How I'd Retire from the 9-5 Job in 3 Years (Starting from ZERO) transcript

[Music] In today's episode, I'm going to teach you step by step how I would approach retiring from the 9-to-f5, 40hour a week grind, and I'm going to put it on a three-year plan. That may be optimistic. It's not going to work for everyone, but this is how I would approach it. There's the expression that if you love what you do, you won't work a day in your life. So, I'm going to present to you a couple different paths to retirement.

One is a traditional path of this is the amount of money you have to have saved. And then we're going to think about some more creative ways to come up with the same amount of cash flow that you're currently generating from your 40hour a week job and if there's a way that we could generate that same amount of money with less time. And to me that is as good as being retired. Now I want to begin by doing the income analysis so we can kind of figure out what that magic number is for you.

So we're going to start with just the simple question of what your current income is. Now, those of you guys that already have a pen, pad of paper, you can write this down, and it's going to help you as we do the formula in a few minutes. So, I'm just going to use this example of $2,500 a month after tax. It may be high for some, it may be low for some, but you could easily multiply it up or down to figure out what your ultimate retirement number is going to look like.

So, I'm just going to put this on the whiteboard here, and we're going to keep track of it. So, $2,500 per month, and that's after tax. Okay? So, if you're making $2,500 a month after tax, odds are most of what's coming in is going right back out with your burn rate. So, that's how much you're spending each month. So, I'm just going to assume basically everything that's coming in is going right back out because that's the way it was for me when I had a nineto-ive job and I wasn't making a ton of money.

And I think that's the way it is for most people. Now, I am going to pose another question to you, which is, you know, and this is a question I had to ask myself. Would I be willing to reduce my burn rate and spend less money in order to escape the nineto-ive grind sooner? So, that's kind of a question that everyone asks at a certain point when they're getting maybe closer to retirement. Do I work an extra 5 years to make a little bit more money so I can spend more in retirement or do I just want to be done with this job so I can retire sooner?

Now, the way it was for me when I had a 9 to-ive job was I just wanted to be done with it as soon as possible. And I was completely willing to take not just I mean definitely take a pay cut because I knew that what I was going to be doing after the 9 to5 wasn't going to be producing the same amount of profit as before, but I was willing to cut some of how much I was spending. So, not going out to restaurants, not going to concerts as often, you know, not traveling as much.

I knew that that was a sacrifice that I was going to make for a limited period of time so I could reduce the amount of money I was spending as I got my new venture, my new side hustle off to a good start. Right? So, in sort of those early days when you're working on building a new cash flow, whether you know it's a side hustle or it's whatever it happens to be, we'll talk about some ideas as we get further in this episode. for people that are at the very beginning of that journey who come to a table and they're saying, "In order for this to work, I need to be making $10,000 a month." Well, now all of a sudden, the barrier to entry is a lot higher.

And the sort of benchmark for what success looks like is way up here. So, if you come to a table and you're saying, "Well, my burn rate's 2500, but I'm going to reduce that to 2,000." Then all of a sudden you could be doing the same thing and say, "Well, I only need to be making $2,000 a month for me to consider this a success." And making 2,000 a month is a heck of a lot easier than making 10,000 a month. Right? So the lower the bar is set, the easier it is to succeed.

And then if you set the bar low and you succeed, you've got confidence, you're feeling good, and you're most likely going to double down, scale into it, and likely the profits will increase over time. But it's when you set the bar too high at the beginning that you that you set yourself up to fail essentially. You get demotivated, you get depressed, you're like, I'm never going to hit this optimistic crazy goal. And so you practically give up before you even had a chance to see the thing through.

So keeping your burn rate as low as possible is really important no matter when you want to escape the nineto-ive grind. But if you want to do it sooner, then you're most likely going to have to be willing to sacrifice and take a little bit of a pay cut in one way or another. So now that we've got our income and our burn rate, we're thinking about that monthly cash flow requirement. So in other words, what's the amount of money that I need to make each month to cover my cost of living?

So we're just going to keep it at $2,500 a month or $30,000 a year. If it could be lower, that's great. If it's higher, I get it. You know, for me now, at my age, my burn rate is a lot higher than it was in my 20s. You know, I'm married. I've got kids. Life comes in and, you know, I've got two dogs. I mean, next thing you know, you're spending $1,000 at the vet. So, the burn rate gets higher. And this is the problem that you get this creep where you get a little bit of a salary increase if you're working a traditional 9 toive job.

You get a little boost each year or whatever the case is, every couple years, but then your spending goes right up to match it. So, essentially, you're not getting the chance to really save in a meaningful way. And that's where I feel like we're kind of in a system where especially for me, you know, doing my four-year college degree, the whole idea was you have to go to college. You go to college and you will get a good job.

So guess what? I graduate from college into the Great Recession. The job market is terrible. So there aren't good jobs. Even entrylevel jobs, there's people with 10, 15 years of experience applying to it. So now as a someone right out of college, I don't have as much work experience. I don't look as good against that candidate. I can't get a job, but I sure as heck have to pay those student loan bills, right, with interest.

So now, because you have to pay those bills, you feel like, I need to get a job immediately, even if it's not as good of a job as I'd like. So then you end up settling for not as good. And then you're afraid to switch jobs because if you switch too soon, your resume looks like you're jumpy. So you end up just sort of stuck perpetually being held down. And I feel like I mean that's just not a way to live. And so in this episode my hope is that I can sort of shine the light on a possible alternative path.

And I think what I ended up taking was an alternative path and it was through the pressure of graduating from college during the great recession. I was fortunate that I had a job going into the great recession. So I already was working a 9 to-ive job at that point. So you know, but the reality for me was that I knew that that job was going to end because business wasn't going well for them. So anyways, back to your monthly cash flow requirement. 2500 a month, $30,000 a year.

So let's just use that for example. So if that's how much you need, then in order to retire, there's really two options. The first option is you have enough money saved to draw out 2500 a month. And the second option is that you somehow find a second way or a better way of producing 2500 a month. We're going to talk about that in a second. But the first one is figuring out that magic number. So I'm going to hide my video here so you can see the whole thing.

So I'm going to use the rule of 4%. This is a guideline of the maximum safe withdrawal rate from a retirement account. It's been been considered safe to withdraw up to 4% per year from an account without significantly decreasing the principal amount. How is that possible? You're taking out 4% a year. Of course, the principal is going to go down. Well, it this is due to the average historical growth rate, which is 8.8%.

When a portfolio is invested in 60% stock and 40% bonds. So, if you're growing 8.8% 8% and you're only taking out 4% a year, then you're really only taking out a little bit of the growth. So, the principal doesn't decline. So, to know the amount of money you would need saved in order to escape the 9 to5 grind just based on this 4% annual withdrawal from the savings account, from the investment account, the way you calculate this is you take your monthly cash flow requirement and you multiply it by 300.

So 2500 * 300 is $750,000 time 4% is $30,000 divide by 12 is 2500 a month. So now all of a sudden we've got our head around this number $750,000. Now if you said well Ross, you know, my my burn rate's not 2500 a month. It's $5,000 a month. I need $5,000 a month. Okay. So so times 300. So 5* 3 is 15. So that's $1.5 million. All right. So if it's 10,000, then all of a sudden 10,000, you know, you have $3 million. So the math is is fairly simple.

It's just multiply your monthly burn rate times 300. But these are huge amounts of money. Okay? So if you've been able to save, you know, $750,000, a million, $2 million, then, you know, you're in good shape. And this is the way most people think about retirement is I'm just going to save a little bit each month. You know, from each paycheck that I that comes out, I'm just going to save, you know, whatever it is, $100.

So $100 um you know, basically $200 a month over the course of 30 years. And yes, you know, your account will certainly grow, but you know, the goal there would be $750,000, you know, give or take. And it's going to take you 30 years to get there, right? And of course, we don't know what the cost of living is going to be like in 30 years. It may be higher than it is to Well, it certainly will be, but we don't know by how much.

So, all right. You don't have $750,000 sitting in the bank. I get it. All right. So, now let's return to that monthly goal of $2500. If I can produce this passively, right, from 20 $7,500 in the bank, that's great, obviously. But is there a way that I can produce it through more active measures while still not being stuck to a 9 toive grind? So now we kind of have two extremes. We're we're trying to make $2,500 a month.

And on the one hand, you can make it working 40 hours a week at the 9 toive grind. 40 hours a week, you're trading a lot of your time for money, but you know, at that rate, or from $750,000 in an investment account. So, is there something in between that can earn you that $2,500 a month at a higher rate? And that's the that's the puzzle that ultimately we're trying to figure out right here. So, the way I look at this is it's all about trading time for money.

So, with a traditional 9 toive job, you're trading your time for money and the money is from your employer, but they in turn need to produce a profit from your wages to cover their overhead and then produce a profit margin. So what essentially I realized was that when I was working down in New York City, I was getting paid $18.50 an hour approximately, right? I was working 50 hours a week, 200 hours a month. So working long hours, $18.50 an hour.

Now, the the boss I had who was paying me that was making a lot of money. So what was he doing? He was essentially reselling my service, right? Because it was for an architecture design firm. So, he was reselling my $18.50 to clients at $50, $75, $100 an hour. I don't know exactly what it was, but you know, he's reselling it for a huge profit. So, then it's like, wait a second, every hour that I'm working, this guy's making money off of me.

And hey, that's the that's the trade-off. You get the certainty of your nineto-ive job, and maybe if you know, you're lucky, you get some benefits and this and that to go with it. I didn't in my case, but if you do, that's great. And you know, you get the certainty of of a salary. But on the other hand, it's like you're working to help someone else get rich. You're working to help someone else get wealthy. You're working to help someone else achieve their dreams.

Someone else who had a little bit more, you know, thought about creating a business and harnessing people at lower wages to resell their work, right? So now I'm wondering, is there a way that we can cut out the middleman? Can I start trading my time directly for money? Because this is what being a small business owner, including trading and investing ultimately is all about. And this is where we get into that side hustle business culture.

So I'm going to talk about a couple different side hustle businesses here. I'll hide my um my little video there again. So, these are different businesses. Um, all of which I've looked at in varying degrees. And so, let me kind of walk you through these. If you're still working a 9-to-five job, you can still do a lot of these things. So, online marketplace seller. All right, I've talked about this before. I had my eBay account.

I was selling things on eBay. I was selling things on Craigslist. You can sell things on Facebook Marketplace, Amazon, Etsy, whatever. I was telling this just to my son the other day. I was like, you know, if you when you learn how to fix things, you have something you have a skill that you'll always have. So, you could go buy a lawn a free lawn mower, pick up a free lawn mower that doesn't work, you fix it, you resell it for 50 bucks.

