An Overdue Recap & the Heroes Journey

You may have noticed that it's been awhile. Yep. You can probably also guess why. Yep, I had a tough time and tough times can drain the will to do anything out of you, especially if that means putting a glaring spot light on your mistakes. But, lets get to it.

With all the data that I had, I was absolutely certain that I had got this trading thing down. Then I went to trading real money and quickly realized that I had not had the grasp of it I thought I did. At a certain point I literally thought that maybe I had just gotten lucky, even though I had hundreds of trades to prove there was some positive edge there, and that I had found it. I even went back over all of those trades and added in realistic commissions to see where I stood afterward. Yep, still up massively over that period of time.

My wife has even went live lately and found herself having the exact same problem, and like me, now has a significant amount of trauma surrounding real money trading. It is not a problem that I would have thought I would deal with at this point, but that is where my journey has taken me thus far. We spend so much time building mental images of our future as if we can control every aspect of it. The reality is, at best we can control only ourselves and our choices about how to move forward when life presents it's will to us. Life is always the teacher, and there is no lesson we meet that there isn't something to learn or grow from. This trading thing has been a thorn in my side since I was 15, and I just turned 35. Thats 20 fucking years of journey that still has not found me consistently profiting with real, usable dollars.

But, something I have to share is that in the last year or so I have pushed harder than ever. I have gotten beaten down by the Goliath of depression so many times due to trading losses and confusion. I have felt the weight of that invisible giant's foot on my chest as it stares down to me and screams "GIVE UP!!". And as humorous as it sounds to put it this way, I feel like Neo from the matrix. Not yet the one who can stop bullets, but the one who is starting to believe. The one who has just been brutally murdered by his foe, only to take the impossible next breath. There are many times that I doubt. But those times they are increasingly accompanied by the immediate look down the other path. The road I have been down so many times before, that I know leads to a life I do not want. I have to ask myself often "Is this heartache really worth what I want?". While I would say logically every time "Of course",  my heart takes time to catch up. I'm really grateful that I named my trading venture "Never Give Up". I don't know where I would be without that one facet of all this. It has been like a totem for me. If I hadn't had that phrase printed out on my clothing to see everyday, I may not feel as compelled to keep going in the same way I am. Why would I say never give up? It sounds so damn obvious to anyone. You'll never achieve what you're striving for if you give up. But maybe the obvious part isn't the reason. If you never give up, yeah, maybe you will achieve your dreams, and maybe not, but you will become something along the way that you would never have become.

You know, I was just talking with my wife a few days ago about how I want to transform from someone who views these unwanted outcomes in my trading as devastating and depressing, as just another chance to improve and keep going. I want to have a powerful mind of a warrior. And really, I realized as I said it, that is exactly what I am becoming. It is the fight within ourselves to keep going in the face of failure and fear that sets all warriors apart from those who let their dreams die, as they return to the safety of mediocrity they know they never wanted. And you know what? It isn't even safety they go back to. Quite often it is just a hell they convince themselves is what they wanted, because they weren't one of the lucky ones.

I am the hero of my story. Fucking plain and simple. But I am tired of making declarations that I can do this. They do nothing but set up traps to fall into when they don't work out like my mind envisioned. The hero doesn't need to know exactly what's going to happen, or why, only that he will not give up until it is done. What is to be done? To take the next step, again and again.

I find that trading is a hyper-distilled and direct experience compared to most encounters in everyday, average life. I'll wager that most don't even realize what experience truly is. The saying that has been with me for so much of my life, (that "One man's trash is another man's treasure") speaks exactly to what even the most mundane experience is, which is the experience of reality through the filter of the mind. I argue that trading is the hyper-distilled version because the results are so immediate. It seems unfitting maybe, but the first parallel that came to my mind just now would be someone bashing their head into a brick wall. There is no one there making them do it, so the reasoning and results of that are entirely up to them. Just as it would seem insane to ram your head into a wall, it seems insane to just give your money away with the click of a button. But there are people that do both of those. Just look on YouTube for proof. The obvious question is, why are they doing that? It is because the filter of their mind presents reason to do so.  The problem, is that our nature is often so neglectful of considering variables that can protect us because we are so locked on with tunnel vision towards the reward.

In the grand accumulation of all my experience, the most accurate explanation I can surmise is that the failings of mankind are due to a lack of impulse control. We know sugary foods are horrible, but we do not control the impulse to ingest them. We know sedentary lifestyles are unhealthy, but we cannot overcome our impulses to remain stationary. We know that we cannot afford pregnancy, but we cannot overcome our impulse to experience those few seconds of bliss. We know we do not have the money, and that debt is financially crushing, yet we give in to the impulse to have what we want (and often do not need) right now. That very desire to have what we cannot afford, at the risk of financial ruin, is what has led this country to what will soon be a devastating correction.

