You are a verified eight-figure trader with Trillium. You trade from the two-minute intraday chart. Many would hear that and say, whoa, that's gambling. I would say on the smallest timeframes, sometimes offers the most edge. And the longer the timeframe you go out, the less edge you have.
What kind of size can you put on those opportunities? You can make hundreds of thousands. I mean, there's gonna be some headlines where you can make a million plus. In my experience working with a lot of traders, I mean, I would say I've probably worked with, I mean, two.
200 250 plus traders at this point. I've not seen anyone that matches the edge of shorter time frame trading in this episode of the weight of the CPT we have Lance Breitstein a Verified eight-figure trader at Trillium one of the longest-standing prop firms where he broke multiple all-time profit records He led their Chicago office for years and trained several classes of traders He is known for transforming traders from good to great and elevating those who are great to elite. He is currently an advisor for the prestigious SMB Capital and the founder of the Impact Competition. Lance shares how he made millions from the two-minute intraday chart, how to find edge in different markets, and how elite traders are made.
Without further ado, let's talk to Lance. Welcome to another podcast episode. of the way of the CPT, the consistently profitable trader.
We have a very, very special guest today with us. We have Lance Breitstein. Thanks for joining.
If you've been following the channel and the podcast, you know, I always start off with a quote from a book or a prolific author. So today I'm going to start off with a quote from Tim Grover, who trained both Michael Jordan and Kobe Bryant, both elite athletes. So Tim Grover, he says, interested people. Watch obsessed people change the world. You can't be interested and obsessed.
Interested is a hobby. Kobe Bryant wasn't interested in winning championships. He was obsessed. And obsession comes in the small details that nobody is concerned about.
The reason why I read this quote is because I really admire the level of detail that you talked about when you discussed trading. Some of the achievements that I just kind of want to read for the audience is that you are a verified eight-figure trader with Trillium. You ran their Chicago office for many years.
You saw many traders coming in. You trained many traders. You are an advisor for Smb Capital, one of the top prop firms to top proprietary firms in the country. And you run a small nonprofit right now.
My audience consists of traders who they are interested in getting funded. It's the independent trader that's trying to make a living, trying to quit their job, become a professional trader. So a lot of what you do in the field, like when it comes to tweeting, the YouTube videos that you put out, it's a big help because you've exposed to us like what it's like to be a prop trader, what it's like to professionalize the trading business, man.
So the audience has a lot to learn from you. I have a lot to learn from you and I'm sure you have a lot to share, man. Thank you so much. First, I love that quote.
Tim Grover, he has some amazing books out there. And especially as we record this in the land of Kobe, you know, RIP, I think it's a really good concept. And I think a lot of...
what makes people great and what makes those two guys jordan kobe in particular so great is you need to not be focused on the outside world and what others are doing it's a lot of internal like that obsession that obsession on the process and on winning that's all pointed inwards and i think if you're trying to be truly great and not everyone needs to do this but if you're trying to reach that prolific level of success when you're at that stage of the game you're not worried about this player or that player, what they're doing. You're not comparing yourself to others because you're trying to just elevate your own game. And you're so focused on yourself that that's the only way to do it.
And so recently we just had our kind of elite top trading psychologist fly out here for a whole weekend together. And that was one of the big things we spoke about is how important it is to not play that comparison game and just to focus on yourself and improving your game and being better every day for you. That's so important. So we'll talk a lot more about it, but you've made a big mark on the like the YouTube space social media space But I don't think a lot of people know about your upbringing and what drives you So do you mind telling us a little bit about your background?
Yeah, sure So originally from New York City have a twin brother who now is out of Miami and grew up I would say just like a kind of typical blue-collar family and every blue-collar family had their money struggles and so while we kind of hopped around a little bit especially in around 2008 we were right outside New York City in New Jersey then you get the great financial crisis everything of course goes to shit especially anything that's tied to New York City. So then you just see your parents struggle and you get driven and you say like, okay, like I don't want to worry about this stuff. And what was so interesting talking with Dr. Katz, that training psychologist, is like the psychology of... money and upbringing is just such a fascinating topic. And you have people like the author Jordan Housel wrote this book, Psychology of Money, which is just so many great stories and so many fascinating things because the forces behind money and our upbringing drive so much of who we are, right?
What do we value in our identity and a career as a person? It's a way different person that gets into social work versus the one that becomes a trader and is so motivated and driven by these. factors yeah and i think asking about upbringing is so important because i think not just in trading but in anything a lot of the people that really have kind of like that excessive drive like if you look at elon musk or all sorts of people like the wall street journal even did a study and found like of the mega achievers so many of them had some crazy upbringing and that really motivated them to kind of push through the the suffering and the disaster that reaching that level is kind of associated with, whether it's like Oprah Winfrey to Elon or at a much, much, much, much, much smaller scale myself. Yeah.
What were your parents'expectation of you? Were like you expected to go to college or like be an entrepreneur? Thankfully, my family, especially my mom, really did stress education where they never really went to, you know, maybe just like the associate's degree or whatever. And it was like, OK, like, you know, you guys are going to go to school. You're going to get a good job.
And it was just a different expectation. And so what's super funny is I think I graduated high school maybe 30th out of like 180 or something. So nothing so particularly impressive.
But then the second I got to college, I think it was just that switch just flips on where it's like, okay, this is real. This matters. Like if I need to get a good job out of here and especially right then, like I said, great financial crisis happened during my college career.
And it became very clear, like, okay, the second I get out of school, like I better figure my shit out. shit out because family doesn't have money. I've got student loans. Things are not looking good out there. And once that switch flipped on, it was just go time.
And I worked my ass off in school. And so I ended up graduating. I don't even know anymore, but I think I was maybe like third out of like 3,000 people or something, a couple thousand people out of Indiana. Even as far as the process of applying for jobs, I took that thing to a whole new level where I had my spreadsheets.
I did all my research. I was networking. And I remember even in the essentially the post kind of graduation time, one of the professors that was running the Wall Street program kind of just took me aside and said, like, hey, man, like, like, like props to you.
I've never I've been running this program a really long time. Nobody nobody did the hustle you did. And I know it's so funny is as we get to the Trillium stage is Trillium back then was paying twenty six grand a year. And so so many people are like, man, like I had some offers from some of like the bold.
hold bracket banks and stuff, go do sales and trading. And so when people were like, what, dude? You're turning those jobs down?
You're taking like 26 grand a year? And for me, it was just a no-brainer because I'm like, no, it's not about what I'm going to be making next year. It's if I do well and if this clicks, this is the path to far greater success and success on my terms because I'm not the type of person that wears a suit. I don't like bureaucracy.
I don't like the bullshit. I just want to play the game and try to be the best at it. I think some of us... of us have seen the video of you introducing Mike Bellafuri. You're in a suit.
He's in a suit. That year, yeah, I wonder myself what year that was. That might have been around 2010. Man, that's pretty awesome.
So as you approach your senior year, you made a decision to go into day trading instead of going to work for like maybe a larger bank. How did you know that potential upside of that job? Yeah.
So I think there were a couple important influences that happened. And we were even talking over... over a little lunch before this.
And we both read the Mark Wizard's book. And so those books, that whole series really inspired me and it got me so interested in just beating the game and like how do you, through different strategies, different skill sets, there were so many different ways to kind of beat the market and that appeal of can you actually do it? Can I do it? And so when I learned about the different firms, I knew I wasn't a quant, like good at math, not Rain Man.
I knew I wasn't a programmer. I had some. some programming skills, not. You know, Zuckerberg despite the resemblance.
That's what I always get. It's either, you want to know it's so funny, obviously you knew I was a little sick, and one of the nurses is like, oh my god, it's Mark Zuckerberg. And I'm like, hey lady, you think if I was Mark Zuckerberg, I would be like, oh my god, it's Mark Zuckerberg. Zuckerberg, I'd be lying here right now, like slowly dying a lonely death.