Boom. You just traded your time for money, right? So, you could do that with cars, with bigger things. You do it with boats, whatever. Reselling things, you buy it cheap, you fix it up, you resell it for more. But, you're converting your time into money. But a lot of those things do take a lot of time. And naturally, depending on what your skill set is and what your interest is, some of these things may not be obtainable.

So, making jewelry, you know, handcrafted items on Etsy, selling things on eBay, classic vintage things. Hey, even a t-shirt like this, a radio head t-shirt, you know, you find a shirt like this, you put it on eBay, you put it on Etsy, you're going to be able to make some money on it. Facebook Marketplace, Craigslist, you know, these are a little bit so Amazon sort of bottom of the barrel, but obviously there's people that have kind of gotten this dialed in.

And generally the way you want to approach any of these side hustles is you ask yourself, you know, what is something that I genuinely enjoy? So a couple years ago, I was looking at getting train set for my kids. And so I was just googling different types of train sets. What's the what's what are the best train sets? I didn't know. And I came onto this website of someone who's very passionate. They've got this hobby where they love train sets.

So they've now reviewed like every different train set. and they've put a lot of time into it. And guess what? They have some Amazon affiliate links on their blog. And I have no problem letting that person make a little bit of money because this is something that they're really passionate about. And guess what was also on that blog? Videos. Those videos, you click on them, they're hosted over on YouTube where they're getting a lot of views from other people that are searching the same type of thing.

So, if you have a hobby, if you have a passion, there's a really good chance that there is a path to monetize it. You may not want to do it. That may not be something you would choose to do, but something that you should at least think about and explore. Is there a way that I can turn this thing that I love into some type of side hustle? So whether it's through an online marketplace, it's by being a content creator, you know, YouTube, Tik Tok, Instagram, Facebook, it's by doing the product reviews, blogging, vlogging, affiliate marketing, advertising, or maybe it's freelancing, goods or services, photography, cooking, maintenance, right?

Being a handyman, driving, and it could be Uber, you know, Door Dash, stuff like that. You know, these are some of the things I see a lot of people doing as side hustles to help them build a little bit more income. And sometimes what happens is you get to that tipping point where your side hustle is actually producing more than your nineto-ive job or you see that it has the potential to if only you could dedicate more time to it.

So something that I'll tell you is that after coming home from your nineto-ive job, you're exhausted. I don't feel like studying. you know, I was going to go get this degree or I was going to do this. I couldn't possibly, but what I really want to look up are cars, right? I'm into cars. Let's just say, for example, and so next thing you know, you're spending your evenings researching cars and well, is there a way that you could spend the evening writing articles about cars and all of a sudden you're doing reviews and you're doing all this stuff.

So, I feel like when it's something you really enjoy, it's something you look forward to, it doesn't feel like work. And then the fact that you get paid for it is just like an awesome bonus. So these are some of the side hustles that are fairly fairly easy to get into but do require you to have some type of interest in uh in you know a hobby or a product. Now real estate is a little bit of a different type of side hustle.

Um the Airbnb market, the rental properties, etc. One of the things that I had experience with um when I was in my 20s um well well when I was in my teens my father was diagnosed with cancer and he passed away and when he passed away when my younger sister turned 21 we each received an inheritance and I received about $100,000 from my father and that was at that time a life-changing amount of money and I didn't want to spend it on buying like a Corvette or something stupid.

I knew this was the chance that I could turn like change the trae trajectory of my entire life. Really, I could turn things around. So, I decided, look, this is a this is a decent amount of money. What's something smart I could do with it? And what I thought to myself was maybe I could put a down payment on a duplex or, you know, an apartment building and I'll live in one apartment, I'll rent out the other, they'll pay the mortgage, right?

This is the thing that you hear people say. And so, this was now after 2008. So, the financial crisis had already happened. the mortgage, banking, everything was all sort of, you know, tons of regulation. And so when I went to the bank to try to get a mortgage, they said no because the job that I had in New York City paid me as a 1099. They should have paid me as a W2, but they I don't know, it was kind of like weird.

So I was a 1099. So they said, "No, you don't have a typical, you know, W2 salary. We can't give you a mortgage." So what I realized was that the barrier to entry to get into real estate was was just too high for me at that time. And I $100,000 wasn't enough cash to be able to buy something in the area that I was looking. So I was like, "All right, well, if real estate's not going to work for me, then you know what could?" And that's when I came to trading and investing.

So with trading, and this could be day trading and dividend investing, I thought to myself, "All right, so now I've got a $100,000 account, more or less, and this is something that I could now use to try to generate income from." So now I start working backwards on the numbers the same as we're doing here. So I'm thinking, all right, now let's just say that goal was $2,500 per month, right? So with a $100,000 account, if I invested this well, in a savings account, I would make nothing.

So if I invested this in a dividend dividend paying stock, I might only make 2% a year. 2 and a half% 3%. So that's $2,000. Let's just say 2500 two $2,500. But that's per year. All right? So that's not going to hit the goal. I would need to have over a million dollars in here to be starting to make some decent money. So and and even then it wouldn't be enough at 2%. So I realized, all right, there's a different way that I got to approach this.

I've got $100,000 here. And I had the goal of seeing if I could make $200 per day. So I thought $200 per day. Now, that obviously equals 1,000 per week or 52,000 per year, which would be growing the account by 50% per year. Now, that seems kind of ridiculous, right? And you're not going to do that buying shares of Apple. I mean, in theory, there have been certain years where you could have done it on a large cap stock like Nvidia or, you know, Tesla, but typically, unless you're exceptional at choosing the strongest stock each year, it's not going to be achievable with large cap stocks.

But then I realized that there are people out there that are generating consistent income from the market. And so now the puzzle was trying to figure out how are they doing it. So, this is where I realized that a lot of the people that were making good money in the market were trading more speculative asset classes. So, I had had a friend in high school who had made uh $16,000 on a penny stock. So, he bought one of these cheap penny stocks 15 20 cents.

Next thing you know, goes up to 50 cents, 60 cents, 75 cents, up to a dollar a share. And you know, his account goes up 3x. He put puts in a couple thousand dollars. Next thing you know, he's pulling out $16,000 from one trade. And so I thought to myself, that was in high school. And I I thought back on that and I thought, if he was able to do that in high school, if I was able to find, you know, a few opportunities like that each year, I don't even need to do it like every month.

If I could find a couple good opportunities like that each year, that could be my ticket to growing this $100,000 account and producing $50,000 a year approximately. So that was what I started with. I had this idea that if I was going to get in the market, I was going to focus on lowpric stocks. Now, naturally for me, the barrier to entry was relatively low. You don't need to get a bank loan to set up your first trading account.

You can just set it up as easy as that. And today, of course, with, you know, your phone and everything else, you could be the accessibility of the market has never been greater than it is today. And the barrier to entries have never been lower. So it was different when I got started, but today it's it's even easier. So I kind of had this approach of all right, I'm going to search the market for a way where I can produce profit.

And so this is what I ended up kind of discovering. If you spend two hours a day on your side hustle, which for me was actively trading the market, and you do and you're able to earn the same amount of post-t tax income, you're actually four times more efficient at making money than the nineto-ive grind because you're earning the same wage in a quarter of the time. So, you could either scale up the business to try to do a full 8 hour day, which I found wasn't really possible with trading because of the limits of trading during the periods of the day when we actually have peak volatility, which we'll talk more about as we get further into the class.

Um, or you could just keep the extra time back in your life, right? And that so that's what I ended up doing, keeping the extra time back in my life. Now, I was able to scale up my trading um in terms of my hourly wage by taking more risk on my positions rather than by spending more hours in the market. Now, alternatively, you could also, if your side hustle was doing well, consider hiring someone at a lower wage to keep your business running.

And now we're full circle back to what your current boss is doing right now with you. You're helping make his dream or her dream come true. So, what if we switch switch the roles? For me, day trading has been the most efficient in terms of time. On average, spending about two hours a day over the last 10 years, $19.5 million in profit. That gives me my hourly wage of about $4,000. So at the previous job of, you know, $18.50 an hour, I'm currently about $216 times more efficient in my production of income versus the nineto-ive job.

Okay, so we've got to start talking about this day trading strategy. It is a 2hour a day trading strategy. It is not going to be for everyone, but it has worked really well for me. And so I'm going to share it with you here today in this class. Step one for this strategy is finding the right stocks to trade. So because I had had this friend in high school who had made $16,000 trading penny stocks, I just came into the market with this assumption that I should invest in penny stocks.

Now I'll tell you when I funded my first account in 2001, this is of course before the great recession. I took a different approach. I funded that account with $1,000. It was an ammeritrade account and I bought shares of companies I knew. Exon Mobile, US Steel, Caterpillar, you know, these big Fizer, these big big names. So, I put $1,000 into the account at the beginning of the summer. I bought all these a couple shares of all these different stocks.

And by the end of the summer, the account, guess what? Hadn't changed. I made nothing. There's this expression, sell in May and go away, that a lot of big investors leave the market and that the markets are kind of flat during the summer months. That's not always been the case in my experience. But nonetheless, on this particular year, it was because I didn't make any money. And so, I left the market at that time feeling kind of defeated, you know, like, all right, well, clearly that $1,000 is is not going to work for me.

So, what did I do? I took the $1,000 out. I bought a 1990 Volvo station wagon with 245,000 miles on it for a,000 bucks. I drove that car for about five, six years and then I ended up selling it for $1,500. So, I sold it for more money than I bought it for. And when I had let one of my friends borrow it, it got rearended. So, I got an insurance settlement of like, I don't know, it's like $2,000. So, I actually came out with positive ROI on that used car, which is very rare, but in fact, I had made more money on that than I had in the market on these stocks.

So when I came back into the market, I thought to myself, clearly buying large caps is not going to move the needle. I need to be buying things that can really move. And so I thought penny stocks. It worked for my friend Ben. Maybe that'll work for me. So I start googling penny stocks. I start buying penny stocks. And I had a couple of wins, some beginner's luck, but that luck ran out. And so then I looked around and I was asking myself, well, traders like me who are making money, and obviously I'm not talking about your Warren Buffett big-time investors, you know, what they're doing isn't really relevant for someone like me with a small account.

So someone like me, regular retail traders using Erade or Ameritrade, whatever, what are they trading? And I realized there were sort of two camps. There were some people that were focusing on trading options. So options on higherric stocks at the time like Apple today it would be stocks like Nvidia maybe the S&P 500 in um or Tesla. But the challenge with trading options is that they're quite complex to understand and they have the risk of expiring worthless which means everything you put into them is gone.

