Episode 5 Transcript: The Greatest Occupation. Period.
For you listeners out there who prefer to read this past episode, or who want to follow along as you listen, we offer transcripts of all our podcasts. Enjoy this transcript of the fifth episode: The Day Trading Authority Podcast’s Episode 5 – The Greatest Occupation. Period.
Mark Soberman: All right. Hello. Welcome. Thanks for joining us for the latest installment of the NetPicks Day Trading Authority. This is Mark Soberman, and I’m joined once again by my co-host, Brian Short. Brian, hello and are you out there?
Brian Short: Mark, I’m out here, and it’s good to be back. It’s been a while, looking forward to another podcast session.
Mark Soberman: It has been a while. I don’t know how this happened, but here we are. We are going to be recording this. We’re in July and it’s, you know, we were given a pretty good job about giving these out on a regular basis. And then I guess all of a sudden, life in trading happened. But we do have a pretty good excuse for it – something that we released to the public here. Actually back in June, pretty much consumed every waking moment of the day and night for myself and Brian and really, our team, so, a big part of what we’re going to talk today has to do with that, you know, why we sort of dove into that degree and dedicated ourselves to launching something that we’ve probably have resisted launching for a very long time. So, we have our excuses, we have our reasons, but definitely glad that you guys are with us again and we’re here to share some, what I hope will be some really great information for you active traders out there, you day traders or active traders, whatever you want to call yourself. And that’s what we’re here for today.
So, a couple of quick housekeeping things just so you know, you can always go to netpicks.com/podcast, P-O-D-C-A-S-T, if you want to hear prior issues, versions, podcasts, whatever you call these things; that’s always out there. Of course, in the iTunes Store, we always welcome you to download us there. Give us an absolute wonderful review that is always nice as well. If you’re learning anything from this, we hope of course that you are. A couple of other quick reminders, we always do interviews with other experts in the trading world, so if you’re ever interested in those, you just go to netpicks.com/authorseries and you can sign up to participate in the next one live. And a little bit later in this podcast, you’re going to be hearing from Richard Weissman, who wrote the book “Trade Like a Casino,” and it’s a really fascinating book. And it talks a lot about managing risk and relates a lot of it to, as you can imagine, the casino which might surprise you, but you’d be amazed how much it actually correlates from trading to actually — well, doing the best you can in a casino — controlling your risk and your emotions and everything else. So, you can join us live for the next one as well.
But, Brian, really what I want to talk about a little bit today is why we’ve launched the latest project that we’re heavily involved in. And for the people, who don’t really know what that is, it’s called Premier Trader University. And if you want to find out more about that and learn a little bit more about it, there’s a whole bunch of free information, articles, screenshots, trades, etc., on that website and it’s just premiertraderuniversity.com, but the real main reason for starting that is those of you know NetPicks for a long time, been around since the mid ‘90s, we’ve always been about system development, and I’ll be perfectly honest, in some ways we sort of assumed that people came to us with the knowledge base and with the education and they could take the tools and the systems that we offer and go on their merry way and trade profitably. And Brian, let me ask you, is that always the case in your experience?
Brian Short: Well, Mark, unfortunately no. It’s not the case. As you mentioned, we assumed that we would put a strategy in the hands of a trader. That strategy would have an edge, and it was our assumption that they could take that and execute it on that strategy, and you know, extract profits out of the market. But, for many, many different reasons and I think individual’s different. They were not capitalizing on the strategies we put out. And so we just got frustrated with it. I know you and I sat in a strategy meeting almost a year ago and we’re trying to solve this very problem. And so, Premier Trading University is the answer to that problem.
Mark Soberman: Yeah. I mean that’s exactly right. That’s exactly how I would say it, because the problem has been driving me crazy a little bit, and I really know this is a little bit of a rant — is a lot of people come to us and they are completely worn out. They have spent thousands of dollars on trading stuff. Maybe I could say the word gimmicks, whatever the case may be — they’ve lost all that money. Then they’ve traded a lot of money with those gimmicks; they’ve lost all that money. Then they went ahead may have even put in a fair amount of time in the beginning because, you know, when you’re new to something, you’re so enthusiastic. And I know a lot of you listening, this is you, and it was me, too. Back in the past I was in the same place, you know kind of a little bit despondent about my trading. And you know, you put a lot of money, a lot of time, a lot of effort, and it’s stressful. And it’s very, you know, there’s a lot of anxiety that comes with trading.
