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If we can argue that the market is the sum of the psychology of its individual participants within the market itself has its own psychology and it is on display in those graphs and charts that we see.
The market will try to manipulate you as a sociopath would to make what Mark Douglas would call trading error and it will try to make you hang on to those trading errors as long as possible to try to take as much money from you as possible.
Markets, speculation, and risk.
This is the Chat with Traders podcast.
Yeah, you got it. This is Chat with Traders, episode 268.
I'm Tessa, co -host of the show.
Listeners, we appreciate you for taking the time out every few weeks to listen and to share the podcasts with others who you feel can also benefit from Chat with Traders.
And as we enter the last quarter of 2023, I want to ask you, have you been thinking about how you want to end the year and make that extra push on the things that will make the most impact in your life?
This could be related to trading or not.
It could be our health, our relationships, our jobs, our financial situation, anything.
Are you experiencing setbacks?
If you are, why don't we reframe this and see that our setbacks are set ups for something better?
Let me repeat this.
Our setbacks are set ups for something better.
Now this saying did not come from me, but I heard it somewhere.
It just stuck with me because it's so powerful.
I think reframing it in this way has been helping me tremendously in my own life.
So in this context, it is actually not too early to begin thinking about how we want to prepare, plan, and show up for the new year.
Why wait until January 1st?
Now without further delay, let me get back to the main part of the show and introduce our next guest.
He's your guy next door and a very relatable fellow trader, Brian Holdfort.
And I think you're going to really enjoy Ian's interview with Brian and pick up some golden nuggets.
Brian paid to take and pass the Series 7 license as a teenager in the 80s, which then led him into the high -commission world of stocks and options without mentors or the internet.
Starting with investment newspapers, Brian tried many trading ideas without any risk controls.
Despite frequent and numerous losses, he was hooked on the game of trading.
But obsessive determination is what drives Brian to stay in the game despite a boom bust performance.
Recently, he seems to have found the right balance.
Ladies and gentlemen, we're so pleased to present Brian Holdfort from North Carolina.
Well, Brian, welcome to Chat with Traders.
I'm glad to be here.
Yeah. Tell us a little bit about your background.
Where did you grow up and where are you now?
I'm in, uh, I'm in a rural community.
I'm in Rona, Carthage, North Carolina, born and raised here.
I've always kind of had a, had a passion for the markets, studying them all the way back, going back into high school, and I'm in my mid -50s now.
And I have found out it is quite an adventure to get to a place of consistency in the markets.
Well, when I was in high school, I used to subscribe on and off to Investors, Investors Daily.
And I saw some ads in Investors Daily where you could, uh, pay a firm to represent you to take the Series 7.
And so when I graduated high school, I took the Series 7 and I passed it.
And I was always dabbling in markets.
One way or another, I can remember in the early days, I was pestering my dad that I wanted to buy some Apple computer stock.
And it was about $7 a share.
And I just kept pestering him and pestering him.
Pestering let me to buy that stock.
We didn't know anything about how to do it or what you had to do.
That's how far back we were.
I guess he got tired of my pestering and we went to a stock brokerage office and we had to open up a uniform gift to Miners account.
I guess that's the same method that you use today if someone is below the age of 17 wants to buy securities.
Well, I bought those that Apple stock and by then it had gone up to 70.
So, you know, you're kind of missing the boat, right?
Wow. You missed out on a, on a 10 bagger early on.
Yes, early on. Yeah, early on a 10 fold game.
And it was in the early days when Apple was really in a lot of height and people think that Apple is in a lot of height and it is a lot of height right now around it.
But back in those days in the Apple one and Apple two days, it was a very hyped up stock and it almost went bankrupt a few years later.
I don't know if people do some research into the history of the company.
The company really fell on some hard times in the early 90s.
But anyway, that was before the crash of 87.
I bought 23 shares of Apple computer stock in a uniform gift to Miners account.
And after I bought it, it doubled again.
If, if, and memory serves me correctly, it started off at seven, went to 70.
I bought it at 70 and it split two for one and went back to 70 again just before the crash of 87.
You have to go look up some of these prices to fact check me on it.
But if my memory is serving me properly, that's the way it went.
But anyway, I got out in September of 1987 and I was all fired up, man.
I wanted to get a brokerage account that discount brokers were really coming on strong then.
And people today don't realize how much we used to have to pay for a ticket back then.
My loss parameters now would not even cover the commission.
How much were the commissions back then in 1987?
I believe that I was paying a ticket price of around 50 bucks.
Wow. And I believe that 23 shares of Apple cost me somewhere around 40 or $50 just a place to trade.
But the proliferation of discount brokers was not coming along.
And it's a long backstory about how the New York stock exchange had set commissions for 200 years.
I mean, that's why the exchange existed.
It was a group of people and it got together to set prices.
It was a monopoly on securities prices, basically, for conducting transactions.
That's why the New York stock exchange is a New York stock exchange.
It was to regulate the cost of what people could, you know, the ticket price.
Well, we call it ticket price now, right?
Cost to enter a ticket.
Now you can do it for pennies and you can even do it on some of these apps I'm told for free.
What a revelation. That would have been for me back in those days.
I did not understand in the early years and even after I passed the series seven, you would be amazed at the things that I found out after I thought I knew everything.
Well, don't they include everything you need to know in a series seven exam?
I mean, that's to get to become a stockbroker, right?
That's to become a stockbroker.
But it's really to become a sales rep.
You do have to know about trading and you have to know the terminology.
And Mark Douglas, he wrote the trading in his own and another good book, I got to give him credit for it.
He went down a path, but he went down a more professional path than what I did.
And he said he was taught how to talk about trading, but he was never taught how to trade.
I'll concur with that.
He spot on with that.
I see. Did you have desires to actually work in the industry like as a stockbroker or what were your main motivations to getting the series seven?
I would have liked to have tried to have done it, but I'll tell you, I don't think I could have been a good salesman.
I don't think that that would have been a good fit.
I just thought that that was the entry level into the industry.
And I saw that in the paper and I thought, hey, I'd like to try it, but to be a broker like that, to be a stockbroker where you have clients that you're calling, you have to be able to sell these people.
And I'm not a salesman.
So really your series seven is really a sales rep exam, but it does talk a lot about finance.
And I don't regret taking it is I learned a lot.
I got I learned a lot about securities through that exam, but I knew about options and things like that back when I was in high school.
And it taught me a lot about the bond market and interest rates and things like that, how bonds when they're going up, interest rates are going down, you know, I never put peace, all that together until I started really studying for that exam.
So studying for the exam and then subsequently getting the series seven, did that change the type of securities that you became interested in?
Did it broaden your horizon as far as what to invest or trade in?
I started to look at things like commodities.
I never traded them.
I did not trade commodities until the mid 2000s.
And I never, never traded outside of just general stocks.
And I was naive, very naive.
And I was also very under capitalized, but I was starving to get trades in.
And I was I got to say I was pretty good at picking the industries that were moving up because, you know, CNBC used to sponsor a competition.
They may still do it.
I don't I don't really I don't watch CNBC anymore.
I don't really watch any of the news networks, but the they had a competition that usually ran for a quarter, a stock trading competition and I entered that and they give you a half a million dollar paper account.
