This is the Hardest Part...

What's up, everyone? All right, so in today's episode, before I break down the trades from this morning, I want to touch on the topic that I think is really important. I've been noticing a lot of traders are struggling during this colder market. We're in a bit of a lukewarm market these past few weeks. And really the past few months, in fact, where we might have one day that's hot, we have a huge move, and we're like, all right, we're back. And then the next day, crickets. So, it's very hot, cold, hot, cold, hot, cold. And that makes it hard on the days when it's hot, you don't know if you should size up cuz yesterday was cold. And then on the days when it's cold, you're like, oh, I guess I should size up, yesterday was hot. You do, and then you go red. Then now you're red, you've broken the ice, you're struggling to get back to green, and the market's cold, it's a bad day to do it, and you've dug yourself a big hole. And so, I think this all stems from um well, a couple things. Number one, I mean, this is the market that we're in, like it or not. It's what we have right now. It is lukewarm. So, yes, would we all prefer to be trading in an epically hot market? Of course, but that's not today. So, we have to accept the current market we're in and adjust expectations accordingly. Number two, I think a big issue stems from our belief as traders that we need to be trading every single day. When I was a beginner trader, learning to trade, and I feel like I should be trading every single day, right? If I'm going to If this is going to be my job, and I'm going to be doing this instead of having a regular job, I can't just be sitting here twiddling my thumbs. I should be actively trading every day. But, we are we are traders, and so of course we're trading, but we're not trading just for the sake of trading. Right? What we really are at the at the very end of it, the sort of the If you sum it all up, what we are are hunters of volatility and managers of risk. We need volatility. We need stocks moving. If we don't stocks moving, we can't make money. But when it's moving, we also need to manage our risk. And when we manage our risk on a stock that's volatile, that's when we can do really well. And so, yes, we're trading to make that money, but we can only do it when we've got that combination of volatility and the ability to manage risk. And when the market's cooler, that's what we're lacking. There's fewer opportunities. And so, if you're trading just for the sake of trading, but there's not volatility, you're going to lose money. You're going to buy on the ask, you're selling the bid, you're going to lose between the spread, right? The broker doesn't care. The broker is making money whether you make money or lose money. But for us, there's no point in trading if you're not going to make money, right? So, if you knew today was going to be a red day yesterday, would you have showed up today? If you knew it was going to be a red day, the answer is no. You would not have showed up. There's no reason to sit come in if you know it's going to be red. Of course, we don't know if tomorrow will be a green day or red day. So, what we have to do is we have to look at how have I been performing, what kind of market are we in, and then we just sort of essentially use probability. What's the probability that tomorrow's going to be a big day? And so, I had a pretty strong feeling that today would be a slower day because it's Friday. It's the end of the week. Companies don't put out great headlines typically on a Friday. The market's also been colder. So, a lot of these companies, when the market is hot, they start just putting out tons of headlines. They're sort of fanning the flames. They're wanting to get traders excited about their stocks. They put out pepper out lots of headlines. But when the market's cold, they kind of all go quiet because they know that putting out headlines in a cold market it just falls on, you know, deaf ears. Nobody's going to pay attention to it, and so, it's for nothing. So, these companies are our strategic in their press release kind of strategy to put out headlines when they will get the most bang for the buck. So, it wouldn't surprise me. In fact, even right now, if some companies are holding off on those extra headlines and waiting until we get into a hotter market cycle. Now, these banks these companies work closely with investment banks, investment banks who kind of really have their ear to the ground and they know exactly what's going on in the market. And so, they're helping guide these companies of when to be, you know, putting out these PRs, when to try to make the most of the opportunity because a lot of these underwriters, these banks are also underwriting the company selling more shares on the open market. So, there's a whole sort of strategy there. And we can benefit from that in a bull market when everything's going up. And in a bear market, we have to be aware of these mechanisms and this sort of underlying structure of the market that's totally out of our control, but that we are subject to in terms of when it's hot, we benefit, when it's cold, it it hurts us. So, if we jump onto the screen share right here, I'm going to show you my P&L for the last 60 days. And what you can see here is that I had a a bump in the road, right? My bump in the road was right here at the beginning of April. The market going in, you know, March was already a bit colder. It was the same thing I've been saying where it was like a periodic hot day, then a lot of kind of slow days, a red day, really slow days, a red day, two hot days, and then right back to slow, and then a day I got stubborn. The The market was not hot on this day. I got stubborn. I got too aggressive, and I got