Unfortunately, what we were finding is, by the time they found us, we were just getting this large group of paralyzed people, and let me tell you, there’s nothing more frustrating than people finally finding you, and we think finally we have a solution for them, and they are able to do nothing with it like you’ve told me. I can’t tell you how many times you’ve told me. Hey, I just had a call with a guy and I can’t believe it. He, you know, bought this, bought that. In fact, he bought one of our systems. He bought, you know our ultimate swing trader. And you know, we’ll call him Ken. And Ken just says, “Brian, why should I buy this next course, because you know when I bought the UST from you… oh and by the way, and that you were telling me…” and you would ask, “Hey, how’s it going?” And he — and Ken will go, “I don’t know, it’s on my shelf. I haven’t, you know I haven’t tried it yet.” It drives me crazy that there are so many people, who have reached the point where they’re still desperate for answers, but unfortunately, they’re out of patience, they can’t take the stress and the anxiety and maybe in some cases, they’re out of funds. I mean, I know you constantly tell me stories like these. I mean is this how you’re going to experience more and more? Is it just a current thing? Or am I just thinking that this is something that has been going on forever, but I’m just starting to notice it more?
Brian Short: Well, I think, Mark, to be honest, it’s going on for a long time. And, you know traders, I think, have a mindset that instant gratification, you know, we do live in a fast-food society. We want that instant gratification, and if we don’t get it right away from whatever product we’re purchasing, in this case a trading methodology, if we don’t get that, we’re very easily distracted, because there are so many other aspects to trading that can interfere with your success. And the goal of Premier Trader University is to train our traders on that; expose those areas. We’re sharing from our experience over the years, because we’ve been through the same process ourselves. And it’s that learning process that we’re trying to impart, now to those members that come in to the university, and help them get on a fast track to get, you know, get going, get profitable, and to become ultimately a successful trader.
Mark Soberman: Yeah. I mean, I think — I think if people could just, you know during this podcast, if we could do a little bit of, maybe just kind of repeat back after me, if you could, you know at this point tell yourself there is no plug-and-play trading. I mean, literally repeat it to yourself. Give up on that. There is no get-rich-quick trading. Give up on it. There is no 100% success trading. None of that exists out there.
However, we actually are in what I think is the greatest occupation out there. And I’ve said this before, because this is the carrot for everybody. Can you name another business that you can double in size by literally pressing a different number on your keyboard? If you’re listening to this and you own small businesses, if you’re involved in a corporation, if you’ve done marketing, think how hard it is to double your business today. Whether you’re a professional, a doctor, or lawyer, a CPA, it doesn’t matter. It’s a lot more time, it’s a lot more effort, it’s a lot more money. Well, when it comes to trading, all I have to do is buy one more contract. Instead of buying one, I buy two. Literally, I move my finger over, you know a couple of centimeters on the keyboard, and I’ve just doubled my business. So, what I tell people is look, it’s going to take work, it’s going to take effort, it’s going to take some time, but isn’t it worth knowing that you can double, triple, quadruple your business without even moving in your seat? Without literally maybe just moving your hand or your arm just a little bit on the keyboard? If you constantly remember that and remind yourself of that, and remind yourself that you’re in the greatest occupation that there is. You have no employees; you have none of all of the grief that goes with that, you don’t have to worry about real estate. In fact, you don’t have to worry about the economy like everybody else is worrying.
With trading, we can buy, we can sell, we can make money in either direction. Use all that for your enthusiasm, your motivation, but give up on the fact that it’s going to be like, Brian, like you mentioned this, you know plug-and-play easy thing that’s going to happen overnight. So, the whole idea behind Premier Trader University was to truly create, I should say, a curriculum. And we’ve modeled it after something that’s worked for eons with people, which is a college or a university. And that means taking people through from the prerequisites — making sure everybody has all the basics to the point where we go through what we call an undergraduate education right to picking your major, which means you do need to specialize. You need to specialize in Futures, you need to specialize in Forex or you need to specialize in Stock and Options. Eventually, can you double major and triple major? Of course, you can, but that’s advanced stuff, right? Most people are all over the place, so we’re going to force people to go through the basics, the undergraduate, choosing the major, and then what I’ll sort of call the advanced training. The beauty of it with Premier Trader University is the fact that we’re kind of forcing you to sort of kind of shake free a little bit of that paralysis. You really need to attend the classes. We expect you to attend just like in college. Hopefully, most of you actually attended your classes. You know, we want you to be engaged, we want you to be practicing, we want you to be, you know working in the markets, and there’s a lot of back and forth, and it’s truly an interactive experience. I just don’t think any more of that as a company like NetPicks, we can just sell people indicators and sell people systems and expect them to really kind of be able to make it work.
And I’m not saying that everybody listening right is necessarily lazy, but we actually do have a lot of lazy people out there. And mostly it’s because you’ve been kind of beaten down by your experiences before maybe finding us or, you know, really not going down. So, I think the real key is, the last thing I ever want to hear is, “It’s on the shelf and I’ve done nothing.” Because you know what, even if you have a bad system, you’d be amazed how much you can learn just by putting it to use, even if it’s just in demo or virtual. I’ve learned a ton on some really crappy approaches to trading, because it’s been the thing that’s inspired me to come up with, you know, fresh ideas. I mean, that’s really many times for me personally.