And in 90 days I turned it into a million dollars.
I've got that paperwork, but it was in the early it was in the first quarter of 1990.
So you could a blind man could have done it if he would have bought stocks in the Nasdaq because that's when Cisco Systems and Dell computer and some high fliers were really starting to get on the launching pad.
Of course, I picked Cisco.
That was and that was a few other big ones that doubled and tripled.
And I actually bought Cisco in that time period, but I but I had a problem and I still have problems.
Every trader right in that marketplace has got problems.
And one of my problems in and I still have a little bit of it in me now is that I was impatient.
Time is an ally for the patient and it is a thief to the impatient.
What a good club but being under capitalized life getting in the way school school loans going through things just paying for everything.
It really starved my capital account, but I did trade some stocks along the way and I generally lost money even though I was picking some of the best companies in the country like Cisco Systems.
I had bought I was in and out of Dell computer a few times and these stocks went up a hundred thousand percent some of them over the next 10 years.
And there was another one that I bought called Stratocom that was actually taken over by Cisco.
And I thought, you know, the good Lord wants me in Cisco Systems, but my inpatients won't let me stay there.
But I could I could have made a fortune there, but it didn't work out.
Yeah, just just curious about your while you're interested in the markets and and trading different stocks.
Did you have a regular job or kind of a career that you were doing at the same time?
When I was in high school, I was a manager, a department manager when I was in college, and when I graduated from college, I was a department manager in a grocery store.
So we didn't make a lot of money.
It's, you know, it's typical of my generation, what over educated and underemployed, I guess is the way you would call it.
You know, and but it always caused a problem for me being capital starved for my trading account, if that makes any sense to you.
So were you funneling as much as you could savings from your regular job and just pumping it into the market?
Right, right, right.
That's right. And you go in there, you're under capitalized, you're taking positions, and I would take them on full margin.
And even if you have good stocks, when you have a drawdown, it's going to take you out, right?
You can't support it, and then the interest payments start to eat you up.
And you're trading such small lots back then where the commissions were coming down in the mid 90s.
Ticket costs in was probably around 20 bucks, but still, if you're doing a $1 ,000 trade, it's still a significant percentage of the trade just to get in it.
And that doesn't include the slippage.
Were margin calls in common for you, given that you said you used a lot of leverage?
I would generally get out before the margin call would come, but it would always be at a loss.
When I did gain, it would be very small, but it would always be, it would just eat your capital away, jumping from one stock to the other, losing 2 % in, 2 % out.
That'll eat you up.
Just if you did that five times, 10 % of the account is gone, and there's been no securities price change, right?
Right. Yeah, exactly.
How did you end up picking the stocks that you would trade?
Where would you get the ideas?
And what kind of strategies did you utilize?
In the early days, and it's still a good paper to read, I would subscribe, like I said, to Investors Daily on and off.
It was such an expensive paper to me.
It was like $100 a quarter, I think is what it was, but it was heads and tails better than the Wall Street Journal for what I was using it for.
Wall Street Journal was probably better global news coverage, but Investors Daily really tailored to the investor.
I don't really think I'm an investor.
I'm more of a speculator, so it was kind of a mismatch there too.
As time went by, I even tried to start selling options in the mid -90s, and I borrowed a lot of money to do it.
I was lucky to leave that alive.
You say borrow money to trade options.
Yes, I thought, you know, being that I know everything, why not try it?
You know, I wish I could remember the seminar that I watched on.
I watched the guy give.
I wish I could remember it.
I think it was a British fella.
I wish I could remember his name because he really deserves to have credit for it.
He said, if you know you're right about the price of the security, you need to just go all in.
Oh, my God. And he was talking about taking your risk controls off, right?
That's what he was getting at.
He said, if you know you're not going to lose money, why don't you go all in?
And I was like, yes, he's right into a novice trader.
To a novice trader, they'll do that, right?
I see it. How did you borrow?
Who did you borrow the money from?
I borrowed it from credit cards.
Oh, wow. And I would not recommend people do it.
I avoid debt now like cancer, if possible.
And so what were some of these early experiences with options like for you?
Well, the first thing I had to deal with was I was dealing with water house securities.
And they had a lot of stringent requirements that you had.
The reason why I was borrowing money is because I wanted to reach the level where I could get to why I think it was level five options trading.
Where level one is just your basic buying, selling, puts and calls.
Level two gives you something else.
But level five gives you everything naked and naked selling and the whole nine yards, the whole McGillis, so to speak.
In order to get to level five, you have to...
For one thing, you're going to have to go tongue in cheek on your experience when you don't have any because they want you to have experience.
Well, if you don't have level five, obviously, you don't have experience selling options.
And another thing that you had to have was a high capital requirement.
You'd have to have like $25 ,000 I think back then in the account.
And that was amounting the money to me back then.
Interesting. So what attracted you to go for a level five option account so early on?
I thought, and this is when you talk about a good quote, this is another good quote.
And this is another novick mistake.
I was under the impression that, hey, this option thing is going to be easy.
All I have to do is sell options far enough away from the current market price, and I'll be safe.
And option traders make that mistake a lot, I believe, as far as option sellers.
And I don't care what strike they come in.
I don't care if they're doing selling put options, cash secured puts, or wheeling stocks.
I don't care what strike they come in.
They have a misconception about probability and edge.
Probability and edge are two completely different concepts.
You can lose a whole lot of money thinking that you have very high probability.
I had a pushed move a few weeks.
Right now my main focus now is I'm selling credit spreads on the SPX right now.
You get some interest rate favor and you get some 10, 40, 12, 56 gains from straddles and losses on tax returns by dealing with the SPX contract.
And I had an option last week that I sold, I think I sold that option for like 60 cents.
And we had that big pressing day and today is what September the 8th, 2023.
If anyone wants to go back and look at it, go back and look a week back.
You had a big up day in there, a big green candle on that chart.
That option that I was short went in the money by $30.
I think that that's correct.
I think it was like $29 or something like that.
And if I would not have had loss control and I still overran my loss parameters a little bit.
And you can see that in my equity curve on that day, and I was, you know, I overran my loss parameters a little bit, but had I not gotten out, if I would have frozen like a deer in the headlights on that trade, I would have, I would have given back a significant amount because I think I was doing, it
was a 10 lot. I know it was a 10 lot because I was trading 10 lights at that moment.
That would have been about, they would have took about $30 ,000 on that.
If I wouldn't have, of course, the credit, the long part of the spread was way out of the money.
You know, it was like a like 50, 60 points away.
So it didn't get hit, but I would have ate every bit of that move in the money that it went.
Yeah. I'd like to go back to when when you first got into options and you immediately wanted to jump to level five trading of options.
And this is before, is this before having much experience with just going straight along calls and puts was like most I had never bought an option in my life.
I don't know. I've got to take that back.
Yes, I did. I bought, I was looking for a trend trade in the banking sector one day and I saw Citibank was moving up and I bought a 10 lot and I lost every bit of it.
So yes, I had bought some options before that and I had bought some one time in the flash crash on the on the on the S &P 500.
It's the same flash crash that had destroyed Victor Nederoffa when he blew up the first time he had a black a black pigeon went swimming by and took him out.
