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Behind The Trades Ep 9: The Importance of SIM Trading

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Behind The Trades Ep 9: The Importance of SIM Trading

 

NOTE: *We have moved from Fantasy Stock Traders to the Warrior Trading Simulator. This podcast is a lesson utilizing Fantasy Stock Traders, not our current Simulator.

All right everyone. So, today we’re gonna host our 8th Episode of Behind the Trades, and today’s topic is The Importance of Sim Trading; trading in a simulator. All right, so this is … Sorry, this is Episode … the 9th Episode of Behind the Trades, not the 8th Episode. Now, I’ve talked about this 1,000 times, and this is something that has always been really important to me, because the fact that when I started trading I didn’t use a sim; I just jumped in with real money.

So is it any surprise that I lost money in my first 3, 6, 12, and 18 months of trading? I lost over $30,000. And, in fact, in two years of trial and error, and struggling to learn how to trade, it cost me about $100,000 before I started generating consistent profits. Most of you guys, most beginner traders, can’t afford a $100,000 learning curve. Right? That cost of admission is just too high.

So that’s avoidable. You don’t need to spend that much money learning how to trade, and you don’t need to take those unnecessary losses going through trial and error. You can do all of that in a sim trading environment. Now for me, part of the cost of becoming a trader was dedicating 18-24 months studying, doing trial and error. The actual cost of losses was only $30,000; $70,000 was living expenses for two years of not having any other income.

That was really the problem. So for you guys there are two approaches, the first approach is: you can cut down on that $30,000 of losses by trading in a simulator, practicing in this safe environment before you start trading with real money. And then the second, the $70,000 for me of living expenses for two years of trying to figure it out the hard way, can be bypassed by, obviously, being part of a community that will teach you how to trade, and that’s what we do at Warrior Trading.

 

The Importance of SIM Trading

 SIM Trading

 

So let’s talk a little bit about the importance of sim trading, and go over the agenda for today’s episode of Behind the Trades. So on Episode 9 the topic is The Importance of Sim Trading. We’ll also be answering a few viewer submitted questions that viewers have submitted over the last week, since our last episode of Behind the Trades, and I’ll be sharing with you a viewer submitted story.

At the end of the episode I’m gonna give away a … an access pass to the Warrior Starter Course, which includes one month of sim trading access, one month of chat room access, and classes 1-4 of the Warrior Starter, which is the four foundational classes that every trader really needs to understand. Learning to manage risk, learning how to choose the strong stocks to trade, learning how to identify strong candlestick formations and strong candlestick formations on the daily chart, and daily support and resistance levels.

Okay, so with that let’s jump in here. Now, one of the things that we were talking about last week, just to kind of recap, we were talking about the importance of understanding your metrics as a trader, and that’s when we talked about the profit trifecta. Let me share with you guys, the link for the profit trifecta for those of you that didn’t watch last week’s episode. This is a important refresher here. I’m just gonna grab this link.

Let’s see … I’ll paste it in the room. So here’s the reality: every successful trader is going to share similar metrics. There are defined metrics for success and if you don’t know what those metrics are, that makes it really hard for you to be a successful trader. Now one of the things I talked about last week is the fact that those of you that watched the TV show Shark Tank, one of the questions that they always ask — both on Shark Tank and The Profit, those shows — what are your numbers? What are your numbers as a … for this business that you have. And in this case, your business as a day trader.

You need to know things like: what’s your average percentage of success? How often … what’s your accuracy like? Simply put. Number two: what’s your profit/loss ratio look like? What are your average winners versus your average losers? And then number three: what’s your consistency look like over the long haul? How many weeks of consistent profits have you had? If I pull up the profit trifecta page here, put it up on screen share.

So what I do is I break down where each of our students are, based on those three important points: consistency, accuracy, and profit/loss rations. And so, you can see most beginner traders are gonna have a profit trifecta score of three or lower. Basically they’re at the first tier on each of these three components. And as they move through the Warrior Pro Trading Course, first the Warrior Starter, and then the Warrior Pro, they start moving up in their score. Now, I’m right now right around a score of 14, and this is … the best score you could possibly have is an 18, so even for me, I’ve got room to grow. And you guys who are in the room right now, you can figure: what is your score as of today?

 

sim trading

So you get one point for each week of consecutive profits. If you’ve had three weeks of consecutive profits, you’ve got three points. You get a point each time you move up in accuracy. If you’re at 50% accuracy, you’ve got one point; 55%, two points; 60%, three points; 65%, four points; 70% is five points; and 75% is six points. This week I was at 93% accuracy. I don’t know if I get a bonus for that, but I would take it if I could get it.

Profit/loss ratio right here, 1:1; below 1:1 is one point; 1:1 is two points; 1.5:1, three points, etc. and moving up. So you can see here, I’m right around at a 14. Some of you guys who are beginner traders may be a little bit lower, you may be at a three or a four, others may be somewhere in between that and kind of professional trader. So you can see here, if you’re 1-3 you’re probably not profitable. Beginner traders are 4-6, intermediate traders are 7-9, experienced traders are 10-13, professional traders 14-18.

