How to Start Day Trading (Step-by-Step Guide) transcript

[Music] in today's episode I'm going to talk about the things that you need to know when you're getting started as a Trader I'm not going to sugarcoat it for you trading is hard and one of the challenges with trading is that there are so many mistakes that beginner Traders make and they end up shooting themselves in the foot hardly before they've even gotten started they knock themselves out and they become a statistic of another failed Trader so even if you've been trading for a while but without a lot of success it's not too late to take a step back to slow down and to start focusing on building a really solid foundation that you can scale I'm going to share with you the blessing and the curse of being a Trader the curse you could spend years struggling to make even just $10 a day and you'll feel like I'm not being greedy I'm not asking to fly a private jet or drive a Lamborghini it's $10 a day why is this so difficult and it's because until you have a set of rules that you consistently follow every single day you won't make $10 consistently but now here is the blessing and this is the silver lining for so many Traders once you are consistently making $10 a day and let's say you're doing that with 100 shares the only difference between $10 a day and scaling up to 50 to1 to $200 a day is increasing your share size and you can easily do that as you gain some confidence and you have a track record that supports putting a little more money behind each of your trades that's exactly what I did with my trading and now I trade with an average position of about 10,000 shares and that's the biggest difference between my first few months of turning the corner and the amount of money I'm making today bigger share size okay so my hope for you is that in this episode I'm able to point out a lot of the rookie mistakes that many Traders make when they're getting started and I was no exception in hopes that I can help you avoid making those same mistakes I'm also going to share with you the five steps that I would take if I were starting over today so let's go ahead and jump in with the first step that you need to take when you're getting started the first step is simply learning the basic concepts of how to actually take trades how to do technical analysis how to read Candlestick charts how to read the level two the tape how to interpret news it seems like a lot and on the one hand it is but on the other hand for me when I started getting into trading I was so excited to learn all this stuff because I knew that once I learned it it would Empower me right financial literacy that would Empower me to become potentially a better Trader a more successful Trader more profitable Trader so I was super motivated to learn all of the different nuances of how to trade so step one for me I'm not really good at like reading an owner's manual for trading software or just reading a book about how to trade the easier way for me to learn is Hands-On it's to actually start taking my first trades now I want to say a rookie mistake and I'll kind of you know pepper these in throughout this episode one big rookie mistake is trading with real money before first proving you have a track record of consistency in a trading simulator a lot of beginner Traders they'll just fund an account with thinker swim Robin Hood you know whatever the account is doesn't matter each trade and they start taking positions and unfortunately this can be a very slippery slope where next thing you know you're you're trading with big size you're taking YOLO trades you're swinging for the fences you're going into the red now you're praying for a Hail Mary to get yourself out of the red and it's just very emotional it's very stressful and it's completely unnecessary it's not the right way to start so while at the on the one hand I'm a big advocate of just throwing yourself in and starting a trade I would just say as a note do it in a simulator because you'll get the same learning but you're not losing real money right now for some of you you've already been trading for some time and you have been losing money and it might be hard for you to say I'm going to step back and switch to simulator because it feels like a step in the wrong direction so if you're in that position let me give you one possible Word of Wisdom something you could consider doing is reducing your shares all the way down to like one share or maybe 10 shares something really small so the amount of money you're losing is negligible but you're still gaining experience and maybe even better than Sim trading you're still feeling some of the emotions that come with gains and losses because ultimately you will at one point or another sooner or later have to begin conditioning yourself to experience loss and not let it get you rattled right so Step One is learning the basic general knowledge of trading and how the markets work and I really think one of the best ways to do it is by opening a simulated trading account and taking your first trades when you take your first trades you're going to force yourself to learn the basics of the different types of orders you've got Market orders those work from 9:30 a.m. till 4 p.m. you've got limit orders those can work from 4:00 a.m. till 8:00 p.m. depending on the hours of the broker that you're trading with now if you're trading with a broker like thinker swim they're only open from 7:00 a.m. till 8:00 p.m. so it it depends a little bit on the broker that you're trading with but these are the things that you'll learn as you begin practicing in that safe simulated environment you'll learn about how stop orders work you'll realize that stop orders like Market orders only work between 9:30 and 4 p.m. pre-market and after hours we have no Market orders no stop orders so it takes a little bit um it's a little bit riskier there's a lot of volatility pre-market and after hours but you