The difference-maker, I was reading a book recently, Brian. It was — it’s by an author called Brendon Bruchard or Burchard. It’s called ‘The Charge.” And it’s all about really motivation, and, you know I find in trading it’s not always easy to stay motivated, because, you know, I like to say, you know, I feel I’m successful in trading, but I have my share of losing trades, losing days, losing weeks, and you know, no matter how optimistic you are, it can beat you down. I mean, there’s just, there’s no question about it. And he talks about a formula that a lot of people just kind of get paralyzed with, and it’s pretty simple, it’s understand, perform, and master. And most people rarely get off of the understand part of the equation. I mean, I guess, once again since Brian talks to so many people, who are in that sort of learning phase. I mean, why do you think it is? Why do people get so paralyzed and don’t even get off that first step? You know, what is it? What happens?
Brian Short: Yeah. Mark, I would say fear is probably the biggest driving factor for the lack of success in traders. They’ll buy, you know, a new strategy. They might buy one of our strategies. And even though that strategy gives them an edge in the marketplace, they’ll experience a series of losing trades. And it’s amazing to me how easily a trader will throw out a methodology when you have two or three losing trades in a row. And that might be very normal for that strategy. It might be just a part of doing business, but yet the trader jumps to the next strategy that they might think will do better. And their — bottom line is there’s no way to avoid losses, and that’s probably one of the most difficult things in trading, is to accept loss, accept the fact that the method is wrong on that particular trade or series of trades. And so, it’s that’s a consistency, I think, that’s probably one of the driving factors why traders don’t have success. They just continually jump from one strategy to the next when they don’t get the success factor that they’re looking for.
Mark Soberman: I mean, I think that nails it then. I think, you know, if you guys are listening to this podcast, you have got to make a pledge to yourself that the next strategy, system, education you go through, you know, yeah, I hope it’s with PTU, which is Premier Trader University, but whatever it is make the commitment to fully be a hundred percent competent with that strategy. You have no idea if it’s going to work for you or not until you get to that level where you can say, “I’m a hundred percent confident with this approach, I fully understand it. If you don’t have that, you’ll never have confidence, and if you don’t have confidence in trading, it will never work for you. You’ll be nothing but somebody who’s loaded with stress and anxiety, and you’ll be that guy who’s always jumping out way too soon in the good trades, staying way too long in the bad trades, and you’ll be the one throwing away another system in the garbage. And you know why? That may have been the one that could have changed your life, but you will never know, because you did not stick with it and did not get to the point, where you’re fully 100 percent confident with it. Then you get to the point, where you start to perform. And, you know it takes me a while. I mean, when I’m trading a strategy, I’m not a hundred percent perfect with it because I’ve got to like sort of retrain my mind to turn it into a reflex, and you know that takes some time. You can‘t just read it in a book and immediately do it in the markets with complete reflex.
But with some practice and by being confident and by being confident, now I’m able to perform, and now I’m able to get to the point where I can actually master the strategy, and you know what, the anxiety starts to fade, the stress starts to fade, ah, you know, some of the crappy days, they still happen, but you’d be amazed how much easier it is to deal with those days by being empowered with this overall, and that’s why I think again, the education element is so important. We really kind of ignored that for really the whole history of the business, and even though, we felt we were educating and teaching, we always would say, “You know we’re gonna allow other people and other books and other experiences to sort of, you know, develop those skills for people and I will provide the great systems.” But what we realize is you’ve got to have a great system, but you also have to get a great education and you definitely have to have tremendous support and a real interactivity. And I think that’s what we’ve really done.
I think the other big thing that was sort of the breakthrough moment for us is we were working with some people, probably some of — probably even some of you, and you, guys, were super dedicated, putting in the time, working your butts off, but this became kind of your life and that’s all there was in your life, was trading. And I’ve gone down that road before too where this is all-consuming. Unfortunately, that’s not a healthy thing either. So, you know we decided to come up with something we call Lifestyle Trading. And you know, maybe, well, what is lifestyle trading? And that’s what I’m telling people now. I go, “I want you to now start telling people when they say, “Hey, what do you do? Don’t say you’re a day trader; don’t say you’re an investor, say, ‘I’m a lifestyle trader.” And a lifestyle trader is very simple. You trade for your living, you trade for your part-time income, you trade for your retirement, whatever the reasons are that you trade, but you balance it with your current lifestyle, and I hope, it actually improves your lifestyle, because the other thing I think we realized is we had some people, who are doing well, but all they were doing were trading and there was just massive burnout happening. You can’t trade Forex, the Asian session, the European session, the US session and do it for an unsustainable amount of time. I mean, Brian, I know you can speak for this first hand. I think we’ve talked about it briefly in another podcast, but remind us of what your life used to be like, trading Forex.
