259: Lukas Frohlich - Executing Agenda Trading Strategy for Stratospheric Returns | Chat With Traders

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The work that you did yesterday on your review, you might not feel that impact until two months from now.

And by then you will forget that it was that work that actually made it happen.

So it's the sum of all the work you did last year that's gonna add up this year almost.

So I think that's a major thing.

And that's really what shifted my training from unprofitable to profitable as well.

It was that understanding that I need to run my training like a business.

Markets, speculation, and risk.

This is the Chat with Traders podcast.

Yes, this is the Chat with Traders podcast.

I'm Tessa and we're on episode 259.

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Many of you are traders in different stages of the trading journey from the novice and beginner to the developing and seasoned to the veteran traders.

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Now, without further ado, I am so happy to introduce our next guest today.

His name is Lucas Froelich, best known as the Short Bear, and he speaks with our host, Ian Cox.

Lucas came from humble beginnings without formal education, mentorship, or financial resources when he discovered his passion for the financial markets at the tender age of 13.

Saving everything he could from jobs, he started trading before he could even legally drive a car.

He created YouTube and Twitter accounts to share strategies, victories, and defeats to help fellow traders improve their game.

Obsessed with learning from mistakes, understanding gains and improving his process led to just outrageous gains in 2020 with his agenda trading and quantitative pyramiding strategies.

The changing market conditions propelled Lucas into innovating new strategies quite different from what he started out with.

His focus, dedication, and discipline for self -improvement allowed him to branch out into new business areas, helping others that go beyond just the trading world.

Ladies and gentlemen, we are so pleased to present Lucas Froelich from the Jersey Channel Islands.

Well, Lucas, welcome to Chat with Traders.

Thank you for having me.

So where did you grow up?

I grew up in France first and then during the financial crisis, me and my family moved to Germany.

And that's where I stayed until 2020.

And then I moved to the Cayman Islands.

And then from there, I think at the end of 2021, I moved to Jersey Channel Islands.

I grew up kind of all over a place.

There's a lot of different things I experienced throughout time that kind of shaped me as a trader.

So what made you choose Jersey Islands?

It's just, I wanted to be closer to my family.

Cayman's was very far away.

It's an awesome island, don't get me wrong, but it's just over 2020 and 21, I was just working nonstop pretty much from 6 a .m.

until 9. And I got into just bad habits with my health almost.

So it was all about trading and I just performed during that time.

And it takes a toll on you after some time.

So I just decided that it would be better for me to just be closer to my family and just put myself in almost another environment.

Yeah, that's how it evolved.

Oh, yeah. So how old were you when you were first attracted to the financial markets?

I was 13 back then.

So I was fairly young.

It sure didn't feel that way back then, but looking back, yeah, it was quite young, 13.

And then it just evolved into pretty much kind of a passion.

Back then, it was more interest and then it just evolved a lot over the years.

Did you have any kind of friends or family that was into the financial markets that helped attract you into it?

Or do you have any kind of early interest?

No, not really. My dad is an engineer.

He works with metals and then my mom is in just normal retail nowadays.

So very different fields.

I think the influence that got me into trading was more from school back then and not directly, more indirectly.

So when I moved from France to Germany, I was not good at school.

Don't get me wrong.

In France, I wasn't the best either.

I just had other interests dreaming just a bit, but the teachers told me I wouldn't make it in school.

That's kind of the message I got over the years.

And I just thought, well, if I can't make it in school, I'll just make it making money.

So it really much started like that.

A naive type of approach to the markets.

When you type just into Google, ways to make money trading is pretty much the first one to come.

Of course, a lot of the time, just through pure scams, but I kind of started trading from there and saw that I was getting better and better and better, even though it took a long time for me to be profitable, I'll say.

But you noticed the growth.

And I think that growth really kind of led me to sticking with it.

So when did you first start trading and what kind of stocks and strategies did you focus on prior to 2020?

2013 is when I started trading.

So right when I heard about it, I just jumped into it without a type of prep or anything, which was not a great idea, but at the same time, it allowed me to kind of get the mistakes out of the way right away.

So I was trading Forex back then, by the way.

It was the easiest account for me to open.

So my parents opened it up.

They didn't necessarily, I think, understand the full risk of me trading Forex.

And I was trading on that with a lot of leverage as well.

So I think it was 100X to 400X.

So a lot, a lot of leverage.

Just yeah, you were able to blow up an account within a day.

I actually remember one time when I went into a DAX future.

So it's the German stock index.

Trade overnight with the leverage and to start gapped up 2%.

And I lost more than my entire account.

So I had early lessons with leverage and just risk in general.

Wow, so you were trading since 2013.

And what kind of early weaknesses did you encounter in your trading and psychology other than being highly over leveraged?

Well, I think I had just no plan whatsoever.

I think when you start, you go down the rabbit hole of technical analysis, breakouts, breakdowns, kind of channels and all of that stuff.

And you start trading in on any type of timeframe, any type of chart, any type of stock or in this case, asset class, you almost get lost in how easy it is.

But that's kind of all fake as we know in the markets.

It's not that easy.

You can't just buy a breakout every time and expect it to work.

So I think that was kind of the earliest mistake kind of being naive on that side.

And then of course, risk management with the size which we just talked about before.

And then I think not having a type of routine or anything like that, just randomly starting throughout the day.

So I might not be able to trade the open, but I'd come at like 6 p .m.

Just trade one thing quickly, even though I didn't have time.

So it was not seeing trading as a business, more just a quick way to make money.

And then through it, so forgetting everything that doesn't go hand in hand with a business type of approach to the markets.

How are you impacted psychologically from these early losses?

It seems like you just started again and again, and how are you?

Pretty much, I mean, nowadays looking back, I'm actually surprised I didn't stop trading because of the pain I felt back then.

Specifically when I tell people, I started with accounts like in between, I think it was a thousand bucks, a thousand type hundred or something, like Thérieu Lyon, and then I refunded it with $500, $1 ,000.

Like after months of work by the way, it wasn't just all I have for money, let's refund it.

I think it was destructive.

Like I thought I lost that money and just money in general forever.

I thought I wouldn't have anything left.

That was the feeling I got back then, kind of, oh, this is the end of my life type of deal.

But I think it just makes you stronger and stronger.

I think the only way to truly learn is really through big mistakes and just big negative events almost.

Those are like the biggest lessons.

I think it's something probably that most people just in general, no matter the level, might not appreciate enough.

I think losses are just, it's like taking a step back in order to gain more momentum to be able to jump like three stairs higher or something like that.

It's just, it really helps you to grow down the line.

And so I think back then, I didn't understand that necessarily, but all of those blowups had a specific reason.

So might be risk management for one, then not having a strategy for a second one, then not understanding specific risks.

It's just every single loss that had a reason.

And I think that was great because I didn't have a lot of money to lose.

I think if I started later in life, I might've had more money and I would have made the same mistakes just with more money.

So I think starting early was actually a good thing because I think my brain was also evolving as well.

So I think some lessons are easier to learn when you're younger and you just get molded almost into a trader when you start early enough.

So with each blowup of your account, did you feel like you were making some progress cause you felt like you were learning along the way and that helped to want to keep you in the game?

Exactly, I think it's the growth of it.

So I noticed it after far more, but I think even as I went through it, every single time that I blew up, every single time I made a mistake, that type of growth where I was like, I can pinpoint what I did wrong.