Yeah, that's funny, man. It's either Zuckerberg or Channing Tatum or like a Matt Damon, as you can understand. Yeah, and so I didn't have the programming skills. And so what I really felt is I just have the soft skills, more qualitative stuff, like I'm going to outwork, I'm gonna outcompete, I'm gonna be more resilient. If anyone out there can do it, I can do it.
And it seemed like, okay, I'm not gonna end up at the Jane Street Capitals, the DE Shaw's, the Citadel's, but there is a little space that likes hungry people and that happens to be just the discretionary intraday trading. And so I kind of compiled that whole list of firms and I knew where my skill sets aligned and I just kind of went with it. and Trillium was one of them.
And the biggest question for me was, I don't care about the entry salary. I don't care about the 26K. What is the probability of success, right?
I understand it's a high failure rate. Not everyone's going to succeed. How many people do succeed? And of those that succeed, what is that spectrum of success look like?
And so with any of those bulge bracket banks, you can chart super easily. Obviously salaries, bonuses have changed. over time but you knew year one year three year five year ten year fifteen that's what it all looks like down the road which was which was great for many people that's incredible incredible living but just wasn't my style it wasn't what I was interested in and so then I knew like look this you're gonna eat shit for a couple years but if you happen to be one of the successful ones the sky's the limit and you can do so much better so much faster yeah and true to as advertised like at Trillium you have a bunch of guys and in the top top 10 each year where these are young guys like late 20s early 30s that are making a million plus couple million bucks a year um eventually you know every so and so and every decade you get you get a kobe you get a jordan and so i just knew like wow there's no other path like this doing something that seems so cool to me yeah you go on the trading floor and their new york trading floor is massive you know probably i don't know 80 80 to 100 guys there and you see just the rows well maybe less now you know post remote and all that but you see the rows of people and the energy everyone's super casual, everyone's fooling around. It was like just a little frat house. I'm like, okay, like this is where I can be in a fun atmosphere and I'm like, I'm going to have my fun, but then I'm just going to outwork every single person here.
I heard you say that for the first two years, you weren't profitable. When did you become obsessed? I mean, I was always obsessed and driven. I just had such a chip on my shoulder back then where it's like, I was a smart guy. I wasn't able to get into any of the Ivy Leagues, crushed it at Indiana, wasn't able to get into the Coleman Sacks or any of that.
of the really good places it was one of those things where it's it's like like i just kind of i thought highly of myself and had confidence in myself and i knew that i had potential and it was one of those things where it's like okay like you know if they're if they're not gonna let me in the best place it's time to just you know break this whole thing down and it was just like look i don't care who else is in in this in this training class you know there were there were people from the ivies there were people from all over but it was just like i'm gonna it's gonna outwork every single person you're killing me and trust me man there is there is no Nobody, my work ethic was unbelievable back then. You're a killer. And even in school, like I was so, I was working during school. I was tutoring.
I was doing all this stuff. And like the amount of hours I put in. And then when I wasn't doing the hours, I was reading the trading books. I was trading the fake accounts. I was learning about technical analysis.
And I was doing all this stuff just because like it was, I just knew it was game time. So tell me, what was your first like breakthrough? Like, okay, I'm eating shit. I'm failing.
I'm not making it. And. And you also had one of the greatest like traders as a trainer.
Yeah, this guy was a super incredible dude. And and so this guy without proper mentorship, I really think you have you have the odds so stacked against you, even with good mentorship, the odds are stacked against you. So I got lucky that this guy was nearly, you know, there are two of us.
So he was training us super, super direct. And I still struggle. But the thing that started to click, part of the issue was everything was just so fast.
And even though this guy was was he. He developed all these strategies. He was incredible.
But he didn't really have a super efficient process for teaching it. Like a lot of the stuff I specialized in in the end, like how to learn and how to speed up learning. Because when I ended up training so many people and running an office, it was like it was the meta learning of how do I get these guys better?
How do I improve as quick as possible? And so a lot of that came from my own. And so it was just drinking from the fire hose.
And it was, dude, like, come on, man. Like, this isn't that hard. You know, why aren't you able to do this?
Why aren't you able to do that? And you're like, holy shit. like my head's spinning you know because every every trade they're never identical but they rhyme and all the variables are different you get so stuck inside your head and so finally what started to happen is i started to isolate what are the what i now call like the easy money trades super replicable ideally slower like some of the breaking news stuff can be super super fast let me find the trade that's slow Let me find the trade that's simple.
Let me find the trade that's replicable. And kind of just like the layup or the foul shot, like what's the trade that I can really hone in on? And just hit my little single. And hit that little single, then size it up a little bit. And if I made 100 bucks before, I want to make 120 the next time.
I want to make 150 the time after that. And so I really, really started to focus on those. And so I was still losing money for a really long time because everything else I was doing, like I almost envisioned it, imagine you're trying to build up 10 different strategies.
I was a one at each of these. And so you might get a couple green shoots in some of these easy ones, but then you're still losing money in the other places. So you wouldn't really see the progress, at least in the P&L data. But I knew like, oh, wow, like I'm starting to at least get some of these trades.
And then what I also recognized, and this was super important, is yes, I only made a hundred bucks, but that trainer, that dude sitting next to me, he might've made two grand or five grand in that. And so I just would always say to myself, even if I'm not making a hundred bucks, Even when I was really struggling and things, it was looking like I might not be able to do this. I just knew, like Lance, like even if your playbook is two little trades, but if you just become the master, there's almost like the Bruce Lee line, the master of one punch who's practiced it 10,000 times. And it's like, if I can just find these couple little things and if that guy can make 5K in that trade, even if you do the math, like if I just have one of those a month, I'm probably at least. making a living if I ever get to that stage.
Then if I even get to, oh my God, the thought of ever making a hundred grand doing this job that I loved was like, I didn't ever want to make a ton of money. I just wanted to not get fired at that point. You know, it was like, because it's different than the retail side. On the retail side, you're on your own timeline.
For me, it was just like, man, this is the dream. I see what the people around me are making. Like I saw what my boss was making. I saw what the other people in the group. And there would be some days where your jaw would drop, right?
There would be days where the dude next to me would make a hundred grand. And you're like, man, that's more than my family makes in a whole year. What was the runway that you had? Like how much runway, how much time did you have to become profitable? So that's the good thing about places like Trillium or SMB is they give such a long leash.
And as long as you're really showing effort, I mean, I was, I don't know how much money I was down. I was probably maybe down. And I mean, it's so long ago and I don't have the data, but I was probably down maybe like 40, 50, 60 K, 70, 80 K, maybe even over, about over like probably at peak. trough or whatever over the first year or two. And what's nice is they really, you know, my heart was in it.
I wasn't doing anything negligent. I was really trying. The other thing that gave me a lot of comfort is there, here's the reality, even though things look scary and like sometimes HR would have a little talk with me like, hey man, you know, how can we better support you?
You're not really making the progress you need. And so what's interesting is I probably started in a class of 25 people and you would see people start to drop like flies. And not because the firm fired them, but just because it was like super difficult and they were losing faith in themselves. It's been a year they're not getting paid.
It's been a year and a half. And for me, it was like, oh, man, like I need to get paid at some point. Like I've got student loans and everything else.
But I'm you know, until then, like it's it's just go. And what ended up happening is like things finally started to click and they gave me the time I needed. And then I also knew, at least in my head, I was I was smart. Right.
I recognized I'm not making any money, but. I understand things well enough that I'm making call outs. I'm studying projects and like I'm contributing value to the group.
And like I talk about this concept about trading pods, right? And linking up with other traders and people might think they don't have anything to add value to more experienced traders, but you're just not thinking hard enough, right? You can help with watch lists.
