Podcast | The Daily Ticker: EP5: Building Winning Positions
Welcome to a new episode of The Daily Ticker...
On today's podcast we're going to discuss how to have the most shares on the best trades. Seems like we always have the fewest shares on the winners, and the biggest position on the losers.
Today we're going to fix that with a time-tested process that all of the great stock traders have used.
We'll dive deeper into capital allocation and what to do when your stock is stuck, profitable but not moving. And whether or not you should exit the trade for a new one. I think my answer might surprise you.
Also, how to trust your edge and why trading more often is actually a good thing. And how it can speed up your success and your ability to make better decisions.
And to finish up I'll answer the most popular question from new members, "How come I can't get profitable when I know everything about reading charts?" (Hint: Chart reading is not trading)
Enjoy this 12 minute segment from a recent coaching call from our private community.
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Hey, its Pete. Welcome to a new episode of the Daily Ticker. Today we're going to discuss how to have the most shares on the best trades. I know that's what we all want, right? Seems sometimes we have the fewest amount of shares on the good trades, the most amount of shares on the trades that don't work out.
Today, we're going to walk you through a full-proof way to make sure you have the most shares on the best trades, the ones that actually follow through. We're also going to discuss capital allocation and what to do when you're stuck is stuck, and whether or not you should get out of it, whether you should look for new.
I think my answer might surprise you today. We're also going to cover how to trust your edge. Let your edge do the heavy lifting, and why trading more often is a good thing and how it actually speeds up your success. Probably my favorite topic that we're going to talk about today is the concept of 10 perfect trades and why it's my secret to finally getting profitable.
Enjoy this 12-minute segment from a recent coaching call from our private order flow pro community. Have a great. I actually want to start out with last night's coaching call. We had some really incredible topics last night that I think are very actionable, which is why I want to start out with them today.
First George is talking about how he's managing positions and whether or not you should be exiting positions. That are not moving against you, but you feel like you might have some better opportunities where you can allocate the idea. And it's actually an interesting topic because it's actually one that comes up all the time where it's not moving.
Should I hold it? Basically? But then George got a little bit deeper on the question last night where it started to move into the category of, but what if I think I have something else better that I can allocate my money to? Reverse engineering this trade, because generally speaking, when you start to get to the higher tiers of really active trading, you start to put on a lot more positions than you might be comfortable with or might be used to.
George is asking the same question after the fact because he is already in an existing position. But I want to bring it back to, prior to that, which was a really big revelation that I had early in my career early in my career, it was very common to have people tell us that you want to have one big position, like you want to trade bigger and look for those pockets of opportunity.
And on paper that sounds good, but you have to basically be right on that part, often with that big moment. And it's not really easy to do with size because it's very easy to get shaken out of good ideas because you took too much size on your original entry. So, my point is eventually I got to the point where it became really obvious.
And especially when you understand the concept of having an edge and you start to understand fully that when you allow your edge to do the heavy work, when you allow your edge to do the heavy lifting, you actually start to realize that the more trades you place actually speeds up how fast your edge can do that work for.
Now, again, I want to obviously throw in there good trades. The better trades you place, the more you're allowing your edge to play itself out. So again, just in the context of what we normally talk about which is 10 perfect trades, right? And working our way into what that looks like.
And obviously we have this visual image of allowing 10 traits, 10 perfect traits to do the work so you don't focus so much on. Necessarily whether each trade is going to work. You're more focused on getting all 10 trades started, which again, could be over. It could be in one day, it could be over a week, it could be over a month.
It doesn't make a difference. So, I want to make sure I'm talking to day traders and swing traders. But I will tell you when I finally realized this, which is obviously why I have this image and why it's a part of what we do, that the goal. And the language we used to use on the trading floor was feeler positions.
Like any idea that you liked in general market conditions. You would start out with what we would call a feeler position. So, you really wouldn't hesitate. You would basically okay, I'm going to put on my P one. I'm going to put on my tier one, whatever language you want to use.
And then basically you start loading your position, summary up with all of these ideas that meet the criteria of a good idea. And then now at that point you're basically just saying, okay, give me feedback of which ones are going to follow through and I'll get more of those and then give me feedback of which ones aren't going to follow through.
And I'll dump those and allocate that money to the ones that are following through. I will tell you it is a 10 times easier way to trade, especially while you're learning, because there's really no stress on the initial. Because you really don't have bigger position size. You're basically just saying, I want feedback.
And if I could put this kind of into the business world as like a perfect analogy, I believe, especially on the marketing side of things, if you've never, or if you have owned a business and let's say you're a newer entrepreneur, you get to a point where you are really good at what you do, but you actually don't understand yet how to run a business and how to grow a.
And a big part of that is marketing and more specifically spending money on marketing. And what most rookie entrepreneurs don't understand, and quite frankly, what a lot of new traders also need to learn is the fact that marketing is designed to get feedback from your market. Trading is the same exact thing, but putting it in marketing terms, you're spending money on your marketing budget to get feedback in the context of sales.