Brian Short: Yeah. Mark, it was a grind for me for three years. I would trade at the European sessions starting at 2 a.m. in the morning and going till about 4 a.m. Eastern Standard Time; that’s the prime time for the European session, and the problem with that is I would, you know, have a little bit of a break there, but then I would get up, you know at seven, for the day and do the normal business, and then repeat that all over again the next day. Well, that is not engaging the markets as a lifestyle trader, alright. It was really outside of what I would call my comfort zone and so it took three years, but at the end of that it was like, you know I need to trade when the market – when it’s convenient for me as a trader. And so, it was at that point that I started to trade Futures and engage the market for a couple of hours in the morning, get in, get out, get done. We used power of quitting. I used power of quitting in my trade plan, so that, on some days I’m potentially done in a few minutes literally. There are other days that it takes me the entire two hours. Yeah, that’s my story and for me, and I think, as traders, we’ve all kind of gone through that. We see the opportunity out there. We see, you know, the Forex markets 24 hours, five and a half days a week that it’s available. And it gets promoted sometimes by brokers that, you know, you can trade when you want, and you can to a degree, but rather than trade, you know, that entire 24 hours, find a slice of time that fits your lifestyle and fits into your schedule, so that, you know you can get in, get out of the market and have a profitable trading business.
Mark Soberman: Yeah. I mean, I think that kind of really nails it on the head too, because it’s interesting, we have a section here in the podcast that’ll be coming up where – and it will be due in here in a moment, and we call it kind of in good fun, “Tales from the Stupid,” and then also our Genius segment. And a lot of what you’re talking about there, Brian, at towards the end with, you know fitting your personality and your time of day actually is the messaging that I had for when I kind of considered the sort of the genius moment for me with my personal trading, because we get asked about what we trade quite a bit and why, you know, why we make those choices.
So I kind of, you know close this portion by saying, check out premiertraderuniversity.com. There’s a lot of neat stuff on there, some cool trading lessons, screenshots, we teach a lot of things, attend on one of the webinars if you want. You know, like I said there’s no obligation or anything like that. I just think, you know it’s something that you can learn more about it and learn about this style of education, this style of trading, it maybe literally the breakthrough that you’ve been looking for, but either way, it’s just worth checking out and seeing what you think overall. So, I think it’s probably a good point to move on to our next section, which we call “Tales from the Stupid.”
Mark Soberman: Alright Brian, so, I’m going to go ahead and kick this one off, and I’m going to talk about my Tale from the Stupid. And if you listened to the prior podcasts, usually we relay something we’ve done in our personal trading that, well, actually it probably turns out to be one of the dumber things we’ve done in a while and it almost always leads to losses, but you know what, as a trader, you learn from it and hopefully you don’t do it again, at least another 14 times. Maybe like 13 times, and you know you learn from it. But the thing that I was thinking about a little bit is since we’re talking about education and we do feel that we’re educators, we’re trainers, we have this knowledge base for being in this business for 17 years, and one of the things that in a way that I think is sort of some of stupidity on my side is I do feel a lot of pressure from our customer base to constantly cater to Forex traders. A lot of people have been sort of sold that, you know, the way you make money as an individual trader is Forex. And I’m not here to tell you that that’s not necessarily the case, but what I am here to tell you is that day trading Forex is one of the hardest things possible in trading. I meet and talk to very few people, who are doing it successfully, yet, we actually encounter a lot of people, who are able to get to the point of mastery on day trading Futures and certainly at swing trading Stocks and swing trading Options, we talked to a lot of people, who are actually doing that successfully. And I definitely run into and even train a lot more people to be successful swing trading Forex. But I think everybody feels like, “You know I wanna trade the EUR/USD or the GBP/JPY or the EUR/JPY, and I wanna day trade it and I wanna be in and out in 20 minutes.”
And as it turns out, one of probably the stupider things that I’ve think we’ve done is do our best to try to really satiate that demand and come up with things they could do. All kind of knowing – you know what; you’re really putting in way too much time in something that’s going to be extremely difficult to be successful. So, the thing that I’m really been focusing in a lot recently is if you’re a Forex person, I’m trying to get you to swing trade Forex and not to day trade Forex. If I could probably leave you with any advice from this podcast if you’re a Forex guy is stop trying to make money; day trading the spreads are no good, the scalping, the locked-up platforms, the news, so many things go wrong trying to day trade Forex that really don’t happen many times when you’re swing trading Forex, and also open your eyes a little bit to some opportunity that’s not in Forex. And I actually think there’s amazing opportunities on the Future side and even on Stock and Options. So, for me, and maybe it’s not a personal thing with my personal trading, because I don’t day trade Forex, I can tell that much, I swing trade it, but why don’t I? You may want to ask, and why don’t I if it’s easy? Would I be doing it? You know, the answer is yes. So, that’s mine. Brian, what about for you?
