Rebel Traders 030 : Miracles Not Included

Have you ever watched the classic movie "The Princess Bride”? Well, unknown to most it is packed full of Trading wisdom and insights. Curious? Well, the Rebel Traders break it down and reveal the secrets packed in this cult favorite...

It may be “inconceivable” that there are actual trading lessons to be learned from the cult movie “The Princess Bride” but the Rebel Traders disseminate value insights from one of their all-time classic movies and show you the hidden gems for traders just like you.

So, as we step in to a step in to a battle of wits, ask each other why we are smiling as we break it down and show exactly why we love this movie and how it can teach you valuable strategies and trading wisdom that can help you be a smarter trader starting now…

Time Stamped Show Notes

Read Full Transcript

Sean Donahoe: My name is Inigo Montoya. You killed my father. Prepare to die.
Automated: Rebel Traders takes you inside the world of two underground master traders who take an entertaining and contrarian look at the markets to cut through the noise of Wall Street, and help you navigate the trading minefield. Together, Sean Donahoe and Phil Newton are on a mission to give you the unfair advantage of a rebel trader. And now here are your hosts, Sean Donahoe, and Mr.Phil Newton.
Sean Donahoe: Hey hey hey. This is Sean Donahoe. Hope you're all doing well. And in today's podcast we're having a little bit of fun with the Princess Bride. So in the corner here I'm joined by Miracle Max. How you doing sir? Are you there? Are you -
Phil Newton: I'm doing pretty good today. It's certainly an improvement over being called Miracle Max. Yeah, to be fair I kind of thinking I could make a little miracle and kind of clear up that infection that you got. Seems to be getting a little bit worse. Hope you're feeling a little bit better at the moment.
Sean Donahoe: Back to about 95% capacity. And so if I ... Thankfully I have a great editor who's going to edit out all the coughs and splutters throughout the show. But we are -
Phil Newton: Can't get rid of that Scottish accent though can you?
Sean Donahoe: No editing will fix that. No editing will fix that. In fact I was watching a very funny video the other day about a Scottish family trying to use Alexa in their home.
Phil Newton: Oh yeah yeah. I saw that.
Sean Donahoe: And I have had the same problem for years with Siri, and Google's Android, and every other voice dictation. And I mean my accent is very mild unless I've gotten drink inside me, or I lose my bloody temper. In which case I go full Shrek as I call it.
Phil Newton: A Scotsman losing a temper? What a surprise.
Sean Donahoe: I know. What an unexpected -
Phil Newton: Almost a stereotype there. It's all -
Sean Donahoe: Yeah. What an unexpected thing that might be. But no, my accent is very mild and it's just to make sure that everyone here can understand me. And over 20 years I've been over in the United States, and I've been all over the world, and all over the ... Yeah. Basically all over the shop, and my accent is ... Modifies, but as soon as I get on the phone with my brothers -
Phil Newton: It's gotten watered down. Yeah.
Sean Donahoe: Aye, it has. But as soon as I get on the phone with my brothers or anyone else back home, I suddenly sound like ... It's just -
Phil Newton: You're bringing out all the News?
Sean Donahoe: Aye. That's exactly it and it's ... My wife's looking at me, it's like, "Okay who stole my husband and who the hell are you?" So it's all good. Anyway, so we are doing a Princess Bride kind of flavor to today's show, looking at the unexpected secrets, results Yeah. Absolutely. From the classic movie ... It is a cult classic. It's one my favorite bloody movies. And -
Phil Newton: I have Fond memories of the 80's. Childhood in the 80's.
Sean Donahoe: Abso-bloody-lutely. We are stuck in the 80's as everyone knows here that's watched the show. But we got a lot -
Phil Newton: So why not?
Sean Donahoe: We're going to be doing from that with trading ideas, strategies, and insights from the movie.
Phil Newton: And also we've got our usual quickfire rounds where your trading questions are answered. And as always we got the bullshit of the week. We call the it the height of bull shenanigans of the industry. I actually keep thinking it. I think I just like saying that rather than the bullshit section of the week. It just allows me to get out an early swearword.
Sean Donahoe: Mm-hmm (affirmative). Absolutely.
Phil Newton: And as always, somewhere amongst all of this mess that we call our show is the core question of where is the trade? And with the theme of today's show there's going to be lots of opportunities to find trading opportunity.