I think the reason we cannot control our impulses is due to one very clear and dangerous fact. The effects of poor impulse control are almost always delayed. You don't instantly become overweight from a poor diet. You don't instantly become strong and fit from working out. You don't instantly have to care for an infant after the deed is done, and you don't instantly go bankrupt the moment you borrow money. If we received the logical outcomes immediately, far less people would make these decisions. You do however get an immediate response from bashing your head into a wall, which sadly might be the only reason more people don't do it. Unfortunately with trading, just like all the examples above, you can be rewarded in the short term for making boneheaded decisions. And as we know, that will likely keep people taking the risks.

There is something about trading real money, that nothing but trading real money can prepare you for. It is the true fear of loss that clouds our judgment, often causing us to take trades we should not be taking, then not to exit at a small loss while it is still small, and then hesitating to take the setup that would have resulted in an overall profit. While I have taken larger losses with real money, it has thankfully not been due to stubbornness and fear of a small loss. It has often been a result of my lack of knowledge with the platform.

Something I have suspected but not been able to arrive at clearly until recently until now, is the relationship between position size and volatility. I apologize if I have covered this already, but my mind is not so clear and I am just going to say it anyhow. Tim has always strongly advised against using leverage. I have found that I am really not all that comfortable trading $1,000 positions on the lower priced volatile stocks. They just move too fast and represent too much of a risk because of that. It is very easy to lose a lot of money on them, even though I am not using leverage. In fact, Tim recently released a video discussing the use of leverage and after watching it I added some comments that I thought were very appropriate.

"I completely agree with Tims warning, but there is a caveat that I think is important to mention. Tim is always talking about trading volatile stocks. You don't want to waste your time playing something that is not moving, because there is no opportunity in a stock that isn't moving. Leverage, can be used safely and effectively to synthetically amplify the volatility of a "slow moving" stock, such as twitter or something similar. To clarify, even though the stock might be moving slowly % wise, it may be moving comparably $/share wise (and offer an even tighter spread) than a lower priced stock may be. You still want to ideally trade a stock with a good catalyst, on higher than average volume, that has a good setup that will give you good risk to reward! Think about it: Suppose you have a $5,000 account and use a $1,000 position (333 shares) on a volatile low priced stock, of Lets say $3.00. Consider a high odds setup appears that sees you risking $.10 to make $.30-$.40. You take the trade and you lose $.10 or $33. No big deal. Lets say the same setup shows up on a $60 stock with the same $.10 risk to make $.30-$.40. Safely using 4 times leverage you size up to a $20k position (still 333 shares) and you lose the $.10 on the trade, or $33. Without leverage you would not have the opportunity to take that high odds setup. In that case leverage was not a danger. It is in the case where people lever up on low priced volatile stocks that extreme danger exists. You can get horrible fills and lose far more than you should ever lose! I personally don't like using even 20% of my account on low priced stocks for this very reason. Basically, these low priced stocks are so volatile that you actually need to use inverse leverage to trade them safely!"


I feel kind of slow for not realizing the concept of inverse leverage before making this comment, but I am glad to have made it so clear for myself. There is nothing wrong with leverage at all if it is risk adjusted leverage. Sticking to $1,000 positions for those volatile stocks may seem like a small size, but for my risk appetite it is just too much if a stock can move $.50 in a matter of seconds. It's not worth losing $50 so quickly. I am running out of time this morning, but I think that is a concept I would like to expound upon further in a post pretty soon here.

From Blindsight to Hindsight

What you are looking at is something that crossed my mind while talking to a friend the other day.

I said "Remember that 35 loss in a row post? I wonder how far away price actually moved since then..."

Well I looked it up today and sure enough, the very last trade from that post here was in fact the very last time the market was at that price since then, and it has moved 1,981 pips south... so... in the end because of this insane trend we have going on here, those 35 losers would have been nothing.

But, given that hindsight is worthless it also must be said that looking back at the past on a monthly chart shows ample reason to have taken profit. It makes sense that significant support from years back would be relevant to some degree, but we blew right through it.

In the end, although those loses would have easily been recouped by an insane amount, we can't bank on things like that happening. Regardless it gave me a laugh to look at :)

Friday afternoon chop

Established a zone that I intend to hold a good portion of next week.

Sideways chop gave me like 12 losers so that's a bummer. It's crazy to think that puts me down only 1.1% from equity highs of this morning... it feels like a lot of money but I guess it's not. That must mean my risk aversion and desire not to lose a lot of money is pretty large.







Back in the day I was trading with 10 times the risk I am now. Crazy. Have a great weekend!

Going out of Business

I'm kinda frustrated right now because it's 10:00 pm and I wasn't wanting to wake up until 1:50 am to leave for the morning. I am tired, and I am hungry, but most of all I know for a fact I wrote what I am about to say once already long ago and I simply can't for the life of me find it.

So, as I take small bites of my Chobani strawberry yogurt, I will knowingly not say what I am saying with nearly the awesomeness as I wrote so long ago.