That's kind of what kept me in the game.

I saw kind of the light at the end of the tunnel and became just bigger and bigger as I evolved.

And it's seeing it and knowing all the way that you just made through the tunnel already that kind of keeps you in the game until you finally make it to the other side.

So let's jump to the year 2020.

In 2020, your monthly performance, according to the audited performance report you sent me, explodes in a spectacular fashion with your January 2020 return at 127%, even while the S &P 500 changed by less than half a percent.

What were the catalysts for your sudden outperformance?

I think there's two aspects to this.

I think a lot of traders, first of all, made a lot of money in 2020, but don't necessarily understand why it even happened.

So I think the first one is, of course, the years of just work prior going into it, that was a big part of what made that happen.

So just being kind of ready almost for a good market to arrive and having learned all the lessons before, that was a big part of what made 2020 happen.

And I think prior to it, I remember, I went on vacation just before the market started crashing.

And I told traders, so I'm in a few private rooms with other traders.

And I told those traders, I think we might be in for a few years of pain here.

Like, I don't see how the market crashing could be good for us.

And what I failed to understand back then, back then, I didn't really know about economics or any type of liquidity driven by the Fed.

And so, naively, I just thought, okay, we're kind of done.

But what happened then is they started to, as people might call it, print money.

So they started QE, quantitative easing, and money started flowing in.

And what it meant, so specifically, because we were at zero rates, was that smaller, unprofitable companies had a lot more money available to them to raise.

So a lot of the companies that didn't have cash, they started to pump up the price of their stocks, for example.

So they gapped it up, or they started to play around with their stock.

With news or anything else, people would buy it up.

And the way I made a lot of money was just understanding SCC findings, understanding when companies needed to raise.

And that gave me the confidence to understand, so the agenda of a specific move.

Why would this move up?

Why would they do this?

How far could we go?

Where do I meet sellers?

And then understanding through data as well, because I track a lot of my data and setups, understand the expectancy of the move.

So we went from having average fades of maybe, so when I went short, because I'm primarily a short seller, or I was, at least, when moves prior would be maybe 15%.

So if 15 % fade, they would end up being now 40%, 50%.

The liquidity was insane.

We went from trading maybe 20 million per day, so 20 million shares to all of a sudden trading hundreds of millions.

So it just allowed for bigger gains.

And then on top of it, we had more stocks.

So we went from maybe one stock every second day to three stocks per day.

So it was more hits over and over and over again, bigger wins.

And then on top of it, I could really size up because the liquidity was insane.

That's kind of, yeah, those things together really made for drastic gains.

And then I also have an approach that I started, which was permitting, which is, I think, what most people might know me as, so a permitting trader on Twitter.

It's just the way I traded was, I understood the stocks had a lot of range, but once they actually put in their high -up date, they would fade a lot and they would fade continuously into the close.

And so what I would do is, I would start in at a likely level that I had from just my data.

And if it didn't work, I would cut that size right away.

So I might take whatever, $10 ,000 loss or whatever.

And then I would take maybe two or three of those cuts on the way up.

But what would happen is, once I had that final entry and we actually started to fade, I would add to my position and add just enough size so that my average would align with prior structure.

And I would just keep on adding on the way down, just moving my stock to an area where if that stock was hit, I just knew the trade was gone anyways.

So it allowed me to stay in all the good trades.

And every time I would win, I would win so much more than stopping out just before.

And it would just end up being very consistent over time.

I see. So as the stock is moving in your favor downward because you're shorting these stocks, you would take that additional equity that you're gaining from the stock declining in value to add to that position and or open up new short positions?

So it's all within one stock.

So if there's three stocks during one day, I might do the same strategy around all three, but I won't choose open profit from one trade to find another one.

So yeah, so I would see the stock go down.

I would see my open profit in a sense.

And I wouldn't see it as profit until I closed out the position.

But what it allowed me to do is as the stock was moving down, just the first entry was so unlikely to get it at some point that I could move my stop down.

And so rather than to say, okay, I locked in open profits, I would use that open profit to really add more into the position and I would move down the stop so that the ads I would add to a position would amount to a bigger win while not decreasing my odds of that fade in general.

In March of 2020, you achieved a mind boggling 676 % return.

And many listeners would love to know, how is this possible, especially in the context of March was pretty much a down month, as I remember.

And this was before the major QE money printing got started.

And so how were you able to do that in that month?

I mean, were there so many companies that were trying to raise money?

Yes, I think there might have been.

The only way that I can make sense of the action that we got, the amount of action, was I think a lot of companies saw the crash, saw COVID, and they just thought, if we don't raise now, if we don't move the stock, we won't be able to raise at all over the next potentially years.

So I think a lot of companies start the just the, it's also the crappiest companies, the companies that have the smallest amount of cash.

I think all of those started to rush towards diluting their shareholders or at least preparing for an offering.

And so it created a lot of opportunities.

I think it's that, but I also think it's, I started off with a good performance from the get -go and I thought, I have all this cash now.

I can use it to actually really press now.

Whereas before, I might not have had that type of year and I would think, let's take it more conservatively.

Whereas then I was more thinking, okay, I'm already here.

Let's see what can actually happen now.

And let's try to see what I can do.

So I had a lot of reps by then, basically.

So that allowed me to really go for it.

What was your process for identifying and creating the trading setups?

I think there's two ways to create setups in general.

I think one comes through seeing other traders, which is why I find it so important specifically for developing traders to be on social spaces.

So be it Twitter or discord or even physically with other traders.

I think being around traders just allows you to see a lot more different approaches to the market and kind of almost try them out, but even without incurring the risk yourself.

So you see others being successful at different things and you might really like something that someone's doing or you might really dislike what someone else is doing.

And so it creates this constant flow of ideas that you can see.

So I think through time, you wanna just create an environment where you have a lot of success around you and a lot of successful traders to get ideas from.

So that's one. Another one comes just through time and through trading.

So the more you trade, the more mistakes you make.

And it's funny how that works, but you're gonna start to see patterns within the way you stop out.

So it might be something like we talked about, the breakout that continues to fail.

Every time I get long, this fails, that's the idea behind it.

So you start to go, wait a second, if I enter those positions and I lose 80 % of the time, why don't I just short those or at least find a way to be able to take advantage of that skew?

So trading in general is very much about being aware and being hyper aware of skews.

So when something happens often, is it something that's just seasonal?

Is it a pattern over time or is it just random?

So I think that's super important in general.

It needs to be there constantly in trading.

How did you define and refine them to increase their effectiveness?

Okay, so refining then comes from, so the first one is getting the idea of course, and then the second one is understanding what actually a setup is in general.

The way in my mind a setup is validated as something that's not random is creating a bucket for it.

And the way I like to put it is, you need to be able to create a scan in order to only see those plays.

That's when you know you actually have an edge.

If you can't do that, if you can't pinpoint exactly what makes that trade a viable trade, and you can just get rid of all the rest that's random, you won't be able to trade them.

So that's the first step.

So creating some type of bucket so you see only those.

That then creates an, you can create an expectancy based on that.

So what's the average high update from the open?

What's the average move from the open until the close or until the low update?

What's the average move from the high update to the low update?

Or vice versa for long.

So those are your data points.