But on that day, just on a whim and I was going to cash machines around town, you know, like a crack at it, right?
Well, this is, this is to borrow more money.
Not to borrow money.
It's the money I had in my checking account.
I think that because I'm always a saver, right?
I'm always a saver and I'm always fed the markets with what I say.
So anyway, I'm going around town at a cash machine going to get $500 here where, where I could get it from from a teller because I needed to get the money quick because I had a stockbroker here in town and I wanted to be in this office first thing in the morning and this was the day before the flash
crash. I just had an inkling that the thing was going to crash.
Is this 2010? No, this is not 2010.
This was 1997. You have to go way back.
I think it was 97 October, 1990s.
I can't remember the exact day.
I've got a picture on my phone of what Victor Neder offer made his mistake, but the options that he was short because he was, he was, he was, he's a infamous theater trader and he did blow up that hedge fund.
I felt sorry for him really did because I have a lot of respect for him.
I think he's a very knowledgeable trader, even though he did blow up, but I've got a stack of books right here on my left over here.
I can name names. Was your interest in getting a level five account prior to having much experience trading options?
Yes. Was this influenced, do you have like a gambling nature inside of you?
Do you like playing risky?
Sometimes I wonder about that and I have thought about that a lot.
Yeah. Yeah. Sometimes I do think I have some gambling issues and trying to get that under control.
And I think it shows up.
The gambling issue shows up in hope, right?
Cause you could picture that person that slot machine just hoping that that, that, that we will comes up, right?
I like to rule that wheel.
And, and I have been in that position before and it usually doesn't work out.
And what you need to have, and this is some advice for people that are trying to make it in this game.
You have got to have lost controls in there.
Once you start running out on your loss controls, you have got to get out of the trade and I know it hurts.
It, it really, it hurt me anyway.
It still hurts me today.
I hate it when I have to take a loss.
Right, right. So did you have in those early days, say in the nineties, did you have any kind of a loss controls?
Was it just like a mental stop loss or what?
No loss controls. Didn't even under, didn't have any concept of it.
Didn't have any concept of it.
And I was like, I say, I was selling options against the company.
I Omega. Well, I remember them.
Yeah. And they finally went bankrupt, right.
But I had built up a substantial short call position.
And that's back in the days when they traded in what they called teenies, right?
16th of a point, they call them teenies.
And I would say, I finally found a broker that would take my account took my $25 ,000 and it was the most stressful thing I'd ever been in in my life.
I mean, if, if I Omega had to turn around and shot back up because I was selling calls on I Omega, if it were to shock back up, it would have bankrupted me.
Oh wow. Uh, did you, uh, uh, were you able to follow the implied volatility to help you pick stocks to sell options on or did that exist back then?
Didn't even know what it was.
I'm sure that I'm sure it existed and I'm sure that the major brokerages did it, you know, for their proprietary trading desk and all that stuff, they're running those, uh, high level algorithms.
I'm sure that they use the, uh, IV ranked, but, uh, I didn't even know what it was.
If you asked me when implied volatility was, I would, I couldn't have given you an answer.
I did get a lot of trading experience.
So, but as far as what happened to the $25 ,000, I think I lost a couple thousand dollars and I can remember being at an amusement park and I was thinking about what these options were doing to me while I'm down here and I got back home and I closed the account and I took the money out and I paid everything
back. And you know, that wasn't going to work.
Oh, so you, uh, paid back your debts.
I mean, yeah, I've, I've never had to go bankrupt.
I've never had to go into bankruptcy or anything like that.
I've always paid everything back.
It has been a burden at times, but, um, I have always paid everything back, uh, during the nineties.
Was most of your, uh, trading involved, uh, options or did you also trade early nineties?
It was early nineties.
It was option early nineties.
It was just straight bets on stocks.
And then later nineties, it became options.
And then I migrated in early 2000 to a, to a job that paid me better and I was still giving money back to the markets.
And I started to do a lot of research online and I ran across books and one of the, and one of the best books I've ever read about the market was the Jack Schwager book, the market wizards, a couple of interviews in there really changed my whole perspective of markets.
And that was the Michael Marcus interview and the Ed Secoda, Ed Secoda, the wise, those every, those two interviews and there's a bunch of other good ones in there.
Marty Schwartz had a very good interview and they Paul Tudor Jones and a bunch of others, too many to mention.
What were some of the key takeaways that you got from the market wizards book and what changes did you implement in your, in your trading?
Okay. I still had a problem with loss control, right?
But some of the things that I really enjoyed about the book was you're going to have to find a methodology that fits you.
And you're going to have to make it your own.
And I could have really benefited in my early years instead of feed money to the markets.
What I really needed was a trading mentor.
And one of the things that they didn't really talk about in the book, but almost every great trader in there had a trading mentor, one way shape form or another that they mentioned in that book.
Michael Marcus, he was basically mentored.
I think what he said by Ed Secoda, Ed Secoda, he was just a genius, I guess, but I think he was in mentored by, he mentioned it, but I can't remember the name.
I may have been named as Hostetter or someone like that, or it may have been, I can't remember who it was now.
But if you look at what these people went through and what they did, they were trained to think and behave as traders and not people coming into the marketplace with the idea and just trying to execute on it.
Did you know anyone during all these years who traded any family or friends who you could talk to?
No, I did not. And generally, the general public, they're not going to be very supportive of you trying to do something like this.
My dad was always supportive of it.
And in the later years, he really became a staunch ally for me because he had seen some of my capabilities.
But he didn't know a whole lot about markets.
This is another good quote that you can get from me.
If we can argue that the market is the sum of the psychology of its individual participants within the market itself has its own psychology and it is on display in those graphs and charts that we see.
Now, I know you'll get a lot of ridicule from the fundamentalists.
Jim Rogers is going to bow up at that.
It'll make his bow ties spin.
You quoted us earlier.
You said that the market is the most insidious sociopath on earth.
Care to elaborate? It is because what do we do as traders?
What are we doing every day as traders?
We're trying to take money from other traders.
So if the market, now we've established that it has its own psychology, the market will try to manipulate you as a sociopath would to make what Mark Douglas would call trading errors.
And it will try to make you hang on to those trading errors as long as possible to try to take as much money from you as possible.
So it does have the traits of sociopathic behavior.
Now, what stops a sociopath in your life?
If you run across one in your life in a relationship or something like that, it stops when you cut it off.
It's a choice that you have to make, but people get so vested into it that they run.
They run way past their loss parameters and that's in life and it's in the markets too.
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So would you characterize your early trading in the 1990s and maybe early 2000s after the advent of the internet as a time period of what exploration, gambling, learning?
I was learning about the markets and I had just enough information going into the financial crisis to make a fortune and give it all back.
Please tell us, how did this happen?
Well, I went in and I had accumulated an account.
I won't get into the details but the money that I had saved and this money became freed up to me and it was in an IRA and I know I'm gonna get a lot of ridicule because I've had to explain this before.
People tell you that you can't trade commodities in IRAs but you can.
You are interactive brokers and I'm not trying to plug them.
That's the brokerage that I use.