Sean Donahoe: Absolutely. So what we're going to do here today guys is we are going to dive back into our childhood a little bit. Have a little bit of fun. You know we're going to have Peter Falk here with Columbo. Basically I guess that's me. If he's Miracle Max, I guess I'm Columbo here telling the base story here as everyone sits round and listens to the But we are having a little bit of a, as I say, a little bit of insight -
Phil Newton: Little bit of fun.
Sean Donahoe: Little bit of fun with the Princess Bride. Because oddly enough there are a lot of trading lessons in here if you look. And this is one thing that we're going to be talking about. So where did you want to start? I mean this is -
Phil Newton: Well as with all good stories Sean, I think we should start at the beginning.
Sean Donahoe: Paul, good plan.
Phil Newton: Sit back, turn the pages, turn the lights down low, and let Peter Falk aka Columbo start off the movie reading a story to his sick grandson, which starts off with a bit of a romantic scene to which he's interrupted by his grandson. Actually can you remember the name of the grandson? It was the kid off wasn't it?
Sean Donahoe: Yeah. It was ... Oh crikey.
Phil Newton: I can't remember his name now. While I continue.
Sean Donahoe: Insane, I can't remember his name. It's Fred Savage.
Phil Newton: That's the one. Yes. So Fred Savage is the sick grandson, and Peter Falk aka Columbo is reading his grandson a story from a real book. Not a Kindle version. And it starts off with a romantic scene, but then the grandson is interrupting his obviously grandfather by saying, "You didn't say that there'd be kissing involved." You know he's quite distraught because he's not at that age where, you know, kissing's become kind of interesting. So he's kind of put off early on in the movie. But it kind of gets you thinking about well, in the real world, real traders we're not married to, or romanced by our positions. But yet so many traders are kind of suckered into being married the ... You know, the kissy kissy, cuddle cuddle type thing with their positions.
They get married to their position. So we got a nice early little lesson here with no romance should be involved with your trading whatsoever. And basically just remain emotionally detached from whom you're trading. No kissing should be involved. What are your thoughts there Sean? Your experiences with kissing and cuddling your trades. We've all got a few nightmare stories. What's one of yours?
Sean Donahoe: Well first of all, I mean it's one of the things I learned very early on is -
Phil Newton: Emotionally the hard way.
Sean Donahoe: Yeah. And we're not talking about my early years as kissing and cuddling. We're talking about trading here. But yeah one of the things we talk about a lot and have said over many of these shows is the emotional divestment of your trading positions, the emotional divestment form money and everything else. And the problem is that a lot of it is not so much the emotional entanglement, but a lot of it's down to the fear of loss and the elation of winning. Those do drive a lot of emotions, and core emotions in every single trader. And you know, when you're on a ... I mean a prime example is take a look at your Facebook feed. When Bitcoin, or cryptos are on a tear, everyone's elated. Everyone's talking about their wins, their gains, and how wonderful crypto is. And then as soon -
Phil Newton: I was in from way early.
Sean Donahoe: Exactly. And then when you see it retracing, or like it has been over the last few weeks. Bitcoin has come down -
Phil Newton: Funnily enough there's not been that much activity. Surprise surprise.
Sean Donahoe: Yeah. And I mean like, prime example. Bitcoin doing down from 19,500 to where it is roughly right now, about 3,700 ... Sorry. 13,700. Let me get the right number so I can actually read. But again, people are now not talking about Bitcoin or they're even talking down Bitcoin.
Phil Newton: To be fair we can talk generically, because what I've noticed over the years is a lot of people when the stock market is going up, up, up, and not just the indexes but lots of individual stocks are performing -
Sean Donahoe: Great point. Yeah.
Phil Newton: Well, there's lots of kissing and cuddling and, "Look how great I am," and all the showboating goes on. You see it all over social media, and you know it's the same thing with most tradable instruments. You know when the markets are moving one way or the other, to keep it on point there's plenty of kissing involved. Everyone's an expert.
Sean Donahoe: Absolutely. And that's the thing is, it's the emotional attachment to everything else. One thing that we talk about a lot. And this is one of the prime kind of points of this, is it's a business. You got to take emotion out of this. If you can come at your trading with almost like a cyborg mentality with one prime goal which is to continuously and consistently make money in the markets, and if you -
Phil Newton: Execute your strategy. Yeah.