And then you wanna create kind of the median or average move for that stock.

And so if you had a hundred different stocks, there are not random that you could track and you have that bucket, you can create an expectancy for the move.

So it creates an average chart.

And that's the way you wanna trade the setup.

And the way you then create your stocks and you create your profit target and everything is based on those points.

And then specifically the stop is based on the divergence from that average move.

That's the way I like to think about it.

So I wanna trade an average pattern and I wanna know when I'm actually wrong.

So when does an average setup become a loser?

And that's the point I wanna stop out at.

And then the way I wanna enter is potentially like the average high update for example, like this is where we usually top out and then we go to the low update.

So where's the average low update?

So it's about asking the right questions.

And then once you know that, the only way to truly refine it from there is a pyramid.

So it's how do you actually add to this position without reducing my odds of this trade working?

So you're looking at this in a quantitative fashion for each individual stock or stocks within a certain sector or types of stocks like small caps versus large caps or what?

So I'll say the quantitative side is specifically great for small caps because I think they're overseen by many bigger institutions.

So I think the edge is the less the big players look at something the better it is for you to find inefficiencies, that's one.

So I'll look at specific strategy buckets.

That's one type of auto one.

So the average move this stock is gonna do.

And then I'll look at stock specific odds as well.

So if this stock, for example, moved before.

So if I had this specific setup, and I can pinpoint it, I can pinpoint it throughout time, so throughout history.

If I saw this setup show up seven times on this stock, how did it react on this specific stock?

A lot of the times stocks get moved by the same people.

So it's usually gotta be the underwriter of an offering that kind of moves the stock and make some volume happen for the offering to be successful.

And so they're gonna move it in the same manner.

So I combine the odds of the setup as well as the odds of a specific stock in order to form the overall odds and the overall expectancy of the trade.

And that's very much what gives me the confidence to go after it and really size up.

So that's one. And then for the other setups, so I trade multiple setups, I trade small caps is what people know me for.

So that's what I'm focusing on here, but I also trade mid cap swing longs, which are great for momentum markets and where the liquidity is really there.

So that's what you saw from, I think you had Christian Paul Amaghi as well on the podcast, that type of strategy.

So really playing the longs, which works great within Bubbles, but afterwards it's very complicated to actually make very successful.

And then I also have big cap swing longs, which would be more based on moving averages and trends and level re -claims.

It's more, it's understanding how the market makers work and then really building a trend on it.

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So in 2020, were you almost exclusively concentrated on small caps and specifically shorting them?

Yes, so the first part, yes.

So I think the thing that was specific back then as well as the volume was so big, like a billion shares per day for some names, that if you move the dollar on a billion shares and you even got 500 ,000 shares or 700 ,000 shares, you can make almost a million per day.

Happened a couple of times as well, but it's just the liquidity was so insane that there was no need for it to sell you anything else.

And then as the account grew, I still wanted to maintain, my main goal was percentage growth, not dollar growth in general.

I wanted to be able to continue to grow.

And I think that's my motivation in life, just in general, is being able to continue to grow as I think we all kind of feel, be it the money or personal life or anything.

And it turned into mid -cap swing longs over the second part, third part, just because you had stocks trading 70 million shares, just moving 30, $40 at times over a few days.

And it made for just the amount of money that you could make during those times was insane.

Nothing like what we see there.

So what do you think were the drivers behind the explosion and volume for the small caps?

Cause you mentioned that, did the institutions jump into the small caps at that time?

And if not, what were the drivers for the sudden interest in these no -name stocks?

So I think we had the checks coming in.

So I think there was a lot of retail traders.

It was the perfect storm basically, it was we got the QE, we got easier money, which made raising money easier, which meant the crappiest stocks were able to actually really gap up and really fade.

And then on top of it, we had the most amount of new newbie players coming into the market through just stimulus checks that everyone got.

So everyone that got their thousand dollar check or whatever the check was back then just came into the space.

So it was the biggest moves and the people you were playing against were the most, yeah, just the newbies.

So it allowed really for, I think the combination of both was really what made it happen.

Not one thing, I just think everything came together perfectly and the expectancy wasn't there either.

So it wasn't like, oh, we're gonna have a great time.

The expectancy was more, we're gonna have a crappy time.

So I think it's like those parts, it just, it came into a perfect storm.

So do you look at institutional ownership as a percentage of the shares outstanding?

And if so, at what level do you avoid getting into a small cap when the institutional ownership is above a certain level?

I used to look at that a lot.

I don't anymore, to be completely honest.

I think the only space where it matters might be biotech a lot.

So I think the crappiest biotechs, just you won't have institutional ownership, like not a super high one just because they don't trust the stock necessarily.

Whereas very effective ones, so very, let's say good companies in general with a track record, they're gonna have a higher institutional ownership.

And so the institutional ownership, it's not because I'm playing against those players that I won't like it, but it's more, we trust this specific company to grow.

And so it's not as crappy of a company as I might think it is, which then means I might not get the fade that I'm looking for or to move in general, I'm looking for.

Mm -hmm. So according to your audited performance report, it shows you were very profitable every month in 2020 and ended that year with a total incredible return of 892 ,000%.

Yes. And how did you avoid any monthly drawdowns?

Because I see you being profitable every single month.

It sure didn't felt that way I would say during those months, there was a lot of big losses as well, but I just think it's almost, if you look at someone like let's say Ken Griffin for example, who runs Citadel, he has so many trades on a daily basis that he might lose on just 51, even 49 % of the trades,

but he's gonna end up every day pretty much green.

And that's what 2020 was like.

So even though there was big drawdowns or things of the sort, if you have three tickers every single day and you're profitable with a positive skew, be it the risk reward as well as the win rates, after a week, if you've got three tickers per day, that's 15 stocks.

So even if you make one mistake during one day or even two mistakes at the end of the week, you're probably gonna be green.

And then if we're talking about a month in general, I think it just balances out.

So I think it's the amount of hits we got, the amount of opportunities we got that just allowed for more of a consistent growth throughout the months.

You mentioned the number three companies per day.

So that implies that maybe 40 to 50 companies a month that you're able to short, is that right?

Yeah, I mean, back then, yes.

I think three is probably a rough number.

I don't know exactly what it was.

I think I need to look at the Excel sheets and everything, but from what I remember, it was about, it was two to four depending on the day, few days where we had nothing and then other days we had seven.

And so I think it balances out at about that number.

Let's talk about agenda trading.

You mentioned in your post that it is the biggest reason why you were able to have these successful gains.

Tell us what agenda trading is.

Agenda trading is understanding why something should happen with a high degree of likelihood.

So for me in small caps, and we touched on this before, it's the dilutional part of the stock.

So I think one of the reasons again, why I was able to capitalize in 2020 was because I got really good at reading SEC filings for small caps before anyone was really talking about it.

That was a big thing for me because while everyone was just looking at the stock, even if they went short, kind of going short randomly for certain stocks, I would look at it more out of the perspective.

I know this is likely to fade from a technical perspective.

So from my setup and then on top of it, I understand why something should go down in general.

So I look at something, let's say a stock has two months of cash left and they will have no money to run their business anymore.

And the filings tell me that they're able to raise money.

So they've got a shelf, for example, of 200 million or something like that.

What it allowed me to do is just the closer the time to running out of the money was and the more available money was as well as the company having a history of raising money during that period because most companies don't raise once, they raise every couple of months or once per year.