When you establish an IRA with them, it's established in Trust and it allows you to trade more exotic instruments and back in those days, you didn't have these DAGON exposure fees.
So, man, you could really lever it up, right?
It doesn't really cost you nothing but commission but when crude oil started peaking, it went into a parabolic.
I felt like that crude oil was gonna probably collapse.
What time frame are we talking about?
We're talking 2007.
Okay, 2007. Okay, so now you're trading with your IRA account, correct?
I'm trading with IRA account and I had a little, I had more than $100 ,000 in it and the loss pattern initially showed up because I got too early on the parabolic and I was shorting soybeans, I was shorting crude oil and I was shorting copper and I can remember, and I think it was 2007, I think, we have to go
back and look at the chart.
If I saw the chart, I could tell you exactly the day when it peaked in there.
Crude oil peaked at like around $148 a barrel.
Yeah, I think that was in the summer of 2008 just before the crash.
So, that would be it then.
That would be the time frame, 2008.
The IRA I had, I had a little bit before that, right?
So, I was trying to catch this top in crude oil but when you're trying to catch the top in a parabolic, it's very dangerous because parabolics move.
Look at, look at, there's some mathematics things, right?
Parabolics move fast as at the end.
My hundred, I think I had $140 ,000 in that account.
By the time crude oil had finally peaked and man, this got me to doing some drinking and thinking.
I had whittled that account down to $75 ,000.
So, and I'm talking about an IRA, right?
This is money you've been saving for the past eight, for the past 18 years here and you've gone through half of it in 90 days but the trade size was too large.
It did finally work out in my favor because I eventually caught the crude oil market just right and it rolled over and by the time it broke down below $95 a barrel, my 70 -some thousand dollar account was worth over a million.
Wow and that, that's a very short period of time, right?
A very short period of time.
We're talking weeks and it came in chunks like this.
I can remember my dad one day.
He would, he would talk to me about markets every now and then and he asked me, how'd you do today?
And I told him, I said, I did all right today.
I made $72 ,000 in one day.
He, he froze, he froze rooted to the spot.
He couldn't believe that it, that I had made that much money in one day.
So reflecting back at that time, based on kind of what you're using, the strategies and what have you, do you attribute that to just luck or was there some level of skill in that and if so, what was it?
It was some skill and I've got a, I've got, you know, talking about the psychology of it and this kind of branches off in here.
I read a book by Robert Prechter and Prechter is a notorious deflationist and I read that book in the mid 90s.
It was at the crest of the tidal wave.
It's a decent book to read, but you shouldn't trade based on it and you should never let the hyperinflationist, which is going to be the bullish case or the hyper deflationist, which is going to be the bearish case, influence your trading.
That is very difficult for me to break away from because you're trying to break away from the very fabric of who you are.
You're like Peter Schiff.
He's a, he's a hyperinflationist.
Peter Schiff would never short oil.
I don't think he's an avid hyperinflationist, but like Jesse Livermore, I guess it was Jesse Livermore was talking about it in his book.
He talked about the two.
There's a bullish side and there's bearish side and then there's the right side on the right side.
So going back to your crude oil, when could you explain a little bit the skill aspect that you felt in that trade?
A trend following model.
When I was looking for the trend to break and I also had seen enough markets go into parabolic.
I know what's going to happen to a parabolic.
I had a guy one time, I'm talking to me, he dealt in cows and I was heavy in commodities back then.
And we're in a rural area here, a bunch of guys around here that do deal with cattle and stuff where they had a drought out West and it decimated the cattle population.
It's been years ago.
This was after the collapse in 2008 and nine.
And I told him, I said, look, that cattle market is in a parabolic.
And I started pulling up charts of parabolics.
I said, one parabolic after another.
I said, you know what happened to every one of these parabolics.
Here's a cotton parabolic where it went up to like, I think almost $2 a pound.
Guess where it went to.
It went back to where it started from.
Just curious and what are some of the indicators that a parabolic is very near its end?
I mean, have you found any methodologies to you know?
You never know when a bubble is going to burst.
You never know, you never know how far it can go because oil set up before it finally did collapse in that 2008 collapse.
It had a parabolic and then it had a retrenchment from a parabolic that went up until the 70s or 80s and then it consolidated.
If you see a consolidation and it's very shallow and it starts to break back to the upside, you know you're probably going to have another leg to the parabolic.
Someone who thought oil was going to collapse from that, I guess it was in the mid 80s back then.
I'm trying to remember this from memory from that price and it actually got down maybe into the mid 60s and they've been shorting along along the way and they get stuck in that line of thinking.
Well, they blew that account up when it came into the next leg of the parabolic.
You see what I'm getting at.
Yeah. So when you were having your big wins with the crude oil, where did your account top out at and what timeframe are we talking, what year are we talking about?
By January, by January 2009, I had it over 3 .188 million.
Wow. So this is, so what were you shorting?
You were shorting oil.
Crude oil, copper, and it was a ludicrous thing for me to do.
A ludicrous thing for me to do.
I was also trying to short the treasury bond, but I had enough knowledge that when it breaks out, and I don't know if you can remember that market, but treasury bonds went into a parabolic during that time and they skyrocketed.
I can remember the treasury bond market.
I was shorted at 119 on that treasury bond and it went all the way up to 164, but I got out when it broke out of a base that it made.
I wish I'd have went long that market.
I could have made a, I could have really made a killing there.
The problem was I still had a lot of weakness in me.
I was still, and I can remember Mark Douglas, he talked about a trader that he was dealing with and he talked about this guy and then this is outside the bond market.
Right. This is kind of like the book at what Prechter's book did to me, and I'm not blaming Prechter all the flaws that I've ever had with trading.
They're mine. They're internally, they are mine.
I'm not trying to blame anyone or cast blame anything of that nature, but Mark Douglas talked about this guy who had made $6 million.
He goes on vacation.
It's in the early 90s.
He takes a book with him that talks about how the US economy is going to go into inflation and how the bond market is going to crash.
This guy, he comes back, goes to the Chicago board of trade, wherever, to the bond pit down there, and he starts shorting treasury bonds like crazy.
He takes a $6 million account and he decimates it down to 2 million.
This book influenced him to do this.
His wife had to call Mark Douglas, didn't even know who he was, but she knew that her husband was being talked by hand.
He had given up on him.
The guy had given up on Mark Douglas and she told him, please come help my husband because if you don't, we're going to lose our house.
Right. When you got your account up to about $3 million, did you think of like, hey, I've got this down.
Maybe I should just quit my job or maybe even quit trading and just retire.
I should have put it all out, put it in an IRA, just made interest.
Actually, I should have just went long to market.
It's very evident. You could have drew a trend line on the S &P 500 from the top of the market right down into the trough where it bottomed out into the mid -60s.
You could have gone long to market there and the 3 million would have turned into 30 million probably, the way I was trading.
When you got up to 3 million, what were your thoughts then?
At that time, did you think, okay, I want to quit my job or I'm going to quit my job and I've succeeded.
I'm successful. I was having such massive equity swings.
I knew and I was at a Ford dealership in Raleigh and I was talking to a car dealer over there and I told him, I said, I know what my problem is.
I said, I am married to a deflationist slant and I said, I know the risk if this market turns around and starts to go back up, that it could decimate me.