Brian Short: Well, mine actually comes from one of our students and members here at NetPicks, and so the moral of the story, I’m going to give you that first, and then I’m going to tell you what had happened for him. But, really what I would recommend you do as a trader is practice, practice, practice, okay? And what I mean by that, you’re going to, one, practice the methodology in real-time, in other words, identifying the trade setups and then taking those trade setups and putting them in to your platform to execute, whatever that platform might be. It could TradeStation, The Matrix, it could be NinjaTrader and their DOM; it might be another broker that you’re placing those trades into. The area I want to focus on in this particular conversation is the execution part with your broker. Make sure that you have practiced that process in a demo mode over and over again, and it becomes reflexive for you. And what I mean by that is it’s just automatic; you don’t have to sit there and think about it. What happened with this particular customer is he normally trades three to four contracts in crude oil, and on this particular day, by way of a single mis-key, he traded 15 contracts in one trade. Well, needless to say, that did not work out so well for him, and in fact, he was down significantly within just a few seconds by just a mis-key stroke, one single mis-key stroke.
So again, I – I go back to my point is as traders, this is a skill like any other skill you’re going to learn, you know if you become a doctor, you have to practice; if you’re a pilot, you don’t jump in the seat of a 747 or just takeoff, and I think too many traders today do exactly that. They get a shiny new strategy, and as soon they take the cover off of it, they’re trading it live, and that’s the wrong thing to do. So, practicing the demo mode is very important in the process. Make sure you have a good understanding of your methodology. Make sure more importantly in this particular story that you have a good understanding of your broker interface and how to execute trades.
Mark Soberman: Yeah. I think that’s a great point. It’s funny, because in the news recently when we’re doing this, there’s been several stories about these mistakes, and some of these have been multi-billion dollar mistakes that have been going on. So, granted, in this gentleman’s case, it wasn’t multi-billions, but at the same time he wasn’t a hugely rich corporation, who can maybe withstand that type of mistake. And it – you always think, well, you know maybe we may make those mistakes, surely a big company, you know, wouldn’t, but it just shows you how easy it is to kind of have that slipup. So, you know a great point. You can never practice enough. You can never be more careful in your trading, so, yeah, definitely a key thing. So, let’s talk a little bit about the flipside of this, which you know, we all do some dumb things, but we also do some really smart things, and that’s all about the Genius in trading.
[Voice over] Genius
Mark Soberman: So, for me, I mentioned, Brian, just a bit ago, you were talking a little bit about, you know, finding the things that fit for you. And really, that’s been probably the smartest thing that I’ve done. And I really encourage people, because we’ve been getting this question a lot in PTU, Premier Trader University is, well, “You know, Mark, Brian, etc., what market should I trade? I mean, you know I’m located in Australia,” or “I’m in the UK,” or “I’m in the US,” or “I’m in Canada.” And we start to tell people, “You know, you gotta look at several different things. You have to look at where you’re located, the size of your account. But you also have to look at your personality. You know what you’re going to, you know, really enjoy trading? You know what fits your style.” I’ve got people on the team here at NetPicks, who absolutely love slower pace, swing trading.
You know, I’ve realized in my life that’s not really me. I kind of am a bit of that instant gratification kind of person, so, I’ve tried to find some ways that I could balance that a little bit in my trading. So, you know I don’t want to do things wrong and end up with another “Tale from the Stupid,” but at the same time I have to understand, “Hey, this is who I am.” So, like when I tell people, “Look, you know I trade crude oil.” There’s a reason I trade crude oil. It moves quickly. It has really good leverage. It has a lot of trades in a short amount of time. I don’t have four hours a day to trade, because we’re running this business as well. You know I trade the DAX Futures, because I can again, I get all those good things, the leverage, the movement, the speed, and I can do it in some off hours.” You know, people sometimes go “Mark, why don’t you trade in the afternoons as well? Why don’t you trade the S&P E-mini? I mean it’s got all that volume?” Because it doesn’t fit my personality, it doesn’t fit time of day. I just mentioned Forex day trading; you know what, that doesn’t work for me. I don’t want to deal with it. I don’t want to sit there for three hours, which you need to sometimes when you day trade Forex, because it moves so slowly sometimes. But you know what, I could swing trade it. No problem. I don’t mind coming in at night and changing my stop and my targets and placing a buy stop. So, for me, that’s been the biggest thing that’s made the biggest difference in my trading, is realizing, I cannot trade everything. I don’t have to trade everything. I just need to focus in on the market. Even if it’s just one of the markets that fit me best. And I think that’s what you have to do as well. And my answer is not necessarily your answer. And too many people try to, you know follow maybe what we do exactly and then they realize it’s not for them. I don’t think, because I trade a certain market. Everybody should be trading a certain market.