have to use limit orders you'll begin to learn about the offsets that you can use for instance let's say you want to buy a stock trading at $5 you'll learn you could put a limit order at 5505 5 cents above the current offer and by doing that you have a better chance of filling your full position if you don't do an offset well what if there's only 100 shares for sale at five and you want to buy 5,000 you wouldn't fill the full order so you start learning about offsets you start learning about the right indicator to press that buy button what am I looking for that ultimately gives me the conviction to send that order is it green on the tape on the time in sales is it the first candle making a new high on a Candlestick chart is it an indicator crossing over like the macd or RSI reaching a certain point that'll all depend on the strategy you trade but ultimately the first step is just learning all of these basic concepts of trading learning how to read the news what are the types of news headlines that move the market and what are news headlines that are kind of negligable they don't really do anything learning about quarterly earnings maybe perhaps even getting into that uh earning statement and learning how to read it learning to recognize the balance sheet and what it looks like what a good balance sheet looks like what a bad balance sheet looks like learning what a shelf registration is these are all kind of the basic things that you begin to learn during your first few weeks and your first few months trading in a simulator now once you've laid a solid foundation of all this general knowledge about the market it's time to take things up a notch so so now let's talk about step number two the second step of learning how to day trade is learning one simple strategy this is something that a lot of rookie Traders make a mistake with they try to trade many different strategies at the same time maybe they're trading options they're trading large caps they're trading small caps they're buying some meme stocks like AMC and GameStop they're doing a little bit of everything and they have mixed results there may be some strategies that are more successful than others but it's hard for them to tell because they're doing a little bit of everything the only way to really accurately know what is actually working when you're approaching trading in that way is by taking really detailed notes about every single trade you take that way you can go back you can sort all of your trades based on the strategy that you were implementing at that time and while there's nothing wrong with doing that most beginner Traders won't do that they'll be shooting from the hip doing a little of this a little of that they'll be inconsistent and then as a result they just don't know what to do and eventually they give up so at at the end of the day I would say honestly success in trading comes down to two things having a strategy number one and number two having the discipline to follow it because when I see traders who end up blowing up their accounts and leaving it's for one of two reasons either number one they didn't have a strategy at all they were just sort of shooting from the hip doing a little of this a little of that until they blew up their account or gave up or number two they have a strategy but they don't have the discipline to follow the strategy which then is basically just as bad as not having a strategy at all all it's actually worse because you think that you know what you're doing but then you're you well you lack the discipline to actually follow the rules so you have confidence on the one hand but then you continually make the same mistakes again and again and again now regardless of which position you're in if you haven't learned a strategy yet then we're going to talk about that in just a moment if you've already learned a strategy but you're struggling with discipline I can help you with that too discipline is a muscle it's something that you strengthen with exercise and practice and let's be honest it takes time to become a disciplined Trader it doesn't happen overnight and something that even now after more than 10 years in the market I still struggle with at times so we can forgive ourselves because we are only human and we're trying to do something that is honestly very difficult being a successful Trader is not easy but let's start first by talking about strategy so step number two is learning one simple strategy now for me the strategy that well there's two strategies that came naturally to me when I was getting started one of the strategies that came naturally to me was focusing on reversal trades and the reason I focused on reversal trades was because I had kind of a hard time when I would look at stocks that were squeezing up knowing when to get in now if we look at this stock here and we look at the chart we would see that naturally there are some pullbacks and at this point uh you'll know that probably you'll know that I'm a big advocate of buying these pullbacks and then selling into the mov move up buying pullbacks and selling into the move up but for some beginner Traders it's just a little hard to get their head around buying these pullbacks and it's actually easier instead to look for stocks that are going up and then try to catch the reversal coming back down or to look for stocks that are going down and to try to catch the reversal going back up so I actually developed a specific scanner for that type of strategy it's called a reversal scanner what this reversal scanner is doing is it's looking for stocks in real time that are really extended so this stock right here let me just put this up here for instance has 11 consecutive five minute Candles now you look at this and maybe maybe we don't like this particular stock but there's no denying the fact that 1 2 3 4 5 6 7 8 9 10 11 Green candles in a row is quite extended catching the first candle to go red and then riding that