Episode 1: The Day of Reckoning Transcript

For those of you who prefer to reading over listening, or who want to follow along as you hear, we offer transcripts of all our podcasts. Enjoy this first one from The Day Trading Authority Podcast’s Episode 1 – The Day of Reckoning:

The Day Trading Authority Podcast Episode 1 Transcript

Coming from NetPicks headquarters, it’s The Day Trading Authority with Mark Soberman and Brian Short.

Mark Soberman:  All right.  Hello.  Welcome, Mark Soberman everybody.  Thanks for joining us on our first ever podcast of The Day Trading Authority.  This is Mark Soberman with NetPicks and I’m joined by Brian Short.  Brian, are you on the mic with us?

Brian Short:  I am on the mic.  Thanks, Mark.  And we’re very excited to bring this podcast to you.  We’re going to be sharing some really good information from our experience as traders.

Mark Soberman:  Yeah.  I think we’re — we’ve been talking about doing this for a long time.  So what I want to do is kind of explain to you a bit of what we’re trying to accomplish here and really why we want you to listen and hopefully, you’ll listen to our future episodes as well.

So the reason this is called The Day Trading Authority is with our experience with NetPicks, a good majority of the people that we worked with, the clients from really around the world are people who are day trading or attempting to do day trade in various markets and, you know, we’ve been doing this since about 1996 and have worked with tens of thousands of traders, so we have a pretty good idea of what it takes to be a successful day trader and we absolutely know what it takes and probably what happens that leads to people failing at day trading.  And we really want to kind of use this podcast as our platform to discuss the good stuff, the positives and also the negatives that go along with day trading.  So that’s really the purpose of doing this.

What we also hope to accomplish is we don’t want this to be something that you have to listen to while you’re in front of the screen.  You know, for instance, we do a lot of videos and video-based training.  The idea here is that you put this podcast on your iPod, your iPhone, your MP3 player, your Android phone, whatever the case may be, and you listen to it really anywhere.  You know, listen to it in the car, listen to it while you’re working out.  If you want to torture your kids or your spouse, you know, definitely it in the car instead of music.  But whatever the case may be, we really want this to be something that’s kind of sort of spark, I guess, your imagination to some degree, but hopefully spark some new ideas, maybe correct some bad behaviors and ideally kind of set you on a very positive course with your day trading.

So I think those are definitely our objectives.  I mean, Brian, do you want to add anything to that, what else we’re trying to accomplish with this?

Brian Short:  Yeah.  Basically, we just want to share our experience with you and hopefully, what that does is help you not make those same mistakes.  And this experience that we’re going to be talking about is both from our personal trading and from all the many customers that we’ve had the opportunity to work with over the many years that we’ve been in this business.

Mark Soberman:  Yeah.  I think that’s a great point.  I mean, I wanted to be clear that Brian and myself are active traders in the market.  So you’re not hearing from professors of trading, right?  You just talk about it.  We actually get down and dirty, get in the markets, have all the frustrations that everybody listening has had and then some — I’ve done every stupid thing in the books and more.  I’ve invented new ways of trading stupidly, I got to say, especially a long time ago but somewhere along the way, I kind of had that big “light bulb moment” and it turned around for me, and what I’m hoping is that Brian and myself as well as the guests that we’re going to have on future episodes of The Day Trading Authority are going to really get you to that light bulb moment a lot faster than maybe we personally were able to get you.  So I think that’s actually a perfect segue for us to talk a little bit about who we are, what our backgrounds are at least briefly and then talk a bit about NetPicks as well.

So the first thing I want to tell you is, you know, it’s a good idea just to kind of give out some information here, what you want to learn more about NetPicks, probably the best website to go to and it’s — the best price of all, it’s free.  If want to you go to netpicks.com, which is N-E-T-P-I-C-K-S.com/trading-tips — so trading-tips.  Put it all in lower case.  That’s really an amazing resource.  There are videos, articles, walkthroughs, MP3s, webinars, all kinds of good stuff.  It’s updated all the time by our entire team and there’s no cost for that.  So that’s definitely something to do.  And as you listen to this, if you got some questions for us, a great idea would be to shoot us an email and you could do that at podcast@netpicks — again, that’s N-E-T-P-I-C-K-S.com.

So let’s talk a little about I guess, Brian, ourselves personally kind of, you know, how we got started…

Brian Short:  Sure.

