Questions from a Trader
A Trader sent me this long list of questions. Since this goes past what Discord allows, I am answering them in this blog post format.
Hope you are well. I would like to urge you one more time to start $25k challenge & having dedicated alert for $25k challenge. I’d really appreciate reading this long message carefully. Here are few observations –
Q. Decade experience VS 1-2-3 years of experience – We all might be following same set of rules, FAQ’s etc but when it comes to taking live decisions. Experience trumps everything.
How would you compare 10 years + experience of yours and someone like me just starting out and in 2nd year.
A. Although I just completed the 11th $25K Challenge, the program runs on a continuous basis. There are no start or end dates. The only reason I do the challenge in my account each year is to have running proof and broker statements that these trading methods work. There are no changes to the program (including dedicated alerts)
To answer your question – Yes experience trumps everything! But none of us are born with it. All of us have to go through the tough journey to gain that experience. My goal here is to share how I trade the markets while you practice along with me (hopefully in a paper account until you turn profitable).
I did not make these kind of returns in 1, 3 or even 5 years of trading. Of course, I was still developing the rules that I have laid out for you by blowing up my own accounts while I was learning. But even if somebody else had handed a formula book to me during my early years, I would not have been able to execute it with the same success.
I think of it this way – Imagine that I am a retired Olympic Swimmer and now I am teaching aspiring swimmers how to make it to the Olympics. I can only share my framework with you and what worked for me. You will still have to put in years of hard work to get there and make it happen for you. You will also face your own unique set of trials and tribulations which nobody else would have experienced. Using somebody else’s experience, learning from their mistakes and using a framework that works will definitely cut down your journey though.
Q. Do you really think – 2 persons – one with decade of experience and ones with 2-3 years’ experience would execute similar way and get similar result?
A. The answer is No. And that is why the whole focus here is always on learning and then developing yourself as a trader over the years to come.
Q. KISS (Keep it Stupid Simple) – From my own experience, $25k method is not KISS anymore (by no means I am saying it doesn’t work).
I know with changing market conditions; you had to adapt and make some changes. But when you practically start to read all FAQ’s, Rulebook it’s not simple to execute. Things like – Expanding allocation, planning ahead of 2 months to reduce allocation, multiple contracts on the edge then look for ATR etc… There are numerous new rules that you’ve to follow.
Again, due to experience, you may think its so easy, it may come so natural to you but not for someone with 1-4 years of experience
A. I don’t think any successful (or unsuccessful) trader will ever tell you that trading is easy. The markets are set up to take advantage of what makes us human (our emotions). The K.I.S.S part of this trading system is the rules I have laid out for you to handle different market conditions. The tough part which will take you years to master is following those rules.
All the 21 year old youtubers who claim to turn $1000 into $100,000 with a “simple options strategy” are out there to generate views and get paid by youtube (not trading)
As with any other business, you need so much passion for trading that the passion itself is enough to get you over the bumps which you will keep experiencing in your trading journey. I have also founded 10 startups in my life, staying up working till 3 AM in the morning after coming back from my day job. I had multiple back-to-back failures in the beginning which also included sinking the money and effort I put into those ideas. As with anything else, the passion for business allowed me to keep picking myself up and keep trying it until things started to turn around for me.
Q. FOCUS. Be Neutral – Again from my own experience and analyzing successful trader’s mentality. Two major things are – Focus & Being neutral while analyzing.
What’s adding to complexity is – not seeing good results even after following rules. You then naturally tend to lose focus and negativity kind of creeps in and that hampers decision taking ability and being neutral.
A. This part, i.e “hampers decision taking ability” is the part which takes years to develop no matter how cut and dry the guidelines anybody gives to you. It is just one of those things “You can’t produce a baby in one month by getting nine women pregnant.” You would have seen amazing results if you had joined last year, but this year things have been back and forth all year long. If you keep your focus on learning, this is another market condition to experience. Just don’t blow up your account please! My hope is that in the future when you are a super successful trader, you will reflect back on these experiences which are required for you to achieve your goals.