So although you can get really nice return on your investment you can also lose everything. And I didn't like that idea. So then I saw this other camp of traders were focusing on lowerpric stocks including sometimes penny stocks but also stocks often priced between like $2 or $3 and about $10 $15 a share and these were NASDAQ New York Stock Exchange listed companies that were trading on that particular day with really high volume typically because they had breaking news.

So they had just put out a headline. Sometimes it's a biotech, biioharmaceutical company that's putting out news of clinical trials, you know, that or FDA approval, something really that's a big deal and all of a sudden the stock goes up 200% in a single day. And you might think that's impossible. I mean, how could that even happen? And so, you know, case in point, just here today, for instance, right here today, I'm sitting up, let me pull up my P&L so you can see.

I'm sitting up $8,98.54, which is sort of a perfect example today because I just happened to be up almost exactly um $4,000 an hour for the two hours that I traded. And if you look at the market today, we've got well, this stock here, TH, this stock is currently up 330%. Guess what? It's a biotech stock. It's a biotech stock with news. Now, this is a stock that I actually didn't end up trading. I traded a different stock this morning.

Most of the momentum on this stock took place a little bit after the opening bell and into the afternoon and even right now into the after hours trading session, which is a little unusual, but nonetheless, this is a great example of a stock that is up huge, 300% on 344 million shares of volume. That's a huge amount of volume. So, so this was kind of what I learned. If I could trade a stock like this, and let's just use this example.

So, I've got I mean gosh $100,000 in the account, but you don't need $100,000. So, let's just say $10,000 in the account because I actually never put the full $100,000 into my account. I would only put small amounts in and trade with it. And then if I needed more money or had, you know, to spend money to pay bills, I would take it out. So, $10,000. So, now let's say I buy 3,000 shares of this stock at $3 a share. So, that's $9,000 in the position.

Total 9, sorry, $9,000. So now I sell it at let's just say $3.50. This thing goes up 50 cents a share. How much am I'm up? I'm up $1,500. So now the whole account is up 15% in one day. That's that is awesome. That is a huge move. So just like that, that's $1,500 in one day. In one trade. Now this wouldn't be what you would set your goal at as a beginner. As a beginner, I'm usually a big advocate of uh capping at a thousand shares.

So 1,000 shares with the goal of 20 cents a share. So selling at 320 plus 20 is plus $200. So now you're $200 a day. And that's the goal. $200 a day. You take one trade, one trade, 200 a day, and then you come back and do it tomorrow. And tomorrow, if you buy a stock at 3 and it only goes up to 318 before you see one of the exit indicators that I'll teach you about, then you sell it at 318, you take the 180. Maybe the next day you get one that goes to 328 before you get an exit indicator.

You make 280. But you're focusing on an average daily goal of $200, which again, $1,000 per week and $52,000 per year. Now, I get it if you're someone who's, you know, older, a bit older, and you're like, "Look, for me to even consider spending the time to learn how to trade, I need to be able to make at least $10,000 a month." I'm telling you, you're setting the bar high. And if you set the bar a little bit lower, it's going to be easier to succeed.

So what I would do is I would set the bar lower, focus on building that foundation with these base hit trades, knowing that there are other people who built the foundation just like this and then we're able to scale it up the way I have. And of course I'm not the only person who has, but the way I have where you've scaled it up. So instead of doing a,000 shares, you're doing 10,000. You're doing 15,000. Maybe you're even doing 50,000 shares.

When you get a little further down the line, all of a sudden now 20 cents a share is 10,000 bucks, right? This is a stock with 300 million shares of volume. You could buy and sell 50,000 shares all day long on it. It's not a problem. So, there are certain markets where you can scale in as long as you've built up the risk tolerance and you're comfortable with it. But if you set that goal initially that I need to make $10,000 a month, you're setting the bar too high.

Now, all of a sudden, you're not happy when you're up $2,000 on the month, 3,000. You're like, that's not enough. And I think that that's a mistake. So, I would focus on continuing to generate the income from your typical job while you build this side hustle. So, that's kind of the idea is continue to work while you're learning how to trade. And you could do that just by watching episodes like this in your free time.

You could do it by trading in a simulator in your free time. Even if you're still working, you could still be developing your skill and gaining this financial literacy. Okay. So, so now for me, this has kind of been the sweet spot. So, let's go back to our slide deck here. Um, so I'm going to pull it back up. So, step number one is finding the leading percentage gainer each day. So, uh, earlier today, it was a different stock, the stock, um, SIS SI, which went up and I made $8,000 on, but as the day went on, it ended up, um, switching to the stock, uh, TH.

But on this particular day, it was SBET, which was up 77% on at the time about three million shares of volume. All right. So, the stock is moving up. So, we find that leading gainer. Now, what if the leading gainer is, I don't know, a very expensive stock. How do I know what I should focus on? So, I'm going to share with you some of my own data. This is from over $19.5 million in trading profits. I'm going to tell you again, my results are not typical.

I've been doing this for a really long time, but all of this is real money trading. And this is data that we can look at to sort of almost like, you know, open the hood on my strategy. So, we're going to notice a couple of things. The first is that I make the majority of my profit, as you can see right here, on stocks that have five times above average volume. So, I'm going to pose a question to you. Why would a stock have five times higher volume today than a typical day for it? the the logical answer is that it's because it has news and biotech stocks are one of my favorite because these are stocks that can just skyrocket when they've got a really good headline.

So now we're starting to kind of put together uh in a sense the anatomy of this strategy. So number one, oops, let's take a different. So number one here we're going to focus on um news in no particular order. So number one is news and so number two that will result in five times relative volume. The relative volume which is the average volume being five times higher than is typical. All right. So what's next? So the next thing that we're going to look at is uh stocks have high volume today.

So we saw TH today. It's got over 300 million shares of volume. I do I do better and make more money when the stock has more than 25 million shares of volume. So more volume uh more volume equals better. Now this is simply because when a stock has really good news, more people will be trading it. So it'll have more volume. So if I look at the scanners, uh and the scanners are what I'm using to search the entire market.

This is a tool that I use. And as it searches the market, this stock shows it's up 900%. But it's only got 266,000 shares of volume. So it doesn't have enough volume or liquidity for us to consider trading it. So we more or less disregard it. Even though it has news, doesn't matter. We disregard it. We focus on something else. Now in this particular case, the headline on this stock was that it got uplisted from the OTC market up to the NASDAQ market.

And so an uplist uh can create the impression that the stock has moved higher, but it's not typically enough of a catalyst. All right. So uh so the next um important thing that we look at is focusing on stocks that are gapping higher. So you'll see here again the majority of the profit on stocks gapping up. So what is a gap? Well, stocks trade during regular trading hours, which is from 9:30 in the morning until 400 p.m.

So that's our regular trading hours period. And then 400 p.m. to 8:00 p.m. is after hours. And 4:00 a.m. to 9:30 is pre-market. So, if a stock starts moving after hours, that's not considered part of the daily gain. It's kind of funny, but the daily gain is just based on 9:30 to 4 pm. So, if at 7:00 p.m. a stock suddenly pops up 50% because that's when the company released the news, then the next morning we're going to sit down and we're going to see that the stock is gapping or jumping 50% higher than the previous close.

And that is typically the result of news. So, we pay really close attention to stocks that are gapping higher. So, why would a stock gap up with five times above average volume? Because of breaking news. I'm going to share with you some of the breaking news catalysts in just a moment. Now, one of the things that I also learned just by looking around at other traders and then building my own historical data was that I made more money on stocks between $2 and $20.

They can offer larger percentage returns for account growth. So, if we go back to this example here, um, well, I guess I erased it, but you know that $3 stock, a $3 stock going from three to 330 is up 10% in one day. Whereas, if you were trading a I mean, $300 stock, a $300 stock going from 300 to $3, $300, 3001 or two, you know, something like that, just percentage- wise, it's not a big enough move. So, what a lot of small account traders end up doing is trying to find stocks that can make big percentage moves.

If a stock can go up 500% in a single day, you don't need to capture that whole move to make good money. Even if you capture only a sliver of it, that could still be 10%. So, that's potential. Whereas, if you're trading a stock that's $300, that's only going up half a percent on one on the day, you know, a a sliver of nothing is still nothing. You know, it's just not enough. The only way to make good money on something like that would be to take an obscenely large position, which is incredibly risky.

So, you wouldn't do it. So, you need something that gives you better uh reward for the risk that you're taking. So, now we're starting to kind of put together this checklist. And so, obviously, we want to see stocks that are priced between two and 20. That's kind of the sweet spot. And I've learned that stocks with a total float of less than 10 million shares make bigger percentage moves. So float is a term for the number of shares available to trade.

So when a company does their initial public offering, they sell shares onto the open market and that number becomes the float. Those are the total number of shares available to trade. So this is kind of the simple um relationship between supply and demand. So the demand is the result of news ultimately which is then reflected in five times above average volume high volume. Um and then the supply is the number of shares available to trade.

Now, one of the things that's interesting with demand is that stocks between 2 and 20 will see more demand among retail traders like probably you and certainly myself who have smaller accounts. You know, a stock that has breaking news but is $200 just won't have the demand that'll come in to create the high volume. It just won't happen. So, then we're also going to see um you know, big uh percentage gains here, which is also reflecting high demand.

So these are all characteristics of demand and this right here is supply, the number of shares available to trade. So let's just say for example, you've got a stock um and and we could use um well this is this is another example here on the scan MLGO. This stock had a float or a total number of shares available to trade of about a million shares. So now we've got a million shares. We're just going to jump on the whiteboard here.

So let's just say in this example we've got um so float which is supply. So 1 million shares and this had a volume of 300 million shares and then the rate of change was that it went up uh 4 a little over 400%. Okay. So now let's think about this. What if this had had only 30 million shares of demand with that same 1 million share float? Can we solve for what the percentage gain likely would have been? And it likely would have only been 40%.

Now, what if we did this a different way? We said still had the 300 million share float a volume, but it had a 10 million share float. So, now all of a sudden, the number of shares available to trade was 10 times higher. So, once again, we're back at 40%. So, one of the things that's really important to pay attention to is the relationship between the volume and the float and how the how those feed in to the percentage change that you're likely going to see.

So, whenever I'm looking at stocks that are on my scanners, I'm looking at the float, I'm looking at the volume, and then I'm asking myself, what is the catalyst that's driving this higher? So, without a doubt, low float and high demand equals the big rate of change. and MLGO. This is a a really impressive example here where this stock went from like $3 a share all the way up to 17 bucks. I mean, that is just fantastic.