Mark Soberman:  …in trading and then a bit about NetPicks.  So I guess I’ll jump in and then I’ll sort of hand the mic off to you, and then we got some pretty cool topics here today to talk about.  I think you’ll have some real, you know, actual things that you can do based on how much you learned in this first episode.

So I basically started my trading somewhere — I’m trying to think back about 1980 — I’m going to say 1986 or ’87, which is really going to unfortunately date me.  So I’m bit of a relic, I guess but, you know, maybe some people listening will think that sounds young.  I hope so.  We have some young people on our staff and they kind of always make fun of Brian’s age and my age.  But at any rate, I started back around 1986.  It was during the Tylenol Scare if anybody remembers back to that and I did an options trade on Johnson & Johnson which I felt, “This is a total overreaction to a large corporation.  Surely, this stock is going to bounce back from the selloff.”  And I forgot how many call options I bought but I was a college kid at that time so I pretty much bet the ranch, whatever that was.  Probably like that quarter’s financial aid money, and I did extremely well.

It was probably the worst thing to happen to me, is the fact that I made money because I thought immediately I’m a smart kid.  I figured it out.  This is how these things work and actually, you know, a lot of people do trade that way and it’s not necessarily a bad way to trade when you kind of, you know, realized that there are overreactions in the markets and the markets are very emotional, and so I trade the opposite of that.  I mean, in some way, it was smart, but I had no system, I had no idea why I got, where I got out.  I didn’t really even know too much about what I was really buying.  I don’t think I’ve really truly understood at that point what a call option was and then I had the potential to risk the entire investment.

I did amazingly well and I probably proceeded on and off to trade a variety of different things over the next — I’m going to say almost 10 years, and I definitely lost everything I made on that trade and then some — and probably a number of times over.  I mean I remember trading pork belly futures, I mean really dumb things that I just should not have been involved in and it really reminded me of some of my first experiences going to Las Vegas where again as a college kid, I won a lot of money for a college kid on my first trip out.  Well, again, I thought I was a genius.  I thought I had it all figured out.  As it turns out I really didn’t.  So after a number of trips to my cash machine, you know, over the years, you know, I realized that I don’t have any system and even worse, in Vegas, right, you never have the odds in your favor.

I was pretty convinced to trading that eventually, I was going to figure out how to put the odds to my favor.  I got to the point where I kind of realized that that wasn’t going to happen in Las Vegas and I was never going to be able to count cards or do anything like that.  So, you know, it was my first experience.  Maybe hard experience to learn that, you know, you have to have a strategy and a plan.  Basically, in the mid 90s, I started getting a little bit better, doing a lot more research, educating myself.  And in early 1996, I started to trade fairly active in options again.  I was working for a corporation in senior management and basically would use a portion of my day to do the research and the stock picks.  Another VP at this company was as passionate about it as I was and we would pretty much, you know, you hear like about the bosky or people hit the bosky in it — I don’t know, takes it off something you shouldn’t be watching and put it on your work.  We kind of had the bosky as well because we were looking at charts and markets and if, you know, the president of the company walked in or walked by, we had to quickly switch over to some kind of, you know, inventory or inventory allocation report or something of that nature.

But we really spent the year doing a lot of research and that’s where I was inspired to start NetPicks because I had a hard time finding anything out there that would provide me analyses and picks.  This is way back in 1996.  There just wasn’t much.  The internet was up and running, but there wasn’t a lot to choose from.  So that was sort of the inspiration to get going on NetPicks, which we’ll sort of talk about next.  But Brian, maybe give us an idea of your background a little bit.

Brian Short:  Okay.  Thanks, Mark.  Yeah.  Just a little bit of a background on me first before I get in to my trading.  Prior to NetPicks, I was the owner of a technology company and I ran that company for about 20 years.  It was towards the end of that 20 years that I started to look to get into trading and this would be in the mid 90s.  And during the 90s, that was a pretty good bull market through that stretch of time, and I was doing what was called broker assist trading.  In other words, the broker would call me up each and every day with the hot pick of the day and I would act on it, and the thing that was crazy back then is you really couldn’t pick a stock that would lose.  Everything was heading higher.  So from the broker standpoint, he was — you know, he was calling me up every day trying to get commission out of me and I made some good money.  Don’t get me wrong.  During that period of time, the thing that got me was — do you know what happened in the — close to the 2000 — year 2000?  What happened?  The bear market came into play, and all that profit that I made during those years of the bull market went away very quickly.