momentum back down could be a nice opportunity now unfortunately this was coming right into the close and going into the close some of these stocks don't have a lot of uh volume after hours so uh it's a better scanner for trading during the day than right at the close but this is another example where you've got 1 2 3 four five green candles in a row and then you would be looking for that first candle to go red to pull back down now A reversal strategy like any other strategy is going to have a system of a set of rules that will dictate the type of stocks that you buy when you get in when you get out the time of day that you trade some technical indicators that you may reference it's very clearly documented and it has a track record that supports you trading it now for you as a beginner you may be like well that's all fine and well how do I find that so what I'm going to do is I'm going to put a link for you in the description and I'll pin it at the top of comments and it's a link to download the PDF of my small account strategy it's a strategy that I use in my trading now although reversal trading was something that I liked quite a bit when I was getting started ultimately you know what I learned it's really hard to trade against the trend it's hard to time those reversals so while it seems to make sense to watch something selling off and then catch that wave back up I actually found that for me it's a lot easier to buy something that is already showing strength by buying a trending stock during one of its nice gentle pullbacks learning how to find those entries for me was a little more challenging but once I got them dialed in it was much more rewarding and so for me one of the patterns that I trade pretty much every day while I'm um while I'm trading is a pattern that I call the first pullback pattern so I look for a stock that's squeezing up kind of like this so a couple of nice big green candles I let it pull back a little bit just like this and then I'm going to look for that first candle to make a new high now this next candle it opens and if it goes red I'm not buying if it keeps going red keeps going red I'm not buying but as soon as we have a candle that makes a new high like this green I'm in on this candle and my Max loss is right down here at the low and then riding the momentum back up now it's very important when you're trading this pattern that you apply it to the right stocks if you try to apply this pattern to the wrong stock you're going to have inconsistent results so part of my strategy very clearly dictates what is and what is not the right type of stock to trade so GameStop for example certainly it can be the right type of stock to trade on most of the days that has high relative volume that's something that's really important for me in my trading strategy to focus on on stocks that have volume have liquidity and typically they have a catalyst that is creating all of that there's some type of news event again as you go through step one of practicing in a simulator trading different stocks you're going to notice that some stocks move a lot faster than others and you're going to sort of it may take a little bit of time but you'll eventually recognize there's a pattern and a connection between the stocks that move faster and the reason that they're moving in the first place stocks that have a catalyst move faster than stocks that are just trending with the overall Market if the overall Market is going up we've got the S&P 500 moving up then it's very common that a lot of stocks will just sort of trend up with it but that doesn't necessarily mean they're good candidates to try to day trade because if we're going to day trade something we need the liquidity that will will allow us to buy and sell 10,000 shares relatively quickly now it's true as a beginner you might only be trading in the simulator with a 100 shares and then when you first transition to real money you might only trade with 50 shares but eventually the goal is to be trading with 5 10 15 20,000 shares and you're not going to be able to do that trading stocks that aren't liquid so the liquidity the volume comes from news if you just think about it why would a stock have high volume why would people be super interested trading it usually it's because there's some type of fundamental Catalyst earnings for instance new contracts these types of things bring investors off the sidelines to actively trade that stock on that particular day to try to capture a piece of that opportunity so now the third step is to practice the strategy that you learned in step two either in a simulator or with real money but with really small size I'm an advocate of simulated trading because I just think it's safer step one learning the basic terminology of the market the general concept step two learning a strategy adopting it has a set of rules has a track record gives you confidence to practice trading it step three practice trading that strategy when you're practicing that strategy you have to make sure you're following all the rules that have been laid out those rules will dictate the time of day that you trade the stock selection criteria so for me I only trade stocks generally speaking between $2 and $20 that have five times Rel to volume are up at least 10% on the day have a float of less than 20 million shares and have a news Catalyst I know those five criteria for me if I look back at my historical data my biggest winners will all meet those five criteria and when I start looking at some of the stocks that I'm not doing well on well they're usually outside that criteria so as a beginner it's really important to hone in on the type of stocks that other Traders are trading the strategy you're learning with the most success this is the thing with Trading it doesn't really make sense to try to reinvent the wheel and start from scratch when there are other people out there who have been doing this for a long