I know that that is out there.
I foretold my own doing, but I got to say I had a mortgage at the time.
I had some other things.
When I made all that money, that 3 .1 million I'm telling you about, that's after I took a half a million out and I paid every scrap of debt.
I paid some of my dad's debt off.
I paid some of my debt off.
All the debt was basically gone.
On my end, everything was gone.
It did free me up in many ways.
I still feel the after effects of that right now because being debt free was a big leg up for me.
I see. So January 2009, you're at your peak and what did you do from January 2009 onward?
Did you stick with the deflation?
I was waiting for the, I did catch a long trade in there right off the bottom and my account actually probably peaked in March because I called a long trade.
I think it was in, I think after oil had gone down into the mid thirties and I was trading at the time like a quarter million barrels at a time, a lot, way too much.
That's what was giving me these huge equity swings.
Like I can remember when I broke a million dollars, it wasn't three days later.
I was back down to 800 ,000.
So I still had no respect for loss control.
And I still, I'm like a recovering alcoholic on that.
Yes, I'm a recovering lossaholic.
So question during this time you had a full -time job.
Did you feel that because you had the full -time job to rely on for regular income that you could get reckless in the markets?
I mean, what was your kind of your attitude?
You know what? You probably have hit on something that was underlying under there.
You always felt like you had something you could go home to, right?
And I think that that was part of it too.
But if I knew that I knew I had that deflation is slant, and it was quite obvious the federal reserve was pumping money into the system at a scale unseen in, in modern, in history.
And the deflation, of course, got stopped.
But you know, I still have that inkling that this economy could deflate.
I still feel it right now, but I don't trade based on it.
And I would recommend no one trade on it.
You can use a 10 -day moving average to get you out of trouble.
It's like if the market's above the 10 -day average, just stay long.
If it's below the 10 -day average, just stay short.
That'll get you out of 99 % of all the problems.
So what happened with your account after you peaked in 2009?
What did you continue to trade?
I continued to trade and I whittled it down a little bit at the time, like $50 ,000 a day here, $50 ,000 there.
And I can remember one month, I lost a million dollars in a month.
It's about $50 ,000 a day, 20 trading days in a month.
And the psychological impact was really kind of devastating to me on that.
Did you ever think of just walking away from trading and just giving up on it?
I can't do it. I've had relatives tell me, they told me, she said, I think.
They told me, they said, you know, you really are kind of running two full -time jobs doing what you're trying to do.
And she said, I don't think that you could give up trading.
And she said, if put to a gun barrel to your head, which one would you give up?
I said, it would be very difficult for me to give up trading.
And why is that? Are you addicted to the, to the thrill, the dopamine?
I'm trying, I'm trying not to be, but I'm trying to figure out how to get to consistency and have a consistent income from it.
I don't necessarily, Mark Douglas called it a boom bust era, right?
You're in his boom.
That's what I was. I was in a boom bust era.
That's what it was.
I didn't have the right time type of tutelage to really deal with what I was dealing with.
And you really need a good mentor and you probably really need a good coach along the way to, Hey, somebody says, Hey, look, you're getting off foul line here.
You need to get back in line.
So it seems clear that you have the talent to make the money through trading.
But how does one keep?
How do you, how do you keep it?
You've got to have strict loss controls and you cannot marry yourself to the idea that a market is going to go up or that a market is going to go down.
A market can go either way.
It's just, it's just so happens that you landed on the right side of probability.
And as a fella about a name of Randy howl who's that's somebody y 'all might consider interviewing.
He talks about that.
And he said, and he's, I got to say something about losses that he appointed.
He brought up our minds are not adept to trading.
And I've got to kind of agree with that.
He said, because we come from an evolutionary background where losing costs you your life.
He said, if you would go back and fight back to the caveman days, and you had caveman there with his spear and he's fighting a saber -tooth tiger, you're going to fight that saber -tooth tiger till your spear breaks, till you're throwing sticks and stones at it.
Till you're throwing sand in its face, because if you lose that battle, you're going to lose your life.
And the sand that you're throwing into the face of the market is your equity curve.
And you can easily step back and step away when your loss control, when your loss point gets to a certain point, you need to step back and step away.
And you need to have the discipline to reevaluate what you are doing.
You've mentioned earlier when we talked with you that there are psychological traps that wouldn't allow famous traders like say Jesse Livermore to pull away.
Could you go into more about what are the psychological traps that even someone like Jesse Livermore couldn't pull away from?
And it's a whole list of traders that went through this.
I can imagine what Victor Nederoff was feeling in 1997 during the Asian contagion, what they call it.
I can imagine what he was feeling when the S &P 500 was breaking down against him.
He didn't want to take the loss, but his position side, the market had established positions down there that it was going to make you take the loss because your blood was going to carry it there.
And that's a trap at your end.
He couldn't pull away.
He wouldn't pull away when it broke down initially or at least hedge it out, what you call armchair quarterbacking.
But when you get into the fight of the battle and you're sitting and you're dealing with millions of dollars like he was, and you sit in and you're looking at a $5 million loss.
Well, what's it, end for a penny, end for a pound, so to speak, and it can cause devastation in your account.
What about you? What specific trades are you able to share that you felt that you had the legs taken out from underneath you?
And then how was that for you emotionally?
It's traumatic when you lose a lot of money like that.
In the 2000 when it started going back up in 2009, it just took money away, whittled it away a little bit at a time.
I don't think that I really felt the trauma of it, but I really felt the equity loss.
So I really did not like it.
Did you stay short because you had bought into the deflationist ideology put out there and then that rode your trading instincts and procedures?
It overrode my trend following model.
I believe that to have an edge in the market, you have to have some type of trend following model because price is what's going to pay you.
And I like pattern recognition.
Now I know the fundamentalists, they're not going to agree with that.
They're not going to accept that, but from a technical standpoint, from a standpoint that I like to deal with the market, I like to look at a trend following method and I like to look at patterns in the market like triangles, head and shoulders patterns, breakouts, breakdowns, flag formations.
These type of things are very important, but what's going to really keep you out of water though is loss control and I call it puking positions up.
Like right now, I'm getting a little bit older.
I can't go out there and blow myself up like I did before.
And I've come close in the past few years, but in the past year and a half, I have really started to work on this and I compressed it down and you can see it in my equity curve.
It still has some sharp drops in it at times.
I can think of one in the past year where it got out of control too much and I puked positions up.
Well, we'll use a more polite term.
We'll call it coughing positions up.
Yeah. Could you go more in depth of what is your loss control?
Can you break it down for us?
Look, if I see a loss right now on the account of say a thousand dollars, I start to think, uh oh, we're getting into the red zone here.
I see. What is that percentage wise?
Like what percent drop would that equate to?
Uh, uh, it's going to be like a, what close to maybe a third of a percent, maybe a little less than a third of a percent.
Okay. But I would not take the loss at that point.
Usually, I don't, I have done it depending on what the pattern is, but the market's not going to let you out free, right?
When, when a pattern starts to break against you, it's going to show up quick in those prices.
Like right now you might be down $500.
Okay. And we get ready to break out of this triangle pattern where you're not the only person in the world seeing this.