So at the end of that process, I really had to scratch my head and say, “I want to take more control over my own personal trading and not rely on someone else speeding me tips and so forth.”  And that’s when I started to look at more active trading on my part, system trading.  And I looked at a number of services out there, I traded OEX options for a little bit and then I ran upon this little website called netpicks.com.  And like a lot of the coaching staff that we have — that currently work for us, I was a customer first at NetPicks and I signed up for the service and was excited at that point we — NetPicks was trading forex, and that got me hooked.  And from that point forward, using a system to trade was a very integral part of what I do each and every day.

Today, personally, I’m very active in trading each and every day.  My favorites are crude oil and I also trade silver.  I like the metals and gold, a little bit of gold.  And I try to focus in on, you know, a couple hours a day and basically, one of our models here at NetPicks is “Get in, get out, get done,” and I try to stick to that because, you know, as a new trader, the thought process is the more I trade, the more I can make, but the opposite of that is really through.  You want to refine that time, get in and get out and get done.

So that’s pretty much my story and how I’ve come to be where I’m at today and I just thoroughly enjoy each and every day.  Getting up in the morning is fun.  I’m excited to approach each new market and what it has for us at that particular trading day.

Mark Soberman:  Yeah.  Thanks, Brian.  But come on, be honest.  When you hop out of bed, you know, in the morning, that your back hurts, your neck hurts, I mean, at your age, right?

Brian Short:  Yeah.  You caught me there.  So definitely getting older.

Mark Soberman:  Okay.

Brian Short:  But…

Mark Soberman:  I may be relaying my personal story actually there.

Brian Short:  But it’s a mindset, right?  It’s all in the mind.

Mark Soberman:  Make sure of that.

Brian Short:  You got to keep telling yourself that you’re not old.

Mark Soberman:  Yeah.  I can’t — I don’t sprint to the trading computer quite as quickly as I used to but I still feel like I’m able to move, so that’s a good thing.  And Brian has got some great stories that he’s going to be able to relay to you over time.  He’s off to tell us the story in the future about his Al Capone-like silver vault, which is a good story and he’s got some really fascinating, very, very large trades that he’s made.  You know, I have some similar that we can talk about.  I’m excited too to bring on different people from our team because they’ve all kind of gone through their light bulb moments and all have very interesting stories, how they got involved in trading, you know, when it didn’t work for them and when it started to work for them.  So that should be pretty fun.

Now, me, personally, what I trade on a daily basis are the crude oil futures.  Definitely, day trade those.  I got involved with some day trading of forex, which of course, I know for a lot of people, is very popular these days.  And then I also will do some day trading on some several futures contracts as well such as the Russell eMini, on occasion the S&P E-mini.  I’ve even done some DAX futures trading over time.  And like Brian, I’ve been inspired lately because of all the great volatility to start looking at some of the metals for day trading, the gold futures and the silver futures.  So we’ll talk a lot about our trade plans, in particular why trade the markets that we do?  Maybe why we don’t trade certain markets that people expect us to trade?  And we’ll try to share that experience as well.

NetPicks, like we mentioned, founded back late 1996 and we’ve been going ever since.  You know, obviously, we’re closing in rapidly on almost two decades, which is almost hard to believe.  But in a few more years, we’ll be having our 20th year anniversary.  That’s almost impossible to believe.

Brian Short:  Wow.

Mark Soberman:  But we really segued to an educational company.  We teach very specific strategies and systems for active traders and that’s what we do.  Like I mentioned before, you know, if you go to netpicks.com/trading-tips, that’d be a good start to try to get a little bit familiar with us if you’re not already.  Obviously, some people listen to this.  You know, you’re amongst the thousands of different course runners that we have 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, podcast@netpicks.com.  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.  “You 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, “Don’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, “Don’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, “Be 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, “How was the market today?  Did it — was it up or down?”  And I was like, “You 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, “Why are you trading this market?”  I mean, this is the market that I want to be in and we’re like “Because 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, “I’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, “Monitor 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 — “Hey, this could be great.”  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 “Dear 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 “Tales from the Stupid.”

Male Speaker:  “Tales 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, maybe Brian you can look on your spreadsheet and, you know, look at the last place — well, last time you did something, you know, stupid in your trading but I think it’s important to kind of just acknowledge that we’re going to make some bad mistakes as traders and you just need to learn from it.  The good news is over the years, I have reduced my mistakes down fairly dramatically, okay, which is great but I know I’m not going to be able to trade flawlessly and perfectly, which is why I need to make sure that my strategy has a good enough edge to kind of absorb my stupidity a little bit.  And like I said, I do think my stupidity quotient has gone down a lot but it’s not at zero.

