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Hey everybody, it's Pete. Welcome to today's episode, the Daily Ticker. Today we're going to talk about something that is near and dear to everybody's heart, which is making the big bucks. How do I actually take home that kind of growth in my trading account that you read about in the books, you see all these guys on YouTube, men and women on YouTube talking about how easy it is.
I got news for you. I'm going to actually back it up a little bit. Talk about. I agree with them. Making the big bucks in trading is absolutely not hard. As a matter of fact, it's actually easy. However, the problem is keeping it. That's the big problem that everybody has. Now, before we actually get into the solution to that big problem, I'm going to assume you have an edge, a method that gives you high probability trades where you actually expect your profit targets to be.
Instead of your stop loss. Now, remember edge means most of the time, not all the time. So, remember, always remember the real risk in the trade is the quality of the idea. Of course, we have stop-loss risk, but the real risk is whether or not it's actually going to follow through. And obviously stacking that is a big part of trading, right?
There are a few ways it can fix the s nagging, and quite frankly, all too common problem. The first and the most obvious way. Is to lose less rocket science, right? But here's the deal, and here's a simple question. How much have you earned? Actually, earned with real money trades, not paper trading, not simulated trading?
How much of you actually earned on your winning trades the last three to six months? Let's start there because we're not starting at a honest place of where we are right now. Then nothing. We're about to discuss matters because we all have these illusions in our head of where we actually are. So, start right there.
How much of you actually earned on average? Over the last three to six months, not the last two days, not the last three weeks, three to six months, cause three to six months will give you a pretty good sample size. Assuming you're an active trader of actually allowing your edge to do the work. And quite frankly, cutting your losses and understanding if there's some good opportunities out there.
Hanging on to the winners. As of right now, one of the most famous. Quotes that I really love from Mark Douglas, which was Your current trading results are a perfect reflection of your current trading skills. There's no other way to put it. It's black and white. You are or you aren't producing a positive p and l.
So most traders, especially those struggling, are the masters of illusion. We instantly block out the big losers and we pretend that they don't exist. Let's get raw. Let's get real. Set a hard stop loss less than the amount you normally earn. Whatever that dollar amount is that you have now averaged out over the last three to six.
Set a hard stop loss to never allow yourself to lose more than you actually earn. You could do it per day. You could do it per week. That's how a lot of people map it out. I know professional traders typically do it by day. Those that are actively trading. If you're swing trading, you might want to have that number per week, which might actually be a little bit easier for you to calculate as well.
If you don't do this, you're going to end up churning yourself out of the business. It's just simple, basic math. How much do you earn versus how much should you allow? To actually take as a loss on a trade. Okay, so basic math, right? We do the same for bad trades, there's trades that we absolutely know are crap.
So, we're going to talk about now going from the math of how much should you actually allow yourself to lose to the type of trades that we're actually allowing ourselves to take. It's those bad trades, those trades that we absolutely know are crap, typically spur of the moment. That's a big part of it right there.
Maybe even we could justify. Crap trades with less share size. And I remember we did this when I had my trading firm. We had this big whiteboard, everybody's mapping out okay, if we take this trade and if we take this trade and we take this trade, and we had a whole six by six foot by four-foot magic marker board in my office in New York City.
And we were like, okay. So there's no reason to take that trade, no reason to take that trade. Lowering share size does not make it a better trade, right? I have news for you. Bad trade, less shares are still a bad. Cutting up a 2000 calorie cheeseburger into smaller bites is still 2000 calories. It doesn't change.
So, you got to write this down, put it on a poster bed, put it on your monitor. Less share size on a bad trade is still a bad trade. Okay? So, step number one to becoming more profitable is reducing and eventually avoiding bed trades. Okay? Reducing and then avoiding. And the only way to avoid them is to actually pay attention to when you're making those trades and literally stop.
So, this one thing of reducing and avoiding bad trades that you admit are bad trades, you know they're bad trades. Staying away from this instantly moves you closer to your goal of profitability, a trading account with predictable growth. So again, losing less is the first stage to getting profitable rocket science, right?
All right. So moving you closer to breakeven. Not bad, but not the goal. It's not exactly where you want to go. It's. But not the solution to the real problem, which begs the question, what actually is the real problem? And you're not going to believe it. But the real problem is your winning trades. You're not making enough on your winning trades.
Now that you have great discipline on your losers, now that you have a control over the dollar amount that you should allow yourself to lose based on the way your money and your profits are racking up over that three-to-six-month period. You need to develop that same habit. On profitable trades, you need a system, a structured process for holding the winners, and you need to have that same discipline that you now have on the trades that do not work out on your profitable ones.