Sean Donahoe: Absolutely. You got to be a Terminator in regards to this. Markets are Sarah Connor. You got to go in there and make it happen without the emotion holding you back. So I mean that's one very very strong thing -
Phil Newton: Quick way of doing ... Mm. Quick way of doing that is ... Okay. People get married to the position, kind of the overall arching points, and most people will just place one or two positions which kind of encourages them to be married because then they're only just looking at that one position. And it's usually too big of position size. There's two factors there that we can address straight away. So first one, the obvious one, is always always always reduce your position size. Trade as small as possible. But then increase the frequency of trading that you do, and trade more positions in a variety of different markets, or a variety of different instruments.
It takes that ... Surprisingly ... You don't think it would, but it does take that emotional involvement out of the trading side of things so that you can just focus at the task at hand rather than be married to that one position. I think that's the easy, quick advice.
Sean Donahoe: So what you're saying is instead of the single focus targe want, you want to harem. That's what you want. You want harem of positions.
Phil Newton: A harem. Yes.
Sean Donahoe: Yeah there you go. Harem. Why'd I say harem? I have no idea. I'm trying to be -
Phil Newton: Harem.
Sean Donahoe: Fancy with my accent or something. I don't know. That's a Scottish trying to do a foreign accent. It just doesn't work very well. But -
Phil Newton: Oh dear, oh dear. So to be fair I'm going to hand off kind of the next thing that we go into the movie. What was the Sicilian's most famous one liner?
Sean Donahoe: This has ruined this one word for me. Because every time, in any sentence, in any conversation I have had since I was a kid, every time I say this word I have to do it the exact same way. "It's inconceivable." Exactly. And it's driven people nuts.
Phil Newton: "I don't think it means what you think it means."
Sean Donahoe: Well indeed. And this is ... And the problem is I actually did that once in a very high end business meeting, and we were cutting a really big deal and everything else. And I did it subconsciously, and I just did that complete impression like that.
Phil Newton: Inconceivable.
Sean Donahoe: It's ... Just cracked everyone up because there was a couple of Princess Bride fans in the room. And they busted gut laughing, and I was like, "I have no ..." I went red because I was so embarrassed because I realized what I was doing, and this really, very serious, very ... Everyone's kind of trying to get that little fucking edge of ... Excuse my language. Of advantage and leverage in a high end negotiation and -
Phil Newton: In negotiations, yeah.
Sean Donahoe: Then I threw that in there and just ... It just broke all the ice, and all the tension and everything else from
Phil Newton: Sometimes that's needed. Sometimes that's needed, yeah.
Sean Donahoe: It is. It is.
Phil Newton: But I think it's ... But the strange and weird short person called the ... Nicknamed himself the Sicilian -
Sean Donahoe: Vizzini.
Phil Newton:
Sean Donahoe: Vizzini. I was trying to remember his name. Vizzini.
Phil Newton: Vizzini. That's the one, yeah. Whenever anything didn't go his way it was, "Inconceivable." But then as the ... What was Andre the Giant's -
Sean Donahoe: I can't remember his name in the movie.
Phil Newton: Fezzik. Is it Fezzik?
Sean Donahoe: I think that's right.
Phil Newton: It'll come back to me. Come back to me. But yeah. He leans down to the Sicilian and said ... And I can't do this impression because I'm a Scousan, naturally I've got a high pitched voice. But it's very deep accent, he says, "I don't think it means what you think it means," which has stemmed another line of quotes. But it's true. You can ... Sorry Sean. Go ahead.
Sean Donahoe: I was going to say a Scouser tried to an Argentinian accent. That's going to be
Phil Newton: A deep one. I just can't do it. I've naturally got a high pitched voice. But yeah I mean, inconceivable. So I think ... What's the lesson here? "It doesn't mean what you think it means." Knowing the name of patents, and tools, and ... It doesn't make you a trader. I mean I've met many knowledgeable ... I wouldn't say trader, but knowledgeable person on the subject who knows a lot about a lot of things in trading. You know all the the Elliot Wave, the Whizbang Widgets, the Mac D's, the Stacastics, the tools, the tricks, the trades, the patents, and they know them all. But it doesn't make them a trader. It does not make you a trader.
Again just like in ... I mean, if we kind of take it back to a sports example, I'm sure we all know an armchair commentator. There's someone, one of our friends or a member of the family will know everything about the sport and very happily sit in their armchair and say what play should have been made, or what tactic should have been used in a certain situation, because anyone can be an armchair coach or a an armchair player. But the real traders ... People like you and me Sean, the real traders are found on the hard right edge of charts. And we do not care what the thing is called. We just want to know how to use the thing.