So you can go back in history, understand, okay, how do they react to not having cash?

It just gave me that understanding and that super high confidence of they need the money, they have the setup, so they got it up.

They've got everything in place to do it.

I don't see why they wouldn't do it right now.

And it's the combination of knowing what's likely to happen as well as what is logical to happen that allows you to really size up with confidence.

Otherwise, you're kind of sitting in a stock almost thinking if it goes a bit against you, right?

So even a pop or some type of counter trend wave, you might get nervous, which I mean, you get nervous in general, but you might get nervous to the point of covering and knowing what the likely outcome is and understanding why something should happen helps you go through that and have the confidence

what others are covering around you and others are doing different things to really stick to what you know and believe in.

So did you tend to scale into your trade and then add to it as the stock is breaking down from the top or how do you?

Exactly, so it's usually one entry.

It evolved over time because my liquidity just changed like the amount of size I took, but it started as one entry if it went against me.

So let's say if stock pulls back after my entry, it goes back up, breaks out, I would cut it, and then I would continue to do that.

Well, I will continue times and times again.

I usually have a stop at three times.

So if I try something three times, I'm just off, I'm just trading crappy.

So I will leave it and I'm gonna trade for the day, but I would get an entry and then as it continues to fade or starts to fade and continues to fade and break down, I would add to the position and start really scaling in.

So I would start with something maybe like, let's say I had 50 ,000 shares as a starter on something that I expected a $1 range on.

I would start with 50 ,000, but I would end up trading something like 200 ,000 shares into my target.

So that's really like, that's the balance because I can lose multiple times with 50 ,000 shares.

Say it goes against me 20 cent, I lose $10 ,000, I do it three times, I lose 30K, but as it started breaking down, it would be even on the 50 ,000 shares, I'd make 50 ,000 in theory on a $1 range.

But with 200 ,000 shares, I'd be able to make 120 ,000 or something like that because like my average, the ads would be lower, right?

So I wouldn't get the $1 range.

So I would add through the fade and it would just bounce.

So I'd add 30 ,000 loss, make 120, and then it would end up being a 90 ,000 day type of deal.

So would be that and then to, let's say one ticker wouldn't work, the two others would work.

So during the day, if I treat three things, you would end up with a net positive at the end of the day.

And do you have a kind of a percentage target of when you're gonna get out of the position covering your shorts?

Or do you let it ride a particular level, technical level?

No, I don't let it ride any type of specific moving average or anything like that.

So it's driven by the average move I can expect from the open until the low, as well as the move from the high update to the low.

And then certain stocks are gonna have structure on the day you or something like that, that might take into account or what else.

And then the dilution as well.

So if let's say they have a company has warrants, for example, so the stock gaps up from two to let's say five, they have warrants at four.

As long as they're over four, they're making free money basically on those warrants.

So they make money and then as we reach four, they reach kind of their average.

And so in that case, it's maybe less likely that the selling pressure would continue at the same rate.

So it's driven also by the liquidity and that's part of your agenda, right?

So understanding why something should fade and when something should maybe not fade anymore, not as hard.

So during this time, were you mostly day trading or were you holding some shorts for multiple days or weeks or months?

It started off intraday only.

I'll say 2020 was a bit more tricky to swing because moves were so crazy, you could wake up to a 200 % gap up.

And then it evolved as the market started to quiet down, we still had a bit of plays and then it's also an aspect of liquidity.

So let's say something again, gaps are from two to five only fades to four, but there's, so there's intraday setups and there's also multi -day type of fades.

There's different setups.

And so I would, I would also swing.

So up to about four days and that would be kind of a swing short and there's setups as well on that side.

So moving into 2021, early and late 2021, you had your first noticeable draw downs of over 10%.

What happened during those times?

What was it? I think it was the, might've been a tapering back then.

I think it's, it was, I can't remember the exact trade but I just remember the market really not, like really not being in sync with me.

So I think what changed then is just the setups quiet down.

So the average fade from that high of day until my cover really changed.

And what ended up happening was because of that, I just didn't notice for, for a while.

So the way my data is set up and the way I track my data and my edge is it's trailing.

So I've got the entire data set through time and you see it almost as a trend.

So how much we fade almost as a wave.

You really much have like trends within the setup numbers as well and everything.

And so there's a period almost of a month when you track where you can't notice what's actually happening because it might just be a fluke within the data just one day and you don't understand it.

So that's the biggest risk just in general, even to like adjusting to new markets is whenever you have a period like that, you won't notice it until the end of the next period or the start of the next period, let's say.

And so I think it's, yeah, I think it's very much that that led to a drawdown.

So not understanding that times were changing.

And it also made me even more aware of cycles in general, like just understanding that you have to be hyper -aware of things not working out.

And I think there's an aspect where a lot of the traders are very hard on themselves and it don't necessarily understand is it me that's changing?

Is it me trading bad or is it my data that's actually changing?

And sometimes you just don't know until after the fact.

So you need to like limit the drawdowns as a general and it doesn't really matter if it's a setup or yourself, you have to be almost careful with specific percentage drawdowns.

Did your risk management strategies evolve?

Kind of what were they before in 2020?

And then did they change going into 2021 or 2022?

Sure, so there's two aspects to this.

There's one that's liquidity.

So as my side evolves, I need to be more careful of sudden events.

So let's say there's news coming out or there's a high update type of swipe and there's no liquidity for me to get out.

It happened in past where I would get $1, $2 of slippage.

And I would literally be the only one moving the stock because there's no one there on the offers for me to cover into.

So that's one aspect of changing the risk management to be able, so I might cover a bit earlier.

Rather than letting it test, let's say the high update or anything, I might take that liquidity because I know there's stops.

That's one aspect. And the other aspect is my risk management always evolves.

And what I mean by that is just like we talked about tracking data and seeing it as a trend and a way through time, the way I manage my positions is based on the average behavior of a specific pattern.

And so as time evolves and as setups evolve, my risk management starts to shift.

And I might, for example, not even trade a setup anymore because let's say the win rate even decreases too much or the average fade.

Because, and I think that's a mistake that most beginner traders make for trading when changing the risk metrics and just the process of entering a stock even is they don't understand there's win rates and there is the win ratio.

So most people focus on either or, but it's actually a profit factor that matters.

So it's a combination of win rate and the combination of risk reward that matters.

So through time, as the win rate might change, I might be able to continue to trade a setup because my risk reward is still high.

Other times it might be my win rate goes up a lot.

My risk reward goes down.

So I might still be able to trade it but it's really much the combination of both.

So the lack of range and follow through as well as how likely a move is that leads me to, for example, completely cut strategies out of my routine.

So your strategy of 2020, how much of that did you continue to implement in 2021 or 2022?

Or were you evolving more into more strategies?

Cause I noticed on your Twitter feed that you focus a lot on macroeconomics and fundamentals and have seemed to take more of a value investor type approach.

Yes, so I think as time evolved, I started to understand that small caps can be extremely risky the more you size up.

So there's almost, I see it almost as a curve where the more you grow, the more size you take, the more you're likely to get into a fat tail type of event.

So people know it as the black swan event.

So let's say something news comes out or it starts going parabolic, you get stuck in a position and you just blew up the whole account.