So last week I was trading the crude oil futures and I got distracted as I frequently do when I’m trading because I have like the concentration of a, I don’t know, fill in the blanks.  And so I would have email going, instant messaging.  I probably was talking to staff, answering, you know, daily emails because it was a little bit slow at that moment, you know, for the last couple of minutes probably, there wasn’t a setup.  And all of the sudden, there’s a setup, I looked over at the chart, I see it and I realized I never placed my buy stop to get along the crude oil futures.  Well, that’s frustrating because the last thing I want to do is miss a good trade and you know how it is.  If you miss an entry, winners don’t always come back to you where you can pick them up again.  Every loser is going to come back to your entry, but not every winner.

But I was pretty quick and I am fairly quick on my executions.  I noticed my — right away went and did the chart and I saw, “Oh, my God, a market right now is trading exactly at the entry price, perfect opportunity to market in.”  I never market in.  I always buy stop in or sell stop in at a specific price, but I just went right to my NinjaTrader, which is a one-click entry.  I clicked on the right side of their order entry and was in the market — this happened in like a split second, beautiful.  I’m fast.  I’m quick.  This is great.

What I didn’t realize at the time was I actually hit the wrong side of the screen.  The right side is actually short, so I had shorted.  I had no clue.  I was even sloppier because I really should have checked my execution and just made sure that I got in where I should.  My target and my stops immediately get put in Ninja into my broker so that’s good and I adjust those up a little bit so at least I did that.  But you know what?  I had no clue that I actually was short and not long the market.

Well, the good news is the market didn’t go up, it actually went down and the buy ended up stopping out.  So I was like, “All right.  Well, I stopped out.”  Then I hear to the system, I forget exactly what it says but it basically says, you know, “Profit target hit” that it’s got some snitch attached to them.  “What?”  I mean, I had — that wasn’t possible, I just stopped out, I was placing the next trade at that point to go short.  Well, sure enough I made money off of my stupidity, so you would think that should be the end of the story.  I’m such a good trader that I do something stupid and actually make money despite myself.

Well, I was so mad at myself because I easily could have been short on a buy trade that works and not only would I miss the buy, I really would have also caused myself a loss.  So it’s like down two losers is what I almost did to myself and then imagine what do you do.  I’ve got very specific goals on the day.  I call it power of quitting.  It’s ruined because I have no idea what to do from that point.  I should be quitting and now I’m down two losers, what do I do from there?  You know what you usually do, is you start to try to get it back and you start to do the revenge trade and I’m about to probably have myself have a horrific day because now I broke in the plan for that day, so I didn’t feel fortunate.  I didn’t feel good.  I was really mad that I did that.  Yeah, I got lucky and I had made some money off of it but I immediately — well, I tried to kind of re-educating myself on, “If you are going to market, where is the buy?  Where is the sell?  Should I even do that ever again at all?  Why did I not check my executions?”  Because I would have checked, I would have immediately seen that it said minus the number of contracts that tells me I’m short and I could have marketed out and buy out of break even, lost tick, gained a tick and, you know, problem solved.  It does happen, yeah, on occasion.

So for me that was easily the dumbest thing that I did even though from, you know, it ended up working out because I hate to get lucky in trades because luck has never been on a positive side of my ledger.  Yeah, there’s been times I’ve had trades that I’ve really had like this where I’ve gotten really lucky but more times than not when you do this, it derails everything and it gets way amplified and you dig a huge hole and a big draw down.  So for me, that would be my tale.  What about for you, Brian?

Brian Short:  Yeah, for me, it’s this.  I’m a very competitive person.  I do not like to lose.  I play a lot of sports and it’s the same there.  And in trading, it’s no different.  And my story goes back to a number of years ago when I was trading the Russell.  I had a specific plan that said, you know, I was going to take two winners on the session and be done and had a certain — a couple of hour timeframe that I traded, you know, from 9:30 to 11:30.  And on this specific day, don’t — I don’t know why but the series went something like this, and there were a few losers out of the gate and then I had a few winners.  I know that I was slightly positive on the session.  It was like I just wanted to keep trading and but my plan said I should stop — well, there’s the mistake right there.  And you can probably already guess what’s going to happen but I went on to trade loser after loser.  And one of my weaknesses as a trader is revenge trading.  And let me kind of go off from this point and say I think it’s very important as a trader that you understand where your weaknesses are.  You’re going to have some and it’s different for everybody.  But in my case, revenge trading is one of my weaknesses because I’m so competitive.