smoked. Ended up buying like a 100,000 share position on a stock. I lost, you know, 50 cents a share. It was complete ly stupid. It was a bad decision. I did not manage my risk, and we didn't have volatility. I just got stubborn. And so, I took an unnecessary loss. And that was this drawdown right here. So, that set me back here, and how long did it take for me to get back to where I was? Right? I mean, it took like 3 weeks to slowly recover that loss. So, that momentary lapse of judgment cost me all of this time. So, I was fairly disciplined, you know, through this area here, and then I had sort of 2 days of loss of discipline, and then I regained discipline here. But, just those that little lapse cost me that much. And so, imagine you have one lapse, and then you're back to discipline for a week, and then you have another lapse, and then you're back to discipline for a week, and then another lapse. Because the lapses in judgment can be so costly. It can easily wipe out weeks of discipline trading. And that is a very challenging reality to being in the market. This right now is the hardest part about being a trader. The hardest part about being a trader is coping with loss and trading during cold markets, because it's not what we want. We want to be trading in hot markets, we want to be winning. So, when it's anything other than that, it's challenging. So, recognizing that right now is the hardest part, I hope will give you the strength to know that if you could just get through this, you can get to the other side. You don't get to enjoy the hot markets if you can't get through the cold markets. So, you've got to get through them, and that means right now batten down the hatches, reduce your share size, take money out of your account, don't allow yourself to make a mistake that could jeopardize your ability to participate in the next bull market. That is the most important thing. I want to be here when the market heats back up. The last thing you would want is to blow up your account the day before the market shifts, and we go into a bull market. So and you would say to yourself, "Wow, I can't believe I blew out right before things picked up." And also you would say to yourself, "Why was I taking that much risk when the market didn't really call for it? I was taking all this risk, but what did I really stand to gain?" In a bear market and it's not we're not in a bear market right now, but in a colder market, you can take risk, but you don't get a lot of reward for it and that's the problem. Because inevitably taking the risk, you will end up taking the loss because no one's right 100% of the time. So you keep taking risk, you keep taking risk, you're not getting much reward, you're not getting much reward and then inevitably you take the loss. So for me, what I am asking myself every day when I'm sitting down is are there stocks that meet my five pillars of stock selection? Five pillars of stock selection. These are the five common denominators that my big winners share. And it's not even just my big winners, but the my winners period share. And so if a stock doesn't meet at least four of the five common denominators, I shouldn't take a trade. Now those of you guys perhaps tuning in for the first time, I'll put a link in the description where you guys can download PDF of my stock selection criteria that breaks down those five pillars, goes into detail on technical analysis, gives you a candlestick worksheet so you can have all of those free resources that you guys can utilize in your trading. But for me, when I'm sitting down and this morning is a perfect example, I'm pulling up my scanners and I'm looking at stocks and I'm hunting for volatility. That's the first thing I'm doing. I'm looking for things that are moving. So this morning we had some volatility, but mostly on lower priced stocks as you can see right here. Two of them are under a dollar, this one's under $3. They've got combined over 200 million shares of volume, but these are cheaper stocks. Cheaper stocks typically trade in tighter ranges. AEHL, AIIO, TRAW. Now, TRAW had a catalyst um of advancing potential clinical candidates for treatment of hantavirus infections, which is obviously topical with this cruise ship that um there were a number of hantavirus infections. Um but to be honest, this also seems like one of those times where a company is jumping on a trending theme in hopes of generating interest for um you know, for the stock price. I'm not sure that it's actually something that's going to get a lot of widespread attention. Um you know, hantavirus is something that has been around, you know, for I don't know, forever, I guess, probably. Um it's it's something you can get from um from rodents. And so, does it pose the same risk as a respiratory, you know, a COVID-type of virus? And I think the answer um unequivocally is no, even though the um the death rate is very high. It's a terrible disease. There's no question about it, but I don't think that there's uh concern that this is going to turn into, you know, the next pandemic or something like that. So, this company is jumping on that bandwagon, but um but I looked at it, I could see the price was lower, I could see that the stock was already thickly traded. I was already a little bit suspicious of how meaningful this catalyst really is. And so, for me, I said, "This one's just not the one." And so, I sat down at 7:00. I looked at the scanners, and then I'm waiting for what? Breaking news. Breaking news would be the opportunity for a stock to suddenly pop up and become a good candidate because now it has volatility cuz of the catalyst, and we didn't get that. So, today was one of those days where, you know, 7:00 a.m., 7:30, 8:00, 8:30, 9:00, they all come and go without any breaking news. And