I'm talking millions and millions or tens of millions that you can lose randomly without planning it at all.

And I just started to understand that that wasn't worth it to me, so that risk.

So I kept my size to specific level.

I could push my size probably a bit more, but I'm just like, I actually just don't want to blow up.

I made it once. I don't need to do it again, in a sense.

That's kind of the thought behind it.

And so as time evolved and as my liquidity buckets kind of evolved, you start to navigate or gravitate to bigger liquidity buckets, which is found in mid caps and big caps.

And whenever you play a big caps or mid caps, so mid caps are more like the breakout type of setups.

Once the bigger caps are more trending type of approaches.

And for those, you need to kind of understand the macro economics of it all.

So when is liquidity injected into the system?

When is it withdrawn?

When, I don't know, it could be even a type of event like China and the US right now.

The tensions and everything that reduces the risk people are willing to buy an asset at.

And so it's almost a devaluation metrics change based on liquidity intentions and how people just the ties between people.

And so all of that together makes for the need of microeconomics.

That's kind of. Right.

What relative importance does technical and fundamental analysis play in your trading decisions and how do you weight each and what's the importance of each and how has it evolved over time for you?

Okay. So there's three steps through that.

And that's really much how I see the market in general.

You have the daily setup, the daily setup, which is technical is the setup that you trade.

So the expectancy of the move, the fundamentals are a reason or the agenda why something might happen or it might support the case at least.

Could be news as well.

So news and fundamentals.

And then the third one is the intraday technicals which allow you to maximize the expectancy.

So that's how I see everything.

It's a very short and easy answer on that front.

I just trade my odds with an agenda and I maximize those odds.

So it's a combination of those.

So is there anything specific you look for in the charts for either small caps or large caps when you're determining an upward or downward move it's nearing its end.

Do you just go on kind of historical expectancy based on your quantitative approach or is there something you look for specifically in the charts like certain formations?

So there is formations, I'll say for the exit, not so much.

Apart from panic, so when it really extends, let's say.

So something like a player gets out I take advantage of the efficiency.

As for the entry, there is as well.

So there is a setup, I mean.

Or a few setups actually a setup type if you want.

So when a stock reaches the price which I know from my data is the likeliest to reject.

And so I'm more of a contrarian trader when it comes to small caps.

I'm more of a trend following trader when it comes to the big caps.

For the small caps, it might be something like a range type of breakout where everyone goes, oh my God, this is gonna continue.

Let's get long. Even though they have no plan too long whatsoever before.

And a reject of the breakout for example.

So that would be to create liquidity for the agenda itself.

If companies wanna dilute they need volume to do so.

And the shares that they have to sell onto the markets they will create the liquidity exit for themselves.

So if something breaks out of the range I know everyone would get long.

Now I know everyone's on the same side and it doesn't work.

So it just stuffs, it doesn't go anywhere, there's a hidden seller.

That gives me a reason to add or to really start a big position into something.

I see. Do you have any idea or have you been able to come to an approximate estimation on how much money a particular small cap operator would have to pump up the stock to get it to certain levels.

I assume they're limited by a certain budget level.

And can you see that in the charts and say, well based on the past and how much money we're talking about how much money they need to raise the likely probability is it probably won't go past this certain price or this certain volume on the upswing, do you look at that?

Sure, there's a type of balance.

It doesn't come from that.

It comes from the money they are able to raise with the company.

So if a company wants to raise let's say 10 million worth of stock then it's unlikely that the owner rider or the person manipulating a stock is gonna use more than 10 million for example.

It wouldn't really amount to anything because even if it worked perfectly they would spend more money to get it somewhere to be able to then sell.

So it's that balance between how much money a company needs and how much money you wanna use to achieve that money.

I think it's the combination of those that gives you insight.

So on one of your Twitter posts you said that out of 260 trading days 130 are tradable, 32 are great days, 13 insane days and six big boy days.

Is this for the last year or is this commonly true for strong bull and bear markets?

I think it's the truth for any market.

I think in general you kind of get to understand as a trader.

So first of all, you have to be there at the desk because you never know when those two days are gonna come, I wish I could.

I wish I could know exactly when those days are gonna come but you just don't be.

And the point of that tweet was for people to understand they don't have to be so risky all the time.

Most people stay in dinner with their size so they don't size up based on the grade of setup for example might be an A, B, C, D setup they'll play everything with the same size and then on top of it they'll play continuously every single day and the point was very much understand that it is okay to

lose first of all because it's part of the game.

A lot of the days are not gonna work out the way you think and then on top of it you need to be able to maximize when the good days come.

So you don't know exactly when those day come but when that day shows up you will know that it is.

So it might be like it's gapping up like 1000 % or something with massive dilution or it might be even like everyone is so long bias and it's like such a perfect opportunity for short and yeah it's understanding the balance of where the games come from.

I think most people have that idea of traders make money every single day and it's just not the truth like probably for me personally 90 % of my games come from maybe like 5 % of the days, if even.

It's just yeah people need to understand maximizing is not just an option, maximizing and really pushing when the odds are with you makes you as a trader like it can make or break you.

If I didn't have those days, the big outsized days I don't even know if I'd be profitable.

Like that's the cost of trading.

So it sounds like the importance here is doing your homework, getting in the screen time, doing your quantitative analysis, it's all preparation for when the big events happen, you're prepared enough to recognize it and then jump in.

But before these events happen, you just need to, what kind of sit on your hands?

I think yeah I think that's kind of how it works.

I think trading is so complicated for people to get into or specifically shift from one space to trading because it's such a delayed game.

So it's very much delayed gratification.

The work that you did yesterday on your review, you might not feel that impact until two months from now.

And by then you will forget that it was that work that actually made it happen.

So it's the sum of all the work you did last year that's gonna add up this year almost.

So I think that's a major thing and that's really what shifted my training from unprofitable to profitable as well.

It was that understanding that I need to run my trading like a business.

So how would a business react?

Is the business gonna show up at any time of the day?

Just do random business with other partners they don't know and just sell paper even though they're selling cars or something.

They won't, they will stick to what they know.

They will show up at a specific time to do so.

They are prepared, they know what they're doing and they have to reconcile everything at the end of the day and of the month, whatever, look at the numbers and formulate new strategies based on that.

So it's so much different than what it is portrayed in general.

I think most traders will understand that really quickly though but it's important to put those things in place.

I'd like to transition to habits and accountability.

You mentioned that you were influenced by the book, Essentialism, the disciplined pursuit of less.

Could you share with us a little bit about what you got from that book?

I think a few things, as I evolve in general, I just noticed that there is only a few things that truly make an impact in your life and same thing with trading.

It's about understanding the key things that you need in order to make progress.

I think a lot of people get lost in noise in general.

So for example, in trading, people might be in 17 different chat rooms.

They're on Twitter, they're talking to everyone.

They just have this constant flow of different things coming to them.

And even if they have an edge, even if they have those things in place, they're gonna end up subconning to like all this noise coming at them from all the sides.

It just makes them so much more likely to lose based on an emotional response.

So what I liked about that book specifically was to boil everything down to what you actually need, which then allows you to open up so much more time for other things to grow into rather than losing your time on the 90 % that actually doesn't matter and all the noise and everything that you just don't

notice, waste your time.

And that's the way I kind of live my life in general.

I do business with people I like.

I only trade the setups that I know I have an edge on.