You can help perform studies. You can help with backtesting. You can help with reading the news, finding different news sources. There's so many different ways to help. And so the thing that I did best is obviously I was trying to.
improve my own trading. But what I also was doing is I was helping other people spot the opportunities we were looking for. I was doing different studies. I was coming up with ideas.
And so guess what? My salary back then was $26,000 a year. They're not going to fire me if over the course of the year, I'm making the people around me so much more money from callouts and everything else. And so that's the thing where I'm like, yes, I'm feeling a little bit of pressure from up top, but I think I'm good.
good time wise because like they'd kind of be crazy i'm helping these guys spot opportunities where they might make 20 grand 30 grand you know 50 grand whatever and and sure enough like especially come that year two mark things things had really turned around in a big way yeah so when did your personal playbook sort of come together and you start to like dig yourself out of that 60k you hole right well the funny part is and i think this is the right way to think about that people forget and this actually came up i was advising a trader that actually got ripped in in zjyl and he wasn't he wasn't sure like man is trading still going to be right for me like is am i just worth worth getting out of the game And the thing is, is most people think linearly, you know, years in and he's like, oh man, like, am I still gonna, if I made 100k this year, then lost 50, like, you know, it's gonna take me half a year to get back. And it's like, no, no, no, no, no, this stuff's not necessarily linear. So did you have like a big monetary win like that really gave you that boost of confidence?
There was one trade that probably kept me from staying off the ledge. I mean, I got lucky in two ways. So first was I interviewed for D.E.
Shaw, who then rejected me. And thank you. And then the other thing was shortly after that, when I was still interviewing at other places, there was this exhaustion gap set up in Tesla. And that was a pattern where I had seen it a bunch of times. This was something my trainer really specialized in and loved.
And it was one of those things where it's like, OK, Lance, like you can like any trade that you can kind of game plan for and be proactive about. That's a major help. And so even pre-market, I was like, I knew the reality.
It's like, Lance, like you might not have. more than three more months, four more months, six more months here if you don't make something happen. And it's much like in poker when your stack is getting small, right? Like you say, like, again, not all ends, not the right analogy there.
I wasn't doing any of that crazy stuff. I wasn't doing anything negligent, but it was like, look, you know, this, this, my time is winding down when I get something good, I need to kind of make a stand for it. And in this trade, I ended up making like 10 grand that day or something, which my normal good day was maybe like a thousand or so.
or 2000. And so then it was like, wow, like, holy shit. And it was that realization that like, if I can do that, I can do anything now. Like, like this setup will occur again.
And if I just, if I just stick around and bide my time and eventually get higher buying power, higher lockout, higher share size. Like, I mean, I think my boss made like a couple hundred grand that day. And it was just recognizing like, wow, all I need in my life is, is, is just.
just survive, Lance, and be there for some of this. All right. So most of the traders listening, they want to become consistently profitable.
What is a consistently profitable trader like from your perspective? Sure. And I think certainly that doesn't mean you make money every day. I don't think anyone needs to do that, right?
Nor will they ever. And I don't think people even need certain profit targets or anything like that. The way I look at it is, are you having green months? And are you reaching a level of consistently green months?
Not that every single one is green. I don't know. I think maybe I had a couple trading years with no red months, but even, even in my later years, I was still always having the occasional red month due to some, some outlier or something gone wrong or just like a slower period.
But I think the most important thing is, are you consistent enough where you're able to capture the easy money trades in your playbook? And then are you able to just cover whatever that base, that base need of income you need? Once you're in a position where you can cover your needs, then you're in the. the driver's seat.
And that's when you can really scale it. When you're no longer like thinking, oh my God, if I don't hit this trade or if I mess up this trade, I'm not going to be able to pay my rent. Once you're past that stage and once you have some acorns saved up, that's when you can really say like, okay, it's go time.
But the foundation of ever getting there is consistency. And so many people look at the home run traders, whether it's on Twitter or whatever else, and they don't realize the only reason why those traders are able to swing big or even how they got. got there it all starts with the foundation of being able to consistently perform in the easy money trades like like if take take any star basketball player if they couldn't hit the easy shots no way would they ever be on that court to ever take that game winner yeah and so people only focus on the fadeaway jump shot at the buzzer but it's like no no no no the only reason why they're ever on that stage at all is because of their their easy money trade game and just being able to do the consistent stuff prudently safely and and put up those singles so All right.
For the audience, I was born and raised in the Forex community. So I came through different like multi-level marketing companies and worked my way through different academies. Herbalife, Cutco. Yeah. So I feel like I have my ear to the streets.
I know what people are struggling with. Right. And meeting you, meeting Mike Bellafuri and some of the other like professional prop traders, the idea of the playbook. An edge is a conversation that is missing in like the Forex space.
A lot of traders in the Forex community, when they think of consistency, and they think of psychology, they think of execution and risk management. I want to read a tweet from you, which really caught me off guard, and it stuck with me, and it impacted my career. So you said, my number one fin twit observation. Most failing traders wrongly attribute their struggle to issues of psychology and risk management.
Reality is most have zero edge. They are naively fooled by randomness into thinking their wins are edge. This seduces them to troubleshoot the wrong problem. Now, this is powerful. It's a powerful statement.
Can you talk to us about like, what is the definition of edge? Yep. So edge at its core is essentially, do you have positive expectancy when you take that trade or when you play that hand in poker or when you roll the dice in the long run?
Will you make money doing that? And so what so often happens, right, is if I were to give you a coin, for example, and I said, OK, flip it. Most people we know a coin is 50-50 and it doesn't really matter how you flip it. But if we were to play a little bit more complex of a game, you might think, let's say it's like stop.
You got to press the buzzer to align the lights or something. You might think, oh, wait, the pattern is the second the light turns red, I need to press it as quick as I can. And sometimes that might work, sometimes it won't.
So then you're like, oh crap, like maybe this isn't it. So the times that it does work, you're going to say, oh man, I got that timing just right. I did this right. I was in the right headspace. I was focused.
Then the times where it doesn't work, you're going to say like, oh man, like I lost my focus. Like I was on tilt or like I got in my head. And so, so often what happens with, with trading is I'll see people where anytime they have a good trade, they attribute it to. like, oh, you know, skill, whatever else, blah, blah, blah, blah.
But then like they'll have some positive streaks, which are inevitably going to happen. Like if you were to flip a coin 10 times, imagine if every time you got heads, you're like, oh man, like that was great. That was great. That was great. I'm doing everything right.
I'm a really good coin flipper. Then you're like, oh man, next time I get tails. Oh, I was overconfident.
It's like, what? No, it's just, you're flipping a coin. And so I think people get fooled by that a lot. So often it's not like.
You need to either have back-tested data or you need to have some form of data to know that like, oh wait, my odds are better than break even here. And so a lot of people just aren't, just don't understand that concept. And it's so important because essentially, if you're playing that coin flip game, it doesn't matter. You can flip that coin until you're blue in the face. That's still going to be 50-50.
If you're playing that slot machine, you can figure out like, oh no, I got to pull the lever this hard. I got to do it from this type of angle. you can try those games until you're blue in the face.
It's never going to work, right? But what you do need to say is, okay, if I go to the poker table, now there's some, not every hand, right? And this is important in trading.
Not every ticker has edge, not every situation. I can get pocket jacks one hand, and that can be a totally shit hand, right? Depending what's on the board in the context.
And most hands that I'm dealt in poker are going to be totally useless. If I play most of my hands, I'm going to lose, no matter how good of a poker player you are. If you play every hand you're gonna lose and it's the same in trading But what happens is there's very very specific hands not just specific hands But the hand that the hands need to be in very specific situations. What are the other cards on the board?