The other thing is that I never think in my trading as it drives me crazy when people come to us and say this, “Mark, I wanna make $500 a day. Mark, I wanna make a thousand dollars a day.” I never view my trading in that context. So, I am trading, the market’s that work for me, the times of the day that work for me and I have absolutely zero expectations on a given day other than I’ll trade it correctly, and the odds will be in my favor that every trade will work, which means a lot of trades won’t, but the odds will be in my favor more times than not that something will enter, and favorably and I have absolutely no financial expectations that I’ve put on to the market. So, for me, that’s really been something that has been a breakthrough. How about for you, Brian?
Brian Short: Yeah. Mine comes from today actually, and in talking with one of the rooms that we do for PTU. We had a pretty good discussion about when to engage the market and when not to engage the market. And at the time of this podcast, it is July 3rd, so, tomorrow is a US holiday, July 4th. And to be honest, the price action this week has been really subdued. What we talked about this morning is, you know engage the market under your terms. If you are trading around or near a holiday, just understand that the market is probably not going to act the same as it does during normal business hours. And you just need to keep that in mind. I think too many traders are stubborn and they say, “I’m gonna plough through anyways and trade.” And you know what, you might do okay through it, but I think, in more time than not, there’s a lot of stress that comes from a very slow choppy market in that condition. We don’t have all the players up to the plate, so to speak, making trades. There are some, you know traders that are off during these times. So, my recommendation there is any time before and after a holiday, whether it’s in the US zone, the Euro zone, just beware of that, that the market probably is not going to operate the exact same way that it does under normal business terms. So, that’s my advice from today.
Mark Soberman: Yeah. It’s a great point. I mean I’m going to be honest. You know confession; I’m the worst at that. I, a lot of times, logically know I shouldn’t and I shouldn’t trade, and I force it anyway because there’s a little something that goes through my head, I don’t want to miss out. I don’t want to make that conscious decision to stand aside and then sure enough, that’s going to be the day that it would have been super easy and all three markets been a full target, etc. etc. So, what I learned and I could tell you what I did today, is for instance again, understanding my marketing personality. I know in the past I’ve looked at crude oil and it happens to typically move pretty good even on these sessions, where it’s a half day, you know, where the markets are closing early. So, I traded the crude oil, I got a full target out of it, but you better believe that I stopped at that point and I was done. I was very much ready also to exit that trade when it started to stall on its way to my target, because I’m like, like Brian mentioned I had a little different expectations on it today. Now it got there, but believe me, that stop was a much tighter than I would have made it on most days. What I did not do was the indexes like the Russell E-mini was in a slow-moving grind. It actually was in a trade that I could have what we call gotten in-sync with. I was like, “You know what, Mark, be smart here today.” This thing is going to keep grinding. It may eventually get to target, and I think it actually worked out, but it took like hours the same with the gold futures, which I like to trade sometimes. It just did not behave the same way. So, I think for once, I actually identified the markets that typically behave good in these situations, and I did stand aside like Brian mentioned, pretty happy for doing that. And you know it is something that you’ve got to develop that discipline. You know I’m not here telling you that it’s easy, because look I struggle with it as well, but it’s a great point, and it’s very timely for sure.
So, what we’d like to do at this point now is we’re going to go ahead and play for you a part of the interview that we did here recently with Richard Weissman. He’s the author of a really great trading book called “Trade Like a Casino: Find Your Edge, Manage Risk, and Win Like the House.” So, we’ve got a short part of the overall interview. And then of course, you can go to netpicks.com/interview to both signup for the next ones coming up in out Authors’ Series as well as back here for the full interview if it’s something that you really like to hear. So, with that, let me go ahead and we’ll switchover and we’ll hear my interview with Richard.
[Interview Portion]
Mark Soberman: Yeah. I think you also kind of add to that. I think you can say that, you know, you should add some trader intuition. Of course that comes with experience. You know at NetPicks, we always say it’s sort of the art of trading. We’d like to say we’ve got 90% mechanical and 10% is sort of the art of trading or I guess in your case, when you sort of discuss the intuition, because you make the point a little bit later in the book that while mechanical trading can be really quite robust, it does underperform the very best discretionary traders, but then you go on to say that, you know using mechanical systems is still the most reliable way to sort of turn negative to positive expectancies for most traders. So, I mean, it does seem like that’s the place to be definitely having that full rule set knowing what to do in every situation. I know in my personal trading, if I didn’t really have a rule for every situation, emotionally alone, anxiety, psychologically it would be really, really difficult, and then how do you get through the losing streaks, how do you even know, you know when to trail, when to exit out without those rules. But I think a lot of people, you know going into trading without all that defined, it’s kind of like we offered them one of our systems like the Seven Summits Trader, and it’s all spelled out for them, it’s still difficult to follow. You know, it’s still very hard for them to actually follow those rules.