So, I've put together my criteria for stock selection into what I call these five pillars. So, number one, the stock should already be up at least 10% on the day. If it's not already up at least 10%, clearly nobody cares about it. It should have at least five times relative volume. Higher is better. There should be a news event. It should be between 2 and 20 and the float should be less than 10 million shares available to trade.

Now if we look back at um this example of TH today up 300%. Right? It's got 300 almost 50 million shares of volume. The relative volume on this is over 2,000 2,300 times higher than average. This is unbelievable. I mean this is really really impressive. This is I mean you look at this chart and basically the stock has had pretty much sideways price action with no volume and then suddenly boom that massive green candle which is the volume the total number of shares traded and this is the candlestick on the chart.

This is just very very strong. I mean this is what this is really as active traders the type of thing that we love to see. So those are my five criteria. And now one of the things that I'll also tell you is that um I do better we'll jump back on the slide deck here. So, I do better based on the time of day. So, there's a specific window where I do really well, and it's in the morning between about 7 a.m. and generally 10:00 a.m.

Eastern, but 7 to 9, that window is where I do the best. So, why is that? That's the window, that's the time of day when these companies are putting out those breaking news headlines. So, that's why we're seeing those big moves. So, is a company going to put out news at noon time during the lunch hour? They're not likely to. Are they going to put out news at 2:00 in the afternoon? They're not likely to. There are companies that will put out news after hours, but I found that most of those companies are large cap companies.

So, Apple, Netflix, you know, the Facebook, Meta, these are big big companies. They're not the small cap companies that we're used to trading that I typically make good money on. So from my perspective, trading the morning is the best time of day. Now, something that I want to do for you guys who are tuning in today to this episode is I want to give you instant access to my small account strategy PDF. And I'm actually going to include in that download a link where you can download my uh five pillars of stock selection and my technical analysis worksheet so you can really get a better sense of the strategy that I'm trading every single day. and you can walk away from this class with some PDFs you can print out and you can utilize in your own trading starting today.

Now, the big thing that I want to emphasize is not to put real money on the line until you first proven profitability using a trading simulator. So, trading with pretend money because look, if you can't make money in a simulator with pretend money, you're not going to make money with real money. So, take it slow, pay your dues, and study and practice these new strategies that you're learning in a safe environment. That's the right way to learn.

That's a mistake that a lot of beginner traders make. They jump into real money, they're excited, and then they have losses. Okay, so step one was making sure you're choosing the right stocks each day. Now, part of understanding the right stock is understanding the catalyst. What is driving this stock higher? So, when we when we talk about a catalyst, we're talking about the news feed. So, this is an example right here where uh this is a company that was, you know, already trading up a little bit and then all of a sudden, boom, breaking news came out and this stock ended up squeezing from about $12 a share all the way up to $35 in 3 minutes.

That is an incredible rate of change. The stock went up, you know, what was it peak at? 420% on the day on 11 million shares of volume. This is a huge opportunity. So, how did I know that this was a good catalyst? Well, there's a set of catalysts that I really like trading. So, the first is companies are putting out earnings all the time. So, an earnings headline is when the company's reporting how much money they made during the previous quarter or in the previous fiscal year.

So, typically when those headlines come out, they also will say um the the percentage increase over that previous period. So, it's a 400% increase. And so if the company's making 400% more money, there's a really good chance the stock is going to go up substantially. Now, you don't see big big numbers like that on large cap companies, but on lower price stocks, it's very common. So earnings, that's a big catalyst. Uh on biotech stocks, clinical trial results can be really big.

The only thing with clinical trials is that sometimes trials um can be small. So they might only have like four patients. So you kind of have to take it with a grain of salt. So you know, so that's one challenge, but positive clinical trials are usually a good thing. FDA approvals are typically a good thing. Uh company getting new contracts can be good, especially when it's with a government agency or a big company that you know is is going to pay.

Uh and then multiplying factors when a headline a breaking news headline incur includes the keyword of a current trend. It could be AI, COVID, cryptocurrency, biotech, you know, whatever is currently the theme where we're seeing big momentum. Currently, it's biotech, but that does change from time to time. So, headlines within that theme are typically going to perform better. Stock that that fits within the hot sector, pharmaceutical, Chinese, AI, crypto, sort of similar.

Uh stocks um that are recent IPOs, a recent initial public offering, those can produce really big moves. And one of the reasons is that when a company does their initial public offering and they sell shares onto the open market, the insiders who own shares typically have a lockout period where they're not allowed to sell. So that means that the stock I is trading almost as if the total number of shares available is much lower than it actually is because all these people they're holding can't sell.

But then once that it's usually either 90 days or a six-month period comes up, then you'll see selling. So if you're within that first 90 days, a recent IPO with news can move very quickly because people can't sell into it. Uh so recent special acquisition companies are similar to IPOs, a little more complex. Uh a stock that's a recent reverse split can also be um a catalyst that we really like. So, a reverse split is when a traditional split, for instance, is when you have a stock like uh Apple or an Nvidia, you know, Apple at one point was trading at $700 a share and then they did a seven uh to one split and the next day the stock was trading at $100 a share.

So, the thing that's interesting about this is that if you were holding a thousand shares of this, then all of a sudden it drops to to 100 and you're like, "Oh my gosh, this is terrible." and then you realize, wait a second, now I'm suddenly holding 7,000 shares. So, the market cap is unchanged. And that's the important thing when a split occurs. A reverse split is when a penny stock that's like, you know, let's say 10 cents a share does a 20 to one split and the next day it's at $2 a share.

So, if you're holding 20,000 shares going into the split, you're like, "Oh my gosh, it's at $2." But then after the split you're only holding a,000 shares. So the number of shares go down when it's a reverse split, which means the total supply goes down, which means if the company then puts out good news, you can have a huge imbalance between supply and demand and that big percentage move, right? So it ties back to that.

Another headline that can work really well are private placement catalysts. So a company receives a private placement. That's when an institution um basically injects the company with a tremendous amount of capital in exchange for shares, but they do their due diligence and they feel comfortable writing a check for 50 or $und00 million. It speaks to the fact that this company has been vetted by a pretty big institution.

So, that's usually a good thing. And then the treasury crypto crypto treasury headlines have been hit or miss. uh that's when the company says that they're going to put like cryptocurrency on their balance sheet and just hold it as a reserve and that has been popular but you know these sort of eb and flow. So one thing they'll tell you is that in order to be a good active trader you don't need to understand all fundamental aspects of a news headline or a company.

You don't need to read their balance sheet and their 10 their um 10Q or their their quarterly filings. For me, rather than try to interpret the headline and maybe come to the wrong conclusion, I try to understand the chart because if the price is moving up, the news is being wellreceived by the market, right? So, isn't that really all that I need to know? Because all market participants have all the information that's available and they're interpreting it and the price is going up.

Now, if in three or four days the price comes back down, then what does that tell us? Well, maybe this is a moment where there was a surge of enthusiasm. I mean, people are really, you know, confident on this price and then reality set in and that's fine. Maybe the price comes down later. But as an active trader, we just want to trade the volatility when things are moving quickly and cleanly. And if you try to overthink the headline, you can get yourself where you form a bias and then you're trading against what the technicals are doing in the moment.

So step three in my strategy is doing a risk assessment. And so as part of my risk assessment, I have to ask myself how much risk I'm willing to take and what my potential profit is. Now what a lot of beginner traders end up experiencing is what I call a negative feedback loop. And you may have experienced this in your own trading. So you begin trading, you fund an account, and the first thing that happens is you lose money.

And so what happens? You take that loss. So we'll get out our red marker. So you lose money minus sign. And what does that create? It creates emotion of sadness, disappointment, anger, frustration. And if you're one of those traders who maybe took the leap and you quit your nineto-ive job, not recommended before you had a track record. Now you're all of a sudden like, uhoh, I need to make $2,500 this month, but I just lost 2500 today.

That means now I need to make $5,000 this month just to get to where I'm my goal is. And so what does that do? It creates um pressure and it creates anxiety and then that fuels emotionally um emotionally uh really fuel decisions where then you start to spiral. And so this downward spiral is something I've seen a lot of traders experience. It begins with a big loss, history of making poor decisions, emotional trading, increasing pressure, desperation, recklessness, and then taking more trades without a track record to support it to try to recoup previous losses.

And emotions build and next thing you know, in a matter of months, boom, your account's gone. You're out of the market. And it's a shame because those traders, many of them might have actually stood a chance of becoming a successful trader if only they had taken it a little slower, paid their dues, and practiced in a simulator first. So when I'm thinking about risk management, I'm thinking about how much I'm risking and how much I stand to gain.

So I'll hide my video again here. So we're going to just start with one:1 ratio. So if you risk a dollar to make a dollar, you've got to be right 50% of the time in order to be break even. Right? That makes sense, 50%. So, if you're right 50% of the time, you'll be break even. Now, if you risk $2 to make only $1, that's not very good odds. Um, and you'd actually have to be right 67% of the time just to break even. Whereas, if you risk $1 to make $2, you only need to be right 33% of the time in order to break even.

And so now what I want to do is I want to pull up my uh year-to-ate profits for you here. And I want to show you where I'm at. So these are my year-to-ate profits showing that I am at just over $5 million on the year. Wow, that's fantastic. But more than that, look at this number here. My average winners are $3,273. My average losers are $1,653. That gives me a 2:1 profit to loss ratio. My winners are twice the size of my losers.

And my accuracy is 71%. That is how you produce $5 million. Now, if my accuracy was only 33% based on this table right here, I'd be break even, right? But my accuracy is not. Now, if my profit loss ratio was inverted, where my losers were twice what my winners are, well, then 71% would only be break even. I wouldn't really be making that much money. Now, I could show you a different year here. This is going to be 2021.

And we'll go all the way through December. So, in 2021, my year was a little different. Look at this. My average winners were 2,229 or $299. And my losers were 2500. I was actually losing more than I was making on average. Now, I made I was right 66% of the time. So it was enough to make 4.3 million by the end of the year, but it was not as good of a year as this year has been because of my profit loss ratio. So in other words, when you're thinking about taking a trade, you have to ask yourself, how much am I risking?

And how much do I stand to gain? And you should always stand to gain more than you're risking. Now, at this point right now, you might have a really hard time understanding how do I know what I'm risking? Don't worry, we're going to get into that. Okay. So, risk management. This is very important. It's a foundation for success in trading. I look at risk and trading as three having three core components. You've got number one, your consistency, which is over the last six weeks, how many of those weeks have been green.