And you know, it doesn’t mean that you don’t fluctuate on this chart. I had a red week a couple weeks ago, so that kind of set me back to zero weeks of consistency. And maybe weeks, once you’ve been trading for a couple of years it’s no longer about how many weeks you’re consistent. It’s maybe about how many months or something a little bit bigger, because we all have red days and maybe a red week here and there.

All right, so when you understand the profit trifecta, which I want all of you guys to of course understand, which we covered in the last episode of Behind the Trades. Then you need to start practicing your trading and working your way up to those levels of, at least intermediate trader. If you’re not at intermediate trading level, you’re most likely not gonna be profitable. Most beginner traders are not profitable. They don’t have the consistency, they don’t have the accuracy, and their profit/loss ratios aren’t strong enough.

 

SIM trading

So that’s the value now, of trading in a sim. Trading in a simulator to practice improving your metrics. And then once you get to a point where your metrics are solid in a simulator, that’s when you switch to trading with real money. And you don’t make that switch to trading with real money until you’ve first proven you can make money in the sim. So this is one of the things that I say a lot: if you can’t make money in the simulator, you have no business trading with real money. I mean, it’s just that simple. Right? If you can’t make money in the sim environment, what makes you think you can make money with a live trading account?

So even though, on a day like today, you might think, “Well, I really want to be trading with real money because I don’t want to miss out on this opportunity to trade” you know, whatever it might be. Like today for instance, we had this move on SRSC, see it and say, “Oh well I didn’t want to miss this move, so I just decided to trade with real money.” And most likely you end up losing money.

The reality is the market will be here. The market will be here tomorrow, it’ll be here next week, it’ll be here next month, and there’ll be tons of opportunities just like this. I can go back a couple of years … like let’s look at LAKE for instance. This is a stock that we traded a couple of years ago. Let me back up a little bit. Scroll way, way, way back, way back here in October of 2014 this stock went from $8 to $30. So let’s say you missed that move. It was 2014 and you’re like, “Ah, I just missed this really great move on LAKE.” So you end up spending the next 90 days in the Warrior Pro course and you end up trading the simulator for the next 90 days and getting yourself prepared.

So yes, you missed this move, but then, when a stock like AQXP pops up a little while later — this is in 2015, a year later — you’re now prepared to capitalize on it. And on the day when this stock goes from $15 a share to $56 a share, you’re able to capitalize on it and you make really good money. Or, and you know, and this is just the most recent example … you have a stock like DR, sorry … DRYS, DryShips. This was just last year, where it goes from $1 up to $120 a share over the course of two days. And again, if you miss DRYS in November of this year, well start studying, start practicing.

In six months, a year down the road, there’ll be another really big opportunity, and when that comes along you can capitalize on it. So don’t underestimate the importance of paying your dues and studying. The market will be here. Don’t get bent out of shape because, “Oh, I just missed this opportunity today.” There’ll be another opportunity tomorrow, there’ll be another opportunity the day after that. All right? So let me drag that window over there for a second.

Okay, so let’s see. Now, sim trading, this is one of the things that, for me, was really important that we offer to all of our students. Now, there were of course, there’s a lot of simulators out there. You can use TD Ameritrade to trade from the simulator, but of course for me, I’ve never traded successfully and profitably with a TD Ameritrade account, even though I actually have one. I’ve never really made money in it because, for me, it’s not set up for an active trader. So using the right simulator is important because the reality is, even though there’s whatever, probably 100 different brokers, they’re not all best suited for day traders.

What is the right broker for one trader may not be the right broker for another trader. So think of it like this: if you’re Lance Armstrong, you’re a great cyclist or whatever, and you have some friends that are like, “Hey Lance, let’s go ride our bikes on the beach. It’s gonna be awesome, we’ll ride in the surf,” or whatever, and you show up with your road bike that has tires that are like this thick, they’re gonna be like, “Lance, what are you thinking? I know that’s a great bike, but it’s not gonna work today,” when everyone else shows up with those beach bikes that have like fat tires. That’s the right tool for what you’re gonna do.

So if you want to be an active trader, an active day trader, you need to use the right type of broker. Now, there are some that have been able to make due with thinkorswim. And I’m not criticizing thinkorswim, because it’s a great platform, it’s just not the best platform for an active trader, for a day trader. And you can’t blame them, that’s probably not their primary customer and they want to cater to the customers that make their business as good as it is.

So that’s probably people who trade, you know, a couple times a month, a couple times a quarter, and stuff like that. But for us, we’re trading every single day, so we need platforms that are really fast. And that’s why I worked with our team to develop the Fantasy Stock Trader’s platform. And this was really important to me, and it took a lot of time, it took a lot of money to develop; there’s been some bumps along the way. This is … developing trading software is obviously something that is a huge endeavor. I mean, it’s obviously huge, and I don’t think I realized that when we got started.