And that day went on, not only my two-hour time frame that I would normally trade, it went on two hours past that.  And the bottom line result is I was down significant on the day.  And you talk about walking away and just kicking yourself for a number of reasons.  One, I should have stopped the very beginning of the day when I was slightly positive and my plan said to stop.  And not only that, why didn’t I stop along the way?  And you know, I just kept taking trade after trade after trade because I wanted to get back from the market what it took from me.

And so, again, I guess the story that — the thing I would like you to learn out of that is you’ve got to first of all understand where your weaknesses are as a trader and then react to those and make sure you understand.  I can tell you since then, I have not had that problem because I know that’s an issue for me and I stick to my plan and I stick to the timeframes that I’m going to trade, you know, the hours that I’m going to trade and that’s it, and I let the strategy work for me instead of me working against it.

Mark Soberman:  Yeah, I think it’s a great story the fact that it’s very insightful.  I actually think anybody listening to this podcast probably is shaking their heads and thinking the time or many times that they’ve done the same thing.  I’m definitely very guilty doing that like you being very competitive, and I think a lot of people are competitive.  One of the most frustrating things about trading that I’ve had to learn and we’ve tried to teach people is that you need to accept losing and losing on a regular basis and I think that goes against everything that the way that we’re quoted.  It goes against human nature, you know, it’s just — it seems — on a marriage and whatever the case you want to be or on whatever country you’re in to accept that but you really have to accept the loss as part of trading.  And if revenge is kind of on your mind, it’s probably going to end badly, even worse is on occasion that revenge trading is going to work and that’s going to teach you the worst possible habits in the world because the market is going to take all of that back that it gave you in the first place.

Brian Short:  And more.

Mark Soberman:  — and a lot more.  Yeah, I would definitely agree with that.  So I think those are a very insightful and these are things you need to look at, you know.  You need to be very honest with yourself in your trading and I hope people hear this and realize that these guys, you know, they’re — they’re doing things right now they’re successful but, you know, they have made every mistake in the book too, so you do need to excuse yourself for doing that but you need to also make sure you learn from it and change these behaviors and change these habits.  It’s very hard to do.  I’m not trying to say that it’s easy.  Even when you identify these problems, you’ll still struggle with it.  You’ll still struggle to change behaviors.  But if you don’t, you really shouldn’t be trading because your — it’s like I said, it’s hard enough when you’re doing everything right, the last thing you want to do is make easy to lose money.

It reminds me one of the things we want to sort of countered this a little bit with our Tales From the Stupid as maybe a genius move that we’ve done.  And something from me that was a bit of a revelation actually fairly recently and I know I’ve talked to you about this, Brian, on a trade plan with the S&P E-mini because I’ve just have not had great success with that market over the years and maybe another time we’ll have a topic, you know, why it seems so logical that it is, you know, day traders, I mean this is the day trading authority podcast, you know, we should be talking about the S&P E-mini because if you’re in futures, that’s where you’re at and if you’re in forex, you’re in the Euro-US dollar, and if you are in stocks, you’re trading Google or whatever the case maybe, but it’s not going to market for some different reasons that I’ve done particularly well with.

But a recent thing that I did is I always convince myself that the very best trading on that market absolutely has to be right at the opening bell of New York so, you know, 9:30 New York Time or a couple of minutes after if you want to wait.  And, you know, typically the first couple of hours of the day, that’s where all the volume is, that’s, you know, where all most of the activity is.  It makes sense and that’s what has worked for me in almost every other market that I’ve traded.  But recently, I’ve started taking my same trade plans that were just given me very so-so results, and the only reason I did this is because I had this work for me in the Euro-FX futures where I was having kind of the same choppy results and I started to really adjust my start time and I tried instead at 10:05 New York Time.  So 35 minutes after the market open, which is for me has always been very counter-intuitive, that’s just not really when you should start, you know.  You should get in there when the volume and action is coming in.  I’ve always had my best results.

Well amazingly, this same exact trade plan not only cleaned itself up, it started going on some pretty amazing multiday winning streaks and I could actually, like Brian mentioned, get in, get out and get done, do this in an hour or less and many times it was like 5 or 10 minutes completely transformed that trade plan for me and opened up a new marketing.  The way I did that was not trying to reinvent the wheel or have to come up with a brand-new strategy or system or rules, I literally just changed the time of day that I’ve decided to trade that market.  I tested it and then found these things working.  It was amazing, the transformation.  So those are things you need to think about and it’s incredible that actually very small changes sometimes could literally make all the difference for you.  So, for Brian, what about for you?