Richard Weissman: Oh yeah.
Mark Soberman: Despite it being, you know, there’s a perfect road map that they should follow. I think still most people have a hard time doing that.
Richard Weissman: Yeah. In the book I outlined the three stages of a trader’s career assuming they stick with it. In the beginning, you know, unless you’re a market maker or you’re working for a commercial interest, just hedging, so, you’re equal and opposite in physical. The beginning stage of a career of a trader is losing money, and the key point is how do we get from the losing camp into the winning camp. Mechanical trading systems are the safest most reliable way of making that transition. Once you’ve transitioned into the winning camp, now you’re an intermediate stage trader where you have the ability to succeed, you have the confidence, and generally that confidence comes from a mechanical trading system and your ability to survive long term, and that is a great leap forward in trading.
A couple of the limitations to that stage in your career are that you just come from the world of losing and so you can be kind of gun-shy. You have the discipline where you’re going to continue to trade, but you’re not optimizing your opportunities because fresh in your mind was how easy it was to lose. So, the 1% rule can act as a double-edged sword. It can prevent you from becoming overleveraged, but it can also, when things are going well, force you to maximize the opportunities that are out there and at your access. The other thing about the intermediate stage in a trader’s career is that generally speaking, it will be accompanied by a single methodology or a single model that works. So, in other words, I think in the book I used the analogy of someone lost at sea struggling to survive in the open ocean, and suddenly they find a life raft, and that life raft is the mechanical trading system. And so, they cling to it like you are in death, because they know if they let go of that life raft, they’re going to be drowning in water again, but once an ocean liner comes along, you get rid of the life raft, because you have something more robust, and that’s the transition from intermediate to advanced stage, and that could be that the augmentation of let’s say you were unsuccessful, finally you find a model that works for you. It’s a trend following model and again, you cling to it like you’re in death.
But it’s very easy to become complacent and say, “Finally I’ve got something that works. I’m not going to touch. I’m not going to do anything. I’m just going to stick right here.” But growth and development as a trader entails expansion and thinking outside of the box and continuing to evolve as a trader. And so one of the ways that I found that successful in terms of getting something beyond that first inertia point as an intermediate trader is if you have found success as a trend follower, go on and move and accentuate that success by using counter-trend systems. And again, you know, in the beginning just start doing research on mechanical trading systems that are counter trends, and then as you get more confidence and you begin to see success, take it up to the 1% risk and suddenly now you have two tools at your access. And then finally, the real kind of foray into the, what I would call the advanced trader stage is where you’re able to augment all these mechanical systems of the trader intuition and that just comes from experience. You see enough data points. You get enough data points under your belt and I think in the book, I used the analogy of the horror movie that when you are right the first time you see The Exorcist, you don’t know what the hell’s going to happen and you know you’re scared out of your wits, and by the hundredth time you see it, you’re laughing, it’s a comedy, because you know exactly what’s going to happen and it loses all of its emotional charge. That’s the way trading is. Get enough data points under your belt, and you see the way markets react when they get some, you know overblown piece of news that they overreact to it and you get an intuition of, at the very least, take some off here, move my stop to breakeven, or potentially, you know, even be more aggressive and fade the action, you know, buy it itself and then stick — it’s a cliché.
Mark Soberman: Yeah, I was trying to think, here at NetPicks, like with our systems, I don’t think we have any, as I am sort of going through them in my mind that are just trend or just countertrend the way that I was thinking of through it. Everyone has both, because, same thing I just don’t want to think we can have any, you know, any kind of regular continued success if we had just one or there. Because it’s definitely extended periods of time where the market is just in an amazing trend, and if you have a trend-based system, you’re going to absolutely cleanup, but unfortunately, that always ends, and it starts to go sideways, whether you’re a day trader or a swing trader or a long-term trader. So, I mean, I’m a big proponent of that completely agree you have to have both. I think if you don’t, I think you’ll eventually. Even if you’re doing well now, I think eventually you’re going to end up losing at that point. There’s an interesting – a little bit later in the book as well, and it’s one of the rare issues I think it’s kind of rarely talked about and it was kind of funny, because recently I was looking at a sort of a managed trading site for Forex. And it was, you know, individuals were able to get into and choose from literally hundreds of different managers. It, you know, seemed like a really sleek idea. But I started going through some of the numbers and there definitely were some good managers, but there were a lot of people with very nice profits, but they had some pretty outrageous drawdowns. And so, you talk about this one ratio, and I’m not sure how many traders you can think about this, but its profit to maximum drawdown ratio. So, basically, taking the net profit to the drawdown, and of course, you want that to be as high as possible. I guess one question I would have is do you typically look at that ratio when you think about that as far as like annual profits, monthly profits, all-time profits, because obviously that ratio can get skewed quite a bit…
Richard Weissman: Right.