So... How to accept losses. That is everyones main issue at one point or another. I have always been a metaphor guy. When I just don't get what is right in front of me, I ask for a comparison to something I already understand. It has not only helped me, it has been a main tool I have used for explaining things to people in my life.

What trading has taught me, is that life is indeed a trade. We are trading all the time, so really just about any trading related point can be paralleled into your "real" life and vice-versa. The basic principles the life and reality operate with transpose and cover every single thing in one way or another, you just have to find the way it uniquely fits. In this article I wrote, when I wrote it I never set out to explain how to accept losing, it was just something that made sense and came out of me without effort at all. That is the way all my good writing comes out.

My point was based upon (as they usually tend to be) asking a simple question to myself or the supposed reader. In this case the question was something like "If you own a business, does it bother you at all to buy products and raw materials in order to operate that business?"

For example, if you own a bakery; does buying flower, eggs and sugar depress you? Odds are, if you are capitalized enough that those purchases don't hurt your finances, or over-leverage your credit, you view those things as simply part of doing business. It would of course be something you would want to research to get the best quality you can for your money, but once that is accomplished it would seem pretty crazy to feel like shit about purchasing the raw goods that are going to allow you to make a profit in the first place right?

Rent, Insurance, Furniture, Raw goods, Advertising, perhaps even employees eventually- are all part of the cost of doing business. You can't operate your business without them, so you accept them.

Now in trading, as I've mentioned before everyone seeks out to avoid loss altogether quite tenaciously in the beginning... How much sense would it make for any other business owner to be convinced there was a way to make and sell goods at no cost to them whatsoever? I'll answer that for you: Zero sense.

You know how when you were a child and there were many nights you sat at the table because you just couldn't stand the thought of eating whatever it was that was on your plate? I'll bet some of you now love that very thing you hated don't you? Well, if so let me ask you "What has changed, You or the food?" Of course you! Your sensibilities have adapted over time. That's what our brains are surprisingly good at, adaptation and reprogramming. What I want you to start doing for your trading and for your life in general, is to work on not just accepting losses that you now hate, but try and see most of them as a cost of doing business and the only steps you can take to proceed to profitability. In business and in life, there are just about always strategies to minimize loss or waste by streamlining your process or ditching it for something more productive altogether, but its important not to focus on that too much in the beginning. Doing that can tunnel vision you into the wrong frame of mind for a long time, like that guy in the "By age 23" blog from a few posts back. He spent that entire blog trying to streamline the losses away...

In trading try and simply see your losing trades as the literal cost of making yourself available to the opportunities of the market. That is exactly what it is. As a baker, you can't sell donuts without buying the inventory to bake them, and as a trader you can't make a profit without buying the risk that the market can reward you on. You are literally buying risk with every trade. Thinking of it that way will keep your mind focused on the potential risks instead of the reward hypnotism that happens to so many traders. Most traders define their potential reward, but rarely seriously consider their risk and because they have no plan to manage risk they risk too much and their trading company goes out of business. So, start treating your trading as a business, and I don't mean patronize the idea either.

View your trading positions as inventory. Your products are your trades. They will sell like crazy at certain times of day, or certain market conditions where the crowds just move your product off the shelf so quickly you won't know what to do! Other times, you'll find yourself needing to take a loss on your product just to make room for something else that will sell better, something the market actually wants. No matter what you do, as long as you don't buy too much inventory of something, you'll never run the risk of going broke because you bought something you'll have to take at a loss.

Rule number one, is to survive. SURVIVE and time is on your side.

Once you have survived long enough, you will come to know the market on a more intimate level. You will become connected to it and it will have a way that it speaks to you. You will begin to sense when to stock your shelves and when not to. And trading aside, when you take a certain interest in your life deeply, you will also grow in understanding of yourself. But only if you take a deep and earnest interest in who you really are. Just like the markets will tell you things you couldn't see before, you'll be able to develop an honesty with yourself that shows you what's real about yourself. And in knowing yourself to the core you will also know others. Just like in trading, in regular human interactions we try to avoid losses. Getting hurt emotionally is something everyone avoids, but most don't understand that it's where the true growth and appreciation in life stem from. Learning how much to risk with your energy and emotions is something I don't think anyone starts out knowing about themselves, but with practice will come knowing and with knowing, confidence.

A confident life is led by two types of people. Total fools with no experience, and those who've taken the time to learn how they and life operate. First, lose the confidence of any kind that there is a way to live life without risk. There there is anything at all worthwhile without risk. Because there isn't, and if you have no confidence in life right now I urge you to ask yourself what you really want and start working towards that. And don't just answer that question in 10 seconds, take some serious time. And if  you honestly don't know, then just try something. Start moving in a direction, and if you don't like it fine you can change it, but for your sake start moving.

The only point in surviving in the first place, is to be able to continue risking.