time and who are happy to share with you what is actually working for them in this market I'm just one of these people but there are many others out there the only thing I'd caution you on is making sure the person you're learning from is actually profitable I have my broker statements on my website and they're audited so you know beyond a shadow of a doubt that my gains are real I turn an account with less than $600 into more than $10 million and I continue to trade in that account today I'll tell you my results are not typical I'll be very transparent there I've had a very exceptional career in a lot of ways certainly there's people that have done far better than me but I want to put that out there for you I think even though you shouldn't assume that you'll achieve a similar result as me that it is important to learn from someone who has proven profitable you know there are some people who say well you know there's a lot of professors in college and this and that that are great at teaching but they're not really you know they're not actually practicing what they're teaching every single day and I think on the one hand that's okay when you're learning general theory of the financial markets but when it comes to actually learning a strategy that you can trade every single day I think you want to learn that from someone who's actually got their money where their mouth is who's actually trading that strategy as you know that's what I'm doing okay so step one learning the basic concepts step two learning a trading strategy an actual strategy with rules step three practicing that strategy in a simulator now step four is evaluating your metrics and this is a super important step in fact evaluating my metrics is the reason that I was able to turn the corner because when I was getting started I was really diligent about tracking all of my trades in an Excel doc I took my first trades it was paper trading it was pretend money in the late 1990s and I opened my first real money account in 2001 so now 23 years ago the first thing that I did when I took my first position was I opened a ledger and I wrote the date the name of the stock the price I got in at the number of shares I bought and the reason I was buying I essentially wrote a little essay of all of the reasons that I liked this stock and I was buying stocks shares of companies that I knew at that time which is not a day trading strategy but nonetheless I then took that same approach when I began day trading of taking notes about every single trade I took this was super important because then I was able to go back and analyze my trades and I was able to categorize them by each of these different data points now of course thank goodness I started using Excel because it's so much easier to sort the data in those different columns so what I would do is I would sort all of my trades based on time a day and then I would see huh interesting I'm noticing a pattern based on the time of day that I'm trading I make more money in the morning than I make in the afternoon maybe just maybe I should stop trading in the afternoon and that was a conclusion that I came to and so what I did as a beginner is I would focus on trading in the morning and then I had other things I was doing in the afternoon that was helping me save money ultimately it wasn't making me a lot of money but was helping me save money so things I was doing I was splitting firewood cutting down firewood from trees in the woods at my house in Vermont because I was going to use that firewood to heat the house in the winter instead of buying home heating oil that was going to save me4 $5,000 right so I did that I was painting the house just a little bit each year so I could avoid having to pay someone else to paint it cuz I felt I was perfectly capable of painting the house and it wasn't a really tall house so it's an old farmhouse but it was easy enough for me to paint just with a regular ladder so these were things that I was doing that was helping me save a little bit of money you know fixing my own car when it would break that sort of stuff so I got into this little habit of trading in the mornings and then doing other things the rest of the day I looked at my metrics and I noticed I was making more money on stocks between 2 and 20 in fact it it was the higher pric stocks where sometimes I had really big losses cuz you know you might buy a stock at $35 $40 a share and then suddenly it drops $5 a share you're down 10 grand on 2,000 shares and you think I I wasn't thinking anything like that could happen but there it is it just happened and it can happen really quickly so you know learned a lesson from that I learned about the stocks that I made the most money on were typically up at least 10% on the day they typically had high relative volume and so it was in my metrics that I learned my strategy you know I didn't sit down and sort of just be like I think I should trade this this this and this I traded everything I looked at the data and then the data told me where I was making money and that's the strategy I continue to trade today that's the strategy that I'm sharing with you right now the reason I want you to track your metrics is because I want you to compare where you're at versus where other Traders are at who are also trading the strategy so let's say you practiced the strategy you learned in step three and you're analyzing your metrics in step four and you notice hm I'm only right 55% of the time whereas Ross and these other traders who are trading the same strategy are right 68% of the time maybe 70% of the time so you think hm why is that what am I doing wrong and then that's the opportunity to try to figure out what you're doing differently so what is the difference there are you getting in too late you're buying too high are you taking too many trades are you trading some of the wrong stocks are we trading the same stocks you trading different stocks and this is