Mark Soberman: …based upon the timeframe that we are looking at, kind of what’s your take on that? I think it’s such an important number.
Richard Weissman: Yeah. The way I run it myself in my own trading journal is that I run it as two separate numbers. I run the monthly profit to maximum drawdown ratio, and then I also run a cumulative profit to maximum drawdown ratio, and so, on the monthly, you’re going to see the numbers varying quite a bit and, you know, you’ll have a different criteria of what is robust. You know like a 0.2 might even be robust on a given month, in general, you want to see, you know, “I’m sorry,” a 2.0 might even be robust. Generally, you want to see a like a 3 or a 3.5, but on the cumulative, that’s going to – once you have the maximum drawdown, that could be the maximum drawdown for years. And the profits will keep accumulating over time as you get more and more profitable months under your belt. So, there, depending on how long the timeframe is, you want to see some, some really strong numbers like sevens, eights, nines, even, you know, even higher in order to know that you’ve got something robust. So, the longer the timeframe, the higher that profit to maximum drawdown ratio should be. So, let’s say on a 10-year back test, you want to see numbers in the 7s, 8s, to say that it’s anything worthwhile, worth selling.
Mark Soberman: Yeah. I think that’s really critical, because when I was coming through and sort of analyzing some of these very, you know, overall bottom line positive results, it may be like, they would show like a monthly average of maybe $5000 and then the next drawdown, let’s say $10,000 saying like it’s, you know it’s horrible, but everybody gets taken in because then you would see it would say, “Okay, over the last year, they’ve made 242%. They’ve made a hundred thousand dollars on this size account.” then I went in and would look at the comments from the individuals, who are following let’s say this provider and there just left and right slamming the person if they caught it in that drawdown, but it’s kind of like I’m sort of thinking, “Wait a minute, the numbers were there for you; you already that that ratio could get very bad and very poor.” Yet the moment things go wrong, it’s, you know like a complaining session about how awful this is, but I think it’s because a lot of people don’t pay attention to that, you know kind of which you have P:MD, you know, profit to maximum drawdown. If you cannot handle the 0.5 like, you know, you were mentioning then you know you never should be trading that way. And I think, for most people, they shouldn’t touch really a system like that, because as much as you think you could be brave in front of it, you’re not going to be brave in front of that. It’s just once what you’re doing in real-time, you know, everything kind of gets thrown out the window.
Richard Weissman: Right. Yeah. I remember reading somewhere that someone did a study and found that 62% of all people are optimists, and it’s a tricky thing, because trading is – it’s kind of – it’s a backwards profession. Every other profession – confidence and optimism are seen as key, and trading is a balancing act. Simultaneously, you have to have confidence in your ability to develop a positive expectancy model, but on any particular trade, on every single trade, you have to be a pessimist. Every trade that you take, you have to think this is going to lose, and that’s what people don’t do. They think, “Oh, well, you know I don’t need to be successful in the long run as long as I can make a million dollars on this next trade.” But again, that next trade could be an absolute washout. So, it could be that it’s a positive expectancy model, but you’re not able to stick around long enough to enjoy the fruits of all that research, because you’re betting it all on the first trade.
Mark Soberman: Alright. So, that brings us to the end of the podcast. I appreciate you, guys, well having a lot of patience for us to get another issue, another version out at the podcast, but I actually think we touched on some really big issues here. I’ve got to believe you walk away with something here, some kind of eye opener, some motivations, some enthusiasm, maybe a behavior that you’ll be able to correct. You know, if you can walk away with one thing, I think that would be great from the time you spent with us here today. Just to kind of reiterate a few URLs for you, a few links, netpicks.com/podcast, certainly to see if you want to listen to any of our past podcasts, they are there as well or download, there’s iTunes and premiertraderuniversity.com – definitely go there, check that out as well, see what’s the latest and the greatest from myself and from Brian. So, again appreciate everybody being here. As always, feel free to contact us, send us your questions. If you have anything you’d like us to cover in the future podcast, we’d always love to hear from you. And we’ll do our best to include that. Brian, any closing comments for the folks.
Brian Short: No. It was good to get back at it again and look forward to the next one.
Mark Soberman: Super, and this time we promise we won’t wait this long in between. We’re not launching another university that much I know, anytime soon. So, we’ll get to you, guys, with another podcast in trade training and talk to you all soon.
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