Brian Short:  Yeah.  My story goes back a little bit.  I don’t have any recent once that I can point to but —

Mark Soberman:  You haven’t had a genius moment recently?

Brian Short:  Not recently, not like you.  You’re just such a genius.

Mark Soberman:  Okay.

Brian Short:  But —

Mark Soberman:  It’s a daily thing for me.

Brian Short:  I know and you just keep thinking that.  Mine goes back a few years to a situation that I noticed at the end of day, specifically on the Russell and looking at the metals.  And at the end of day, we have an indicator called the OSOB and basically that indicator measures when the market gets way oversold or way overbought.  And there was some really good setups that would happen towards the end of the day.  The market a lot of the times would push in a direction and make the market, you know, be oversold in that direction and you could take an overnight trade.  Then, by overnight what I mean after the market closes, you could get on board this type of trade and look to trade it for a couple of hours and they were very successful as far as the winning percentage.

And so, as we were talking here, Mark, I happen to think of that and think that, “You know what, I want to — I want to take a look at that again.  I haven’t looked at that in a long time,” but the point I would like to make there is when you’re looking at charts like Mark discovered the, you know, the 10:05, look for these kind of anomalies, these slices of time and places where you can, you know, you can get in and make trades and get out that are kind of unique to your situation.  You know, maybe you can’t trade during the day but maybe you could take this overnight trade that I’m talking about.  And so there are definitely opportunities that you can get involved in pretty much 24 hours a day.

Mark Soberman:  Yeah.  I mean, that’s — I think that’s — that’s the point.  I mean, it’s incredible.  I was talking about how you — we turn these dials.  We have like this big console in front of us with all these little dials that we can twist and turn and you can dramatically change your results for the good or the bad by turning these various dials.  But those are really some of the, you know, it’s what available to us.  It’s our arsenal.  It’s the weapons that we have available that sort of take on or fight the markets just realize that sometimes there is, hey, just a tweak that can be something that really revolutionizes what you do.  In NetPicks, this is what we do all the time.  The fact that we’re in the markets and the markets every day, we’re looking for those, you know, we’re looking for those things that can make, you know, the difference.

I know my coaching team, right, they do the same thing.  They’re always looking for those little ways that we can get that much better, you know, of an edge.  And I think this is actually a perfect segue into really what’s going to be the last topic for us to discuss in this first episode, and that’s when you’re trading your system or your strategy and then you kind of have what I call the “Day of Reckoning.”  The day you maybe know it’s coming but the day that your system might get exposed and what is it that causes that, how do you respond to that, maybe how you can avoid it though I’m not sure that in advance you can always avoid these things because a lot of times we just don’t know that the perfect — you know, the perfect storm is going to set up next Tuesday and just causes a high level of grief.

And so, recently, again, trading the crude oil futures on a fairly newish approach, really just a tweak on one of the systems that that we have available.  And I had an amazing, probably the best win streak going of my trading career on day trade.  I was probably coming in on almost two months of not having a negative day trading crude oil, which, you know, if some of you listening, you know, you’ve done a lot better than that, you know, great.  But for me, you know, I mean I’m used to having a given week, a good week, maybe like, you know, three or four days out of the five or nicely firmly positive, maybe one day is break even and one day is negative, that’s a good week.  I mean, I’ve got good results if I can do that.  Every week I’m more than happy with that.  But for whatever reason, I was rattling off this kind of ridiculous win streak and a few times I — it literally came down to the last trade where, “Hey, I’d like, you know, four winners, you know, five losers or four winners, four losers.”  The last trade was a winner and I ended up just, you know, sometimes I would tell Brian, “Yeah, I ended up eight bucks today.  So, you know, lunch is not on me.”

But, you know, it was positive but then other days it would be, you know, hundreds of dollars per contract times the contracts I’m trading, really solid.  In fact, most days were like that during this win streak.  Well, I had a day, I think it was — it’s been about three, four weeks now and I started trading and usually on crude oil I’ll start at about 9:00 New York Time in the morning and I’ll go — my cutoff is 10:30.  It’s just an hour and half but the way that I trade on the timeframe I trade, which is using range bars, I can get a lot of trades during that time.  Now, I shouldn’t get tons of trades but I want to have enough activity so I can go through sequence of wins and losses and then positive every day.