Every market participant out there sees it.
They're not going to let you off the hook for free.
It's going to, they're going to take some of your hide when you go.
So after peaking then in the, you know, early 2009 with your account, uh, what happened over the next, uh, year or so?
Well, over the next, I'd say over the next, uh, five or six years, I really did not trade a whole lot.
I always kept my trading account.
I kept watching markets.
But I finally, I told my dad one day, I said, look, uh, I'm going to start building this trading account back up.
I want to go into, I want to try this option writing, uh, system that I've been working on.
I said, I know it's not a loss free Nirvana, but I want to start to try to apply more rigid loss controls.
And I had some periods in there where I had some rather steep drawdowns in there also, uh, because the market that, that four letter cuss word in the market of oath was still creeping there for some reason.
And I think that Randy Howe had said it the best when he talked about his saber do tiger.
I just can not, I could not let go of a tray as long as I'm still in the tray.
I still have a chance to make money.
And I, and that has been a problem.
But over the past few years, I have been able to kind of quail that in quite a bit.
And I think, I think I sent you a picture of the equity curve for the past year or so.
And you can see some drops in there.
Right. And you can see one in there where it almost got out of control, but you asked me about the control limit.
If I see a 1 % loss in a day, I'm going to cough the position up.
I'm just, I can't stand it anymore.
I can't go through that trauma like that.
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Thank you. Now back to the chat with our guests.
So what was your position sizing like?
Were you spread out among many positions or did you have highly concentrated positions?
SPX only. And I can tell you like right now, I can look at the account right now and I can tell you that I'm only, I've only deployed little more than a third of the account of total equity.
I just looked at it.
I just looked it up.
So I've only got a third of the account deployed in the, in these spreads right now.
And only spreads I have on are the option spreads.
And most of that's going to go away in two minutes because the market's getting ready to close.
And of course these options are going to expire on the close.
So from having that traumatic experience about what 13 years ago or so, you took a break from trading and then you got back in with a option writing strategy.
I've been doing that since 2015.
And I've had a lot of success with it because let me tell you how low I was in this trading account.
I was so low that I did not realize because I don't keep up with the regulation.
I did not realize that they had day trading limits.
And I was like, what is a day trading limit?
I've never heard of such a thing before.
Well, I had my capital base had gotten that low that I was running into those, what is it, T3 day trading limits, what you can do three, I don't know what it is, but you can't do so many in a week.
Right. Right. And I was that low.
And I was so, and I'm way to work around on that.
I just went over and I traded the E -mini S &P 500 contract.
That's one half the SPX, right?
Is 50 times the index.
So I just went over to that, to that market and traded those.
And I was still going through the loss period, but I was cutting them off quicker, but I still had a few periods in there of 50 % drawdowns.
And I can say this about option sellers, like a put seller, like, like I hear this all the time from people.
I, as a stock, I don't mind owning.
So I'm going sell a put against it and I'm going to just collect the cash.
Well, what does that do?
That insulates them from ever having to face that psychological weakness that I could be wrong and I could have a devastating loss because, and I'm sure that there are people that were putting, selling cash secured puts or wheeling on Enron that are still waiting to get back to even.
Yeah. So did you do much cash -accured puts?
I would always do a credit spreads.
I would always hedge them.
And now that I'm starting to put this 1 % loss control in there now, sometimes the loss control is not going to be not going to be exactly 1 % because by the time the market gets to a point where I think it's going to break one way or the other, I've already overran my parameter, but I wanted to give
it that much room because that's where the next resistance point is, right.
Or the next support zone is.
So you could run into it.
What that, but that's still a flaw too, isn't it?
What that tells you is your sizing is wrong.
You're trying to trade too large.
So your emotional experience throughout out your trading career, has that forced you to lower the position size limits and then really adopt these strict loss control parameters?
How many times did you end up blowing up your accounts or coming close to blowing them up?
I only blew up in the early days when I only had $2 ,000.
I mean, money just went, it just went right.
I wouldn't consider it blowing up, but like I take $2 ,000 and be down to $1 ,000 and it just, I was under capitalized.
I was under capitalized and I was under knowledged and no respect for risk controls at all.
And you needed to have more patience.
You needed to have some patience to build up an account and then you really need to have the right type of mentorship to tell you, hey, you can do a lot of damage to your finances here.
And a lot of famous traders have gone through it.
George Soros. I watched a video about him and he was talking about some of his disasters, but how many times did I blow up?
I just say the big, make the big mega account that I would, I would consider that to be a blow up because almost all the equity was gone.
Right. But that's the only time and I hope that's the only time that I ever go through that.
Now, since then with the option selling program, I have had some 50 % drawdowns where I let things get out of control.
And one time I had a very big drawdown.
It wasn't 50%, but I lost like $40 ,000.
I was at work and I was going into work and the election had just taken place between Trump and Biden.
And you know, it was contested in there.
It takes a week for them to figure out who won.
So we're going into Friday.
Some of the state still haven't reported.
I put a credit spread on, on the call side and a little bit on the put side.
I'm more cautious on puts because I can still remember the flash crash.
I went into work and of course we're coming out of out of COVID and it's been rumors going around for weeks on in about the vaccine.
This one's got a vaccine that don't have a vaccine.
But on Monday morning at about 6 45 in the morning, the news drops and these are gave a lot of impetus to the market.
The S and P 500 rocketed nearly a hundred points and just a handful of minutes from the time that I could walk up three flights of steps.
I had lost over $40 ,000.
Wow. Needless to say, I had a bad day at work, but that was my fault too.
Because over that night, like, like right now, if I look at my positions right now and I lose $1 ,000 in the overnight, that's probably a pretty good sign that the day is not going to go well.
Right? You're already down quite a bit overnight.
You need to do some adjustment.
And what I should have done back then, I should have turned it into a ratio spread because with the move of that magnitude, I would have actually made money on it.
And to add insult to injury by the end of the day, the market had turned around and gone right back to where it was.
You know, quite often traders are more afraid of losses than they get, than the benefit that they get from gains, which is common among humans in general.
Do you ever felt that your excitement for potential gains outweighed your fear of losses?
I don't know if I ever really, really got excited about, about a potential gain, but it was kind of like a scientific experiment, to be quite honest with you.
Let's see what happens.
But I do wish that I would have applied more loss control parameters to it, but because I would marry to my ideas, right?
I noticed something too.
I would do in those days too.
I would go data mining, go try to find articles that would support my position.
This is all rubbish.
This is all rubbish.
You're in chat rooms talking to people about, about this position.
This is all rubbish.
The only thing that's going to save you is a loss control parameter.
That is the only thing that will save you.
Do not let your losses run out of control.
After you experience these losses and then you tell yourself, oh, I got to have loss control, and intellectually you get into that.
But later on, once you get into that losing position in the future, do you tend to rationalize it, say, oh, well, you know, this time it's different, or you come up with all kinds of reasons.
Why? Or do you get swept up in the emotions of the moment and you forget the rational arguments that you made some time prior to about loss control.
You mean like the deer in the headlights?
Yeah, like a deer in the headlights.
Exactly. You're overwhelmed.