You know I suppose it'd be like ... Again Alex used the car examples. You know, changing a wheel I don't need to know all the tools and the parts. Hey, that's the wheel. It needs to come off. It's flat. I don't need to know everything about the car to change the wheel. I just need to know, "Okay I've got the thing that takes the other thing off." I know what it does. I don't need to know the name of it. No one's going to be impressed with my knowledge of what said thing is called. Similarly a trader, just knowing the name of the myriad old candlestick patents, and there's literally hundreds of them, or whatever obscure knowledge with some type of fractal patent or whatever, it doesn't make you a good trader knowing that. Like anything in life, knowing what to do with that information is more important.
And that's where the separation, the division of being a trader who has a well thought out plan, rather than just a hope and a dream. And this is where ... What is it? Vizzini. This is where everything became inconceivable. He had a great idea. It wasn't good execution. And that's why every sort of turn it was foiled and it became, "Inconceivable," that he was foiled.
Sean Donahoe: I actually love that. And there's one point I want to really reiterate from what I was just saying, I think is something that you need to keep in mind. Every trader should keep this in mind. And it's probably a concept you've not heard or are not familiar with, but it's where the traders ... Real traders have found on the hard right edge of the chart. In other words, we're not looking and stuck in history and everything else. We're looking at what's happening right now in the markets. What are the markets telling us right now with the current bar or the current -
Phil Newton: We're making decisions without the benefit of hindsight. Yeah.
Sean Donahoe: Yeah, exactly. And it's one thing to keep in mind for yourself, is the real action, the real trades are on the far right side of every single chart. Keep that in your head. Kind of becomes your mantra. It'll keep you on track. You're not going to be kind of bouncing around like a yo-yo everywhere. Of course you've got to look back. One thing we do talk about, look back over 200 bars, or a year's worth of data if you're on the dailies and everything else. But you start on the hard right edge. What's happening right now? Where are ... It's like if you're driving in a car. It's like, "Are we there yet?" We're looking at where the chart is, now where you've been so to speak initially. But you got to see where you are on the hard right chart. I really like that. That's great.
So okay. That's a good one. I really like that one. But we've now got to -
Phil Newton: Plus we get to say inconceivable at every opportunity.
Sean Donahoe: And I dare anyone to get that stuck in their head now that every time they say that word, inconceivable, find a way -
Phil Newton: You'll be using it on a regular basis.
Sean Donahoe: Here's your homework. Here's your homework. Work it in into a conversation randomly today and do the impression. You got to do it. Got to be done. Okay. So now the next one. This is kind of like later on in the movie, and in this case I'm going to be playing the part of the Dread Pirate Roberts, and Phil's going to be a little bit of Inigo Montoya because I've just sailed up to the cliffs. I'm on top there and he's been tasked with stopping me proceeding, and we're going to get into a wee bit of a sword fight, fighting left handed and trash talking to each other. And then, I'm going to turn around to Phil and say, "Hey, why are you smiling?"
Phil Newton: So as I'm Inigo Montoya ... That's just a name that rolls of the tongue, isn't it?
Sean Donahoe: Literally.
Phil Newton: So we're dueling away. Fighting the fire.
Sean Donahoe: Left handed.
Phil Newton: And I'm smugly, with my shit eating grin. And you say to me, why am I smiling? So, "I have something to tell you." That's my attempt at a Spanish accent.
Sean Donahoe: So we're going to offend everyone here with our really poor accents.
Phil Newton: You know it's ... We're not offending anyone, just trying to recreate very badly some scenes from the movie. We're not trained actors honestly.
Sean Donahoe: Yeah.
Phil Newton: But, "I've got something to tell you. I'm not left handed." To which I'm going to jiggle my sword and flourish it back to the ... My dominant hand which is my right hand. And then I'm going to be a better fighter because I'm with my dominant had versus my left hand. "What do you think of that, the man in black?"
Sean Donahoe: I could say lots of different things that would be inappropriate ... But. Okay so, the point is here that a lot of traders, like you say, often hobble themselves and prevent themselves from basically ... Even if they're a success they literally shoot themselves, or stab themselves in the foot somewhat by doing things the hard way just to satisfy their ego, or to look good to someone else. Now, why?