Then you've got your profit to loss ratio, your average winners and your average losers. And then you've got your accuracy. And when you look at all these three these three components, the these are the three components, profitability. So sometimes a trader will be struggling and they'll say, ' Ross, where do I begin? You know, I don't know how to turn things around. And so I always tell those students over at Warrior Trading to start with accuracy.

All right, start by trading a quality setups. Why would I say that? If the first element of risk management is trading Aquality setups, it is because when you trade aquality stocks, you're going to have higher accuracy. When you have higher accuracy, you will improve your profit loss ratio because you're eliminating some of the outlier losses that were the result of trading lowquality stocks. You know, whenever you look at your profit loss ratio, you'll have a couple of big big losers that draw down your average.

We've got to eliminate those. And we'll eliminate them, a lot of them, by reducing uh by by improving your increasing your quality threshold and reducing the number of lowquality stocks you're trading. So now with higher accuracy and a better profit loss ratio, you're going to have improved consistency, which means more green days and more green weeks. And what does that create? That creates a track record of profitability, which creates higher self-confidence, which means you feel confident taking more risk, which means you're going to make more money.

This is a positive feedback loop. It doesn't happen overnight. It begins with trading a simulator. It begins with practicing these strategies you're learning and taking it slow. But this is the foundation. This is how it's done. So when it comes to risk management, we have to think about certainly stock selection. Making sure you're only trading stocks that meet all five pillars of stock selection. But we've also got to make sure we're looking at the chart and we're looking at the price and we're buying at a place where our upside potential is greater than our downside risk.

And this requires an understanding of technical analysis. Technical analysis is the universal language of the financial markets and it actually doesn't matter if you're trading forex, futures, uh cryptocurrency or you're trading stock. If you're using candlestick charts, then this is this is technical analysis. And so really all financial instruments are relying on candlestick charts. So with these candlestick charts right here, I'm going to break down the anatomy of what each of the candles uh look like just in brief for those who have never seen this before.

So, this uh these these charts that you just saw, and I'll just go back to it right here, or or right here. Any of these these charts are all built with hundreds of individual candlesticks. So, the candlestick is this individual shape right here. And each of these candlesticks represent the price action that occurred during a very specific period of time. So on this window right here, I have a one minute chart, a five- minute chart, a daily chart, and a 10-second chart.

So on the 10-second chart, every 10 seconds, a new candle will open, and then in 10 seconds, that candle will close. So this candlestick shape is a record, a historical record of all of the price action that occurred within that 10-second period. So what is the price action that occurs? Well, each candle is created from four pieces of information. It's created from the open, the close, the high, and the low. So, a green candle opens at the bottom of the body, the low is the bottom of the candle wick, the high is the top of the candle wick, and the close is the top of the body.

So, those are the four pieces of information every candlestick includes. A red candlestick opens at the top and closes at the bottom. So now if we've got these candlesticks, one thing that I can tell you is that there are certain candlestick shapes that will communicate a strong amount of sentiment. So give me um you know you you tell me what does that candlestick tell us? That tells us that this was the the open, this was also the low, this was the close, it was also the high.

Okay, so those are the four pieces of information. It opened and went straight up and closed at the top. So this is incredibly bullish, very strong sentiment. On the other side here, we've got a red candle. Very weak sentiment, very bearish. Price is going down. Now, what about something in the middle? What about a candle that looks kind of like this? Well, the open and close is at more or less the same price. This is a candle of indecision.

It communicates that the price went up to the high, down to the low, but then closed right here in the middle. Now, it could be almost red. It could be it could be red, could be green. Doesn't really matter. It's still telling us the same thing, which is that there's a lot of indecision. What about this candle? What about the price goes up for one candle and we'll do a two candle pattern. So, we'll just go like this.

We'll say the the c the price went up here. It went up a second time. Then right here, we have this candlestick shape. This is telling us that sellers came in. While the price squeezed up, the sellers pushed it back down. And so, this is indicating the reversal may be starting. And I see that candle, the next one opens and it goes lower. And that's the the reversal confirmation. So in the case of a red candle, we'll just flip this over like this.

The price is dropping here. So price is dropping and then suddenly we have this candle here with a large bottoming tail, right? So now the sellers kind of retreated. Buyers bought it back up and that could be the beginning of a reversal. So each of these individual candlestick shapes are communicating a message. And so when I look at a candlestick chart, I'm actually seeing buy and sell signals. my eye has been trained to see that.

Now, for you as a beginner trader, you may not be there yet, and that's okay. This is something that comes with experience. So, one of the things I'll also tell you is that I offer at Warrior Trading twoe trials. It's a two-e trial for $20. And during that trial, you can actually watch over my shoulder as I'm trading. You can see my screen share. You can see my profit loss window. So, you can see how much I'm up, how much I'm down, which stocks I'm trading.

And it's kind of like having a First Base coach right there with you. You don't have to trade on your own. And so one of the things that I'm able to do is I'm able to give you essentially give you a chance to piggyback off of all of my educated intuition where I share with you the things I'm seeing and help point them out to you so you can see them more clearly. So one of the things that I know is that a lot of stocks trade with a great deal of respect to half dollars and whole dollars.

So what that means is that when we have a stock that's moving up in price, I'm just going to draw a couple lines here. So, we're going to do like this, like this. A lot of people will set logical profit targets at round numbers. So, if they bought a stock at $3, they'll put their sell order to take profit at four, just for instance. So, the price starts moving up, it hits this level here, which we're going to say is 350, and it dips down.

It comes back up, it breaks through 350. And oftent times, just after breaking, it'll retest that level. If it holds it, it'll move quickly up to the next level. Then it pulls back again right here, dips down. If it can break through this level, it'll retest it, prove it can hold it. If it can hold it, it pushes cleanly up to the next level. Then we dip down. And so we begin to learn that stocks trade in these patterns where they're trading around whole dollars and half dollars.

So this pattern is something that's very common. So given that we know this pattern exists, where would be places to be a buyer? Well, we could be a buyer right down here. And as long as the stock holds over this level, we're okay. And then we add to the position here. But we should probably be taking profit up around this resistance level because it might not hold. It might end up selling off. If it holds, can add back right here, starter size, add full size here, take profit up here.

And we keep doing that again and again and again. So on the days where I do really well, usually it's because we have one stock like TH today, just for instance, that was moving in the after hours session that just continue to move higher and higher and higher. So in this case, we have resistance right up here right at $6. That's not surprising. These stocks trade with respect to the half dollars and whole dollars. So boom, right into the half dollar or a whole dollar pulling back and then we look for the break through that level.

This is predictable. So once you learn these patterns, you begin to see the buy and sell signals right there on the chart. So while there's a number of different patterns that we can focus on, one of the ones that I really want to show you and highlight today is a pullback pattern. So what we're looking at here is uh initially we we will have suddenly a catalyst a news event that occurs right here which is earnings clinical trial results whatever the case is and suddenly the price surges up very quickly.

Now, the problem with a price surging up very quickly is that it's hard to manage risk. Because when we think about risk and we think about where we would sell something for a loss, I'm usually thinking about where was the most recent level of support because that level of support would be what I need to see hold. So, if the price suddenly very quickly squeezes up, then your previous level of support is kind of like way down here.

So if it pull if it pulls back right here in this area then our new level of support becomes the low of the pullback. So now this is our max loss. So if I buy right here when this green candle forms my max loss is right down here and let's just say that's 10 cents per share. So now my profit target is that we retest the high of day and we break this level. And I know that I need to make 20 cents in order to get my 2:1 profit to loss ratio.

So the tighter you can get your stop, the easier it is to achieve your 2:1 profit loss ratio. If your stop was 50 cents away, now you need to make a dollar a share. So taking entries when I can be in with only five cents or 10 cents of risk per share is generally going to be the best case scenario. So, I take my starter here with 10 cents of risk. It goes up 20 cents. And as a beginner, you just could take all of it off the table.

For me, I would hold the position and I would double right here. So, now I've got increased risk and my new stop is right down here, which is going to be a stop at break even. So, now I can take a bigger position. And the the worst case is I get out flat. So, now that's kind of the ideal scenario because I'm not taking a,000 or $2,000 of risk. my risk is the the profit that I have goes back to zero, but I still I walk away zero.

Like that's almost like now I've got a free trade. So if this still has the potential to go up 20 or 30 or 40 cents a share now with a full-size position or a double-sized position, I could make that much more money. And that's how all of a sudden I'm making $4,000 an hour instead of, you know, just maybe 100 or 200. I'm scaling up my trading. So waiting for the pullback uh for me is really important and the pullback will typically take the form of a micro pullback.

So we get a quick pop up, a momentary pullback here and then a surge higher. And I'm okay with that. This is the most uh a more aggressive pullback where the pullback is formed by the bottoming tail. And this would be a pullback that would have to coincide with a half dollar or a whole dollar which would be like right here at six for instance and um most likely a moment of hesitation before breaking that level. So what I want to do now is I want to show you some examples of these micro pullbacks.

So this is a day here where I'm up 80,000 bucks and this on APVO I'm up 73,000 on that stock was the micro pullback right there. So, you see how this squeezed up and then I waited for the pullback and then I bought right there and then that's where we got that resolution pushing higher. So, here's another example. We get that first push up, we dip down, micro pullback, second push higher, second micro pullback, another push higher, another micro pullback, another push, another micro pullback, and then this one doesn't continue higher.

We get that topping tail candle right there, which indicates a possible reversal. Sorry, it's on the green candle. And then that's where on that trade I might have even lost, but the profit from the first trades is still adequate and I'm walking away $55,000 on the day. Here's another example. Micro pullback. Micro pullback. Very brief. And this is the one that went ESPE from $12 a share up to 35. I made $175,000 on that.

And this was in a matter of minutes. So here's another example. The squeezes up. Micro pullback right there. A really nice, clean one. Here's another example. Micro pullback right there. So, this is what I look at. The stock first hits my stock scanners right here, which means the stock is meeting my criteria of the five pillars of stock selection. It's moving higher in real time. I pull it up. I see what the news headline is.

And then I begin looking on the chart for that micro pullback. I jump in right there. And this goes from $4 up to $7 a share. Now, here's the thing. This is the example where this pops up. You have a little topping tail, it dips down, a little bottoming tail, and then it pushes higher. This is going to be hard for a lot of traders, especially beginner traders, because it's just happening way too quickly. This right here is a little more sustained, a proper pullback, and then pushing higher.

That we can wrap our head around. This one is a twocandle pullback. It pops up, it pulls back, two candles, and then pushes higher. those are going to be easier to visualize. So, as a beginner, you're going to focus on one and two candle pullbacks that are easier to visualize. And then as you gain more experience and you get better at reading the level two, which is a little bit more advanced, you'll feel more confident taking trades a little sooner.