I just spend my time doing meaningful things.

So I try at least it's a journey, right?

But I try. Could you share a little bit with us about the kind of habits that you've implemented in your life and in trading in general and kind of how they've evolved over time from your 2020s to now?

So I think habits and routine are a bit of different things, right?

I think my routine would just be I wake up at a specific hour, I prep, I execute, and then at the end of the day I review.

Then do a weekly review, a monthly review, and yearly review on top of it to kind of see where I'm at during all of these periods.

As for habits outside of that, I like to have habits around good losses and bad losses or wins and bad wins.

So for people that might not understand what I'm saying is if you have a loss, it might not be a bad one.

If it's part of the expectancy of positive skew, but it could be a bad one.

If you're just not respecting the plan, you're just doing random stuff.

And so part of my habits that I try to work on is if I make a mistake, for example, that I shouldn't have made, I will punish myself to a certain degree, but punish myself is in a positive way.

So I wouldn't just do something that's, like I heard myself or anything like that.

What I'll do is I might go for a jog, for example.

So I might actually work on getting some, let's say some serotonin.

So in that case, so it would be the happiness feeling that you get from running a lot, and it makes you fit.

And so it makes you more energetic down the line for future days.

And that's a way to positively take a mistake and actually turn it into, well, it turns it into something positive.

Then on top of it, I might do a review.

That's two hour instead of one.

And I might really hammer down on how can I make sure this doesn't happen anymore?

So that's a habit I use as well.

Then on, I also try to take time to think a lot.

I think most people don't take time to think in general.

They just do, do, do, and just don't really take time to plan.

I think if people actually took time, let's say a task takes an hour.

If people took an hour to actually just think, they would end up with such a better work product at the end of the hour.

It's pretty mind boggling.

I think most people just randomly start, they'll have to redo it multiple times, and then just end up with something that's so bad.

So I take a lot of time to read.

So as you mentioned the book just before, I'm doing this new type of routine where I'm trying to install a new habit where I'm trying to read a couple of books per month and write a few blogs and everything, which people can find on my Twitter and my Substack.

And I'm just trying to do the best things and trying to have the best habits today in order to grow within the next years and decades.

So would you say review, self -review, reflection?

Yeah, reflection, journaling as well.

Journaling, and those are the primary ways that you hold yourself accountable, kinda like make appointments with yourself, or do you share that with anybody?

I have a pod as well.

So you have Lance Brightstein as well, Brightstein on your podcast before, and he really hammered down on the importance of pods, which is just groups that you can trust.

It's a supporting as well.

It's very truthful and hard type of group that you wanna be part of.

So it might be traders, or it might be psychologists, or anything like that.

You actually want people around you that are not only supportive, but that are very much truthful.

I think we humans specific, we love to lie to ourselves regarding a lot of things because it's just easier for the mind to comprehend that way.

So you have to have people around you that know you enough and that understand what drives you and what you wanna achieve.

And they will put the priority of your plan of growth before your emotions almost.

And those people in your life specifically in trading are the people that bring you the most growth, which is again, why?

Having a pod is so important because you have the idea flow.

You have people around you so you feel more socialized in general, then on top of it, they just keep you grounded.

Excuse the last interruption here, this is Tessa.

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Thank you. Now back to the chat with our guests.

I'd like to transition to current market right now.

You mentioned in your Twitter that opportunities have vanished in small caps.

Small caps are not exactly what they used to be.

Stepping back until the Fed pivot.

Elaborate a little bit on that.

Just like it was very easy for the worst companies to raise in 2020.

Now it's just the opposite.

So now the only companies that are truly able to raise might be a bit higher up a caliber while the risk that is very bad just might just go into bankruptcy.

They might not even be able to raise money.

I think that's part of it.

And then the people even that on the right offerings, they might not have enough money or not the same amount of money to actually pump up something or gap it up or whatever it is.

So it just reduces the range in general and the likelihood for trend to continue.

So that's my understanding of it.

That's my thought behind it.

And then it just shows in the data.

It's just far more scattered around.

There is less continuous trend within those opportunities, which then makes the way I size into things harder to do.

And so the thought behind waiting for a pivot to potentially get fully back into it is us having more opportunities and better opportunities then.

And there's just a specific amount of, I think one of the hardest things for a trader to do is just stepping back and not trading.

And that comes from specifically the more you trade it's just, oh, if I don't trade today, I'm gonna lose out on XYZ that I could make.

And the truth is there needs to be almost a stage where you wanna have a minimum type of salary in your head that you put your value out to just go, if I'm only gonna make this much, then that's just the thought of seeing the data and how it is and just calculating kind of what could be like the final

amount. If this is not higher than XYZ, it's just not worth it for me to trade.

I'd rather spend my time on other things and grow in other manners.

So there was a new SEC rule that shortens the time for a settlement from two days to one day.

Does this impact your shorting of the small caps or even large caps?

Large caps, no, because large cap, it just has a lot of supply on that side.

So there's no type of cost necessarily involved with swinging short or anything like that.

Not big ones at least.

While small caps, it used to be an issue because we used to go past Wednesday and the issue was if you would swing after that overnight, you'd end up paying for all the way over the weekend and some stocks are extremely expensive.

Some stocks go as high as, I mean, I've seen 900 % for example.

And what 900 % means is you're gonna pay 900 % of your position.

So the dollar amount of your position at the end of the year, if you held it through the whole year.

And so it ends up being, the cost becomes a very important part of if something's worth swinging or not.

And so this new rule allows you to basically swing for one day more than before without incurring the cost of the weekend.

So yes, it plays a role.

And I'm very grateful they did it.

Oh, good. Very happy about it.

What's your take on naked short selling?

I mean, I've heard a lot of people talk about, oh, well, you know, this stock or that stock has a lot of naked shorts out and you watch out when they all cover or they're forced to cover.

Is naked shorting real or is it often or sometimes used by pumpers to scare the shorts into covering?

Let's put it that way.

The amount of times it's fake and the amount of time it doesn't play a role is so much bigger than it actually happening that it is more of a non -event than anything to me.

It's usually used by pumpers.

Usually just, oh, let's squeeze the shorts and it's literally just a long slonging.

I think even the episode with AMC and GME wasn't really necessarily about the shorts.

It was more about the option dealers not having an opportunity to actually hedge their risk.

So even there, yeah.

You've said that the ideal market for yourself is one filled with crappy gappers, big multi -day runners and squeezes.

Yes, enlighten us, please.

The range increases.

It's as easy as that.

So multi -days are just a bigger extension from fair value which allows me to have more of a retracement or even a long opportunity to potentially if shorts get squeezed or anything like that.

The reason why the crappy pumpers are better is because same thing of the shorts and what we talked about before.

So the crappier a company, the more likely it is to actually come back down and the more likely they are usually to raise money as well.

So it gives you a better agenda, pretty much covers it.

What's your take on the impact of Silicon Valley bank and other related banks on stocks, the economy and liquidity?

Sure, I think that's still to be felt to be honest.

I don't think we're near that at all.

I don't think it's just tell you a huge, well, I think it will influence lending in general with all banks.

I think it's definitely scary.

I think it's scary because, so it's scary to banks is what I'm saying, because the banks will just think, if we need reserves, if we need cash, we need it on the balance sheets and we need it for the deposits as well.