Your sensory perception has become overwhelmed because you can't believe that you're staring at that loss again.
I have felt it. And I think like, well, I'll just give it a few more ticks.
I have felt that many times and it usually, and then I've done it and it worked out.
But that's a trading error.
That is a trading error when you do that.
You're already overrunning your loss parameters you need to get out.
That's what you need to do and you really need to get out before you really even get close to hitting your loss parameters, especially if you're trading when you start to cut your size back.
Because now it's going to take you that much longer to get back to get your underwater curve right.
Because you don't have the size anymore.
And another error would be doubling down on the next one.
And I haven't done that very often, but I have added to losers in the past.
And I never, and I don't do that anymore either.
But that's another story.
You shared with us your performance on fun seater and you got above fairly high up there.
You were in the top 30, which shows that you're doing quite well.
Have you ever considered trading for a prop firm?
I've considered it, but I don't know if it would, if it would match, if it would match my personality.
I know that there are some good ones out there.
I know SMB capital is a good one, but you know what you go to those prop firms and you look around there, all those guys are young, right?
But you notice you don't see very many old traders.
Well, you might have some things to teach them perhaps, isn't it?
They probably could teach me things.
But they're old traders and bold traders, but there are a few old, bold traders.
I've never wanted to go on the internet and meet a prop challenge.
I've seen that advertised a lot and I've never done anything like that.
Because just thinking that if you're trading with someone else's money, maybe the pressure that you get from losing money is not nearly as great.
And maybe that could allow you to focus in on the merits of the trade.
I did manage some money for a friend of mine one time and he passed away from cancer.
And I told him, I said, look, his name was Phillip.
I said, look, Phillip, and I didn't have the size that I've got now.
Account was like one third, like one fourth of what it is, less than a fourth.
I said, look, I'll take you $20 ,000 and I'll put it in this account and we'll write up a loan agreement.
And if I make money with this on this account, I'll send the gains back to you and I'll pay you a flat interest.
And your gain will come from if we make money, you'll get paid back really quickly.
And I paid him the interest upfront.
And I said, and we did it one time and halfway through it, he called me on the phone one day and he told me he had terminal cancer.
And I said, man, that really put the pressure on because I want to get this money back to this man before something happens, right?
It was $20 ,000. I paid him all the interest upfront.
And within four months, I had made enough money between working and the job that I paid every cent of it back.
And if he was still living, I still believe that we would still be doing those same type of deals today.
But I was paying him like 4 % interest, which does not much now, but interest rates then were zero.
And I told him, I said, if we could turn it over two or three times in a year, you will make 12%, 15%, whatever it would come to.
But that was a sad case.
But that's the only time I ever really managed someone else.
Someone had enough faith to invest in my system because you have somebody you're talking to.
I was talking to him about the trading system all the time and the modifications I was making and what I was trying to do.
Did you ever feel more pressure because you knew him and you didn't want him to have a loss?
I didn't want him to lose money.
And that's why I didn't want him to be a 100 % equity state.
And if I were to manage money for someone right now, I wouldn't take a fee unless I did make money.
And that kind of helps the pressure too.
I just don't think you should take a fee unless you make money for someone.
Right. Sorry about your friend there.
How about your performance now?
And how have you built yourself back up?
Well, through consistently saving money and my market performance has been much better the past few years.
Last year was a decent year and I'm up this year.
I'm up nearly six figures this year.
What does that translate to percentage?
I can look on 29 % so far this year.
Oh, good. Good. You're doing credit spreads?
Is that your main credit spread?
Credit spreads. But look, credit spreads, you can take a credit spread and you can make it into a total directional bet.
It depends on how far it deepens.
You could go deep in the money and sell a credit spread.
Like if you have a conviction that the market's going to drop, you could sell a deep in the money call option and that call will fade away in value as the market drops.
But you have to have the conviction that it's going to do it.
And of course, the closer you are to the money, you're going to have to adjust your size, you don't want to overtrade because you're going to run into those loss controls very quickly.
It can happen out of the money too.
Yeah. So since you're big into selling options, were you attracted to selling out of the money options on any of the very high volatility stocks that we saw say in the last two years when the VIX index went way up and some of the meme stocks with their crazy implied volatility?
I almost did credit spreads on the GameStop deal when it went parabolic because I felt like that parabolic was not going to hold and it didn't hold but my capital was tied up.
Of course, you would never, when you're in the middle of a parabolic like GameStop was in, you would never want to do a credit spread.
And I'm talking about on the call side, I felt like the stock had top down and this was before the split, it was like $400 a share.
I couldn't believe what I was seeing.
And you could sell, I believe you could sell $600 calls for like $50.
I remember those times.
Yeah. But you definitely wouldn't want to do that naked because if it got out of control, something like that could have collapsed the whole financial system because what will happen is these brokers and these market makers, it could destroy the firm.
If somebody that's on the wrong side of it, it could destroy and it could just be, you could get into counterparty risk.
It's hard to believe that something like GameStop could have took the whole country down, but it probably could have.
Well, yeah, that's kind of scary to reflect on.
There was an episode, remember when crude oil went negative for that short period of time?
Yes. Okay. Interactive brokers had a client that thought that, hey, buying crude oil for a penny a barrel, that seems like a pretty good deal.
And he bought 272 contracts.
I believe was the number.
I get so many numbers in my mind, I forget them sometime.
He bought 272 contracts and then the overnight session, he had a $9 million loss.
Yeah. Imagine taking delivery of that oil and having to store it somewhere.
I hear that the oil storage was full back then.
Right. But, you know, the guy had like $80 ,000 in his account and he lost $9 million.
Well, suppose a whole lot of their clients would have thought oil was a great buy at a penny a barrel and you would have had thousands and thousands and thousands of contracts, something like that could collapse the whole financial system because it would destroy the banks that are back into trades
at the end of the day and the broker's capital at the end of the day.
But that's a theoretical thing.
So now that you're doing a better job with managing your risk, is there a way that you hold yourself accountable?
Do you have anyone to share your, any mentors or?
No, I don't have any mentors and it's very few people that I can talk to.
My dad, he passed away in 2021.
And of course, this friend of mine that I had, he passed away.
And those two were the two that I really kind of bounced ideas off of.
And, but no, and it's a void really because most people are just not interested in this type of thing and they're definitely not interested in to the level that I am.
Well, you can join our chat with traders community.
And we have many fellow traders that like to share what's going on in their trades and then you can share as well.
Yeah. I have read a lot of them.
I'm thinking about doing that actually.
And the most people, and I do have people around me that trade, but you know something I noticed about traders, they're fixated on their own ideas.
And I believe that that dovetails into the loss control too, because they're not going to modify, they're not open minded enough.
And you've got to be very open minded because what you got to be flexible with your position.
You can't be married to one side of the market or the other.
And I think that when you come up with your own ideas, you don't want to be, they call it data mining when you're looking to facts to support your case.
Well, you don't want to be people mining either when you're looking for people to support your case.
Exactly. And, but you see, but you see how that could be similar though, how you could have, you could have people who could have some animosity.
I guess it's a way to say it because you don't agree with their position or you don't agree with what they're thinking.
Right. So it sounds like you've, you're doing a pretty good job with loss control.