So, now I'll hide my video again here. The reason the micro pullback works is for the following. Number one, traders are watching a stock that just hit high scanners. They're looking at the big percentage moves. The reason, and this is probably goes without saying, but if you're using a broker that's a commission free trading broker, the way those brokers make money is on your order flow. So the more you trade, the more they make, which means they want to show you stocks that are moving.

So you trade them. Now, I want to see you making money. The broker, I guess they don't want to see you lose money. They want to see you there forever, but in the short term, they just want to make money on your order flow. So they're just going to tell you to trade, trade, trade, trade. So they're going to show you these stocks that are moving. It's going to bring it to people's attention and then the stock becomes obvious because it's the leading percentage gainer in the entire market potentially.

The stock is moving up quickly right now and a micro pullback is a moment of rest which presents as a dip and it creates support when they hold that level. Entries in your support carry less risk. So micro pullbacks really represent one of the fastest ways to buy a strong stock. So once we have a stock that hits our scanners, that's moving up quickly, right? We pull up the chart, we like the chart, we feel good about it, then all of a sudden it's time to go ahead and take the trade.

So step five is when we execute that trade. And this gets into the nuance of how to actually use trading software. So trading software is going to have a buy button and a sell button, and it's going to have the quote of the current stock that you're looking at. So when you pull it up, a stock quotes in a bid and an ask. So there's a buyer and there's a seller. So if you want to buy right away, you buy from the seller because they're selling shares in this case at 493.

And I click 493 or put the price anywhere above 493. And I click the buy button. If I want to sell, I sell to the closest buyer, in this case at 492. I click that price, I click the sell button, and I'm out. Now, one of the things that I do in my trading is I actually use hotkeys. So, I script keys to the keyboard and then just by pressing these buttons on the keyboard, shift 1, control Z, control K, I can actually be buying and selling.

So, I don't have to be um clicking the buy and sell button. But, nonetheless, whether you use hotkeys or you manually point andclick, using this software is going to be important and knowing how to use it correctly is going to be important. So, there are two types of orders that you can use as a trader. You have a market order and you have a limit order. A market order runs from 9:30 a.m. to 400 p.m. during just regular trading hours.

And limit orders go all day long but start at pre-market and go all the way through after hours. You can also use stop orders. That's actually the third type. Um, a stop order is when uh the you put out an order to execute if a current price is triggered. So, let's say you bought this at $5141 right here and you said my stop is going to be 51. So, if this drops below 51 and an order goes through at $51 or lower, your stop order will automatically execute and it will sell your shares for you.

So, those are good for risk management and a lot of traders like using them. So, you've got market orders, limit orders, stop orders, and then you've got extended or hours orders, which are required if you're going to trade during extended hours, which is anytime outside of 9:30 to 4 p.m. Day orders are just during regular trading hours, 9:30 to 4 p.m. And then uh you can select the market, the destination, and so for me, I use NASDAQ.

Now, some brokers like Robin Hood, um, Weeble, they don't give you the chance to select your your market. They just do it automatically for you, and that's fine. It it works relatively well. Uh, level it. It's not It works relatively well. Those brokers are typically not as fast as some of the other brokers, but for the sake of a beginner who's training and is practicing and trading really small share size, it's negligible.

So, it's not significant. when you're trading at the level that I'm at with large amounts of money, these small differences can amount to bigger in dollars and cents. But, uh, for right now, for for the sake of this class, it's not significant. So, the next thing you'll need to learn how to understand is these this window right here, which is called level two market data. And so, we talked about sort of this order entry window down here, but this window right here is where you're seeing all of this market data.

Now, I have fulllength classes that go into how to read level two market data. It's something that you can spend a lot of time studying and a lot of time practicing. Level two data is telling us all of the buyers and all of the sellers in the market. So, it's a comprehensive view of all market participants. And so, it helps us understand when there's a lot of bid support, buyer support, or when there's a lot of selling resistance.

So for me, using level two is critical for my trading strategy. So what will happen is I pull up a stock that hits the scanner. I check the news. I pull up the chart. I like it on a micro pullback. I then pull up my order entry window. And then let's say right here this number which shows 10, which represents 1,000 shares, you they just drop two zeros. I don't know why they just it's always been that way. So, if this was showing 100,000 shares or 1 million shares, I would recognize that there's a massive seller right here.

It's a huge wall, and I'm not going to be able to break through that wall, so I shouldn't buy. There's too much resistance. There's too much uh supply and there's not going to be enough demand. On the other side, if I saw here that there was a 1 million share buyer, that would tell me that there's a huge amount of support, a big buyer, and that would give me conviction. So seeing uh the size of the orders in this particular example, there aren't any orders that are large enough to be meaningful.

Even this one up here of 33,000 shares, it's not that significant. It's $150,000 order, but this just didn't have any big big orders out. 38 million shares of volume up 661%. I mean, the thing is moving, but it just didn't happen to have any really big sellers, which was, I suppose, part of why it was able to move so much. even the absence of big buyers wasn't a problem because it just continued to move higher due to the absence of big sellers and the fact that it had a strong catalyst.

So, learning to read level two data, learning how to use trading software um is going to be sort of that next step in strategy development. The time and sales window uh is this little window right here. It's called the tape. And so, what you could do here when you're reading the tape is you see every single transaction that goes through the market. So, uh, so right now, for instance, um, we had TH that we were looking at before.

So, we'll just pull that back up. So, see how these orders are going through right here. Those are those are every individual trade that's taking place. And right there is a 23,000 shares seller. 21,000. So, that's kind of a big seller. I mean, you know, granted, it's got 357 million shares of volume and it's a lower price stock, but still someone's selling 20 plus thousand shares. And what we don't know is if that person is got more shares that they want to sell.

They could have a couple hundred thousand shares that they're going to end up selling. We don't know for sure. So when you see those big sellers for me, it usually gives me a reason to be a little cautious. I think that's kind of not great. But anyway, so the time in sales is showing all the orders that go through. So when the orders are green, that means they're going through at the ask price, which is at the best price.

When they're red, they're going through at the bid price. And when they're white, they're going through between the spread. So sometimes a stock will trade with a bigger spread, as you see here in the case of ESB. This has a bigger spread. So when you've got a bigger spread between the bid and the offer, any orders that go through between that are going to be white. Uh, and it's kind of neutral. It's not really strong.

It's not really weak. They're just kind of neutral. So the workflow here is stock hits the scanner, starts surging up. We then look for that momentary dip to jump on right here. First candle to go green. That's the entry. There's the profit target for a squeeze higher. And boom, I'm getting out with profit. Max loss on this was the low of this pullback. So, if that was 10 cents a share and I'm comfortable risking a hundred bucks, then I take a,000 shares.

If it's if I'm comfortable risking $1,000, I take 10,000 shares. So, I can multiply my share size based on what my stop is, how much I'm risking, and how big um really in cents per share, and then the number of uh shares to calculate my max risk, but only if I've got the 2:1 profit to loss potential. The target is always a retest of the high of day, and then we look for an extension, usually 10 15 cents higher on a lower price stock.

Now, I'm going to give you a pop quiz. Okay, so we've got this stock UPXI. It just hit our scanner. What do we do? We're seeing it squeezing up right now. All right, green candle, green candle, green candle, red candle, red candle. What do we do? So, what we know is that this right here could be representing a micro pullback. So, what would our entry be? Potentially, it would be the first candle to make a new high. And what would our max loss be?

It would be the low of this pullback right down here. This is a good example. So, right here, the new candle made the new high and we squeezed right through the high. Now, you'll notice down here the volume bars. These are showing the amount of volume that occurred on each candle. Green on the buying candles because they're going up, red on the selling candles. What we wouldn't have wanted to see is a really high volume red candle because that tells you a lot of people are selling.

So, I look at the relationship between the buyers and the sellers. I want to see that there's more buying in total than selling. And when there is, I feel more confident. Down here on this pane is a technical indicator called the MACD. It stands an acronym um MACD. It stands for moving average moving average convergence divergence indicator. And it compares the relationship of two moving averages. And what we know is that as the price begins moving up quickly, a fastmoving average will move fast with the with the uh price of the stock and a slower moving average will be a little slower to move up.

And so the result is that these two averages are diverging. They're moving apart. And so when they're diverging, the MACD is moving apart. This is a sign that the stock is very strong. But when they begin converging, which would be the result of this moving average pulling back, then they're moving back closer together. They're converging and that indicates the trend is waning. And so this is a little kind of secret indicator that I use on all of my trades to help me understand just generally what are we doing with trend.

And what I know is that when we're trending uh strongly up, I'm a buyer. And once that MACD crosses to the negative, the trend is exhausted and I do not want to buy. Even a micro pullback. So let's look at the next example. So here we've got several green candles in a row moving up. We've got two red candles here. Notice that bottoming tail. What I said about that bottoming tail before is that this is bullish because even though the price sold off, buyers rallied it back up.

So the reversal may already be starting. You've got two red candles, but they're lighter in volume total than all of these candles combined. The MACD, though it's hard to read, is positive. And here we get that resolution. This represents the first really lowrisk opportunity to buy a strong stock. Here's another example. So now this I want you to pause for a second and look at this carefully. So the price moved up, pulled back, and pushed higher.

So right there could have been a micro pullback that we could have traded. And I'll trade the first one. I'll trade the second one. I'll trade the third one. But wait a second. We've got that red topping tail. Not great. We've got higher volume selling. Not great. The MACD is heading back negative. This is not a good setup. The volume is really the key indicator there. High volume selling. If even one is negative and a problem, then I shouldn't take the trade.

So here, higher volume selling. The price is really going sideways. MACD is negative. We wouldn't take this trade. that there's no reason to. Now, however, back uh back in this area, like right in here and right in here, that would have been okay to consider back here, right down there, those would have been okay to consider. MACD was positive. Good volume profile on the green candles, but not in this area. Here we go.

Here's another one. MACD is negative right down there. This setup's not going to work. So, I already know it's not going to work because I see the position of the MACD higher volume selling right here. This is not going to work. selling off. Yes, the MACD is positive, but remember it only takes one to say no. PF PRFX this one higher volume red candle there. That's a little riskier, but in total the the buying volume is much higher.

MACD is positive. This is a setup I would trade. Here we go. There's another one. MACD is positive. Volume is decent. Um, a little bit higher on this candle. It would have been okay probably here to say maybe I'll sit it out. It did end up working. Uh, some of them are not going to be picture perfect. And if you're not super confident, it's okay not to take the trade. Now, again, one of the things that can be helpful is, you know, when you're listening to my broadcast, you're hearing my broadcast and you realize that you're not doing this on your own, right?