Some stuff works, some stuff doesn't work. You pour more money into the ones that do, and trading is the same way. The problem that traders have as well as entrepreneurs is they tend to put all their marketing budget into one idea, all of their allocation into one idea, and they're basically hoping that one educated guest.
Is going to be the perfect one. And quite frankly, when you relieve yourself of all of that stress and basically say, I have good ideas. I'm going to put them out into the market and get feedback from the market, which in trading terms, the trade at that moment moves in your favor in marketing terms, you're making sales or getting leads or whatever it happens to be.
When you relieve yourself of the pressure of the initial trade being perfect and start to focus on, I'm going to get involved. And then the ones that work I'm going to put more into, as opposed to, I'm going to get it to the exact penny and if I don't get it to the exact penny, everything in the, the trading doesn't work, trading stakes.
And you start to go into all of those other mindset things that we all have gone through in our career. It becomes much easier to understand that, especially while you're learning, it's more important to develop the muscle of good trading ideas and flawlessly putting on those ideas and allowing the edge to work itself out based on getting feedback.
And again, going back to the definition of an edge. Most of the time, if it's a good edge, most of the time it will follow through. Some of the time it won't, and that's, that's with the 10. Perfect. Visualization is about, we don't know which one of the 10 is going to follow through, but we do know that if it's a good edge, most of them will.
And quite frankly we have no idea from trade to trade. So, getting back into that trade by trade is random Trades over a larger sample size. Good trades over a larger sample size are absolutely predict. So, when you relieve yourself of the stress of each trade working, trading becomes infinitely easy.
Quite frankly, it becomes more fun because you're like, okay, put it on, and you're not stressing out about whether each trade is going to work. You are literally saying, give me feedback for which trades I should dump, or which trades I should add to. Now there's one level higher than that, which is I think something that our community.
Pretty darn good at which is recognizing when market conditions are perfect in that moment where volume in the market internals and sector rotation and support levels and profit potential, like they're all just lining up in a way where we're seeing energy candlesticks, light volume pauses, and like you got to get in there and mix it up because that moment requires bigger share size.
And let's say that's 40% of the time, maybe even 30% of the time, where everything just perfectly lines. To give context. That also means that the other 70% of the time is when we're putting on our initial position, looking for follow through and looking for positions to ed. So when you really think that through your head, you are now flawlessly executing your trade with initial position size, looking for feedback to Ed, and then the other part while you're getting that experience.
The other part is now recognizing. Those three out of 10 times, or 35% out of a hundred percent times when you should have bigger initial position size on your initial entry, and that's really more of an experience thing. But the interesting thing is you can't gain that experience if you're shaking out of your shoes on every single trade that you make because you have too much initial position size because you don't know how to do that yet, which basically means you don't know how to drive fast, yet you don't know the conditions to drive fast.
So what I'm basically saying is trading becomes easier and a lot more fun while you're learning, when you're not stressed out of your mind because you have too much initial share size and more importantly, which is what we wrote in the newsletter this morning, which was focusing on the number one thing, which is not predicting where prices are going to go but focusing on where they're going.
And making the best decision you can make now with the appropriate share size for right now with the appropriate initial profit target for right now. And then after you put the trade on, you'll have new information to make better distinctions, to make more decisions. That's where trading becomes running a business.
So tying this back into George's question from last night about if the trade is not moving, is this perceived as diminishing returns or should I be, Alec, should I be getting out of this position and putting it into another idea that. As he's talking about here, energy or communication services might have better reward potential at this moment.
So what we talked about last night was if you feel that right now and you do believe that you have one of those better, let's call them 35% opportunities, where it's lining up in a way where, wow, I wish I was over there. There's nothing wrong with reducing some of that position on your initial trade.
You still have it in your position summary and putting it into that second or third new. So, what we just did is we just reverse engineered the start of a trade and having three positions, but now we're talking about it happening after you already have one trade on and how you can take advantage of those other ideas.
I think one of the things that is sorely mistaken in trading is that it's all in all the time, and I'm going to take losses because I said I was going to lose $500. I'm hanging on to this thing until I lose 500. That's not the real world. That's like saying, I'm going to get on the highway and do 75, and I don't care who else is on the road.
It's absolutely ridiculous. But for some reason in trading, people have this thing in their mind like, no, that's my stop loss. I said, I'm going to lose that amount of money, and damn it, I'm going to lose that much money because I'm a disciplined trader. There's no reason it, could you imagine playing poker where you're like, you know what?
I'm going to take some of those chips off the table because my hand sucks. The first three cards I got were awesome, and now the rest of the cards aren't good. I could see everybody else's cards, so I'm going to take some of my money out of the deal out, I'm going to just reach over to the middle of the table and pull all of those chips.
I just put in on the last bet because now my hand is crappier. You obviously can't do that in poker, but could you imagine if you could? But we can do that in treat. That's the beauty of trading. And God forbid the stock eventually does what you think it's going to do, put the shares back on. It's the ultimate way of managing your mind, managing your sanity, and more importantly, learning to make good decisions.
As you get new information, it's not trading scared, it is managing risk, managing opportunity, and positioning yourselves ultimately to have the most shares on only the trades that do follow through.