a really exciting process of almost being like a little like like a scientist because you sort of come in with a hypothesis you then have data you Analyze This set of data you compare it against other sets of data that you see from other Traders and you try to draw conclusions what should I do differently then you create a new hypothesis okay so for the next week I'm going to focus on making this slight revision you do that for a week then you get another set of data and you keep doing that you keep doing that you keep doing that until you finally have a set of data your own track record that is showing consistency and profitability you will not get it if you do not learn discipline so like I said strategy you have to have a strategy but secondly you have to have discipline so something that um I've struggled with through my career are the emotions that come with trading when I started TR trading I was trading with money that I got from my father after he died and that for me created a real emotional attachment you know it's almost like you know I mean if your father left you an old leather jacket and you know you you trade that in for $500 and now this $500 suddenly has such symbolic meaning you know this was my father's you know it's all that I have left of him uh and aside from the memories and so for me when I started trading it was very emotional um I ended up um eventually finding out about this book called uh trade mindfully I found this helped me a lot when it comes to the emotions um this was written in oh I don't know the year let's see uh this wasn't written in 2015 uh so I'd already been traded for some time when this book came out but I really did find it very helpful um and I I recommend I recommend it to a lot of beginner Traders especially traders who do struggle with emotion I think it's a really good read um I I would also recommend um this book right here quit by Annie Duke the power of knowing when to walk away and a second book by Annie Duke um called thinking in bets uh Annie Duke is a professional um millionaire poker player and although she's not a day trader she certainly understands uh the concepts that we deal with and the emotions that we deal with because you know being a professional poker player it's no longer gambling when it's not a game of chance she's got a strategy she's got a set of rules but if you don't follow them you're going to have problems and so one of the things that I learned for me was that both a combination of exercise meditation and reducing caffeine intake made me a better Trader it made me a more disciplined Trader it made me a calmer Trader I slowed down a little bit and you know I'll have caffeine when I'm done trading but at this point I do not have caffeine before I start trading and I know that's hard for some people who you know look I love caffeine as much as the next person but I really found for me in my trading it gets me too amped up it gets me too fast to kind of spiral when I start getting emotional and it's better for me to be calm cool collected and Zen while I'm trading and then when I'm done I'm done so I encourage you to practice meditation to practice exercise and to really start to develop a sense of emotional awareness about how trading is making you feel because one once you can understand what your triggers are that's like half the battle cuz then you know all right I just had a trigger I need to walk away right now because the thing with trading and emotions is that once you cross that point of no return it's like you're gone you're in a state that I call emotional hijack and it happens to a lot of beginner Traders but it happens to season Traders as well you go into emotional hijack and next thing you know some really crazy stuff can happen and you'll come back later and be like what was I thinking and the reality is you were not thinking because in this in those moments you were completely hijacked by your emotion it's a really dangerous place to be in and to trade so step number one learning the basic knowledge basic concepts of of trading in the financial markets in general step number two learning a strategy ideally a strategy is being traded by other people profitably that's a great starting point much better than starting uh from basically nothing so make sure you download my small count strategy pinned in the top of the comments and Linked In the description step number three practicing uh strategy in simulator step number four analyzing your metrics step number five time to switch to real money now here's my two cents when it comes to when to switch to real money ultimately your metrics are going to tell you you need the metrics to support trading with real money if you can't make money a simulator you have no business putting real money on the line you just don't that's the reality so look at your metrics once you have and it's not just like a couple of days of good metrics once you have weeks five six weeks a couple months two months maybe three months of good consistent metrics in the simulator that's when it's time to consider trading with real money so one of the things that is really important for me to see in uh a Trader in the simulator is that they have gone through uh one very important process they've traded in the simulator they've had several weeks of consistency and then they had their first draw down having your first draw down and recovering from it is a huge emotional achievement like it's just such a big deal because now you know that the strategy you're trading is really working and you have that composure one of the problems that some people have is they'll have this nice streak here and they'll go live you know right here they've never had a draw down and maybe it's just bad timing but they have a draw down as soon as they trade with real money and then they're like well oh no was it the strategy was it this was it that they don't know and then they start to panic and