Well, as it turns out, I had this awful run.  I ended up with five winners and 14 losers.  It was like the perfect storm of the day where it just seems like I could never do anything right and worst, I actually was executing pretty well.  I wasn’t making mistakes.  It’s just the system on that given day was just broken.

Now, I wasn’t, you know, sitting there like, “Oh, I’m gonna quit this system.  It’s never gonna work.  This is garbage.”  No, I mean, I just gone through two great months and I, you know, wasn’t giving back two months profit by any means, but it still hurt because typically if I’m going for what I call power of quitting, if you’re familiar with one of the things we teach on this market, I was doing a lot of power of quitting one.  Well, if I’m 5 and 14, that tells me it’s going to take me about nine days to just recover my loss assuming that the next nine days go like the prior two months.  It could even be longer.  It might take me two to three weeks to recover. I mean when you’re coming off of winning two straight months, that’s a lot to accept.  The worst part of it was I — when I went back and reviewed the day because I was like, “What did I do wrong here?  Did I do anything wrong here?  I realized that I missed the very first trade of the day, right around 9:00 that turned out to be a winner.  I would have quit right there.  I never would have experienced the next 19 trades if I just, you know, didn’t miss that trade.  And it’s easy to miss without you exactly knowing what I was doing.  It wasn’t like jumping out at me but I saw it by the second pass and I really should not have missed it.  And Brian, you probably remember that day that I talked about, it was like I couldn’t believe it.

Brian Short:  I do.

Mark Soberman:  What I — first, I couldn’t believe the loss, you know, where I was like, “Wow, it’s just terrible.  It gonna take me, you know, a week or two to get this back but will get it back.”  But then, I came back later on and I saw the message that I like, you’re not going to believe this.  This is a positive day.  So what are the lessons to be learned there?  Well, I learned some things because I had, you know, two incredible months, there was not a lot of lessons to be learned.  What I realized number one was I had the potential to take way too many trades over 90 minutes.  This strategy potentially could have 19 trades or 20 trades in 90 minutes — that’s too many.

So the first thing that I learned from that was I got to cut down the time that I’m willing to give this.  So I changed my plan from 9:00 to 10:30, to 9:00 to 10:00 because I went back over all the good days and not once did it matter that I was going to 10:30, but you better believe it mattered because probably I think I had like four or five extra losses as a result of going 10:00 to 10:30.  So that was definitely something that I learned in that case.

Another thing that I learned was it definitely reiterated to me how important my power of quitting is, that I had was actually doing that very correctly because I went back and looked at some of the days where I was very positive and I had quit and realized that a bit later on those — in that 90-minute timeframe, it got ugly.  And if I was trying to trade every single setup in that timeframe with a very effective strategy, I would have the same kind of days a few times, not a lot, but a few times, enough to wipe out all the profits over the two months.

So it definitely was a great reiteration to me and confirmation that power quitting is pretty strong.  Again, it’s probably something we need to talk about in detail in the future because it was an eye opener for me.  This is one of my light bulb moments a few years ago and we teach it all the time.  So controlling the frequency of trades, having a circuit breaker that is time-based, was really critical for me.  Another thing that I did is there was another market that I was trading and I think it was — it was actually made in the Russell and I was having some pretty good success with it and the numbers were great, the profit factors, the win-loss percentages, the profits really not stacking up very quickly.  So a number that I suggest people look at is what is the average dollar amount gain, and hopefully not lost, but the average gain on all your trades.

Okay, what a lot of people make a mistake is they look at their average gain on the winning trades or they may look at the average amount that they lose on losing trades and they figure out the ratio and they want the ratio to be above 1:1 which doesn’t have to be but it doesn’t hurt if it is.  And that’s, you know, those are important numbers but what I realized when I looked at my report was, wait a minute, my average per trade is about 20 bucks per trade.  I started thinking, you have commissions, you have slippage, you have mistakes — so even though I had a great profit factor, a great win-loss percentage, I was making some money, it started dawning on me, you know what, if I had a [00:51:32] slippage on some trades, if I make a mistake on occasion, if I miss a trade once in a while, if I get out a little earlier ‘cause I determined there’s a key level that I shouldn’t push the trade to, I’m going to go ahead and start giving back a little pieces and more pieces, I realized that this is not enough profit potential on the average trade to make that trade plan work in real time.  Even though it looked great and it should’ve performed great, all the numbers would’ve been something that the normal, you know, trader would say “Yeah, those are great numbers.  That’s going to be a winner for you,.” but reality was completely different.  So I don’t know Brian, I mean we talked about this some and there are things in there that, you know, kind of remind you of either that experience or any others that you’ve looked at.