How are the other players acting then I need to bet and fold and do everything appropriately and even when that happens It's still a probability focused game. Yeah, I can get I can play aces I can bet properly, I can do everything right, and I can still lose, and that's fine. But that doesn't mean I didn't have positive expected value. So the same analogy is like you need to find the right tickers, and not just the right tickers, but you need to find them on the right days, you've got to trade them in the right way, then that's where like psychology and risk management can help refine all that, and you've still got to execute. The best analogy I can give people is if there's a system with incredible edge, Like if there's some slot machine where you win 99% of the time and the win-loss ratio is 5x, there's no way you're going to mess that up, right?
It doesn't matter if you go on tilt, it doesn't matter anything. You can tweak the odds in one direction or the other, your edge is still so great that overall you're going to be winning. And so what I saw is my trainer, his strategies had enormous edge, but he was far from perfect psychologically with risk management and everything else.
He would definitely go on tilt. He would definitely averaging to losers. He would definitely sometimes get totally run over from, from trading without a stop. He would make some major, major mistakes, but because he had so much edge overall, a lot of that stuff got overshadowed.
And so like, I'm not saying psychology or risk management aren't important. Of course they are, but Above all else, you need edge first, then with more experience, those become more important because psychology and risk management are what allows you to keep on playing that game with the edge and prevent you from taking situations that have negative edge. Let's take a small break. As Lance mentioned in the podcast, edge is the foundation of successful trading. This is why I like to tell you about TradeZilla.
It is the best software to help refine your edge and find your best setups. It makes it easy to create a digital playbook where you can detail entries, exits, and store visuals of each of your strategies. The most powerful feature for me is that you can easily link your trades from different brokers to your playbook so you can evaluate the performance of each of your trade setups across accounts. It automatically aggregates your net P&L, win rate, or multi- multiple, and more for each setup. In addition to automated journaling, detailed reports, and in-depth insights, TradeZilla features strategy backtesting and trade replay.
I used to rely on five separate applications, but TradeZilla has unified all of the key trading functionalities into a single platform. Whether you're trading stocks, futures, CFDs, options, crypto, or with prop firms, TradeZilla is designed for both the independent and the professional trade. trader.
Visit TradeZilla.com and apply the coupon code ABDULA10 to receive a 10% discount. Let's get back to the episode. So how does a person develop or just backtest their strategy, their ideas or hypothesis to find out if it has positive expected value?
Yep. So I've done some really good videos on that. There's a couple ways. So backtesting is one. So I might have a simple strategy.
Anytime there's a stock offering, I'm going to figure out how far it goes down. I'm going to figure out how far does it go down. while holding a simple moving average?
How far does it go down one hour later? How far does it go down one day later? How far does it go holding two minute bar highs or something?
How far does it go using different types of stops? What percent of time does it work? What's my stop? And I'm gonna test all these different variables and I'm gonna figure out like, okay, if a stock has an offering, oh wait, no, actually in certain times this doesn't work. If it's a bond offering, this might not move.
If it's a really big company, this might not move. if they just had drug data and everybody knows this biotech company needs to raise cash, it's already expected they're going to do so. So then you refine that and you say, okay, where the offerings really crush companies, maybe it's in the low float space.
Maybe it's in the high flyers that really need to raise money like a Rivian or like a Neo when those are super hot, or take like the Nikola, which had been ripping, or recently the PHUN, the fun kind of that little ticker. And so then you say like, you refine it even. even further, not just offerings, but I'm going to play these very specific ones.
And you realize that when you crunch that data, the outcome gets even better. Then you're going to figure out, hey, if I do this moving average as a stop, my results are X and maybe it doesn't work. But if I do this tighter stop, maybe it works really well. Or if I hold it for one hour, maybe it works even better.
Or maybe if I, anytime the stock goes above the initial unaffected price, if that's my stop where I always bail rather than holding one hour. my data gets even better. And so that's one way through backtesting.
Another way is to forward test. And what you do essentially is you say, I'm going to short every offering with one share, and I'm going to follow these rules, and I'm going to see how that works. So the benefit of forward testing is you don't need historical data. There's times where historical data isn't so applicable. Take, for example, last year with the CPI data points, or I guess in 22. In 22, the CPI started moving the market big.
futures, the market, everything. Everything was moving multiple percents. You can't go back and backtest CPI data. It hasn't moved the market for over 10 years, right? And so that's where you need to immediately start either forward testing or you need to start using just a logical hypothesis.
And you might say, oh, wow, the market started to worry about inflation and CPI coming in hot might show that we're in a lot of trouble. They're going to slow the economy. They're going to raise interest rates.
And so even before- before the first CPI data point, if you're paying a lot of attention, you can hear this on CNBC. You can talk to money managers, figure out the theme of the market. And so even without a past historical data point or a forward one, you can still have the education and the knowledge to make that bet.
So there's a lot of different ways. Another way is say you have a really good mentor. Say your mentor says, if X happens, I want you to do Y and this is the rules for how you do it.
You don't need to backtest it. You don't need to forward test it. You don't need to have a hypothesis. You're just following someone you trust and so there's a lot of different methods to find edge but doing some of those trumps all and most of all I would argue that like You need to be in the stuff that's moving. You need to be in the stuff that either has a lot of volume or breaking news or is doing something special.
Because otherwise a lot of the stuff is just noise out there. So two questions, two important questions. So first one is, if you backtest, what's a quality sample size? Sure.
So that's a good question. And so I'd like to just think about a lot of this stuff in practical terms. Let's say you backtest something and it goes five for five.
How long do you want to wait? Do you want to wait for 100 data points? No, you don't want to wait. If we go five for five, you might just put that trade on. And you don't need to go big.
Maybe you just start putting on one share, then 100 shares, then 1,000 shares after five data points. But now let's say you go five data points and it only works two out of five times. And, of course, keep in mind we need to also factor in the risk-reward, right?
Because some trade might only work a quarter of the time. But if that pays out 10x, that could be a super amazing trade. So the other variable that I'm touching on is it matters the variance of the trade, right? If you have a trade that wins 99% of the time, but there might be major fat tail risk, like say, take, for example, a casino, a casino, you're going to win 99% of the time, but you might lose really big occasionally. You need to be really, really sure what those odds are and what that math is.
So they might want a lot of data points because you're dealing with a lot of tails of the distribution and it's a different type of variance. So a lot, there's no perfect answer. So you might go one for five, but you might win that one time. Say it's even just a little bit good. You're not gonna give up on that strategy, right?
You're not gonna say, oh, this is a total waste. It only won one time. Let's say you go zero for five.
Maybe you're like, damn, maybe this doesn't work at all. But maybe you get 10 data points or 15. You probably don't need 500 data points. Like if you've gone zero for 499, the 500th data point offers less value, right?
Yeah. And so it really depends the strategy. It really depends what you suspect the risk to reward is going to be on stuff like that.
And what I would say is like once you start to get a feel for the data, every data point incrementally provides a little bit less value generally. So eventually you get a pretty good feel like, okay, like most strategies say after 50 data points, like again, most, but there are exceptions. Yeah.
You probably say like, okay, like, you know, these one. 30 out of 50 times, that's a 60% win rate. When it did win, it won 1.5 to 1. That's like a pretty solid thing.
So I think after 50 data points, I'm aware of this. I'm not the master in this. I don't have 500 data points, but I'm going to start to put that trade on. I'm not going to bet my whole account on any given one of them, but I'll bet $100, $1,000 and start to build it up from there.
Okay. So now the second question is building upon that one because in the FX space, I hear a lot of people talk about how Maybe they learn a strategy from a mentor and then it stopped working, right? And I think a lot of people in this space, their strategies are based on price action, like supporting resistance lines, you know, flags, pendants, and things like that, supply and demand.