But you can see here, the platform, I’ve got MBRX up on my level two. So if I press Shift + 1, I just bought 250 shares, and you see how quickly those 250 shares just popped up. So I’m just gonna show you guys on screen share, who are watching on Facebook Live. I press it again, now I’ve got 500, 750, 1000. You see how quickly I can take these trades? I press it once, twice, three times, four times. Now I press Ctrl + X to sell half.

Literally as fast as I can press the button, I’m executing trades. And that’s the power of having the right tools. If you want to be the type of trader that moves quickly … you can see how I’m going up and down, up and down, up and down, boom, boom, boom, boom, boom. That’s the type of tool that you need if you’re an active trader. Now I’m actually trading faster right there than I would ever trade with real money. I’m gonna trade fast with real money, but not that fast because the market doesn’t move that fast.

But the fact is, you want to make sure you’re using the right tools. So you can go here and see the hotkey manager. Let me drag this up here. And you can program these however you’d like. So I have these programmed, by default, in the same exact way that I use them and the same exact keys. So if you train in this platform and you trade in in for 90 days, which is what pretty much everyone that’s in our Warrior Pro course does, then what you’ve done is you’ve trained your body — with muscle memory — how to get in and out of trades quickly. And then when you start trading live, whether it’s at Lightspeed or Interactive Brokers, or wherever you decide to trade, you can usually program the same exact keys on the same … with the same commands. So you’ve already trained your body how to trade and how to be a profitable trader.

So right now, today, we had a total of 348 students trading on the simulator, practicing; buying, and selling, and all of that stuff. So obviously some students get aggressive and take big size and do some crazy stuff. In total today, it looks like we’ve got, our biggest winner’s up like $700,000. I’m not sure if that’s the most realistic, but today you’ve got 101 traders who are green, and you have 248 who are red.

So, you know what? I would wager, if you were working at a broker and you could log in and see the accounts of actual traders, that it would probably look something like that. A small percentage are green and probably made a lot of money, and the most are in the red. So why not practice in a safe environment before you start trading with real money? We can look at any, any stock that you trade today, you can trade here in the simulator, and then once you’ve built up some experience and some confidence, only then do you switch to the real money account. That literally, right there alone, would have saved me $30,000 because I wouldn’t have done all that trial and error, just messing around that I did, with real money.

So what was really important to me in the simulator, was that not only you guys are able to trade the same way that I am, and that you have the same exact market data feed. These are all connected to the exchanges, so we pay the exchange fee and everything. You’re getting real time market data, it’s not delayed data. But what was also important is that your balance doesn’t reset back to zero every single day, which is what a lot of simulators do. They allow you to trade but then you log in the next day and your balance is cleared. So that doesn’t help you develop any sense of what your metrics are, or what your percentage of success is. Right? So I’m gonna move that over here. So that’s why we integrated the leader board.

And the leader board, both that’s integrated inside the platform, and that’s available on our website, allows you to see where you stand relative to other students. Now we’ve been working on this and making some changes. The update is gonna come out on Monday for you guys, so you’ll be able to start seeing some new info on Monday. But with this leader board here, you can see all of the traders on the simulator. Not just yourself, you can see other students; you could see our most profitable student. What’s he doing right? What’s really working for him? Or, you know, you could see the biggest winners and the biggest losers, and just sort of evaluate, “Okay, what are these guys doing that’s really working?”

This stock EC, this guy lost $34,000. That was one of those stocks that did a move kind of like DRYS. It went from zero … well not from zero literally. It went from like $1 to, I don’t know, $15 right here; $1 to $8 and then all the way back down. So traders who bought the wrong side of that trade, they got themselves into a lot of trouble. I’m glad it happened to him in a simulated environment instead of with real money.

So, the ability to see your metrics and to see where you stand, is something that’s a huge benefit. And you can log onto your own profile and see, right here, your metrics. Okay, so this trader right here, his average winning trade is $361, and his average losing trade is $894. That’s a problem, that’s not good. We want to see students who, you know, their winners are bigger than their losers. So what that tells us is that he has a negative profit/loss ratio. Right here you can see his actual profit/loss ratio is .4:1. Instead of being 2:1 or 3:1, which is positive, he’s .4:1, that’s a negative profit/loss ratio.

So right now, at the end of this week, this student can see where he stands on the profit trifecta scoreboard. He can see his average profit/loss ratio, 40%, and he can see his percentage of success, it’s right up here at the top, 55%. 55% isn’t too bad. That’s actually not, I mean, that’s not horrible considering most traders who start are more like 25-30%. 55% can be profitable as long as you have a good profit/loss ratio, and that comes down to understanding the fact that if you … let’s just say, for instance, you make 100 on average and you lose 100 on average. You need to be right 50% of the time to break even. Right? That makes sense.