so, I had to make the decision to just sit on my hands. And so, I took zero trades today. And this was absolutely the right move. If I had known that today was going to be a no trade day yesterday, then I wouldn't have come in today. But there's no way to know that. While the probability was a little higher that today could be a no trade day because yesterday was colder and because it's a Friday, I still show up. I show up every day because you just never know. I mean, we really only need one good catalyst and all of a sudden, as we saw on Monday with CNSP Pharmaceuticals, one good catalyst and suddenly a stock is going up 300%. I mean, this thing went from $2 to $10 a share. I'm up $46,000. So, you know, I'm in good shape right now on the month of May thanks to basically two stocks. Monday and then Wednesday. And so it doesn't take a lot. It just takes the discipline to save your ammo until you get that one good setup. And so this was on Monday, the 46,000. This was Tuesday, whatever. And then that was that was Wednesday. And then I had no trades Thursday. So now I'm sitting on the month of you know, May, whatever, only 3 days in or well, no, 5 days in now, but I'm already up $60,000 on the month. And I've taken a total of 13 trades. So, I mean, we could look at the accuracy this month. Let's see. My profit loss ratio will be good this month because my average winners have been big. Average winners 5,300, average losers 3,400. Profit loss ratio, I'm at 92% accuracy. That's awesome. Am I going to maintain that for the whole month? I don't know, but let's say let's say I did. Let's say I maintained 90% accuracy. If I if you knew that nine out of every 10 trades you took were going to be winners, you would start taking bigger size on all of those trades, right? That's logical. Because you would know, well, even if I have Well, let's say you do it over 100 trades. Over 100 trades, you're going to have 10 losers. So, even if I have 10 losers, I know that the rest of them are going to be winners, and so my accuracy alone is going to sustain me. It's going to carry me. The only way you can maintain high accuracy is if you maintain a high quality standard. So, focusing on trading the best setups. Trade the best, leave the rest. Now, again, I will say that when the market is a little bit um is a little bit hotter, I do take a different approach when it comes to quality. So, I'm just turning on my whiteboard camera here so I can just show you um right here on the whiteboard. So, I have this um there's an interesting pattern with trading that I'm going to draw out. So, let's see. So, how do we do this? Um we're going to do let's see. So, we're going to just going to do a chart like this. Um So, we're going to do profitability. Um and then So, total money made is going to be on this side, and then this is going to be well, no, so that's going to be more money is up here, and then quality quantity of trades. See See, the thing is um if you So, we could do we could do quality. I don't know if this is the best way to do this, but we're going to do um A B C quality, and then well, I I If you trade D quality setups, you're really asking to lose money. Um so, let's say in a um when I'm trading A quality setups, I'm going to do I'm going to do two blue and then red. So, blue is going to be cold market. So, A quality setup in blue market, uh let's see, A-quality setup here is going to produce, you know, let's say this amount of profitability. Actually, let's do let's switch this to accuracy. So, this is accuracy and that's going to be 90% right up there. That's 100. Okay. So, in a B B-quality setups, let's say are going to be around So, this was 90, this is going to be around 80. C-quality setups, you know, kind of drop quickly. This isn't to scale, but to maybe like 60%. Now, in a hot market you trade A-quality setups and all of a sudden in a hot market, you're at like 95%. So, hot market's even better. 90% right here. And here might be like 80%. And so, in a really hot market, you might be able to get away this might be 60%. You might be able to get away with trading lower quality setups. In a really hot market, but when the market cools off, you have to cut them out. So, the result is that when we're in a really hot market, you can increase the total quantity of trades because you can introduce some lower quality setups, but because the overall market is so hot, they still perform at above average accuracy just because the overall tailwind that you benefit from in a bullish market. But, right now we are not in a really bullish market for small cap trading. So, what we've noticed is that the accuracy even on A-quality setups has declined a bit. So, accuracy goes down and it's gone down so much in fact that I really can't trade C-quality setups right now because I'm not making enough on them to feel that it's worth taking the risk. And so, and these accuracies might even be a little high. I mean, yes, I'm at 92% for this week, but you know, maybe in a colder market that's more like 80 and that's more like 70 and something like that. Um, so the result here is you really have one of two Yeah, you you can you have a fork in the road. And when you have this fork in the road, you can go one of two ways. So, number one, path number one is trade less. Number two is, you know, muscle through. So, if you're going to muscle through, basically what you're saying is I'm just going to keep pushing. >> [laughter] >> And I'm going to keep trading the same amount. I'm going to keep trading the same share size. And I'm just going to muscle through this thing. I'm going to you know, it's just brute force. So, this is um, you know, brain and brawn here. If you try to muscle through, what you will notice is during the colder market, accuracy goes