But when I learned like how like Smb trades and how you trade, there are certain underlying principles like in-play, news catalysts, that sort of like they take different forms. but the underlying principle of like what's moving or driving the market is the same and i believe if you understand those principles you're able to make adjustments like as you mentioned like cpi wasn't moving like for 10 years wasn't moving the market but then now in 2022 how quick do you adapt how can you adapt if you don't understand the principles right so so can you talk about that totally that's a great question and i think the really good trader is is very attuned to both and recognizing that there's value in both so there's strategies i've done where fast forward to this day I mean, these patterns have been the same forever. Certain patterns, like, I mean, my trainer started in like 2001, 2002. Those patterns, same as back then, exist now. I go back through my old charts and I'm going through some of my old documents.
It is the same exact thing. And you just say, oh, my God, if I knew then like how I've refined myself over that decade plus since, it's just incredible. And so I think like there's stuff that is totally structural, right? Being the quickest to news is a structural edge. having experience and knowing how to react to certain things, knowing certain patterns that repeat themselves, knowing that people will eventually be offsides and people will get liquidated.
People will get margin called. Being able to like human psychology hasn't changed probably in 500 years, right? Since the beginning, whenever markets started a tulip bubble or whatever else.
Psychology has always been like that. People have always gotten euphoric. People have always panicked. And so a lot of those patterns always represent themselves. But then there's also the stuff that comes in and out of play or might just eventually structurally be arbed out.
And so you could take something like the COVID cases in 2020. Every day people was following that number to know whether the market is going to sell off or whether it's going to be bid up. And that's not going to last forever. Obviously, that's...
still not in existence today, but that's a short-term edge. And there's nothing wrong with that. CPI last year, that wasn't going to last forever. People are eventually going to move on from inflation, but that's fine. That doesn't mean you don't want to capture it.
So my point being with all this stuff is there's really two different types. None's necessarily better than the other, but the more important point that like, if you understand the framework of what drives price action and the perspective on this stuff, some stuff is structural, but a lot of the logic always exists. So take cpi you're figuring out okay you're latching on to this is what the market cares about the theme is this i'd say almost every year or certainly even sometimes multiple times per year a market latches on to different themes so last march we had the silicon valley bank crisis so that was going to drive price action uh what's really been driving the cues nowadays the ai move and the semis so if you latch on to what these themes are you can start to really get ahead of the curve and see some of those patterns.
So would you say that the market is mostly driven by like fundamental or sentimental themes? I'd say it's driven by a lot of things all at once. Like that's the beauty of something so complex. And like it can happen in different phases, right?
There's times where the market's just totally driven by emotions and euphoria or panic, right? Think about in 2020 in March. That wasn't necessarily, some was fundamentally, like some of course is fundamentals.
But then some stuff is just pure panic liquidations, right? You had the GDX and GDXJ ETF totally diverge by over 10% from their net asset value. That's an ETF diverging from its NAV. So at times like that, no, that's just pure flows. People are getting liquidated.
But then you have times when in a heavy M&A market, a lot of stocks are going to be driven by those prospects of M&A and it's going to be super driven. So it's always a mix of everything. There's always players playing different.
games out there. And I think like, that's why I always laugh when people always talk about this, this anonymous day. Oh man, like damn, they rigged that one good.
Or man, like, oh man, like they, they just squeeze the shorts or like whatever they want to say. And it's like, it's like, okay, who is this? They person, like, let me tell you, like I've met some really big traders.
I've, I've helped firms that are the biggest financial firms out there. Like forget, forget the little day trading side. Right? Like I've, I have friends at firms that the biggest institutions there are.
And I know what they're doing and everything else. And it's like there if anything is true, there is no day like in every single stock. Yeah, there's someone that might have a lot of float locked up in a certain stock or whatever else. But it's still a ton of different players making their own independent decisions. So there's going to be people that are taking that high a day stop.
It's no some crazy algo out to get specifically you. There is no algo that says, OK, I studied this one. retail traders pattern now i'm just going to try and screw them each time it's i think that's a big uh conversation in the fx space like there's some collusion and some big algorithm that was designed coded like one algorithm that's out there yeah just wiping people yeah like i always i don't want to talk you know but about anonymous you know fooders and everyone else but it's like oh you know the the algo driving the market it's like dude i'm sorry man like there is no algo driving the market right every stock has different players and like it's it's It's so funny, right? Because I've, especially now on my personal account side, I trade much larger size. And there's been times and stuff where it's like, someone's like, oh my God, like dude, like massive call volume or like massive, you know, put activity or like, oh man, like, do you see that order?
Like someone, you know, someone just like took that whole thing. I'm like, and they're reading all into that and like, oh man. And I'm just like, man, that's just me.
You know, it's like, and there's no crazy collusion. And like, there's people that are trading the technicals. There's hedge funds out there that are saying, look, no matter what this does, by end of day, I need $5 million of this. There's people out there that are doing options flow, and there's people hedging that options flow, and there's people buying based on the fundamentals.
There's people going with the trend, against it, all sorts of stuff. What might work for your strategy might tell you to buy when I'm selling on my strategy. That doesn't mean you're wrong.
on your time frame and your strategy you might win and i might win right so to think that there's like some crazy i'll go out there or anything else like no it's just it's that's the beauty of markets it's this mix of all these opinions and all these views being expressed yeah so a follow-up question to that so if a trader is purely technical If they aren't following what's happening with CPI, do you think they're at a disadvantage? Like CPI are just different things that's going like fundamentally or sentimentally. Are they at a disadvantage? No, I don't think they're at a disadvantage because it needs to just be whatever is right for you, right? So if you don't have that skill set, like take something like reading the tape.
This is always a big debate. And what people, the issue is people are too quick to say just because they don't have any edge or skill somewhere, that doesn't mean it's impossible, right? And it's too quick to say that. And so, so many people say, oh, there's no edge in that. No, no, no.
You don't have edge in that. And perhaps there's no edge, but other people might 100% have edge in that. And so, I think if you're doing what's right for you and you're being true to your strengths and your skill set, I mean, there's people that have never interpreted a news headline in their life. Then I know people that they could care less about the technicals.
I know people where it's like, okay, this headline. And there's certain strategies that I run. So I was mostly a technical trader, like 95% of my trading was a lot of heavy technicals.
But there would be certain headlines where I would know super high confidence, how many percent that stock's gonna go. Like, especially on M&A, where like S&P ad deletes or like certain offerings, where I had just studied enough in the news where it's like, okay, like I've got a really good idea. Like this headline is like a 10 to 12% headline. This headline's like maybe like a 15 to 20. this is a 30% headline. And so, yes, I might trade, make a technical trade, but then I might also have a huge chunk of shares just saying like, look, wherever this settles in, I'm gonna take.
None, neither is wrong. And then there's people that could just be purely based on sentiment. At Tradezilla for a Cause this past year, you had Jason Shapiro talking about, he does like the whole commitment of traders, like who's long, who's short. So you could purely base it on flows. But then guess what?
I invest in with one. fundamental investor hedge fund dude he he wouldn't know even what technical analysis is but he's got edge you know he's got edge and it's it's just you all can win in different ways yeah and i think people don't see that nuance like just because it's not right for you doesn't mean it's right for others and especially on twitter it's not the best vehicle for nuance there's a big discussion about whether someone should specialize in one symbol one asset like maybe they're just trading tesla or like a ES or NQ only. Can you talk about the broken slot machine and like what perspective you lean towards and why? I think like a really big thing just in life is anytime anyone says anything, whether it's on Twitter or anywhere else, there's a disclaimer at the end of every single thing. And what you don't see is there's a bracket for me and bracket.
Hey, the keto diet is the best diet on earth. Oh my God, like, like. keto works so well for me. Hey, I'm a vegan.