Q. Originality – Your book $25k challenge is Bestseller on Amazon for a reason. From years & years of experiment, you’ve perfected that method and you are sharing that knowledge with whole world is just amazing. Anyways, point is – $25k method is unique and it works. Original discord members started this journey from book (at least I did) then joined group with hope of doing 1 or 2 challenge with you & learn from it. Then start their own with you being their guide after.
A. Not sure I have mentioned this to anyone, the reason why I wrote my book was – I used to reflect on the amount of effort and time I put into trading. This thought used to keep haunting that if I suddenly drop dead, my daughter (12 years at that time) will never have access to my knowledge and experience. It will just disappear with me. I wrote it as a journal for her and never realized that I would get so much acceptance from my readers.
The reason why I started this group is the same. My goal is to share my knowledge and experience with other fellow traders.
Q. Probability – I understand you have multiple size accounts, and you take all the trades live in some account.
Now imagine – people with 1 account. As per allocation calculator, they can do only 2 – 3 trades per expiry and on an average, there are 10+ trades for any expiry (sometimes even more). Forget everything, just apply simple rule of probability. Out of those 10 trades, you know and I know – 3 – 4 trades are going to losers. Which is about 60 – 70% of winning
Those who are trying to pick – 2 – 3 trades out of those 10, already playing with 60 – 70% of probability. On Top of which, there own probability
A. This sounds like you are asking me “how do I pick only winners?” In that case the answer is that it is not going to happen. That is why I recommend everybody to start like this:
1) Start with paper trading until you have experience one full market cycle. Green Markets, Sideways Markets, at least 1 Correction. Most people don’t have the patience to do this and unless you are already an experienced trader, by skipping this part you are setting yourself up for failure
2) If you end up in the green after a market cycle, it is time to reward yourself by putting real money to work.
3) Since it is impossible to pick only winners, I have rules laid out for how to have the highest probability of success. This includes diversification across sectors, diversification across expirations, diversification for even spreading out the days in a week when you open new trades. Then focusing on making sure you have winners >= losers in each expiration. You will have 100% losers during corrections, but if you follow allocation rules, you will be going into most corrections at low allocations and should be able to not only make up the losses but end up being profitable by stretching allocations at the right time. Also, things are not as brutal as they sound. Sometimes corrections will bring multiple 100% losers but then you will have rallies where you have back to back 100% winners too.
Q. Why it’d help? You were able to complete $25k challenge despite this turbulent market. Because of – Experience, Judgement, Clear Mind and little bit of risk-taking ability. That’s exactly we want. I personally would like to follow you dot to dot, learn from exactly what you think, how you think.
We all know despite following all the rules – To succeed you’d also need – Positivity. Vigor. Sense of achievement. Imagine – completing the challenge would give all the group, reason to cheer, celebrate & learn.
Still not convinced?? I hope you are convinced but let’s say you are not. Why don’t we do survey and see if what group favors? With clear question of – Do you want to see separate $25k challenge?
A. I think I have mentioned this many times before. You are already doing what you are asking. i.e following my experience. However, by not trying to mimic my own account, you may not be realizing that you are also developing independence. I obviously wouldn’t want you to complete a 25k challenge because you were taking the exact trades with me, leave the group and blow up your account after that because you weren’t able to develop the independent judgement which you will need for continued success.
Having said that, If you are not used to the ups and downs of trading, using real money (or larger amounts) clouds people’s judgement as inevitably fear and greed take over at the worst possible time. Because of this we are considering a $1k à $5K mini challenge for next year. That way you will be risking $50 per trade and will be able to enjoy the benefit of diversification that a $12K account would have. Once you complete that challenge, all the muscle memory and emotional control would be in place so that you can take off and apply it to bigger accounts.
PS: I would like to add that my daughter’s account which I started earlier this year has been whipsawing all throughout the year and is hardly able to make progress, while I completed my 25K challenge from last year. In the public’s eye, she is not able to achieve the “promised results” yet even with me sitting with her on a daily basis. But in my eyes, I am achieving what I set out to do for her. She knows the concept of Options, Naked Calls, Puts, reading through an option chain, why spreads are better than naked Options and can actually open and close trades at 13 years of age. That is some insane learning in the last 6 months!
Valuable Insights as answers for Inquisitive questions, thanks to you both. The answers really helped me bring down my lofty expectations out of trading to reality and will help me concentrate on the process than the outcome.