So let’s say you make 200 on average and you lose 100 on average. How often do you have to be right to break even? It’s actually only 33%. You only need to be right 33% of the time to break even when you have a 2:1 profit/loss ratio. If you have a 1:2 profit/loss ratio, meaning you lose 200 on average and make only 100, you need to be right 66% of the time just to break even. So profit/loss ratio really changes the minimum threshold that you need to be at to be a break-even trader. And again, if you don’t know what your profit/loss ratio is right now, that’s a problem.

This is something that you need to know, and I can tell you for myself right now, I can log into my Traderview account. Let’s just see where I’m at. So I have to do all these stats for myself, as well. I don’t trade in the simulator so I use a company called traderview.com, where I can export all of my trades from my broker account and get these same exact reports, well very similar reports. I wish my broker would do it for free, it would save me $50 a month, but that’s okay.

All right, let’s look at the report here. So I’m gonna just do a report for the last … since January of 2016. So this is a report for the last like 18 months of trading. All right, in the last 18 months of trading, let’s see, I have an average winning trade of $801, and an average losing trade of $736, so that’s just a little bit better than 1:1, which is not bad. So what do we know? We know that I probably need to be right a little more than 50% to break even. Or actually, no, I can be right a little less than 50% to break even, so I could be right maybe 47% and break even, something like that. My actual accuracy, 69%. Not bad.

That’s on a total of 1,164 trades. That’s a lot of trades. I’ve got a lot of data there behind those numbers, so I can feel pretty confident that that’s pretty much where I’m at. I can also tell you right now that, in total, that’s a gross profit of $395,000, which is pretty good. And guess what day I make the most money? Mondays, Mondays are my best. Mondays and Wednesdays are my best, Thursdays and Fridays are my worst.

 

SIM trading

So you can get those same metrics in the simulator here, on Fantasy Stock Traders. This only shows the top half of that page, but you can scroll down and you can see your accuracy by day of the week, by price range, and all of that stuff, because that is really important information to know. In the last 18 months, I made $300,000 between 9 a.m. and 10 a.m., and the remaining profit was after 10 a.m., so the bulk of my profit is the very beginning of the day. If you know that type of information then you could say to yourself, “You know what? I’m gonna start trading with more share size at the beginning of the day because I do better, and less share size in the afternoon because that’s not when I do as well.” Right? You can start putting together that math. But if you don’t know that information, you don’t know your metrics, you don’t know your numbers, how can you make educated decisions on what you could possibly do to improve your trading?

So this, again, is the benefit of trading in a sim that also gives you those metrics. If you’re trading in a sim that doesn’t give you any metrics, then you’re practicing but you’re not gaining really insights, so you’re only doing one half of what you need to be doing to prepare yourself. Now, students can also click on their trades — largest winner, largest loser, whatever — and actually pull up the chart, the historical chart, and take a look at it.

So you could look back and say, “Well what were my 10 biggest winners?” And start figuring out, “Okay, my 10 biggest winners … interesting, they’re all on this pattern.” And then you start to think, “Okay, well maybe I should focus more on that pattern, take bigger size when I see that pattern.” And that, again, helps you make informed decisions of what you could possibly do to become a better trader. These things are just so important.

So even though it’s taken … well probably now, well over a year of development on this platform, and a tremendous investment. I wanted to put my money into this because I knew how important this was for our students. I knew that this could increase the likelihood that my students were able to be successful. And that’s … what’s really nice here is that we share the same objective. I want you to be successful because that reflects really well on our classes, and you want to be successful because that means that you are a profitable trader. So when we share the same goal, that’s really a good thing.

There’s a lot of, you know, in this industry there’s probably a lot of educators out there that don’t share the same goal as you. You know, if I was selling DVDs on Amazon or something like that, my goal is really just to sell the most DVDs, so I’m maybe gonna put more money into developing a really awesome DVD cover with a picture of me maybe standing with a girl with a bikini or something.

I mean, it’s like I would … my focus would be on something a little different. Probably because you put in the DVD and hopefully it’s a good one, and whatever. But realistically it’s very different from the experience that you guys have being in our classes and being able to trade on this simulator. And of course, I’m able to log in and during the day I can see what you guys are trading. So if I see a student who did really well, or a student emails me and it’s like, “Hey, you know I’ve been trading on the simulator and I’m feeling kind of frustrated. Can you take a look at my trades?” I can do that. So let’s see, I can sort alphabetical order, and let me just scroll down here.

Jason … All right, so Jason here, trading Hane, nVidia, MU; he’s red on three out of three trades. So this is a student where I can look at this and sort of get a sense of, “All right. Well I can tell he’s trading Mike’s strategy because these are all higher priced stocks. These aren’t the low priced ones that I trade.” And if I sit down and have a one-to-one with the student, I can look at these results and get a sense of, “Okay, this is where he’s getting in, this is where he’s getting out.”