Phil Newton: Which is what Inigo Montoya was doing. I mean basically he wanted to ... "I think I'm going to fight him with my left hand," when he's waiting for him to come up the cliff because he wanted a challenge. Because he thinks he's the best in the world at what he's doing. And he's, "Yeah, I think I'm going to fight with my left hand. Give the other person a fighting chance." He's just hobbling himself unnecessarily. You know if your object is to, in this case, kill someone, or in our case as a trader your objective is to win, why would you want to hobble yourself?
Sean Donahoe: Now why do you think traders do that? I mean give some examples of what you've seen in regards to this.
Phil Newton: I think they make ... Making it difficult for themselves, I think going the cheapest routes for tools, going with the lowest cost broker and using the worst tools that are available. And again I appreciate that everyone's got different budgets when they're starting out and different account sizes. But these days, you know getting a good charting package to help you find, filter, and sort opportunities and have a good basic tool set to allow you to analyze charts well enough is ... It's a must. If you're going to go down the technical analysis route, you want a reasonable charting package. And the first thing that people go for is free or as good as free. Or it might as well be free. But they're usually going with the worst tools that are available.
Hey, they're free for a reason and there's nothing against that, but if you're serious about being profitable ... Again it comes down to it's a business. And if you've got to put your hand in your pocket for ... To spend some money on say a charting package, or some tools to help you achieve your goal which is to make a business of trading, which means to make consistent analysis and find stocks. And the way we like to do it is we don't want to spend hours and hours doing it. So that does require some access to some tools. Now some brokerages have fairly good tools that come with the brokerage. And if you want some good tool sets, then you can go down that route. But even ... Though, say a brokerage comes with a good tool sets, they'll still hobble themselves because they don't want to pay maybe an extra few pennies on the commissions.
Because you're going to pay for it somewhere. But because it costs a little bit more or a few pennies more, they don't think about what they're getting for the price they're paying. You know if you want the no frills, no extra, the McDonald's happy meal, you're going to get a shitty meal. You know? But if you want good quality food, you're going to pay a little bit more for that. It's the same with charting. Sorry Sean, I can't be so rambling. Does that kind of make sense? I'm kind of skirting around the issue.
Sean Donahoe: Yeah, absolutely.
Phil Newton: Well it's ... But you know you're hobbling yourself. So what's the trade off? If you want to find, filter, sort stocks fastly and efficiently, and we take about 15, 20 minutes to find something and trade it. Takes us about 30 minutes to do it essentially. But hobbling yourself might be using a free tool that doesn't have the indicator or the tools or the functionality ... That was the word I was looking for. It's not the functionality. Even a basic functionality for you to be able to be efficient with your scanning process. And you're hobbling yourself. And then you're creating more work. And what should be a 20 minute task for us, becomes a three hour task for someone else for the sake of, in most cases, $20 a month. Which is like some reasonable charting packages.
I mean I'm thinking like StockCharts, or TradingView, or something like that. They're inexpensive for what you get, and for what you do. I mean they're the lower end of the price range, but there is a cost involved. And what are they? $20, $30 a month? It's -
Sean Donahoe: It's nothing. It's really nothing.
Phil Newton: It's inexpensive.
Sean Donahoe: It's pretty inexpensive. And I mean -
Phil Newton: I nearly caught myself saying inconceivable. It's inconceivable that you wouldn't spend $30.
Sean Donahoe: We're going to have ... We're going to corrupt our entire audience with that one now. They're going to go around all day doing that and I know I am. But yeah. Like TradingView, I mean for the main markets and everything else it's like $5 or something like that for the main markets and everything else. If you want to go into some of the higher end futures and everything else, the expanded charting But you know, at the end of the day you just need the basics, but get the realtime data. Get the advantage of seeing what's happening to you can live on the right side of the chart, not just you kind of visit there once a day because you've got the end of day data and everything else. It does have a good point.
Phil Newton: Yeah. I mean, gets ... Yeah, but get something that has the tool set and the functionality. And that's the word I was looking for. That's why I was skirting around the issue. But use something that has the functionality that you need. I mean if the free tool does the job for you, then that's great. But make sure you utilize it is really what we're saying. And I suppose other examples might be to satisfy ego or to look good to others there. I don't know that ... I suppose the public ... I suppose looking back on what would have been the perfect trade rather than saying ... I suppose it's kind of linked to parlor tricks. They want to look good. You want to kind of be the best. But you'll state after the fact what you've done, versus stating what you're doing in real time. And that's just a lack of confidence. Again, just satisfy your ego or to look good, or something else.