then things start to unwind and get really bad so it's important to trade in a simulator until you've had your first draw down and recovered it the recovery is so key because then when you start trading real money if you have a draw down you'll say this is no big deal I've done this before I know what it's like to go through a draw down I know as long as I stay calm cool collected I can recover those losses that is huge so big advocate of not trading in the simulator for too long the reason is when you trade in the simulator for too long you can use it as a crutch you begin to think that you'll make millions of dollars as soon as you flip the switch live but there's one thing you can't simulate in a simulator you can't simulate the emotion that comes with trading because when you start experiencing real loss and real gains things change a little bit so if you're trading a simulator using 10,000 share positions that's not realistic do not start with real money with 10,000 shares the euphoria that will come from hitting five $8,000 winners will be huge and the pain that comes from equally big losses will be too much to bear so ultimately I think a simulator is a tool that you should use to learn how to trade to master a strategy and to do it just with 100 shares and focus on 10 15 $20 a day and you could spend as you'll learn months maybe Years Learning to consistently make $10 to $15 $20 a day with 100 shares but once you're doing it switch to real money and then start to scale up if you can do it in the Sim you can do it with real money I'm a big believer in that as long as you're not you know as long as you're not doing something that kind of like is like I don't know hacking the system I mean you can't really do that with like a 100 shares but sometimes people will find little sort of things that they could do maybe they're trading in and out of halts and they're some some simulators will let you buy shares even when a stock is halted for instance you can't do that with real money so as long as the strategy you're trading translates to real money then translate switch it to real trade with 100 shares and slowly increase 100 shares a week just slow and steady slow increase slow increase slow increase until you finally get up to 1,000 2,000 4,000 shares once you get up to there that's when things get really excited now I have a few more rookie mistakes that I want to caution you against the first rookie mistake that I've talked about extensively already is trading with real money before you've got a proven track record you set yourself up for failure by doing that you get emotional it's just a mistake mistake number two is not tracking your metrics if you don't track your metrics you have no idea what your accuracy is you don't know what your average winners or your average losers are you don't know what time a day you're making money you don't know the price range stock you're making money you know nothing you're trading blind you're going to lose money if you do that don't trade with real money until first Improvement consistently a simulator and track your metrics you've got to track your metrics now a third mistake I see a lot of beginner Traders make is they invest in really expensive tools now there are some basic tools that you need in order to trade you need good charts including ideally 10sec charts you need stock scanners but you do not need to spend $2,000 a month on a Bloomberg terminal you don't need to spend $10,000 on a trading system now I've got kind of an elaborate system here but I've been doing this for a long time and of course I'm making YouTube videos like this so you know I've got my whole system set up but you don't need something this complex you could start with a simple laptop a simple desktop computer one two maybe three monitors at most you don't need to spend a ton of money right now it's all about proof of concept can you prove that you're worth investing in and then once you can then it makes sense to begin investing a little bit more now another rookie mistake that a lot of people make is they'll feel this desperation to make money quickly they want to make money today they don't want to wait and so they'll say well look hey you know Jim Kramer I don't know some of these guys on CNBC uh the Nigerian Brothers whatever some of these guys I'm not sure all of them but some of them will have um alert services that you could subscribe to and they'll send you a text alert and they'll say I bought this stock I bought that stock but th this is not really a good way to learn how to day trade one of the problems and I tried using these Services myself and I didn't find any success with them the problem is on winners if they buy and it's a good trade by the time you get the alert Stock's already gone up you've now missed the right entry and so your winner is going to be smaller now if it's a loser well ultimately they're going to cut the loss first because they're going to be smarter know exactly when to get out so your losses are going to end up being bigger small winners bigger losers it's just not really a recipe for Success I'm an advocate of teaching you how to fish and not just feeding you little fish fish fish here just like that that's that's not what I do now you know probably very well that I do stream every day when I'm trading and so you can watch over my shoulder you can see me trading and I do share with you what I'm doing but I'm doing it in real time and I'm not doing it because I want you to blindly follow me I don't think that that's a good idea so don't buy into those trade alerts don't try to blindly follow me certainly but anyone else because it's really not a way to learn to become self-sufficient and independent and isn't that why we want to learn how to trade we want to be our own boss right I think we love that freedom and that Independence and so you need to be able to learn a strategy for yourself so that's really important