I've never been healthier. Like being vegan is the best diet ever for me. Hey, the broken slot machine is what offers the best edge. Like this is where you find it for me. And in my case, for the people I mentor and I've worked with.
And so keep in mind, like if you're running different strategies, like you don't necessarily need to find some of these things. Like if there are definitely strategies where it's stuff I'm not even aware of. or haven't even thought about and that's fine but for the average day trader out there in general i truly believe that for most strategies a lot of these stickers can be noise unless you're kind of like the market maker the hft a lot of this stuff tends to be noise and where i know me personally as a fact that things end up having massive edge is when as i call it the broken slot machine something becomes super in play There's fresh pieces of news.
There's some type of catalyst. There's order flow. There's some crazy chart pattern.
Some stock is up seven days. Think about when Mark was making that super euphoric run to 33 bucks or whatever. That's way more in play because you've got these massive ranges. You've got so much momentum and you've got so much just range and volatility. And you've got the ETF approval news.
So you've got all these different strategies. that that converge together to allow for a lot of different opportunities and i would argue if you're spending those days sitting there the whole day training serious radio or something it's like like whatever works for you of course but if you want to just talk about magnitude of edge out there like take something like that like uh the amc offering or even like the fun offering or some of those or even any m&a headline you can be super quick to get some of those prints the risk reward can be insane on some of that stuff right if you can be super quick to connect certain dots like oh my god cpis going to start to be in play if you short a bunch of spiders it doesn't move You're getting out for a couple pennies, no harm done. But if that works and you connected the dots first, on that first time, you're making a couple percent, you're making dollars. You made a statement on Twitter.
I like to read it because the podcast is designed to challenge us. This isn't to just offend anyone, but I thought this was an amazing statement and something that we should think about in the FX space. So you had a tweet where you said, someone asked, is Forex any good to trade?
Many asked about my view. In my opinion, FX is one of the most efficient markets in the way, more so than futures. Yes, a few succeed, but odds are very stacked against you. Only people making easy money from Forex craze are the Furu marketers. Yep.
So, and then you get, I think you put out a 10K wager, right? For anybody to come forward saying that they made like 250K three years in a row. Yeah, any of those marketers in the futures. Yeah, in the future space, right?
with well i think it was like 250 trades yeah yeah and it might have even been like 150 50k you know i don't remember but the bar wasn't that high whatever the terms were yeah so can you talk about like when you say the market is efficient right can you explain this this tweet a little bit so and this is where a lot of people wade into this arena and they don't even have the basic education to be in in the arena having the conversation so asking what does this mean by efficient is an important first question. So efficient is not a word I'm making up, right? This is a word that has true definition and meaning in the academic space of markets.
Inefficient market, by definition, means it cannot be beaten. Like as in, it is a random walk. The next move it makes is a 50-50 coin flip, one-to-one risk reward.
It cannot be beaten. And essentially the same way the casino slot machine works out pretty much 50-50. if anything, 49.51 against you because of the house wins in general. And I would argue because of commissions and everything else, by definition, again, not by definition, this is pure academia and the whole conversation of what this is, an efficient market cannot be beaten.
That is one that's perfectly efficient. And now, obviously, things aren't perfectly efficient, but I would argue most markets are very, very efficient a lot of the time. As we all know, it is not easy to beat the market.
We can definitely agree. So if it's not perfect, it's definitely not easy. We're somewhere in between.
Then it's a question of how far. And so there's certain markets that I would argue are more efficient than others. And what I would say is the bigger the players, the more sophisticated the players, the more liquid the market, the less volatile the market is, the more efficient the market overall is.
And if we look at, say, I mean some markets are also extremely quantitative for example if I were to say I'm going to give you a hundred dollars a year from now what's the value of that today you simply take the discount rate essentially time value of money like you know interest rates whatever else you discount it so there are some things or if I were to say if I'm going to give you five dollars right now what's the value of this coupon for that five dollar bill it's it's five dollars you know, maybe discounted for any counterparty rates that I don't actually pay. But like, if we wanted to super simplify it, it would be $5. There would be no trading that nobody in theory would ever pay 501 for it. Nobody would ever pay 499 for it because in one second, I'm literally giving you a $5 bill.
So if we just understand some of this logic, there are some things that have super quantitative, like agreed upon prices. Now let's take the whole other side of the spectrum. Let's take something like Dogecoin or any of the crypto shit coins. What is the value of that coin worth?
I have no idea. But these things are moving around a ton. And so the way I look at it, all those things I said, like more liquid, more sophisticated players, like the more news and price discovery, the better. So take an IPO, for example. You want to know what in general is going to move more than serious radio each day?
an IPO that hasn't traded before because there's all this price discovery. So if I look at markets overall, there's some markets that are much closer to the perfectly efficient. Then if we were to take the other side of the spectrum, there's markets that are extremely inefficient.
Like take, take for example, the market for certain pieces of art. There's a lot of difference of opinion. A lot of people might not recognize the value.
There might be, there might be a lady out there that is selling for a hundred dollars. a million dollar painting, right? That's totally foreseeable.
There is nobody out there selling like the S&P, like SPY for $10 rather than what it's trading for. It's a super efficient market, right? And so what I argue with people is it's not that there isn't edge in futures.
It's not that there isn't edge. and Forex. But for the average person, it's just a more efficient game and you need to be wary of that. And I would argue with both futures and Forex, the reason why you see such a heavy marketing ecosystem to this online is because...
there's no PDT rule. So because there's no $25,000 minimum to actively be trading, that's why all those marketers move to that space. You get so many more people to suck into that game.
And so what I would say is this is the same. is walking into the casino you need to figure out what's some games you're not gonna win they're too efficient like if i play slot machines i am gonna lose all day but then there's also some games where if i play it totally correctly i might have a chance of winning yeah like poker and so my important point is know where your market is on that spectrum and that doesn't mean it's impossible but like look if if you're struggling like i would argue that if you take something like forex not that it's impossible but you don't have stuff like stock offerings happening every single day. You don't have stuff like M&A events.
You don't have stuff like way less liquidation events, way less inefficient order flows. You don't have quad witching. You don't have index rebalances.
And so a lot of this stuff leads to just a way higher opportunity set and a just spectrum of things. Like imagine playing a slot machine versus waiting around to play pocket aces. And I like that point.
And again, this is a challenge us to think, right? Because there's a company called DarwinX and it's mainly targeting Forex traders so you see people there that are making consistent money right what I believe is and the people that I know and including myself that have found edge we're waiting on very specific times Right. Very, very specific. Very, very specific times.
And I'd even butt in right here to say one of the key criteria in my my Furu trader call out was not that nobody is out there making 150K, 250K, whatever I said, but it was. against the people running these rooms that are saying oh these magic levels every single day trading this every day posting just cherry-picking their winning trades every single day because like and don't get me wrong there are definitely firms and there's definitely people out there that do trade it every day, but those people are probably playing with way different types of analysis. Like potentially there's definitely quantitative systems out there and all sorts of different things, or you're just simply like making markets or you're like hedging flow and all this. But for this huge ecosystem to exist, it really meant to me that like, wow, 99% of this has got to be bullshit. And not that no Furu or any of these marketers ever make that much money, but like, it was more so just like, I want to, I want to see the proof.
Yeah. And and and look like I know traders like you and I know like I know so many futures traders that do really well trading futures. And like I know people where they didn't do well at stocks and futures was the right market for them.
But it's more so just the wake up call of of of buyer beware. And then there's just less edge out there than you think. Yeah.
And that's why I wanted to bring up the point. Right. Because as I as I mentioned, I was born and raised in the forest.
So I've been in different communities and I see people showing up every day trying to trade the same thing. thing every day. So maybe they make money three months and then give it back the next two months, right? Because they're trading when it's not in play, right?