Basically, as soon as the bell rang he jumped into this stock long at $40, or he had an order at $40, he got in at $39 and then it just totally rolled over, and so he kind of got stuck on the wrong side there. He ended up getting back in, getting back out, maybe overtrading it a little bit. I could see just right on the surface that he maybe over traded, considering it’s a Friday. He got really aggressive jumping in as soon as the bell rang, which I’m inclined to do at the beginning of the week on Monday, Tuesday, and Wednesday, but not as much at the end of the week on Thursday and Friday. Thursday and Friday it’s more often that we see some of these false breakouts and that type of thing.

All right, so I’ll move this back out of the way. All right, so I want to answer a few … oops, put that back up. I want to answer a few of the questions submitted this week, by students. Anyone, of course, with questions on the simulator that I was just walking you through, if you want to put comments, those of you that re-watch this on YouTube or on Facebook, put comments in the video. I’ll come back and answer them during the week. Those of you that are in the chat room, I’ll answer questions in just a moment. But let me answer a couple of the viewer submitted questions from this week. So again, we do these episodes, not every single week. Last week I went to Rhode Island so we didn’t do an episode, but we did one the week before. If you go to warriortrading.com/show you can participate in the next episode. You can participate by submitting a question or submitting a story. So let me show you guys what this looks like here. There’s that. Okay.

So you can see right here, Behind the Trades, you can subscribe. It’s on the iTunes store or whatever it is, the podcast; latest episode, latest shows, be a part of the show here; have a successful trade story, write about it; have a question, personal question, trade question, submit the question here. And then those come into my inbox, I filter them, and I respond to a couple of the ones that I think would be helpful for other students, as well.

Okay, so first question, by Michael. Ross, how long should I stay in the trade? I mean, it’s a general question but it’s a good question. How long should I stay in a trade? This is something that I probably struggle with more than you might think, because I have a tendency to sell my positions a little on the early side, which is probably a result of the fact that I may be a bit of a nervous trader at times. I get into the market, I get aggressive, and then all of a sudden I’m up 20, 30 cents, I get a little nervous and I start to take money out. And there are times when I look back and I’m like, “Why did I do that?” Especially when you have a stock like one of these ones, EC, that suddenly goes from $2 to $8 and you’re thinking, “Wow, I sold the whole thing at like $2.50. Why did I do that? I should have held it longer.” But the fact is, I’ve made a living as a trader by being quick to take profit off the table. It’s important to know when to take your money and when to walk away.

So today’s a day where I’m only up $233, and I could tell right away that today was gonna be a slower day because the gap scanners weren’t that great. In the first 5, 10 minutes of trading I didn’t see any really good opportunities right away, which is when I usually see them. And so that told me to slow down a little bit. I took one trade, it didn’t go as well as I thought it would. I was red on it before I was green, and then as soon as I was green I got out of it. Ended up going up maybe a little bit higher, but I said, “You know what? I’m just gonna take my money and be done.” Today’s a day where I’m pulling a little bit of money out of the market, and if you do that consistently, you’re doing something 9 out of 10 traders don’t know how to do. So it’s not about leaving all of the trade on the table as long as possible, it’s about knowing when to pay yourself.

So for instance, if I get into a trade like the trade I took today on SKLN, and I’m up 10 cents, I’m gonna start thinking about taking profit. So on this one I got in at $1.78 for a red to green move. And again, this is related to price range. If you’re trading a $100 stock you’re probably not gonna take profit at 10 cents, you’ll take it at 50 cents or something like that. But with the cheaper stocks, when I hit my first sort of mental profit target … because I usually am risking about 10 cents on a trade, so if I’m risking 10 cents, then how much do I want to make? I want to make 20, that’s 2:1 profit/loss ratio. But if I sell half when I hit 10 cents, then what I’ll do is I’ll adjust my stop on the rest of the trade, to break even. So that means, if I sell half at 10 cents and I stop out the rest break even, I still walk away with profit.

And the fact is, if you got into a trade and you’re right, it went up 10 or 15 cents, you should pay yourself a little bit for that because you had the right idea. If it ends up going up another 10, 15 cents after you sold half, you can sell another quarter. If it goes up another 10, 15 cents, you can sell another quarter, and you can keep scaling out. So what I do is on my very first trade of the day, my first two trades are all about building my daily cushion, giving myself my daily profit. And once I have that daily profit, that little bit of cushion, even if it’s only $200 or $400, now I feel like, “Okay, I’m in the driver’s seat.”

Now I can take a trade, and since I already have this little bit of cushion — which is kind of like my daily keep — now on this next trade I’ll get in and as soon as I’m up 10 cents, instead of selling half, I’ll just put my stop at break even and now I’m risking nothing because my stop is at break even. And if this trade ends up going 30, 40, 50 cents, that’ll be the trade that gives me $6-$7-$800 of profit and I have my daily goal of $1,000. And if it end up coming back to break even, you know, I stop out flat and I don’t lose on it and I look for the next opportunity. But I don’t do that until I first hit my daily kind of minimum profit, which is like $300 to $500, something like that. In some markets when we’re seeing a lot of strength, maybe it’s even as high as $1,000 on that first trade. But, that’s sort of my focus.