You hear my feedback and I'm taking these trades side by side with you. I'm putting real money on the line. They don't all work, right? My accuracy right now, 70% or whatever, 71%. Um, this was from uh even just earlier in this year when I grabbed this screenshot. Uh, step six in my strategy is that I spend a lot of time reviewing my analytics, reviewing my metrics. So, what that means is that every day when I finish trading, I import my trades.

So, I import my trades so I can look at my profit loss ratio, my the relationship between the winners, the losers, my accuracy, my total profit, and I can look at the patterns in my trading. Now, you have an opportunity when you're trading to collect all this data and aggregate that data. Now, if you're using software like this, you're going to be able to draw some conclusions through the different reports that you're looking at that'll tell you what you're doing well and you know what you're not doing as well on, right?

So, this can be very helpful to point you in the right direction. One of the things I think a lot of traders fail to do is analyze their metrics and it's a mistake because you've got all this data and if you're struggling right now, this can point you in the right direction. So, let me give you an example of a time where I was struggling and using my metrics, I was able to turn things around. So, I had this time in my trading career where I felt like in order for me to produce the profit targets that I had that I needed to have hit huge winners, like home run winners.

But the result was that I was spending a lot of time sacrificing what could have been decent base hits because I was taking a lot of risk to like swing for the fences and hit this big big trade. And so the inevitable happened that I took big risk for a big home run and it was a strikeout and I had a big loss and I felt really frustrated because I saw other people that had made money on that trade because they didn't go for the home run.

They just took the base hit when they had it. And I felt like, you know, this is getting really frustrating. And so I decided to dive into my analytics, dive into my metrics. And when I do that, I can look at the profitability of each individual trade, the stocks I trade, where I'm getting in, where I'm getting out. But what I did in this case was I really did a deep dive into the last 10 months of trading data. And what I looked at was how many big winners I was really having and how much they were contributing to my total profit. because this belief that I needed to hit home runs um I I mean I know now that it was a false belief but it was leading me to take big risks and then the big losses required big wins to recoup them.

So I was on this kind of emotional roller coaster of big wins and big losses. So I started by just analyzing my top 25 biggest winners and my top 25 biggest losers. And this by itself was fascinating because what I discovered was that when you looked at only those 50 trades, I had made $12,000 in the last 10 months. That was it. And that shocked me because during that 10-month period, I was up over $300,000. So now what this told me was that my top 25 biggest winners, all they were really doing was offsetting my top 25 biggest losers.

It wasn't really generating that much profit. So then I started by looking kind of at the extremes of this bell curve here. So then I had to look sort of one tier in. And so I looked at winners of 4,000 and up, which for me was like a solid win, and losers of more than 2,000, which was a pretty big loss. And I realized that in this bracket of all the winners more than 300 more than $4,000, I had made 319,000 and all the losers of more than 2,000, I'd lost $361,000, which gave me a net loss of $42,000 over that 10-month period, $4,000 a month.

So now I'm really shocked. So now I'm looking at my metrics and I say, well, what what left do we have to to look at? It's what's right in the middle. So any winner between 0 and $4,000, which arguably is a small win, and that had produced over half a million dollar in profit. And then look at the small losers between 0 and minus2,000. That produced 156,000 in losses, which means I had a net profit of 354,000. But wait a second, I had only made about 310,000.

So that meant that I actually would have made $42,000 more money even. And this felt like such a contradiction. I had never had a winner of more than $4,000. As long as it also meant I never had a loser of more than 2,000. So in other words, swinging for home run trades was costing me $42,000 a year for in well $42,000 in just 10 months. A little bit more than that on the course of the year. So that helped the So looking into all of that data helped me shift my focus to swinging not for home runs but just hitting base hits.

The result has been more consistency, more confidence and a calmer disposition about trading. And so I continue to trade focusing on base hits. So a base hit can be 10, 15, 20 cents a share. It doesn't have to be a huge base hit is about cents per share. And so the the home runs was when I was trying to make a dollar a share. I was trying to get in at $3 and sell it at four. I wasn't taking the profit when I was up at $3.20.

I was holding the whole thing and then it was turning into a loser. So let me show you something that I think you'll find really interesting. This is going to be on about $5 million of trading profits. So we're going to do a yeartoate comparison. So, we know that I'm up $5 million year to date. And I want you to take a guess at what you think my average winners are right now. A how how much cents per share do I make on my average winners.

So, this is going to be year-to- date. All right. So, put in your guesses. Average winners right now only 17 per share. And I've made $6.2 million. In total winners, my average losers are $1,200 and I've lost on average 13 cents. Wow, I've really tightened this up. These are base hit base hit trades, base hit winners, base hit losers. It doesn't matter. It's not a big strikeout. And that's what's important. So, I've reigned it in in a huge way.

So, after having that epiphany, I went on to have 30 consecutive green days in a row with 74% accuracy, focusing just on small base hits. And so, here's a question. Would you risk $500 to make $750 if you knew you'd be right 75% of the time? The answer should be yes, because the statistics tell you that over the course of 100 trades, you would make money. And right here, you can see the proof in the pudding. So, $60,000 of profits right here.

Average winner is 743, average losers 533, accuracy 74% success. Average daily gain in this period was $2,000 a day. This is a really nice stretch. Now, this was many years ago, but this was for me was a really important uh important epiphany that I wouldn't have had if I hadn't analyzed my trading metrics. So, analyzing trading metrics is a critical component to long-term success as a trader. Step number seven is scaling up your trading.

So, this was a 30-day period where I made $60,000. Well, you just saw a couple of uh P&Ls where I was up 60,000 or even 100,000 in a single day. So, what has changed? What's changed is not me holding and getting a bigger move and getting a quote home run. What's changed is me taking larger position sizes. So, these are larger position sizes. That's the difference. I'm buying and selling more shares. So, earlier in my career, I was trading with smaller size and I've scaled up my position sizes.

This is part of that positive feedback loop. Remember, build a track record of consistency. That self-confidence increases your risk tolerance and you start taking larger positions and then you have increased profitability and it's that positive feedback loop. So, one of the things that I developed in my trading is something called the icebreaker strategy. And this is another discovery that I made after a big red day.

So, previous to making this discovery, my big red days looked like this. I would just totally get crushed, lose 25, $30,000 in one day. And my average daily gains might might only be 2 or $3,000. So then in one day, I'd give back 20 or 30 days of progress. It was terrible. So I looked at my metrics and I discovered that on my red days, my accuracy was only 46%. And on my green days, it was closer to 70%. So, I said, "Is there a way that I could know that today is going to be a red day sooner so I could stop trading?" Right?

That would be awesome. I I would pay someone to stand next to me and say, "Ross, today's going to be a red day. Walk away from your computer." But how would how would they know? So, I asked myself that question. How could I know really that today is going to be a red day sooner so I can walk away? That is such a puzzle because if I could figure that out that could man that could be a real gamecher for my trading. Now a typical green day looked kind of like this.

I would start first trade out of the gates big size and if it worked I'd have a big green trade. I'd be up $10,000 $15,000 very quickly. But on the red days first trade big loss I'm deep in the red and it just gets worse from there. So what was happening? Well, what was happening was um I had a daily goal and I decided to set um a cent well I had a daily goal which was $5,000 and I had a daily max loss which was also $5,000.

So I didn't want to lose in one day more than I could make on one day. But the problem was with a max position size of 20,000 shares, if I was up 25 cents, I'd be up five grand. If I was down 25 cents, I'd be down five grand. So, what would often happen was on that first trade right out of the gates, well, before I propose the change, let me tell you what would happen. On that first trade right out of the gates, if I had the misfortune of losing 50 cents a share, which is a big loss, I'd be down 10 grand instantly.

And then I would feel like the only way to make it back is to trade not with 40,000 20,000 shares, but with 40 to start to increase my share size. So, I only need to make back 25 cents to get back to flat. And so what I would do is on my bad days, I would increase my share size. Now, this is a terrible mistake. Why would you increase your share size when the market is not conducive to your strategy? Shouldn't you increase your share size on the good days?

Well, that's not what a lot of beginner traders do. They'll increase their share size on the bad days from fear, emotion, frustration. And so, all of a sudden, I would start spiraling. So, I proposed a change. While it was great on the green days when I would hit the ground running and be up 10-15,000 on my first couple trades, I said what I need to avoid is going deep red on my first trade of the day. So, how could I avoid that?

What if I do this instead? What if I cap my share size at 5,000 shares, which was one quarter of my full-size position of 20,000 until I've made my first $1,000 of profit, which is 20 cents per share. 20 cents times uh 20 cents times 5,000 shares is a thousand bucks. So I said until I'm up a thousand dollars, don't go with full size. So this is what ended up happening. I would scale up to full size only after making the first thousand.

So if I didn't cross $1,000 in profit, I would stay with one quarter size for the entire day. So, the result was that on the best days in the market, I would lose I I would well I wouldn't make as much as I would have typically made on the first trade. I would make maybe a,000 on that first trade instead of 3 or 4,000 or 5,000 or more. But that was okay because if the market was hot, I would immediately scale up and I would only really sacrifice a little bit on that first trade.

But usually when the market's hot, there's typically dozens of opportunities each day, so I still can have a great day. But what's more important is controlling risk on the cold days. So on the cold days, I start with quarter size. I never hit the thousand goal, so I never size up. I don't expose myself to high risk, and so I lose money, but only at the rate of 25% of full size. So suddenly, my red days are now one quarter in size.

On my best days in the market, I make a,000 bucks on the first trade. I scale up immediately. On the cold days, staying at small size, not exposing myself to big risk. So, I felt this increased sense of confidence that when the market is hot, I can size up quickly, but when it's cold, I can hunker down and I can wait it out. And so, this boosted my confidence that on the hot days, I trade even more aggressively. And suddenly, my profits were exploding.

So, typical green days, well, here I had 222 green days out of 230. Unbelievable. Unbelievable. This is an incredible hot streak. Nearly 100 green days in a row. I think it was a 76 consecutive day hot streak. And the green days, you know, yes, it would start a little small, but it would build. And sometimes I would even go a little red, but then once I was up over a thousand, I would scale up. And on the days when it wasn't working, I would lose, but I wouldn't lose as much.

And this was the result of paying really close attention to the metrics. So 76 consecutive day green streak. And in theory, I realized I should never have another red day. Now, those of you guys who tune in every day to my recaps, you know that I do in fact have red days. I upload a recap for my trading every single day, whether it's a red day or a green day. So, I hope you guys, if you haven't already subscribed to the channel and you're getting value out of this episode, I hope you subscribe.