Currently. Is that accurate?
I would say that's accurate and it's very much accurate compared to my past trading for the, to my past boom bust era.
And it's the struggle to get to consistency and it really is a struggle.
And it's the most difficult thing I have ever done.
I see. And how, how did you get better?
Did you do any journaling?
I've got a stack of papers over here next to me right now that when I started taking that, when I took some large losses that I was starting to write them down and chart them and see where I made my mistake and where I let a market run against me too far.
Because if you notice over the past few years, I call them left to right days, we've had a lot of days in here where you've had major moves on the S &P 500 where it moves 70, 80 points in a day.
And it moves from the left side of that chart to the right side of that chart.
And it has very little reprieve in there.
It's almost a straight up line.
It doesn't give you any chance to get out.
Cause you, what, what, what, when it's moving against you like that, what do you want?
You want it to take a step back and maybe that will give you your chance to get out.
You just need to get out when it absolutely, you know, I hear people say you need to turn the P and L off.
I'll leave the P and L alone because it's a P and L gets too red.
I got to go. So you keep track of your P and L.
I watched the P and L and one, and one of the reasons I do it is because it's so difficult to manage a position like this would stop because you've got multiple options going on here at one time.
You may have some puts in here going on and you may have some calls going on.
Whatever side of the market is giving me trouble.
That's the side that I get out on, but I've let overall P and L dictate it.
Not, not when an option, but you could go back and calculate where it would give you problems and put a stop there.
But when that stop gets hit, it's probably going to be ran through in an options trade.
You have a liquidity problem there and you're like, and when a market starts to break out, it will, you'll see option prices move from a dollar to a dollar and a half and it might be two and a half on the next tick.
So there's some risk with stops there too.
So what does your morning routine look like in preparing for the trading day?
Do you ever meditate as well?
I like to, sometimes I do go like on a, like to go like a walk on a nature trail or something like that and try to think about, think about really kind of think about arrows that I've made and arrows that other people have made, not the potential of what I can make, but where I have made trading mistakes
and I need to really focus on identifying that incorporating it.
And I think it was Randy Howells had this too.
He was talking about you need to mentally prepare yourself like an athlete does because you have to condition yourself.
And one of the things he was talking about was losses.
A lot of people don't have the conditioning to take a loss.
And I could see that in myself.
And that's the initial stages of letting a loss get out of control.
If you like, like he was talking about people that were making free throw shots, you sit down there, that may have been Mark Douglas that was talking about it, you're sitting there and you're making these free throw shots and you don't, you know, you condition yourself to make it, but when you get into
the game, the pressure is on.
And now that reflex that you built up, it may fail you.
And I'm kind of circling around it, but you've got to build up a tolerance to take the loss at the early stage.
What you're saying there would seem to suggest that trading small lots and trade frequently so that we're conditioning our mind repetitively to take those losses relative to your equity, your account equity, you have got to pull your trade size down in a method that I'm using.
You pull your trade size down so that you don't run into your 1 % loss threshold too often.
And I think you were talking about the fun cedar account.
I think that my drawdown on there has been about my max underwater curve was like 4%.
I'm telling you I overran my loss parameters when I had that 4 % loss, and I had it over a couple of day period.
I overran my loss parameters.
I think my trading size was right.
I just did not get out fast enough, but I can remember that trade had I not gotten out when I did that 4 % loss would have probably been about a 20 % loss.
No, wow. So, do you trade while you're working full -time?
I mean, yes, I do. And I'll say this again, for options traders, for anyone that's listening, and this is my opinion, probability and edge are two different things.
Just because you put on a very high probability credit spread trade and credit spreads of high probability trades, and I don't care what stripe they're in iron condor, just selling cash secured puts, whatever, theta decay traders have a high probability of winning on every trade they engage in.
But that does not necessarily mean that they have an overall expectation or are going to have an overall realized gain.
Because the concept of edge and probability are two different things.
And I struggled with that in the early years, but now with the loss control parameters in place, I'm getting a little bit better about not letting it eat my equity curve up.
What would you say is your edge, loss control or something else?
Loss control is part of it.
Probability is part of it.
But trying to be in the trend, and being able to identify trend in the pattern of the market, and then put probability in your favor, and then use loss controls.
And in the option market, you can do losses in different ways.
One way would be just close to trade out and walk away.
And most of the time, that is the right thing to do.
Or if you have a very wide credit spread on, you just take and you turn it into a ratio spread, and you buy maybe the next strike price or strike price or two up so that you wall off the risk, right?
Like I'm going to just use a hypothetical.
Let's say I do a 10 lot, and on the S &P 500, and the credit spread is 100 points wide.
Well, that's $100 ,000 worth of risk.
That's 1 ,000 times 100 is 100 ,000.
Let's say the market starts to move against it.
Ah, I'm all of a sudden now I'm showing a $1 ,500 loss.
You could go in there and take and cut that $100 ,000 risk, cut it down to $5 ,000 risk by buying the next credit, the next strike price above the one that you're short.
And I've worked around some things like that.
And I've done that before and actually been able to pull it out, but it was by the skin of my teeth.
Because what'll happen is that option that you're buying has almost cost as much as the option that you're short anyway, and you still got $5 ,000 worth of risk on.
But then I could turn it into a straddle by doing by getting half of it back on the put side.
I've done things like that, and I've made it work out.
It's no such thing as I'm gonna turn it into an ATM cash machine, right?
Because the market just doesn't work that way.
Right, right. So wrapping up, where do you see yourself in the next two to five years?
My goal is to continue to try to, I'm going to do this.
It's not what I'm going to try to do.
I'm going to do, I'm going to control these losses, and I'm going to press this loss curve down.
And if this account balance continues to grow as it has for the past 18 months, I want to get that loss parameter from 1%.
I want to crush it down to maybe three quarters of a percent.
Because if you blow your account up, you don't trade anymore.
And what blows your account up are out of control losses.
What's going to mess you up on consistency is on consistency is an out of control loss.
You know, you're talking about fund seeder.
You could take an account, put $100 ,000 in it, put it at a brokerage that pays pretty pays the interest, the money market interest rate, and you'll get a good fun seeder score just on the interest.
Oh, really? Yeah, because you'll have no drawdown, right?
You'll get a decent score.
You probably you're not going to be very high, you probably not going to be, you might be in the top 10.
I don't know what metric they use an internal algorithm to determine how it goes.
But drawdown is a critical number in there.
And if you look at the top accounts in there, and there's a few of them in there, I'm jealous of one in particular, my hat's off to that trader too.
If you're out there and listening, you got it going on.
Yeah, well, congratulations on on your evolution from, you know, a novice trader to a boom bust cycle trader to now getting consistency and getting a handle around your losses.
How can our listeners reach you?
Well, they can send a text message to 252 -532 -0892, or you could send an email to b -r -y -a -n oldford h -o -l -d -f -o -r -d at gmail .com.
I'm pretty open to talk to about these things.
And let's hope we don't fall off the lost wagon.
Yes, we certainly have a lot of experience with that and, and have shared some valuable lessons with us today.
Thanks for coming on the show.
All right, thank you.
Thank you for having me.
You betcha, Brad. All right.
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