And I actually do, and I hate to compare trading to gambling because it’s very, very different, but when I go to Vegas — which is a few times a year — one of the things that I do when I’m gambling is, if I start with $500 … and I try, I mean … this is luck though, because you can’t really control whether you make money or not on the first couple hands. But as soon as I’m up to like $600 or $700, I take that $500 that I initially put on and I put those chips in my pocket, and I’m walking away with that.

I won’t walk away with less than that $500. Sometimes I end up taking the chips out of my pocket and using them anyways, but I try not to. I try to say, “No, that’s it. I’m now walking away with $500. That’s what I came with, so that’s what I’m gonna walk away with.” And now, what I have here is now my basically my cushion that I can use for the rest of the day. And if I end up having a great night and whatever, maybe I’ll end up making $3-$4-$500 or $1,000, but I’m no longer risking my capital. It’s kind of the same with trading in the morning, except that my odds for success with trading are 69%; whereas with gambling it’s like less than 50%, it’s like 40% or something.

So the statistics are in my favor, which is why this is a successful career for me, and not just a thing you do on the weekends or whatever. Anyways, so when I’m looking for a trade in the morning, my focus is finding that one or two setups that I have really good conviction in, and that I can use to help me build up to the $500 kind of minimum daily goal. Once I’ve got that, now I put that aside and any trade from there on, I can let ride. So yes, I get into a trade, I’m initially risking 10 cents, which is risking a little bit of that $500, but that $500 at that point is profit, so even if I give up a little bit of it, I’m not giving up too much of it. All right? So I hope that answers your question there, Michael.

All right, second question. This is from someone who put in their name as daily bread. When a stock goes up I think, “Wait for a pullback.” But then, when the pullback starts to happen I think, “How do I know if this isn’t a reversal?” And then I just end up sitting there and waiting, and then when it starts to go back up, I miss it. So when I’m trading pullbacks, I have sort of a specific way that I trade these. And we can look at this stock today, SRSC, as an example. So when this squeezed up here and then started to pull back, as you can see right here, you had one red candle and a second one. And on the one hand, this kind of looks like a reversal; really extended, starting to pull back.

So what I would typically say is: let it pull back, but my entry won’t be until it starts to confirm a reversal. The confirmation of a reversal … The confirmation of a reversal off the pullback would be the first candle to make a new high. So in this case here, you only … this candle made a new high and it ended up being a false breakout, which is not maybe particularly surprising considering the stock went from 60 cents to $1.20. It needed to consolidate for a bit longer. So this isn’t the best example of a really good bull flag, but that’s what I’m looking for; I’m looking for a bull flag. So one red candle, a second red candle, and then on the third candle if it breaks the high of the previous candle, that’s a possible entry. Or if it pulls back for a third pullback candle, third red candle, that’s fine, then on the fourth candle I’m looking for it to break the high of that previous candle. And the moment it breaks is my entry with a 10-15 cent stop. Profit target is a move back to high of day.

Things that are more indicative of a reversal would be doji candles, when at the very top you have a very long upper candle wick. So if this candle here, for instance, had a candle wick that went straight up like that, that would make it more of like, “Okay I’m nervous,” because it squeezed up and then came back down the way this candle here at 12 p.m. did. It squeezed up and then came back down. So that’s not what you like to see as much, that’s more indicative of a reversal.

And what confirms the reversal is when the next candle makes a new low. You have that one candle formation with that tall tail that’s a warning sign, and then the candle that follows it confirms it when it makes a new low. So that’s when I would say, “Well, at this point I don’t really want to be a buyer because now we have this candle of indecision. Seems more of a reversal, I’m gonna wait for more of a pullback that’s a little bit cleaner.”

All right. Then last question’s from a student, or a trader, named [Erik 00:37:47]. He said, “How do you decide your position size for each trade? And along those same lines, why couldn’t you trade with a larger account, say over $250,000?” So as of this morning, my account is $55,000, so it’s a medium size … I don’t know, it seems like maybe a smaller account. I’m not sure what you’d really call it, it’s all relative I guess. But to me, this is probably a small to medium size account, and generally my accounts are between $30,000 and $50,000 and then I take money out. So I’m probably gonna take money out soon and drop it back down to like $35,000.

I’ve left some money in there, and one of the benefits of leaving money in there is that if there is a day where we have an opportunity like EC, or DRYS, I have the capital and the buying power to be a little more aggressive. If I only have $30,000 in that account I might, on a day where we have a $6 stock that’s really starting to move, I could take 20,000 shares but that’s it. And that might be a day where I would think, you know, I kind of want to take 30,000 shares or 40,000 shares and really be aggressive, and I wouldn’t have the money to do it. So that’s just, for me, maybe a reason to keep it more in the 50’s or 60’s, but … because right now I have $222,000 of buying power, so I can be pretty aggressive right now. I could take, I mean, I could take some big size of most stocks under $10.

