that¶s what James goes on to say. He was trying to have break clause, you know, for your plan. Know the elements of the market which are telling you a story. This is basically saying there may come a time that a timeframe or something is going to break the strategy that has worked so well for you. I don¶t know for you, Brian if you had that happened, if you¶ve been, you know, focusing on certain markets and doing amazingly well and then just something changes.
Brian Short: Yeah. A great example of that is the Russell. I traded the Russell for many years and when it switched exchanges to ice, that market was kind of broken for a period of time. Now, it¶s back and going well today, but there was a definite event, an example where the market, you just couldn¶t trade it the same as we did very successfully the prior years before that. So you just have to be aware of those kinds of things. Even the overall global things that are going on that may affect the markets that you¶re trading. Mark Soberman: Yeah, I think that¶s a great point. I think it¶s why you have to evolve. As a trader, you need to be very dynamic. If you use fixed targets and fixed stops, I¶m virtually guaranteeing that you¶re going to fail bad at some point. I think, you know, if your approach to trading does not adjust as market conditions change, that¶s one way to really extend the life of your current strategy or the hot market that you¶re trading, your ability to adjust targets and stops over time because they are going to dramatically change. Even when we¶re recording this and a few months from now or a year from now, some of the markets we¶re in are going to be behaving completely different. I don¶t feel too bad about that because I know the way that I approach trading is my targets and stops change literally to the trade and market conditions. But I realized that at some point, that¶s not even going to be enough and I¶m going to go ahead and have into the, you know, the next hot area or areas. The great news for traders -- you know, the great news for all of you is there are always places that the crowd is in and the crowd is trading. We just want to be in those places. Okay, I¶m not going to force some market to make profit for me if it doesn¶t want to. So I talked to a lot of people who go, ³Why are you trading this market?´ I mean, this is the market that I want to be in and we¶re like ³Because we all make money in that market.´ So don¶t be stubborn with it. You know, adjust to it. And if the market is going to give you, take what it¶s going to give you, right? You¶ve heard that before, but I can tell you how many people just stubbornly and say, ³I¶ve got to make money in the S&P E-mini because that¶s where everybody is in, that¶s where the volume is.´ Well, you know what? there¶s a lot of easier places many times to make profit than sometimes where the huge part of the crowd is. Another thing that James says is, you know, ³Monitor your strategy over time.´ You know, I think that¶s important. I don¶t obsess over keeping like amazing records, but one thing that I do -- and you know, people talk about, you know, you should keep a trade diary and all that, and there¶s been times that I have but I¶ll be honest, I haven¶t been able to really keep that going. It¶s just -- I don¶t know. For me, it¶s just too much effort, and I used to use really super simple spreadsheets that did just what I needed it to do. I didn¶t need to get really complicated with things. But now, what I do is I use a platform called NinjaTrader to execute all my trades through and it has a bunch of reports. All I have to do is because it¶s connected to my broker and it just -- I can run these reports, I can see my win-loss, I can see my best win streak, my worst losing streak, anything, and I can chart everything. I¶m pretty able to pick up on trends that maybe leading towards a break and also, I know, one -- ³Hey, this could be [00:27:20].´ You know what, three months ago, I had a stretch like this, too. That was a little rough for a few days and look what happened the next three weeks. It was amazing. It acts as a really great reminder as well,
but you got to, you know, monitor how you¶re doing over time. You don¶t want to be quick to break your plan. Mike Rykse, one of our trade coaches, I know you remember this, Brian. I remember him speaking to this a few years ago at one of our live seminars. He talked about how he¶s very slow to change his plan because for that reason, because you don¶t want to be shaken out of the good markings, we¶ve always found the best trades kind of follow that little rough time, that losing streak. That¶s when the best that happens, and the moment you quit, probably is going to be the time that market is going to get high. So you do want to change and quit slowly, but at some point, the evidence is just too stacked and you need to go ahead and adjust and like James says here, you need to be flexible. So anything else on that, Brian, that kind of rings a bell to you? Brian Short: No. I would just encourage you. I know you said you don¶t keep a trade log but I would encourage traders to keep a trade log a little more detailed. The more detailed, the better. I know we¶re all busy and a lot of times, we don¶t have time. But you would be surprised how valuable that information will be going back. You know, just making notes about your environment that you¶re in, a little bit about how you feel, and then what Mike Rykse does is he actually creates himself each and every day as to his trading and you can get a lot of valuable information out of that if you take the time to do it and so that¶s what I would add to that, Mark. Mark Soberman: So Brian, we¶re going to have our first disagreement already. Brian Short: Yep. That¶s -Mark Soberman: Our first argument live on the air in our first podcast. Brian Short: You know what, you -- I¶m going to make you start to keep a journal. How¶s that? Mark Soberman: Wow. I mean, I¶m actually running my little ³Dear Diary´ right now. Brian is being mean to me. You know, so this is starting. Is that kind of what you meant? Brian Short: Yeah. This is Mean Brian coming out right here. Mark Soberman: We know we don¶t want Mean Brian, so let¶s try to get you to back off the edge a little bit here. So let¶s do this. This will make you feel better. Let¶s kind of move on to our next segment and in this case, it¶s what we¶re calling ³Tales from the Stupid.´ Male Speaker: ³Tales from the Stupid.´ Mark Soberman: So the reason that I think this is going to make you feel better, Brian, is I¶m going to be able to talk about what -- I kind of came through the dumbest thing that I
did in my trading recently. So maybe that¶ll, you know, make you feel better. But then I¶m going to ask you to share as well your tales from the stupid as far as the trader goes. And why do we do this? I mean, this maybe -- just as you can look in your dear diary,
Stay Tuned for Parts 3-4« Or, if you simply cannot wait, visit us at The Day Trading Authority Podcast at: http://thedaytradingauthoritypodcast.com!
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