So my challenge to the audience is really look at your playbook and really find out when your system is in play. If you're trading forex pairs, commodities, futures, any of the equity indices, and really focus on those high quality times. And then maybe, maybe also expand your asset.
classes take that that system on the road and i would even argue a lot of the concepts that i preach and again anything i say is parentheses for me yeah and then for the audience of anything the question is is there truth to this is there some principle that i can learn from and then for the audience it's parentheses how do you run with this for you. For you, yeah. And so what I would say is these concepts that make something in play, you need to look at your market and say, when do these moments appear?
When does this happen? So if we were to even take futures, there's times, right? like cpi where the market's super in play there's times when different instruments are super in play like nat gas the last couple years has made some wild moves i myself after one of my tweets ended up trading nat gas features the next day why because it was in play for me and what i was looking for and so the point is is like at the end of the day one thing that is true is you do need and this was another huge fallacy that people would make i like no matter what one of the huge signs of of edge and opportunity is generally you need volatility and and in price deviations and ranges and moves.
And so people online would then make the point, again, I would argue they shouldn't be in this arena at all. They would say the beauty of futures and Forex though is you don't need the big price moves because you can apply leverage. And that is because essentially, if you don't have a lot of edge, or if you have, keep in mind, if you have no edge and you apply leverage, what that means is in the long run, you are gone even faster. Yeah, that's right. It is a mathematical guarantee that if you have negative edge, you will be gone in the long run.
If you double up your size, if you use 2x leverage, you will be gone twice as fast on average. 100% certainty. That's just math. So that's why there's parts that's fact and that's definitely just math and that's indisputable.
Now keep in mind, if you have 60-40 one-to-one, so that's some edge. But then if you apply leverage to that and the variance, okay, like you applied leverage, like to make up for the lack of range and then you lose four, five, six, seven, however many times in a row, you blow up again twice as fast if you're using 2x leverage. And so that leverage argument is a total fallacy because you always want to find where the most edge is.
Now keep in mind, if you're doing 60, 40 and applying leverage, the way better thing is no, no, no. Where do I get the most? edge so wherever that is for you right again I would argue there's amazing opportunities and equities sometimes in futures but generally when stuff is in play yep the safe if you need to apply leverage anywhere it's better to do on the sure bet right or the better bet and so even that is a fallacy that people had yeah a dangerous dangerous dangerous one yeah so I want to talk about trading styles there's a lot of arguments like in the space about swing trading being better than scalping or lower time frame trading what's your style if i i heard that you say you trade from the two minute intraday chart many would hear that and say whoa that that's gambling trading from the lower time frame doesn't work so i think i think if i was like a little bit smarter like if maybe i had like you know like maybe like a couple adderall binges or something i can't mathematically prove this but i do think this is like a true principle i would say on the smallest time frames sometimes offers the most edge.
And the longer the time frame you go out, the less edge you have, but it comes at a trade-off of increased scalability. And so if we were to take certain examples I've seen in the intraday space, there's been order flow efficiencies. So take, for example, that GDX example, where GDX broke from its nav.
Because I was during COVID, I would argue that opportunity lasted probably like a day, maybe two, three days, but a day at its peak. During normal operations, when capital exists, that shouldn't exist at all. If you're trying to wait for a monthly situation or a weekly candle or whatever, that opportunity is gone. And there's even smaller opportunities like that. Like for example, you know, somebody needs to puke out of some instrument, you know, they go low offer and you're like, what the hell?
Like this is, this is inefficient. And it's gone and it's back to where it should be. Like you'll see kind of like the mini flash crashes in little things each day.
And those are micro inefficiencies that are immediately getting absorbed out. But guess what? If one ETF is trading minus 2% and the inverse ETF should be plus 2%, then someone accidentally spikes it to plus 2.5 or something, that immediately gets arbed out.
But that is essentially free money, right? You can do a risk-free arb. And so my point with some of that stuff is like...
there's these micro things that have insane, insane edge. And even with some of the breaking news, like if you take the, I don't know if you follow this stuff, just, just given everything, but if you take the, the spirit airlines merger decision, so that was in a pending merger agreement at a huge discount. So the range of outcomes was if deal breaks, this goes to, I don't know, call it six to eight bucks, five to eight bucks. If deal goes through it's, it's trading. I don't know.
I don't remember what the price would have been, but like way, way, way higher. And it was a huge range. and it's trading somewhere in the middle the deal ends up getting blocked if you are the quickest person in the world to that news there is nearly a 100 chance you're making money you're risking pennies to the from the unaffected price and you would have ended up making dollars the expected value on that trade is so off the charts in that micro time frame and so i would argue there's a lot of analogies and comparisons and examples i can come up with that but guess what That opportunity in some of these things is only lasting for a second because the second that's out, you know, it's gone, right? And the more it moves, the worse your expected value gets. What kind of size can you put on those opportunities?
Depends the opportunity. So there's some where they just aren't scalable. There's some where save depending how fast you are in the liquidity maybe you get five thousand maybe you get fifty thousand.
50k like in? Fifty thousand shares. Okay give us some dollar amounts like for the audience to say okay from the two minute time frame, lower time frame.
Oh on some of these news headlines, I mean there's people out there making of course there's less liquid ones and more liquid but there's some headlines you can make hundreds of thousands I mean there's there's gonna be some headlines where you can make a million plus. I mean think about Think about the money on some of those CPI headlines. How long does that trade last?
Could just be minutes. So take even a basic CPI, right? You can be going into the spiders. You can be going into the Qs. You can be going into Tesla.
You can be going, you can be, Bitcoin was moving on those. So think about how liquid those markets are, right? You can, the futures market is, you know, infinitely liquid on some of those plays as well. Not infinitely, but, you know, it's super liquid. And so you can make some really, really.
big money on that stuff. So you're not just going into the market on the two minute and it's all choppy and you're just going in and trying to scalp something out. You're finding the biggest moves with the most edge that things, you want to find the most volatile stuff.
And so now I would argue, like if you start to move out your timeframe, like sometimes I'll do some swing trading where you're using the daily bar timeframes and now you can get a huge amount of liquidity, right? Because Your stop is this big and the play, you might be able to get around those prices for half an hour, an hour. And so there's hedge funds that might do that type of thing.
And they're accumulating way bigger positions. But I would argue some of that is at the trade-off of edge. The variance increases.
Like there's certain trades that I would argue have an easy 90% win rate. Some of those trades on the swing trading styles, like I find that to be. Again, it doesn't mean they're not out there, but in my experience working with a lot of traders, I mean, I would say I've probably worked with, I mean, at least 200, 250 plus traders at this point. Like I've not seen anyone that matches the edge of shorter timeframe trading.
So those, the shorter timeframe, the methodology is higher win rate, right? A greater edge, lower, like you're in and out, but you have the higher win rate and greater edge, like in that specific time window. Yeah, right.
You're not it's not a 50% win rate type of strategy. I mean some might be you've got you've got the full gamut I guess but I guess at the more extremes on some of the really best trades not in every trade But the really really best trades I've not seen Matched in higher time frames but again now think about it like Because there's so much liquidity on the higher time frames Like if it was it would just be super super nuts Like there's certain principles around this of why this stuff does and doesn't work And I'd argue that a lot of this stuff kind of gets somewhat arbed out on the bigger timeframes and for the bigger players. Here's one of the final arguments I would make is the returns of most day traders.
I mean, there's people out there, like there's this guy I'm friends with, Ed Barry. He can take a 15K account and he can return 100% of that, no problem. No sweat off his back.
He's profitable every single day, pretty much. And I've known traders that are profitable. Even a trillion, there's people that are profitable nearly every single day. Do you know a single hedge fund that's profitable nearly every day?