But for me, the way I size is based on the quality of the setup, so if I see a really good quality setup that I think has everything I look for … and I have six criteria that I review, these are part of class two of the day trade course, actually it’s class three on stock selection. If a stock has all six of those criteria I’m more likely to use larger size. Now part of that criteria is that we are in a strong market. So a stock that has all of those criteria but we’re in a very weak market, I have to use smaller size. But if we’re in a strong market where we’re seeing really good momentum and things are really working, that’s when I’ll be more aggressive and I’ll use the bigger size.

If I had a $250,000 account right now, would I have traded any differently this week? And the answer is no. I actually wouldn’t have. This week I wouldn’t have done anything differently. And my biggest trade this week was, let’s see, a 25,000 share position, which was $83,000 in total investment. So actually, this week, I would have made the same amount of money if I had only a $30,000 account. So this week, that extra $25,000 in my account, it didn’t help me.

And so then if i had a $250,000 account, this week that extra $225,000 wouldn’t have done anything. So wouldn’t it make more sense for me to put that money somewhere else, where it can actually be doing something? And that’s what I do, I put the money to work, so I put it onto long term investments. And I don’t manage them, I have a financial advisor that does it for me, and that’s just for me, part of I have my area of expertise that I focus on, and I don’t want to have to think about or clutter my mind with other stuff.

So on a day like yesterday, when the market was down 200 points, I looked at my long term investments and they were down, obviously, because the day was down. I think I was down like $8,000 or something. But I don’t feel like, “Oh no, I gotta do something about that.” Because the reality is, that’s not … I don’t need to worry about that. That stuff’s put away for a long time, just let it do its thing. I’m not gonna … it’s not like I’m gonna sell it or I’m gonna do anything differently because the market’s down, so I really don’t even need to log in and check it; it’s almost irrelevant for me to do that.

So if, however, I was managing that myself, then I would have this added pressure of, on top of everything else I’m doing, now I need to think about, “Well, what’s going on with the overall market? What should I do with these ETFs? What should I do with these stocks and these stocks?” And right now I don’t have the time to focus on that, and that’s not my area of expertise. So it’s the same reason that I don’t do my own taxes. I might as well hire someone who is a CPA, who knows how to do that stuff.

So for me, my account right now is at $55,000. Probably at some point I’ll draw money out of that and put it away for long term stuff, or put it aside for taxes or whatever it is. There wouldn’t be a lot of benefit for me to trade with a $250,000 account because I’m not gonna use $1 million in buying power. I mean, I’ve never done that before. What would I need the $1 million in buying power for? I don’t, you know, I don’t need it. So I basically want to make sure that I have enough buying power to take any trade that I want. Not that I have the cash balance, but I have the buying power, so cash times four. So at $50,000, does $220,000 right now give me enough buying power to trade whatever I want? And the answer right now is, yes, it does. So a $5 stock, 10,000 shares is $50,000. So I could take 40,000 shares right now of a $5 stock and that’s, for me, I don’t even trade that big.

So right now I’m in good shape, and having more money in that account, what it would actually mean is that I’m making a smaller percentage gain on every single day that I make money. And it just makes more sense to put that money where it can earn more interest somewhere else. And, yeah … Last year I made $220,000 on a account that started the year around $50,000, and if I had started the year with $225,000 I wouldn’t have made a $1 million last year. It doesn’t work that you get exponential growth by having more money in the account. It’s kind of like if you were building a house and you’ve got three guys building your house.

Would you build the house … and it takes them, let’s say … Well let’s say you’ve got 10 guys building the house and they say it’s gonna take six months. If you had 100 guys building the house, would they be able to build it in six days? Probably not. Right? Because things don’t always scale that way. And so with trading it certainly doesn’t scale that way for me. It’s relative to the amount of risk I’m comfortable taking.

If I was comfortable taking 100,000 shares, well then I suppose I would make that much more money, but you know my red days would be that much bigger. If my average … I mean, my best day of the year right now is $22,000 in profit trading with like 20,000 shares max. So 100,000 shares, maybe my best day would be $100,000, but my worst day would probably be $75,000 in the red. And I know that I’m not into having that kind of red day. And I honestly don’t think that there’s enough liquidity in most of the stocks that I trade, to buy 100,000 share positions. It would be a different strategy, it would end up being more like swing trading, because I’d have to slowly accumulate that position over the course of probably like an hour, two hours, planning on holding it for much longer period of time. It’s just, it’s a totally different strategy.

Maybe at some point I’ll be there and I’ll be willing to put $1 million into one trade, but right now that feels like an awful lot of exposure. Because the reality is, right now, worst case scenario, I’m in one of these stocks, they get halted pending like FCC investigation and they reopen 50% lower. So my biggest trade of the week was an $83,000 trade, if I lost 50% of that I would have lost $41,000. Yeah, that would suck, but I can easily recover from it.