Obviously in our community, we have something, it's called the profit maximizer, a step-by-step system, literally a system. That's the key word there for letting our winners. Bigger winners. Raise your hand if you cut a profit short. Raise your hand if you got out of a trade just because it was up a certain dollar amount.
Can't do that. You got to be paying attention to the market in the current conditions. And have profit maximizing strategies based on certain market conditions. Some of them, everything is flying in one direction. You can hang onto those winning trades longer, and you should, and quite frankly, you should actually even be adding to those winning trades.
And they get certain types of days like we just happen to have in the market today, which we would call a melted candle, and how the week is actually unfolding, which is a week where there's not a lot of separation. On the daily and weekly candlesticks, we're getting what might, might call it doji, we call it.
Melted candles where the open and the close is near the same spot. There really isn't a dominant side of price action, and especially no volume behind that. So in that instance, we're probably going to lower our risk a little bit. We're going to be booking profits into momentum. As soon as that thing slows down or turns around, we're going to be moving our trail stop to lock in those profits.
So, knowing what kind of profits are available, and then using the correct profit maximizer for that moment. Okay. That's another big thing. Every scenario is different, which means you need to make adjustments, step on the gas step on the brake step on the gas step on the brake. That's the same exact thing with trading.
Now we get a lot of questions about profit targets, right? We actually do set profit targets. I know you, you probably read some place where people say, don't set targets. Don't set targets. We set profit target. To justify the initial trade risk, there has to be, if you're going to take risk, how, what's likely the minimum profit that you can actually say, okay, I think that's realistic for me to take this risk.
That's the thing. So, we never limit the profits. However, once we hit the initial profit target, which we call the I P T initial profit target, then we shift to profit maximizes. So, keep this in mind. You have initial risk for the. Initial likely profit for accepting that risk. And then when we get to our initial target, that we accepted for the risk, then we shift to profit maximizer to try and make as much as we can on that profitable trade.
Holding winners isn't easy. It's actually stressful because it's real money, right? We've all been there, but it's the only way to get the brass ring. Having that next level skill, that system, I it's a fine balance between, is it? Skill is the system first. Focus on system. System means you're step by step and you're following it, right?
So look, it is real money, but. You got to make this a priority. If you do, everything changes. So, I just want to, I just want to bring this quote home for you again, just so you really have it in the forefront of your mind right now, which is very simple. First, develop an edge. Then develop the discipline to take your losses while you're learning and improving your skill.
Reasonable losses. Take some profits while you're learning, and during that timeframe, have that same discipline that you now have on your loss. On your winners and learn to hold those winners longer. And again, you need to build a system of how you do that based on certain market conditions. So I just, I'll give you a little more in depth on that.
In our system, we actually have two types of profit maximizer. One is a momentum profit maximizer, which is, we use that more when there's less obvious dominance side of the market, but maybe some individual stock ideas. So we'd be a little bit more aggressive with moving up our trailing stop. When that stock slows down and we would not be looking to add to those trades when the market is fantastic.
Market's obvious, the Dow, the Nasdaq, the S&P sector rotation is super clear. There's a few sectors, maybe if not all the sectors pointing in the same direction. Industry groups really obvious where the moneys flowing. That circumstances we would use a trend. Profit maximize, which simply means that we are playing for the bigger move because more is available, might give the stock a little bit more room to breathe.
And quite frankly, we'd also be looking to add to those trades. Now, one more concept, and this is what changes everything. It's an advanced one. There's two ways to fine tune your profits even more than just simply having a profit maximizer. Reducing and avoiding those bad trades that reduce your losses, right?
Two of them, how long you're in the trade is number one. In other words, giving your trade a chance to make those big gains. Number two is timing your way into those trades with bigger size, so time in the trade or timing. The trade I personally found both to work, but time in the trade working positions as you get positive feedback from price action, I believe is infinitely easier because let's face it, if we're stacking the order flow, reading the tape, and looking for the optimal entry, we're basically tracking and stacking the footprints of the smart money as they do what's called slow accumulation over time as they build that position.
So, we are essentially joining. As they're building those positions over days, weeks, and months, and then until we see a change on the tape, we stick with them, especially with the profit maximizer. So, as you start to build those positions, you actually have. Less risk on the losers because you have less initial share size on the start of the trade.
So, if it doesn't work out small position because you didn't get positive feedback to ed, if it does work out, you start to build that position and now you have more on the winners. So less share size on the losers, more share size on the winners because you got. Positive feedback and when you have less risk on the losers, that takes us back to step number one, which is learning how to avoid and reduce those losing trades, especially the bad trades.
We know even a strong edge is going to have some losers, but if we keep those reasonable and learn how to use a profit maximizer, gosh, you're going to be in great shape. Have a great day. I'll speak to you soon.