But yeah it's ... You don't need to fight left handed. And I'm not saying it to left handed people. Your non-dominant hand I might suggest. You know, use the tools you've got available. Give yourself the best opportunity with what you have I think is what we're saying.
Sean Donahoe: Yeah. I was actually going to throw a different one there is, again is kind of back to the emotions type of things is, okay you can show off. You can flourish, you can do all that, but you know what? I'm going to compare this something like bringing a knife to a gunfight. You can wave your sword around and everything else, and again you know I've got a background in martial arts and everything else.
Phil Newton: I suppose we could draw parallels to martial arts as well. We had the same thought there didn't we? You could draw the parallel to martial arts. Until you've mastered the basics, none of the advanced stuff matters.
Sean Donahoe: Absolutely.
Phil Newton: And when you've become a master at something, you only need the basics. You know that's it. You don't need to complicate it.
Sean Donahoe: Absolutely. The other thing I would also throw in there is we've all seen this in the movies where there's this big kind of threat, and the hero is now at the end of a gun or something like that. There's like freaking 20 minute monologue before he tries to pull the trigger. I'm going to compare that to John Wick. If you ever see that movie, great movie, I love that movie, where the entire protagonist, the one he's been after the entire movie, starts trying to talk and he just walks up to him and doesn't even say a word, and just shoots. Just boom. Done. That's it. Target down. That's what you want to be like in the markets.
There's no monologue. There's no witty banter back and forth. No he just walks up, pulls the trigger, walks away, and that's it. Done. And he's moved on.
Phil Newton: Can we not reference an 80's movie?
Sean Donahoe: Go ahead.
Phil Newton: Crying out loud.
Sean Donahoe: Oh perfectly
Phil Newton: Yeah, perfect example with the guy with the giant curved sword.
Sean Donahoe: He's got the scimitars.
Phil Newton: Swish swish swish, and yeah he's doing the swish, swish, swish, and, "Look how great I am." And he's got all the flourishes. And then Indiana just pulls the gun out and shoots him. You know that's the objective is to kill the other person in this example. Use the tools you've got available. I think that's what it comes down to.
Sean Donahoe: Absolutely. Great great great reference. We're thrown back into the 80's. So there you go.
Phil Newton: Yeah. Bring it back to the 80's. So even more important, let's bring it back to the Princess Bride. So what ... Where are we in the movie? We've got the man in black has bested the Inigo Montoya. And he's not catching up to Fezzik. Andre the Giant if you ... Is how he was know in the real world. And he's literally a Goliath in real life. How tall was he? Like seven foot tall?
Sean Donahoe: Oh he was over seven foot. Seven two.
Phil Newton: Ridiculously huge. Ridiculously huge. He'd fit your head in literally his hand squeeze it like a lemon with one hand.
Sean Donahoe: Yeah.
Phil Newton: Anyway, he's literally Goliath in real life, and he basically is challenging the man in black to a fair fight. As he says, "Skill versus skill," which I think ironic because it's completely mismatched no matter which way you look at it. But the man in black asks, "Do you mean that you should put down your rock," because he's holding a rock at the time, "And I'll put down my sword, and we kill each other like civilized people?"
Sean Donahoe: Well actually one of my -
Phil Newton: I can't say this without laughing. "Should we kill each other like civilized people?"
Sean Donahoe: Great line. A great line. Now here's the thing, this is where we turn this back to the trading side of things. As a trader, you have nothing to prove to anyone else. There is quite literally no one to beat but yourself. You're only kind of measuring stick should be your past performance. Not anyone else's performance. Not what anyone else is bragging about with their gains bro. Or, "Tell me about your gains bro." The only person you should be worried about is yourself. There's nothing else going on.
Phil Newton: It's a solo occupation. It's a very ... Ironically it's a very lonely occupation. Especially these days now it's all done electronically. Sort of the transition that I had was the late 90's. We on the phone with our broker, weren't we Sean when you started out? But trying to compare yourself to other traders, I think that's what it is. So this mismatch that ... What's his name? Fezzik, Andre the Giant, a seven foot tall giant of a man versus the man in the black, and for all intents and purposes he's just an everyday ... He's very skilled but he's a very everyday, normal sort of guy. So by comparison it's a David and the Goliath type of situation. And I think the new trader falls into the trap of trying to compare themselves to other traders.