And so let's maybe not endure the risk of lending to risk your assets or smaller companies or anything like that.

And the issue with that is just, you don't feel that lack of funding until months after when the companies report or when the companies actually need the cash.

And so it creates that lagging effect of not having enough funding.

That's definitely the main aspect.

And then the part with deposits is just, so what led to the failure of Silicon Valley bank and other banks now like FRC is not looking good, for example, and other banks is just the bonds.

So the bonds exposure was too high and we had the biggest bear market within bonds, I think pretty much ever.

And that just leads to two massive losses.

And it's pretty much panic because a lot of those bonds would actually just expire.

And so mature is what I mean.

And they'd get the cash back, but I don't think people fully understand how these work.

So it's almost, it's the panic of what could happen that leads to people actually making it happen.

So why do you think we haven't seen a big spike in the VIX index signaling a major market bottom?

What do you feel is the, what's stopping the market from having a big capitulation day?

I think it's a few things.

I think everyone's looking at it compared to before, that's one thing.

And then I think the second thing and what most people don't understand is, and I think most people don't understand it.

I don't think there's a definite answer to this is the QE era that we had since 2008, that really kind of changed the way bonds were working and the market in general.

So it shifts a lot of the volatility patterns.

It kind of changed it and VIX is pretty much that.

So it's a volatility.

And I think we're just comparing almost other times to different times with this one.

Even though this time is different.

I mean, every time is different, that's the thing.

Every time is different.

But I think the mechanics of QE really changed things.

And the way I actually noticed it and the way and the person I listened to in terms of bonds is John Miller.

So one of the greatest investors of all time, of course.

I think most people know him as well.

And he used to listen to bonds, for example, for that message and just to time the market if you want.

So we're going back into bonds just a bit here.

But I think we're just, we're entering a phase where we don't have that QE to really play the old patterns.

That's kind of the answer.

I don't know exactly is also a good answer to this.

What do you see as the biggest risks facing in traders and investors in the current market environment?

And how do you stay ahead of these risks in your trading?

I think the biggest risk in general is just going to be over -tightening by the Fed.

I think we saw 70s and 80s inflation back then.

And we saw Paul Volcker kind of working against it and making it work.

So having that really hard stance, I think Paul's seeing it and just, he does not want to go down as the person that didn't tighten enough.

So we're likely to almost over -tighten because of it.

And if we over -tighten too much into a recession on top of it, we might go into one of those very deep recessions.

And that would be the main issue because then funding becomes a true, real systematic issue for companies, which then reduces the amount of opportunities out there.

So I think that's a huge part.

And as for what I'm doing against it, we talked about setting up scanners to see exactly the trades I should be taking.

So my system basically automatically out of itself, the way it works, just won't show me setups.

So my biggest risk is just I won't make money because nothing shows up, nothing lights up.

And so there's less money.

But I think the main risk for people then because of that is, I don't think most people do it that way.

I think most people just trade whatever is in front of them, even though it's not a setup, and that just compounds.

So it's mistake after mistake, setup they shouldn't take, after setup they shouldn't take.

And it just compounds into this thing of a period.

And I think the longer the period of dryness, I'm gonna say, right?

Where you have no opportunity, the more prone you are to actually making huge mistakes because the more frustrated you get.

And there's almost a rage that builds up inside of you of going like, why the hell is this not working?

And that's when it just takes one day.

One day of just being at the desk and being so angry and just, I don't care, I wanna win today.

And then yeah, then you blow up.

I think that's one of the biggest risks.

Yeah, lack of opportunity and then lack of structure to be able to notice it.

So you mentioned before about in your Twitter feed about mental models, what are they?

And why should we care?

Mental models are ways to interpret and have actionable steps toward any type of specific group.

So should I put this?

A mental model might be, for example, that you care about knowledge and growing knowledge.

So it might be reading three books per week or something like that.

It's a way to interact with a goal, almost, is the way I put it.

It's very broad, so it's hard to actually pinpoint exactly what a mental model is, but it's the way you interact with a specific set of problems.

Almost as if you grouped all your issues or you grouped, okay, this is the way I think about investments and that's your philosophy, and that's the only way you do it.

That might be a mental model, or this is the way I learned the most efficient, like the most efficient matter of learning, or this is the most efficient way to do my prep, or it's basically the idea of being efficient at whatever you do and formulating almost the best way out of all to do it.

And so over time, you use those models, those pure efficiency models to tackle any type of issue.

And it just makes you, just like training the best setups makes you likely to succeed, using those mental models make sure that you're fully optimizing the outcome of whatever you're doing.

So it's hard to imagine that you have any significant challenges, but is there anything that you struggle with in trading?

I think we struggle every day.

I think that's truly kind of the nature of trading in general and the investment world.

It's just you're constantly, you're never a hundred percent somewhere and you always feel like you're one step behind where you should be.

And it's just, but it's still within a positive skew.

So you just wanna make sure that you're optimizing and when you're optimizing, have the understanding of, you're not aiming for a hundred percent.

You're aiming for the highest score.

And usually the highest score is somewhere around 70.

So if you had like, this is the perfect outcome.

So a hundred, I completely blew up or this isn't working at all zero.

You wanna be somewhere at 70, but aiming for a hundred at all times.

So it feels like you're 30 % behind all times.

So I think for me personally, I struggle.

It's not really a struggle.

It's more like growing pain almost of getting to the next stage.

So getting all the knowledge I need and the experience I need within swinging.

And then on the outside of the market, it would be I'm building more of a cashflow type of system.

So picture it as a Berkshire or a Merkle type of business where I have cashflow coming in from multiple sources, which I can fund through my trading, which then gave me continuous cashflow to be able to reinvest into the best businesses.

So I'm trying to build almost this investment firm type of approach to my life where you've got, again, cashflow, cashflow goes into the companies, it compounds and then the compounding brings me to my goals down the line.

And it also makes it far more, funny enough, it makes me a better trader as well because I know I have cash coming in and having cash coming in helps you so much because you don't have that pressure of needing to trade.

You don't have that pressure behind you.

So that's what I'm doing.

Growing, that is in multiple spaces.

So I started investments in private equity, venture capital and then just businesses that I grew from before I still get cashflow from and being able to put all the pieces together to make it the most efficient as well as finding the right people to make that vision come true is the biggest challenge

right now in my life.

How do you manage your emotions in the face of adversity or uncertainty in the markets?

I think the problem that people have is they're not prepared enough.

It's almost that feeling that you get whenever you need to do a big presentation or some type of public speaking type of act.

I think people get nervous when they don't know what they're talking about.

And so the same way I said that, that's the same way I interpret it in trading.

I think it gets easier with time if you are prepared and that kind of in itself makes your emotions go down because when you're prepared, when you know what you should do, when you know what the different outcomes are whenever you enter a trade, there's really no reason to be stressed a lot.

You're stressed more because of what if this squeezes, what if this goes past and I can't cover these type of things.

And then a bit, of course, it gets easier with time being able to lose money and bigger sums than everything else.

So there's an aspect of experience is really what you need in general.

But when you know the outcomes and you know how bad it could be or how good and you truly trust your positives cue over time, it gets easier.

Same thing with bigger draw downs.

When you first experienced those specifically like bigger sums where it adds up to, oh, I just lost the equivalent of a car within this last week or whatever it is.