I hope you've already hit the thumbs up. And if you didn't already download my suite of PDFs, that link will be pinned at the top of the comments and in the description so you can check it out. But I had this theory that maybe I would never have another red day. If I can always maintain 70% accuracy with a 2:1 profit loss ratio, as long as I can take 10 more trades every day, I could always recover to being green unless I run out of a quality setups to trade.

And that can happen in a cold market. In a cold market, I can run out of a a quality setups. It's unfortunate, but that's the reality. So in a hot market on a quality setups my accuracy can be 75 80% and I could have 15 25 plus trades a day. And in a hot market even B quality setups I can still maintain good accuracy and get 25 to 50 trades a day. But when it's really cold even a quality setups my accuracy goes down because there's just not as much momentum in the market.

People are being more cautious and there's fewer good quality trades. Yes, there's more Bquality trades, but the accuracy gets so low it's not even worth trading it. So, in a hot market, buying sentiment and FOMO, the fear of missing out are so high that B and even C quality setups can work. But when you go back to that cold market, the sentiment is so poor. So many people are just sitting on the sidelines waiting that the same exact headline that would have sent a stock up 300% in a hot market, in a cold market, the stock barely moves.

It's it's really amazing how that can happen. So sentiment plays an important role. Now the way to gauge sentiment is really by paying attention to how many stocks each day are going up more than 50%. When you're seeing multiple 50% moves, when you're seeing 100% and higher moves, you're in a pretty hot market. But in a cold market, you might see stocks that are only going up 25 or 30%. And if you're not having anything crack 50%, people are just going to kind of hunker down. they just sort of are like, "Yeah, I'm gonna wait it out." And so, it's important that you do the same.

Now, I understand you've got your monthly goal, you know, that monthly target that you've got. You've got your daily goal. The market doesn't care. So, you have to not trade that number. You've got to trade the market that's right in front of you. It's a really important lesson to learn and something that you'll probably learn a little bit the hard way by losing more than you you'd like to during a cold market and realizing I should have just stopped sooner.

Now, I want to touch on a concept here that I also think is is probably equally important. I talk a lot about how to increase your accuracy, how to increase your profit loss ratio. We focus on stock selection as the first form of risk management. And the second is by really asking ourselves where support is and how much we're risking versus how much we stand to gain. But I'm going to tell you something. This year, I'm up over $5 million on the year.

And you might think, Ross, your tax bill is going to be unreal. I will pay zero income tax on those gains. So this is very interesting. Another trader who pays living in California or let's say or New York City 50% income tax, right? Federal plus state, they would have to make twice as much money as me to net the same amount at the end of the year. So being more profitable versus being more tax efficient. Now that is an interesting question.

So, and it doesn't really matter whether you're thinking about getting into a different side hustle or you're getting into trading. Being tax efficient is a really important consideration when it comes to trading. Most traders overpay in tax due to the following. They pay short-term capital gains tax on all their profits, which is tax at your regular income bracket. They face higher income, artificially higher, because wash sales are disallowed.

I'll explain what that is in just a moment. Number three, they are limited to writing off only $3,000 in losses against their income. So, if they actually have losses that are bigger than that, they can't write them off. Their profits cannot be used to contribute to retirement accounts because they choose not to because they don't know how to and they're unable to write off expenses related to trading. These are unnecessary ways that traders overpay in tax.

So, if you want to pay zero in capital gains tax on all your trading profits, there are basically two ways. The first way is to move to Puerto Rico. Now, um this is this is going to be really popular for some people. Uh and my accountant asked me if I want to move to Puerto Rico, and I said, "Well, you know, that's it's not going to work." Act 60 um is some uh is an incentive for US citizens to move to Puerto Rico. You retain your US citizenship, but you become a Puerto Rican resident.

And there's a tax incentive, which is a 100% exemption on federal income tax on all capital gains, including short-term capital gains. So, a lot of traders actually do move down to Puerto Rico for this tax incentive. Uh, however, you have to completely relocate your life to Puerto Rico. uh there's a lot of things you have a lot of check boxes you've got to meet and if you don't do it the right way then the tax then you won't be exempt.

So it's it's a great way if it works for you um it it didn't work for me but if it works for you then it's something you should seriously consider. So then the second way to make your profits completely taxfree is to trade in a Roth IRA. This works for US residents. All your trading profits and distributions will be 100% tax-free, but you have to wait till you're 59 and a half years old to take distributions. Now, you can borrow against it.

There are some things you can do. You can also um withdraw your contributions as long as they've been in for more than uh can't remember how many years, but so there are some ways you can do it, but trading in a Roth IRA is a really big deal, and that's what I use. So that means my trading profits that $5 million is tax-free and it's in a tax completely taxfree retirement account. So trading is one of the few things that you can do in a retirement account.

You can't run your Etsy shop or your eBay shop in a retirement account. You can buy real estate in a retirement account, but it's a little bit difficult and it doesn't really work because then you don't get to take advantage of the tax deductions from depreciation. So, there's a lot of things running a plumbing business, running any business that you just can't do in a Roth IRA. But you can fund a Roth IRA. You can actively trade in it and all of that profit becomes taxfree.

So now, when we're thinking about how to fast forward that retirement, one path is to actively trade in the Roth IRA, your income tax. You'll have no tax on the gains. And now your goal is to get up to that magic number 750,000 as quickly as you can. So you can you could quit exactly at the age of 59 1/2 years old. Now after the age of 59 and a half, any profits that you make in your trading account, you can withdraw taxree as long as that account has been open for 5 years, which is also really amazing.

So there's a lot of benefits to trading in a Roth IRA as long as you still have another source of income. So for me, I have other sources of income. I've got my book, wherever it is, how to day trade, the plain truth. Let me give you um a copy of that. you could see right here. So, this is um how to day trade the plain and truth. So, I get royalties on this um from all the book sales and some other books that you guys could check out.

Thinking and bets by Annie Duke, Quit: The Power of Knowing When to Quit, also by Annie Duke. Um and then some of these others are interesting, but not as interesting. So, you know, I'm able to generate income uh from my book. I've got my software company at Warrior Trading. We've got the scanners. We've got the charts, the newsfeed, and then I get a little bit of income here from YouTube. So, you know, that for me supplements to the point where I can have all of my trading taxree.

So, if you can have your either 9 to5 or your 1099, your side hustles, which you can't put in a taxfree account anyways, you use that for paying your day-to-day bills and then the trading account is for saving. That's a really good way to do it. Now, what a lot of traders do depend on trading for income is they set up two accounts and they run a script so they trade in both accounts at the same time. So, one is taxable, one is taxree, and now you're just trading two accounts simultaneously, which is also a great way to do it.

So, that's your best strategy for tax-free. Now, when it comes to thinking about your taxes, there are a couple of other approaches. Um, I could get into the Roth IRA here in a little bit more detail. I I don't think that I will for the sake of this class. I have a separate class that you could watch uh specifically on how to set up the Roth IRA which um you may find interesting. So um so but I encourage you to look into it and the brokers that I really like for Roth IAS include Lightseed, Schwab and Interactive Brokers only if you trade large caps, not if you trade small caps.

Weeble is so so um some people like Weeble and that was a little bit so so. So tax strategy number three, um there's something called trader tax status and marktomarket accounting that allow you to maximize your deductions and allow wash sales. So the first one is your trader tax status. So if you are a full-time trader and you're gener you're focusing on generating profit by actively trading the market, then you're allowed to deduct reasonable and necessary expenses relating related to producing your trading income.

So that can be the cost of software, education, computer equipment, your internet provider, an office rental, professional fees like accounting fees, any expense that is necessary and reasonable for you to produce your trading profits can be deducted. So just essentially this is when you set up trading as a business. It's no longer just, you know, some sort of hobby that's a little bit disorganized. You're actually treating it like a business.

You show up at the same time every day. You expense all of the equipment. And this is what traders like myself will do. And it it you have you it would be a disservice not to do it because it's within your rights to do it and you should. So trader tax status uh allows you to deduct all the expenses related to trading which can be substantial over the course of the year. Now to be eligible for trader tax status, you must meet all of the following conditions.

You must seek to profit from daily market movements in the price of securities, not just from dividends, interest, or capital appreciation. Your activity must be substantial, and you must carry on the activity with continuity and regularity. Now, these are obviously somewhat vague. So, if you're showing up every single day in your trading for the two hours a day, you're meeting that threshold. There's facts and circumstances that can be considered in determining if your activity is a trading business, including your hold times.

If you are mostly holding stocks for like a year or more, that's not going to be considered trading. If they're very short hold times, which when we looked at my metrics up here, my average hold time here was uh four minutes long, right? So, we're talking about thousands of trades, four minutes long. That definitely checks the box. um the extent that you pursue the activity to produce income for a livelihood is a consideration.

So if you're trading, you know, strictly in your Roth IRA, you're not producing a livelihood. You know, it's something you should talk to your CPA about. Most people end up trading in both accounts to a certain extent. It it depends on your circumstance and exactly what your situation is, but you know, these are the things that are to be considered, the following facts and circumstances. So, as long as you're meeting all of the conditions above, you're going to be in pretty good shape.

And then these are things that are, you know, considered as just helping the uh the IRS determine whether or not you really meet trader tax status. One of the challenges is that sometimes people who are really like passive investors try to get trader tax status just to get write offs and they don't really meet it because they're not really actively trading. So, that's where they try to make sure you're not one of those people.

So while you can write off expenses related to trading, you would continue to face wash sales. So a wash sale occurs when you take a loss on a position and then you buy back a substantially similar position within 30 days. And this is a problem because a lot of traders, active traders are taking wash sales all the time. And so the result is that it'll increase your taxable gain beyond the amount that you actually made.

So, I've seen traders who in net only made $100,000, let's say, but their 1099 showed that they made $300,000 because all of these losses that they took weren't allowed to be written off. So, why would they even have this rule? It's because what people used to do was they would sell all positions that they were holding at a loss on December 31st. They book the loss, which offsets their income, and then they would buy back the same position on January 1st.

So, so essentially they would just be back in the same position at more or less the same price the next day, but they would book the loss for the tax year. So, the IRS said no, you can't do that. So, if you buy back a substantially similar position, you're disallowed from writing off the initial loss. And that's a problem for traders. So, what's the way around it? Well, there's two ways. One, if you're trading in a Roth IRA, you've got no taxes.

If you live in Puerto Rico, you've got no taxes, so there's no wash sale. But two, you can apply to what's called