They're the normal guy comparing themselves against Goliath, and the perhaps more successful trader. And you've got to ask yourself, "Why is the other person more successful?" It's not because they're more skilled. It might just be that they've been doing it a little bit longer. I regularly tell our students when they've gone through our program that, "You don't know anything different I know. I mean sure, I'm a little bit more polished and a little bit more honed with it, but that's just the benefit of 20 years experience." That's the only difference between someone who's successful and not successful. It's just having that systematic approach to their trading. So the new trader can have the same opportunity as the guy who's been at it for 20 years when you've got the same knowledge set or skill set. The only difference is the experience with that skill set.
So you're always trying to compare yourself to someone else. Instead of trying to think ... Be jealous or envious, or you're creating stress and anxiety because you don't think you're better or as good as the next person, and as Sean would say, you need to be just comparing yourself to where you were last week. Or have you improved? If the answer's no, then what can you do to improve yourself? You know keep a track of your records, keep a track of your trading, monitor the strategy, the theoretical versus your actual deployment of the strategy. This is how you can measure your success as a trader, against yourself as a trader. And this is what ... And to bring it back to the business world, we consistently say this is ... This is what businesses in the real world do. "How was our year on year performance? Week on week performance? Month on month performance?" You know, "This week same time last month, last quarter, last year, are we doing better than we did this time at a set point in history?"
You know, we can do that as a trader. So rather than compare yourself against the next trader, because you don't know their strategy, their experience, their knowledge, what are they doing, how are they trading. You don't know any of that. But yet people still try and compare themselves to that other person. Does that make sense, Sean?
Sean Donahoe: No absolutely. Absolutely. No it's ... Like you said, it's a solo game where you're just trying to increase your scores, level up and develop new skills And everything else. Which just takes you that much further until you become the one everyone measures against. I mean a lot of people start off trying to think, "Oh well I could be the next Warren Buffet," or the one that gets me is when ... This is something that happened to me many many many years ago. I was ... I did really well on a trade, and it wasn't ... I think it was actually ... I want to say it was a Citibank trade I think it was. And I was talking to someone who did the same trade as me. Saw the same opportunity, did the same trade, and made about 10% more on the trade. And I'm thinking ... And then I'm going back ... Now I already had a really successful trade done. And I'm thinking, "Well I did really well, but they did 10% on me. What did I do wrong? Where did I go wrong with my trade where they went right?"
And then I'm suddenly thinking, "No hold on. That was really successful position. I did really well on that trade, and it was a very nice return. Why am I stuck wondering where that extra 10% could have come from? Doesn't matter." Completely different mindset, lot of things, entry points, or anything else. It was the same trade, in other words we saw the same opportunity, but now I'm suddenly measuring mine -
Phil Newton: You just managed it differently.
Sean Donahoe: Yeah.
Phil Newton: Yeah.
Sean Donahoe: I'm looking at mine thinking, "Shit where did I screw that up?" I didn't screw it up. It was a slap in the face when I'm questioning my ... The voice inside my head that's stopping me.
Phil Newton: Sanity by the sounds of it. Yeah.
Sean Donahoe: Exactly. And I'm thinking, "Jesus. Hold on, why should I measure against that?" The initial reaction I had to kind of logic my way out of because suddenly I'm measuring against someone else. I hate to say it, it's like two guys talking about how big they are in certain anatomical ways.
Phil Newton: Comparing themselves at the urinals you mean?
Sean Donahoe: Indeed. Indeed. It doesn't matter.
Phil Newton: It doesn't make any difference. Can't change it.
Sean Donahoe: I hate to say -
Phil Newton:
Sean Donahoe: We're not going to go there.
Phil Newton: Let's not go there. Too late. We've already been there. But yeah, no I know exactly what you mean. It changes your perspective of the success that you had, and you're probably like really, "Another successful one in the bank," but then someone else tells you about, "Hey I was on that as well. I did this." And then suddenly, what you did is undervalued instead of having a successful outcome and being confident and excited about it. Now it's like, "Hold on. Now this is a bad trade." And your perspective of it has changed. And as you rightly said, just because someone else is doing something similar, in this case trading, it doesn't mean that they're any better or any worse than you, than just doing something slightly different. So I think what we kind of need to underscore is stop finding giants fight, and just trade and don't worry about other people because the only measure of success is against yourself and no one else matters. No one else matters.
Sean Donahoe: Absolutely. So now we got to move on a little bit because we have got so much we can cover.
Phil Newton: And now the giant has now been bested. The giant has been bested.