No. There's trading firms out there like HFTs that are doing that, but they're on the micro timeframe, right? Micro, micro, micro for thousands, millions of transactions a day. Now, if there's people like Ed Barry that can double their account on these shorter timeframes, that doesn't happen on the hedge fund space.
What hedge fund is doubling their account in a year? Man, this is incredible. If you're even beating... the market most hedge funds like 90 of hedge funds that's kind of a made-up stat i don't know the real number to be rude to be real like they're not even beating market returns like the average trillium trader if you're a good trillium trader that's laughable that's laughable you're not even you're not even blinking at market returns right if back if back in my prime you gave me a hundred thousand dollar account that that account is making money every single year and that account's making a lot of money every single year i'm not having any i never once i got once once i caught my stride How many down years did I have?
Zero. I barely had any down months. Incredible.
That's not true at the hedge fund scale. That's not true at the bigger timeframes. Yeah.
So, okay. Now you talk about exponential bet sizing. I want to move into that because that's another underserved or under-discussed topic, right? So can you just give us a little bit about like, at what point can a trader look to start like betting more on maybe like the A setup?
So like you mentioned A, B, and C setups. The one key assumption is that this trader has the ability to differentiate between the quality of their setups. Meaning, as the poker analogy, can this trader tell which of their hands are better than others?
Can they say, okay, this is aces, this is really, really good? This is Jack-Jack. It's worth playing, but not going to be the best ever. Or this is just not worth playing at all. So obviously you want to play those hands way different in poker.
So there are some traders out there where based on their skill set and their strategy, it's all the same. It's binary. I'm either going to trade it or I'm not.
There's no variables that I can predict that give me more edge than the other. Then there's traders like me out there with certain edge and strategies where it's like, oh my god, this trade might be so good where this is my aces. If you can differentiate, then, much like any poker player, someone with aces or somebody with a royal flush or a full house or four of a kind, like, they're not betting the same bet size.
They're going huge on that. And again, like, trading's a little bit different. You don't ever want to go all in or anything like that. But what you do want to do is have that scale in the bet size because when your edge and your expected value is way cranked up, that can overcompensate for so many mistakes or different things.
That's one of the big lessons from my trainer that I learned. So how do you recover? Like if let's say you take a loss on one of those big ones, how do you recover from then since you've increased the risk? It sucks, of course.
But I would argue, one, you shouldn't really start skewing it unless you're doing so prudently, right? You want to increase very gradually. The more experienced the trader, the more they can add skew onto their trades because they have more P&L cushion.
They have more experience. They're more resilient to drawdowns. But what I would say is after that... Losing trade you go back to your easy money playbook And that's the beauty of having that easy money playbook and the traders that I've seen grow the fastest Like there's this one dude at SMB Capital who's kind of on the younger side But he's starting to really take off and the people were when things really click It's because they have their easy money trades and those are their singles and when they get into trouble They're just back to basics hitting the singles, but they then learn while building up that playbook to differentiate What are my aces so it's almost like this barbell approach? I'm going to shoot my free throws and my layups all day.
I'm going to just become the master of those easy layups. Then simultaneously, I am going to study and master the most important shots, like the big home run shots that I need. And so that approach gives you consistency and a cushion to then bet a little bit bigger.
That doesn't mean go nuts. That doesn't mean ever, ever go all in. But if your normal trade is 100, that might mean early on you bet 150. If you're a more experienced guy, instead of betting $5,000, that might mean $10,000. And so it's doing so prudently and gradually, and most people kind of probably overdo it, but it's doing it safely and growing over time. Yeah, gotcha.
Okay. I believe three traders, like if we broke them down that are listening, and I normally start with a sort of like beginner trader, but I'm going to start in the reverse this time. So if there's a trader that, let's say they're good, they're making money, but they want to become great. What should they focus on? Like they're consistently making money, but they want to scale up and become a bigger trader.
What would you recommend they focus on? Yep. So I would always focus just going one step ahead. And so the number one easiest way to start to scale up, I would say, is find those easy money trades and start to be a little bit bigger in them. Don't worry about the home runs, right?
Just build that bigger cushion and that bigger base. And so, again, if you're normally making a thousand bucks or a hundred bucks in some of those trades. It sounds small, but let's say for the next couple weeks, I'm going to add 10%, meaning I'm going to try to make 110. Instead of getting 1,000 chairs, I'm going to get 1,200 chairs or something. And what people underestimate is that can compound so quickly, and you're not having the psychological issue of, oh my God.
Because so often, there's some people that can just flick the switch and turn the light on. Most people can't do that. And it's not easy, because there's psychology, right?
So the key is to never change your size so much that it starts to affect your psychology or your system. If you, instead of betting $1,000, if you bet $10,000, and that means you're taking a tighter stop or using the wrong stop or you're not holding your position, you're changing your whole system. It's too much now.
If you're sweating bullets or if that $10,000 loss is going to affect your psychology, no way. Right? But if you just simply go $1,000 and you say, hey, look.
I do 20 trades a day. If this $1,000 bet is $1,500, if this goes wrong, no skin off my back. You want to make those gradual changes.
Now keep in mind, right? If you start to increase your size, that's a 50% increase, but that doesn't seem so big if it's one of many, right? But if you start to do that increase consistently over the course of a year, right? Even every two weeks, every month, that adds up big.
By the end of the year, you're betting $3K, $4K, $5K. Yeah. So now the... Tradezilla that are struggling, maybe they're in it for a few years, they're independent and they've invested time and money to courses and loan accounts, etc. What would be your advice for them to focus on?
Number one is... Make sure you're studying or finding a mentor or someone with real edge. If you're sitting there for five years and my heart goes out to those people, because I actually argue it's the majority of people, if you've just spent three to five years sitting at the slot machine trying to read into how to pull the lever, I'm sorry for you. But it was a waste of your time. The only lesson you learned is, hey, I need to play a different game.
But if you're one of those people and you're ready to make the new leap, make sure you're sitting at the right game. Then ideally make sure you have a mentor if possible or something where you know like, okay, I know this isn't noise. I know there's edge. And then just focus on just anything that is just replicable and easiest for you and your strengths.
And so that can be totally different for different people. I know one of our mutual friends, he has a very simple trade that he's refined. And like we spoke about, it's all about the nuances in the style, right?
And so he found... just in futures a basic trade it's a pullback to vwap and he he goes long into that pullback but again it's not just that it's all the nuances that he's refined but that's his trade and so for him it works he trades futures it works it's this very specific play and that's scalable and so for him he's going to keep refining it he's going to keep finding more of those and that's the best path and so i would say once you find something that works the easiest thing is to find more of them whether it's through software or through expanding your eyes out there with a pod, or then it's then to just size those up. It's finding more of your easy money trade, it's sizing up your easy money trade.
That's always the best path. Okay. So just wanted to give you some time to talk about some things that you have going on, like with your nonprofit.
So can you tell people where they should find you, like on Twitter, and then also a little bit about your nonprofit? Sure. Yeah.
So I have a nonprofit called The Impact Competition. And what we do is we host These university competitions that challenge students to solve local social issues. So we're probably at close to, you know, 10 schools, a dozen schools are still around the country.
And we'll have students helping out the Houston Food Bank or Habitat for Humanity or Strides for Peace in Chicago addressing gun violence. And then the winner gets a cash prize. They get to fund their ideas and implement them and make them real. And it's just a beautiful thing that I really believe in. And it's been super valuable to be a part of.
And so people can check me out at impactcompetition.org or they can follow me on Twitter at the one Lance B And that's where my real good content is always always being dropped for free. Yeah, man, this was an amazing podcast, man. I really appreciate you joining us, man. Thank you so much. I think I myself, I learned a lot and I'm sure the audience got a lot of value out of this, man.
My pleasure. Thank you so much. Thank you for all the great questions.