down, profit loss ratio goes down, and total profitability also goes down. But what also happens is that your equity curve, instead of looking, you know, like this, starts to look like this, where you're starting to you start to go sideways. And so a lot of times people who muscle through, they end up going sideways, or worse, they're actually going, you know, they're going uh, down slightly. So, they're actually losing money. And yes, they're showing up every day, they're trading every single day, but they're struggling. On the other hand, and so that then produces a loss of confidence and creates a a feeling of desperation, disappointment. On the other hand, trading less. This is brain. This is discipline. This is where you're really thinking I my job here is to manage risk. My job is to hunt for volatility. My job is not just to trade and to punch keys. It's to make money. And so what ends up happening is instead of this, which is your typical hot market, you end up uh, kind of more like this. You're still steady. So, you're trading less, and you still have some red days in there. However, you're still maintaining high levels of accuracy. The way you maintain the high level of accuracy is by maintaining your A+ quality standard, the high quality standard. So, your profit loss ratio probably does come down a little bit cuz you're not having as big of winners. So, the profit loss ratio declines, but your and your accuracy might decline a little bit, but not as much as if you were muscling through and just still trading everything that's moving. And so, the net result here is that you survive. You got through the storm. And when you get to the other side of the storm, you're not in a drawdown. You haven't been beaten up, you haven't taken a lot of damage, right? You survived, you got through. In fact, you even made a little bit of progress. And so, when things start to clear, you're just hitting the ground running and all of a sudden you start to pull away. This is the way to trade. And this is counter to what many people will do. Many people get stubborn, they muscle through, they say, "I'm a trader, so I need to be punching the keys every single day. I'm going to be trading a mix of all of my setups even though some of them are really not working well in the cold market, and I'm just going to muscle through." Muscling through is not the solution to a cold market. So, I'm going to re- reiterate again uh this book, The Power of Knowing When to Walk Away. If you want some reading over the weekend, listen to it on audiotape. This is a great book. It talks about it it and goes into a lot of depth about the psychology of what we're discussing now. Um I will say that this this also talks about knowing when to walk away on a much grander scale, not just like on on any individual day. But, I think the concept um you can carry through and apply on an day. So, my feeling with uh this current market is that while it is difficult and I it's not fun. I'm I'm I'm reassured by the fact that this is the hardest part right now of being a trader and I'm getting through it. I'm surviving. The colder markets are hard. I've had cold years and I'm really fortunate right now that I'm in a good position on the year. You know, I haven't always I mean I haven't always been in such a good position on the year. So, year-to-date right now it's May 8th and I'm sitting at let's see $868,000. I funded my account this year with a hundred grand. I had a hundred thousand dollars in my account at the beginning of the year. So, my account right now has, you know, $968,000 something like that, right? So, 868 plus 100. And so, my account's up 9x so far this year. My accuracy is 70%. My profit loss ratio is decent. Yes, I've had a couple big losses where I lost control lost composure. But I've had some really solid winners and at the end of the day I'm making good progress. Where was I last year at this time? Last year at this time I was at 1.5 million dollars on the year. 72% accuracy. I had taken a total of 1300 trades. So, again, we're going to switch that back to year-to-date. How many trades have I taken this year? 437. I've taken fewer trades. Accuracy is maintained. Right? Profit loss ratio is actually the average winners are a little bit bigger thanks in part to this big win. Um but the total quantity of trades is lower. So, that to me is is it's out of my control how many opportunities the market presents to us. What's in my control is whether I reduce my quality standard to trade everything that's moving or if I hold tight and firm and say I'm only going to trade the best quality setups. And more than not, I am sticking with that. That is how I'm surviving this colder market. And when things start to heat up, well, my account's at all-time highs. I'll be able to hit the ground running, right? I'm ready to size up. I've got almost a million dollars of buying power in my account. You know, we see a $5 stock that's starting to look really good. I could trade that with big size. I could buy 100,000 shares of some of these stocks. So, I can be aggressive when the time comes. I just have to bide my time. I have to be patient. So, I encourage you guys to spend the weekend thinking about how this coming week you can focus on waiting for the best quality setups and not overtrading the junk that for many of us becomes a distraction and then an unnecessary source of loss. So, that's it for me today. Thank you guys, as always, for tuning in. I'll put a couple more episodes, um, right here at the end of this, uh, one you guys can check out if you'd like to watch more. And I'll remind you, as always, that trading is risky and my results aren't typical. So, manage your risk, take it slow, and I'll see you bright and early on Monday morning at 7:00 a.m.