it's just something I've seen so many people fall into that rabbit hole and there's a lot of services out there that promote alerts and text email etc etc but I don't think it's a good idea another mistake I'll occasionally see people make is they'll think you know the Market's not really hot enough right now it's it's not you know we're not in the pandemic I maybe I just wait until the market gets a little bit a little bit warmer a little bit hotter so something that I'll say about that is the best time to learn to trade was 5 years ago before the pandemic you know so you could have capitalized on that incredible hot streak but the next best time is now because here's the problem if you learn how to trade in the middle of a really hot Market you're not going to be able to fully capitalize on it because you don't have the skill you don't have the intuition you haven't been Trading long enough so people that began during the pandemic when the market was really hot well you know some of them joined during a time and joined the market when it was a little more forgiving and maybe they could make money a little bit more easily than during a choppier market but I don't think they were able to fully capitalize on the opportunity that was in front of them and I'm afraid they may have learned some bad habits because you can get away with holding a little too long during that kind of Market in a colder Market you have to learn discipline so if you can learn to trade consistently and profitable profitably during a cold Market I think that that's going to set a really strong foundation for you and then when we have the next hot cycle you're going to be able to capitalize on it that much better because you've already got all this time in the game before the market heats up so I think that really is the best time to learn I learned during a time when the market was still recovering from the Great Recession we were dealing with quantitative easing this Federal stimulus program and then they were tapering and it was just this crazy time when it was really hard to trade if you were up 10 15 20 cents a share and you didn't take that profit off the table you were making a mistake you learned that you had to pay yourself and so traders that made it during that time were really disciplined they took their profit and they they locked up base hits and for a lot of us uh the pandemic was a little bit hard because we were like wow these stocks keep going higher it feels like people you could just buy and they just everything goes up it's it's like not how we learned but many of us did very well we had the best years of our career during that window and we're grateful that we were uh experienced enough coming into that hot Market to fully capitalize on it hot markets cold markets it always goes and Es and flows and even within a period of a hot Market I had red months during the pandemic I had months that were cold so you know there were months that were crazy good months that were cold and that was still within the context of a hot market so hot markets still have up and down cold markets still have ups and downs so I I'm really kind of a believer that you can't time the market so the best time to start learning is basically now if you didn't already start just to begin developing your financial literacy the more you learn about the market the more you're empowering yourself you'll be able to take advantage of things like IRAs 401ks maybe 529 plans you'll be able to be a real participant in an active way in this market it's a shame that we don't learn more about the financial Market in school because ultimately everyone in the US has the opportunity to benefit from it certainly through employer sponsored plans like 401ks and IRAs and stuff like that uh Pension funds potentially and so the fact that we're not taught this is crazy to me it's just insane so I'm glad that you're taking the time right now to start to learn about the market and even if you're focusing primarily on day trading it's going to make you more knowledgeable about the market at large and that's going to educate the decisions that you make when it comes to long-term financial decisions you're going to better understand the risk in trading because let's be real trading does carry risk when we think about the type of risk involved in trading a lot of beginner Traders confuse risk on each trade with the total amount of money you put into the trade and I like to think of the money that I put into a trade as a tool so if I have $25,000 in my trading account just for instance that money is a tool so when I buy a stock and let's say I buy a full $25,000 worth some people will say Ross you're risking 25 Grand that's going to that could go you know you could lose the whole 25 Grand and I would generally disagree with you because the only way I would lose 25 Grand is if the stock literally went to zero okay stocks are volatile but unless I'm trading a stock that is in potential bankruptcy proceedings or has the risk of imminent bankruptcy I'm not worried about it going to zero and even when they do go into bankruptcy they still don't go to zero because then there's people that are buying the stock and still trading it on specul speculation that they'll recover from that so for me the way I think about it is my risk is uh let me let me kind of draw it here for you so the way I think about risk is let's say I buy a $25,000 position so let's say I buy 10,000 shares of a stock at $250 so that's my entry okay now I'm not going to hold it till zero so what is my Max Max loss I could calculate my Max loss based on dollars and I could say the most I'm willing to lose on this is 1,000 bucks all right now for me that's a relatively moderate Max loss my max daily loss is five grand so losing a th000 is not a big deal for me so all right well 10,000 shares that means I could risk minus 10 cents so that means my Max loss is $1,000 and it's at $240 there