That’s only really losing like one month of profits. And that’s worst case scenario essentially. So if I had that worst case scenario with like $1 million trade or a $7-$800,000 trade and I lost $350,000, god I can’t … I wouldn’t … I just couldn’t even imagine how that would feel. So you trade relative to your comfort, and for some of you, you may be totally comfortable taking that kind of risk and that’s just not where I’m at right now. So anyways, [Erik 00:46:24], long answer to that question but hopefully that’s helpful.

And now a … let’s see. Oops, let me move this out of the way. All right, so now I want to answer, or I want to share with you a story submitted by one of our students. This is … this was actually an email that I got and I won’t share the student’s name, just for his privacy. But he said that he wanted to thank Jeff, Mike, and myself for all of the support that we’ve given him as he’s been working through our classes. And he said, “I want to share with you guys that today I made $10,000 and it’s thanks to combining all three of your strategies,” Jeff’s, Mike’s, and my own, and adding a touch of his own technique. So he was trading a couple of different setups. He’s trading in thinkorswim, and it looks like he had a trade based on Jeff’s swing trade strategy, and then he took a trade on MBRX and SPEX, both of those stocks were ones that we were watching this week. And then he took a trade with Mike on, what was it, AKS or something like that.

And so this is a student who went through the trading courses, trading side-by-side with all of us, with me, Mike, and Jeff, practicing in the simulator. And once he graduated from the simulator he started trading with real money and he’s got, I guess, an account with SureTrader, and then he’s got an account with thinkorswim, which is what he does his options trades with. And by the way, Jeff, he’s up $22,000 this week so congrats to him. This was an amazing week for the options trades. But this student, he’s gotten to a point where he’s graduated from the simulator, he’s graduated from the classes, and he’s now making absolutely a full-time living, trading in the Warrior Trading community. So I just want to share that with you guys because it’s always nice to see a student who graduates from the classes and does really well, to get that feedback. I mean, we see it all the time in the emails. So that was just an email that I got last night and that I wanted to share with you guys.

So he’s still learning, he’s still improving his strategy, but $10,000 in one day, that sure is a nice way to finish the month of June. So congratulations to him. And oh, one of the things that he said — which was of course, nice of him — he said, “My gains today more than three times paid off the entire Warrior Pro course,” which was nice of him to say. So congrats to him. And if any of you guys are in a similar situation, where you’ve just finished the classes and you want to submit your story, I’d be happy to share it in one of our upcoming episodes of Behind the Trades.

Okay, so last thing, the giveaway. Today’s gift is access to the Warrior Starter course. Now the Warrior Starter course includes one month on the trading simulator, one month in the chat room, and classes 1-4 of the Warrior Pro course. Now, whether you start with the Warrior Starter or you start with the Warrior Pro, you take the same four classes. Those are the four foundational classes that every trader needs to take before they move onto the more advanced stuff. We separated it so some students can take the Warrior Starter and kind of dip their toes in. And I wanted to do this because I want to make it really easy for beginner traders to start investing in their education. And even if you’re only able to take the first four classes because of money, or time, or whatever it is, you’ll at least have built the foundation. Most students graduate from the Warrior Starter and continue with the Warrior Pro course, which obviously makes sense because they want to learn the strategies and the more advanced stuff.

But today we’re gonna give away access to the Warrior Starter, the one month package, and today’s winner is Christina H. All right, so I will email you, Christina, and send you access to the Warrior Starter, so congratulations. All right? Now, each time we have an episode of Behind the Trades I give away a gift, and I’ve been giving away access to the Warrior Starter. So Chris says she’s not present so he will accept her gift on her behalf. I’m not sure, Chris, we’ll think about that.

All right, become part of the show. Make sure for next week, or one of the upcoming episodes, you go onto warriortrading.com/show, you can submit a question, you can submit a story, and you can watch these episodes live on Facebook. I also often stream on YouTube Live. I didn’t today just because I wasn’t sure, my internet’s been a little weird. I just wanted to make sure, for those of you that are in the chat room, that I didn’t lose connection or anything like that. So I’ll upload this separately to YouTube, the podcast will go on iTunes, and you guys can listen and watch this later. Love to have your comments, I’ll answer them, I’ll come back through this weekend and answer comments both on Facebook and YouTube.

Okay, so that wraps up today’s episode of Behind the Trades, Episode 9. Thank you guys so much for hanging out today. And for those of you who have been in the Warrior Trading chat room for the last five days on our five day trial, I hope this has been an awesome experience for you guys and hopefully I’ll see many of you in the community on Monday morning. Okay? So with that, I hope you guys all have an awesome weekend, get some rest, and I’ll see you first thing next week. Okay. Thanks guys.

Oh hey, I didn’t see you there. I was just working on the dream board for my next home run trade; hopefully it comes soon. Until then, make sure you subscribe to get email alerts any time I go live or upload new videos. Until then, happy surfing.