Brian Short:  Mark, very good points and I think years ago when we developed a lot of the systems that we have today, I mean, we built into it the power of quitting for this very reason.  Also looking to trade as you heard me say earlier, is to trade pretty narrow timeframes.  I think by identifying those — those times to trade, it helps you minimize this issue.  The other thing that you can do in your trade plan is actually incorporate a circuit breaker.  And you need some pretty good data to do this but you know, is your circuit breaker, when you have five losing trades on the session or, you know, some number that you don’t get to a really gross draw down, you know, a huge draw down.  So those are some ways you can look at potentially, you know, adding to your trade plan to protect against this very thing.

And then the next — the last thing I want to say to this is psychologically, this is a huge event for most traders if — especially if you’re not expecting it.  And I know, Mark, you did say on numerous conversations during that two months’ great run, you were just waiting for the day that this was going to happen, I think you were expecting it and when it happened, you know, I don’t think you were surprised but the trader that just doesn’t expecting this, I think it can be very devastating, and what ends up happening is, you know, maybe they pull off for a little bit and then they end up with missing those winning days.  So just remain consistent with your strategy and you might have to tweak it like Mark did in this example, a little bit to help minimize this type of event.

Mark Soberman:  Yeah great.  Thanks Brian.  I mean I think that is the lesson — yeah, I wasn’t in shock.  Yeah, it didn’t, you know, rattle me.  I came right back the next day in trade and I just made adjustments to my plan.  I was like “You know what, I know I’m gonna have day of reckonings again.  I’m just going to make sure that when that day of reckoning comes, it’s not going to hurt me as bad as this one did.”  And since that time, I fully recovered, new equity highs, it’s all fine, and actually I feel that much more confident as I come in to each day because I know, I’ve limited what could go wrong, you know, on a given day, and I know we’ve taught over time what it  takes when you have certain draw downs in an account to make back, to come back to zero and that’s why we, you know, really focus so much on limiting draw downs.  This recovery from small draw down is easy.  Recovery from big draw downs is really, really difficult mathematically and it’s probably the topic for another time.

So with that, I wanted to thank you Brian for participating with me and I think we covered some great topics here, general topics.  I would probably recommend to some people, hopefully, you took some notes.  If you didn’t, maybe go and do a re-listen to this ‘cause actually we cover more ground than I even expect it.  In future episodes, we’re going to talk about things like trying time, like Brian mentioned, you know, what are the best times of day or night to trade certain markets, what are key levels, we’re going to talk about that, the power of quitting, the very best markets to day trade, what we think are the worst markets of to day trade, what time intervals you should use and it’s not all about just five-minute charts.  We’re going to talk about things like range bars, tick bars and wrinkle bars, developing trade plans.

We’re going to bring in people from our coaching team.  These are traders who are currently trading forex, they’re trading futures, they’re trading stock, they’re trading options, day trading — even doing some active swing trading which we’ll talk about.  So we’re going to bring them in and have them share their experiences with us as well and I did want to kind of wrap and just remind you again in between these episodes — one, make sure you know you subscribe to the episodes if you’re, you know, in iTunes or you have the ability to do that.  If you don’t, well, try to make the MP3s available to you so you can download those, definitely go to netpicks.com/trading-tips.  If you want, we also have a free piece of software called the Dynamic Profit Generator.  If you wanted to get that, download that, you can get it for free also at NetPicks, N-E-T-P-I-C-K-S dotcom slash and the letters D as in David, P as in Paul, G as in – I don’t know, Green.  We call it DPG which stands for the Dynamic Profit Generator.  So that’s available to you as well.

If you want to contact Brian or myself, you have comments about the podcast, send to podcast@netpicks.com and we’re looking for listener questions.  Each episode, we want to kind of take some of your questions and answer those during the episode.  So if you want mine, if you got some real top-level questions that things that feel would help others or keeping you from being a successful day trader you think we might have an answer for, follow me and shoot us an email, we’ll be happy to try to answer those.  And so with that, we’ve enjoyed it a lot.  Brian, any closing comments before I let everybody get on with their drive or their workout or whatever else that maybe good?

Brian Short: Not really Mark, but just let me say thanks and hopefully this is beneficial for those of you listening and I look forward to doing this again the next time.

Mark Soberman:  It sounds great.  Great success to everybody.  Good luck in your trading.

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