And you start to like think almost that way.

It's really hard at first, but I think you just make it back to like break even and then you highs every single time.

And I think you gain confidence over time and just more of objectivity, if you want, towards those types of draw downs because you just know you'll make it back eventually.

Yeah, do you have any goals going forward?

Are you excited about anything you're working on or are you just playing the market learning about the current environment?

Sure, so I wanna grow my investment portfolio.

And again, I am putting all the pieces together in order for me to really be able to create an investment firm if you want.

Be it just with my own capital on my own because I have fun with it.

Or to build something bigger than myself and just have people around me that I respect growing with me.

But that's really what I'm excited about now.

So it's again, it's that cashflow type of business I was talking about earlier.

It's being able to have multiple sources of income through different type of investment philosophies.

So it might be, oh, I'm lending money, right?

And getting cash flow through that, building.

So on my island now we're building a gym and a hotel and different things that will allow me to have cashflow in the future.

So that's a different source.

And then bringing all of these things together within a core business that then uses that money to redeploy it into even better investment.

So it's planting seeds now for tomorrow and next week and next years and decades.

And making sure that I stay true to my values and that us help people while doing it.

And also I'm excited I'll say about the networking aspect of it because trading is so much of a, it's a lonely sport.

The more people you have around you, the more noise there is.

So you need to really filter it down to the most important people and vital people that actually bring you a positive skew.

And so other businesses like VentureCap or private equity and all of these things, you're actually just talking more with like two people.

You're seeing growth, you can't go there, it's physical.

Most likely it is. And yeah, you just, you learn a lot more.

You're just part of the action, whereas trading is more odds and it's almost like a positive screw like it just has.

How important do you think it is to do other things besides trading?

I mean, you mentioned that you're expanding out and getting kind of more people involved, getting more involved with managing people's money.

So I think it's extremely important.

It's important out of just a security perspective.

So if, I think first of all, you need to just be trading and to make that, if you wanna be a trader at least, you need to be focusing 100 % on that.

I'll use the example of, if there's a great trader that isn't feeling well and that doesn't wanna be at the desk not trading and takes vacation for two weeks, he paid his dues to make that happen.

Whereas a beginner trader just thinks he can leave and not do the prep or not do the review or do this map.

And it's a huge red flag.

Like you wanna be there at all times.

But the more you grow, the more you almost need thinking time.

So I think building that time, again, doing things outside can be just on the personal side.

So it can be going for hikes, taking time outside to go for a walk, jogging, all of these things, that's important.

And then on the business side, it's about the security of, I made it in trading.

Let's just make sure that I'm not giving that back.

So building different sources of income kind of gives you more security overall.

It's just more of a robust type of approach.

So would you say that lack of prep work is one of the biggest misunderstandings about trading that we can encounter among new or inexperienced traders?

Or is there something else?

Sure. So I think there's a few aspects to this for sure.

I think we can almost summarize it as not taking trading as a business.

So it's not just a prep, it's the prep, the review, the execution, the way you do business day by day, and the way you review also over longer time periods what you did.

I think that's probably number one.

And then there's definitely a few other misunderstandings.

I think a big one could be something like win rate and the profit factor that we talked about.

So it's people kind of focusing, where can I get the highest win rate?

Or how can I get the biggest risk reward and just not really understanding the profit factor behind something?

I think that's a big one.

And then for more like experienced traders or, well, yeah, actually experienced traders, there's a lack of understanding of the risk of black swan.

Like I have seen traders in the eight to nine figures blow up and it is not fun.

And I think most people take that risk on, even though it's not needed.

And I think it's just because of the misunderstanding for the risk they're actually like taking.

I see. So what do you think is the reason for these big accounts blowing up like that?

Is it, do they get complacent or do they forget the rules?

Because surely to get to those account sizes, they probably learned a lot, right?

Well, where do you think they went wrong?

It's the nature of the black swan.

So it's, or the fat tail, you won't lose on 99 % of your trades, but it's the 1 % that actually takes you out.

So the reason why it happens specifically to the bigger accounts is the, I'm gonna say it that way, the strategies that they use on paper at first seem the most profitable, but they only work so well because the Intel specific fat tail risk.

So it's, for example, and I'm sure a lot of people saw Rope Trader, for example, that movie where I think it's played by whoever it was, but the stock market, the Japanese index starts dipping and he keeps on doubling up as it goes down and it comes back up and he makes a 10 million profit, which equals

10 % of the, of bearings, the bank that he works at.

Great. Everyone sees him as this hero.

He made the money, blah, blah, blah, biggest trader at the bank.

And the lesson is he did that again and again, and one time he just kept on doubling up and he lost more than a billion dollars for the bank and he ended up blowing up the whole account.

And so that's kind of why so many experienced traders seemingly blow up and what happens to them, it's they use a strategy that works and that works straight on paper, which is it will work 99 % of the time.

And then that one time they'll blow up the whole account.

And it's also why it's so hard for beginner traders and intermediate traders, even experienced traders, honestly, to know exactly who to learn from.

And that comes through experience and also understanding that risk.

And Mr. Taleb wrote a book about it, I'm sure most people know it, Black Swan.

It's you just learn from some people through time that use that Black Swan risk in order to have gains.

And you will never understand that risk until you actually blow up.

And that's the nature of them.

You can't really predict them.

It's the outlier of the outliers that bring you out of the game.

So I try to do my training in a sense.

I don't try to be the highest performer out there, at least not anymore.

I used to have that mindset a lot, but I try to just maximize within the normal risk with putting aside or minimizing the Black Swan risk as much as I can.

So you look pretty young.

How old are you? 22 now, turning 23 in two months.

22, wow. Well, so much you've accomplished in such a short period of time of your life.

Yeah. Thank you. Yeah, I'd like to end with a quote of yours that I enjoyed quite a bit.

Lean into failure as it is the key to your success.

Accept it as part of the journey and create a culture of non -acceptance towards letting failure lead you to giving up.

Thanks for coming on the show, Lucas.

Thank you, appreciate it.

What is the best way for listeners to get in touch with you?

Probably my Twitter.

So it's at the short bear.

And then I have a substack as well, which is under the same name.

I think it's also called the Excellency Vault.

So that's where I share my blogs.

And then I used to do YouTube videos.

So for those interested in kind of seeing what I did back then, it's under the same name again, the short bear.

And yeah, that's basically it.

Great. Thanks, Lucas.

Thanks. You've reached the end of this episode of Chat with Traders, but rest assured, there are more episodes loaded with real market insight and zero hype on the way soon.

So to stay updated with each great new release, subscribe to the podcast and iTunes.

And we'd love it if you'd leave a rating and review.

We'll catch you next time on Chat with Traders.

Thank you.

[The Strategic Evolution of Lucas Froelich: From Small-Cap Speculation to Institutional Mindset]-[259: Lukas Frohlich - Executing Agenda Trading Strategy for Stratospheric Returns]

📋 Summary

The Strategic Evolution of Lucas Froelich: From Small-Cap Speculation to Institutional Mindset

The Early Lessons: From Naivety to Survival

The 2020 Catalyst: Agenda Trading and Quantitative Pyramiding

Transitioning to an Institutional Mindset

The Philosophy of Discipline and Reflection

Conclusion

🎯Key Sentences

📝Key Phrases

📖 Transcript