we go so I'm I'm using $25,000 of capital but my risk on this trade I would consider to be $11,000 so if it goes up to$ 275 let's say and I sell it for plus 2500 I would say I risked 1,000 to make 2500 which means I had a 1 to 2.5 risk to reward ratio which is terrific with this I could actually be wrong 70% a time and still make money your break even is less than 30% so this would position you really well if you trade like like that and some people would say wait you know you risk 25,000 to make 2500 and that's that's not enough reward and I think traders who are thinking like that are wanting to buy the YOLO options trades that have the potential to give them a 300X you know a 3X return where they're putting 25 in they're taking $75,000 out but that's not realistic and that's not what most day Traders are doing you might get that once in a blue moon on something like a GameStop but you're not going to be able to achieve that consistently there's there's no way no one's able to do that I mean really let's be honest so you have to focus instead on what I think are relatively small base hits and thinking of trading and the risk you're taking as really the difference between your entry price and your max loss that's how I think of risk and I think of my account essentially as a tool so for instance if I was thinking about buying a you know a piece of real estate or something like that and I'm thinking about improving it and stuff like that let's say I'm thinking about buying for500 Grand I want to put $50,000 of work into it and then resell it for 650 or 700,000 something like that so that $500,000 really is a tool it's a tool that I'm using that allows me to then put some money in fix it up flip it and then get all that money back out and use that same money as a tool for the next project and that's how it is with trading so the equity because you now own something of value right you own something that other people will buy so I can turn around and sell this at $240 or whatever the case is you know we look at something like GameStop and sure it's really volatile and this is a stock that can go up and down you know 203% in one day potentially so you have to be thinking about the risk on this type of stock as being uh wider and so whenever I look at a stock like that I think okay well I've got to adjust my position size because realistically I might want to take 10,000 shares and risk only 10 cents but then is that achievable on this particular stock if it's not achievable on this particular stock then I have to make the decision to reduce my share size right what's a realistic stock stop on this stock maybe it's $1 a share so maybe I'm going to go down just to a th000 shares and that's fine I'll go down to a th000 shares so that's sort of the process of thinking about risk in trading we know trading is risky but one of the things that I think is that the people who trading is the riskiest for are the people who are not spending time thinking about stress strategy and how to develop an edge an edge gives you the ability to pull profit out of the market consistently now the thing that's a shame is that if you have an edge uh in Las Vegas and you're really good at Blackjack whatever your Edge is maybe you're counting cars they'll kick you out of the casino they don't like that that's not true on Wall Street if you have an edge as long as it's not insider trading but you have an edge you're allowed to have that edge and that's what gives you the ability to trade consistently every single day you're not going to get kicked off your broker your broker wants you to make money the casino doesn't want you to make money but that's not the way Wall Street is so on Wall Street we are rewarded and encouraged for having an edge I want to help you develop your Edge so you could trade in the markets consistently every single day now as always I'll remind you that trading is risky and my results are typical and I can't guarantee that you'll find success I can't guarantee that you'll have the discipline to follow the rule you need to have a strategy and I can give you that but you need to come to the table with discipline there are certain aptitudes that make someone more likely to succeed an ability to be disciplined an ability to understand how to use trading software how to trade how to use a computer you know there are some sort of peripheral skills that will lend themselves to being a Trader and certainly there's lifestyle considerations trading is great for people that are Freelancers great for people that have you know online businesses things like that that have the flexibility to be able to trade for a few hours in the morning and then do the rest of the work that they have to do later in the day for people that are working a 9 to-5 job on the East Coast it could be tough but I'll tell you something that's really nice beginning during the pandemic people started trading earlier so now the window really for most Traders is between 7:00 a.m. and 11:00 a.m. and even if you only trade from 7:00 to 8: a.m. each day before you go to your 9 to-5 job that's an hour a day of gaining experience think about where you could be a year from now if you spend an hour every day Monday through Friday learning about trading focusing on trading practicing the simulator you're going to know a heck of a lot more than you know today so let's keep the journey going and if hey look if you want to check out my strategy it's linked in the description there's a PDF you can download it printed out start practicing that if you want to become a member of warrior trading we've got a two-e trial you could try it for 20 bucks see what it's like I'll put a link for that in the description as well and if you enjoyed this episode I hope you hit that thumbs up and I hope you subscribe the channel for more episodes about trading strategy and daily Recaps just like this I'll see you for the next episode real soon [Music]