Sean Donahoe: There you go indeed. So what are we ... We're going to look now at the Sicilian battle of wits. Now this is where the man in black wits with Vizzini and has to guess which wine goblet the poison was placed in and both of them drink to the death. Now I love ... This is my favorite scene in this.
Phil Newton: I've got to interject. I'd love to be able to reenact it but there is some wonderful monologue by Vizzini in this. And if you've not seen the film, or if you have seen it, go back and watch it just for this scene because there is some ... There is just some great both monologue and dialogue actually. But there's just some great witty banter between the man in black and Vizzini. Which we just kind of just reminiscing on the memory because I watched the movie yesterday. But it is a pretty good movie.
Sean Donahoe: Actually I watched this scene again this morning just before we started because it's one of my favorite scenes. But I'm going to put the YouTube video up on the website for the fun of it. But anyway, laughing they're going back and forth.
Phil Newton: So we've got two goblets in front ... So are you the man in black, or Vizzini this time? You can be Vizzini, I'll be the man in black.
Sean Donahoe: There you go. Okay.
Phil Newton: So two goblets in front of us. "Pick a goblet."
Sean Donahoe: Absolutely. And then I'm going to back -
Phil Newton: Drink.
Sean Donahoe: "If I was thinking about you, when you were doing this, and then I was doing this, and you would think I would do this." It's the known unknowns, the unknown knowns.
Phil Newton: It's not for conversation. It's a good banter.
Sean Donahoe: It is. Back and forth until we both pick up our goblets and take a drink.
Phil Newton: And we drink. Gulp.
Sean Donahoe: And then I drop dead. Okay so but what is the ... Because I screwed it up.
Phil Newton: No but it's ... But here we go. It's Vizzini though laughing hard. He's like, "Ha ha ha." Bang. In that Sicilian way. "You guessed wrong. You guessed wrong." But the man in black confidently states, "You only think I'm wrong. I switched the goblets when your back was turned." Sorry. No no Vizzini. But Vizzini switched the goblets when his back was turned. But what we find out later on is that both the goblets had poison in them, and Vizzini didn't have the immunity built up to what essentially was a bad trade.
Sean Donahoe: Indeed. Indeed. And yeah -
Phil Newton: So the man in black did. Sorry just to kind of underscore. I kind of got a little bit excited and jumped ahead a mile at storytelling. Essentially what's gone on here is the man in black has built up a resistance to poison. So what he's done is in his game of wits, he's stacked the odds in his favor by poisoning, in this case, both the goblets because he's got the advantage of having built up an immunity, or not necessarily an immunity -
Sean Donahoe: A tolerance.
Phil Newton: But a resistance ... A tolerance. Yes. And you know we regularly talk about this, of stacking the odds in your favor. That is essentially what a strategy is. Trying to give yourself an edge. The opportunity to succeed above others. You don't have a consistently performing strategy. And every tactic that we use ... We talked about this in previous where we have this conveyor belt of tactic, tactic, tactic. And then we go to the next tactic, when we've got a confirmation from the previous tactic, and that's string, that conveyor belt of tactics develops the strategy that confirms our opportunity or signal. Again we've talked about it in ... I think we talked about that last week's show actually.
But it's stacking the odds in your favor every turn, every juncture, we're looking for, "Okay well with this assessment what's the edge, what's the opportunity. And with this edge what's the opportunity?" How can we continually stack the odds in your favor. And very simply, stop doing what everyone else does which is trying to guess which goblet the poison is in. Or in the trader's sense, basically stop doing what everyone else is doing and make our own luck. Make your own success and stack the odds in your favor. Let's be fair Sean. What are your thoughts on that? Stacking the odds?
Sean Donahoe: I think that's exactly right. I mean, you know I'm all about tactical advantages and if you can create -
Phil Newton: That's such a fancy way of saying it. I might swipe that from you.
Sean Donahoe: I always look and say, "Okay why would I be in this particular trade if it doesn't give me high probability of success? Why take the risk? Why throw your money into a market where you aren't giving yourself a strategic advantage or a higher probability of success?"
Phil Newton: And this is what we're seeing in crypto in the moment. I'm only mentioning it because it's still topical. But this is what we're seeing at the moment with crypto currencies. Everyone's talking about it's the next best thing since sliced breads. And my stance is that I don't think I yet have a tactical advantage to get involved in it. Now that doesn't mean I can't or won't make money with it, I just ... I just think there's better opportunities elsewhere. So that's what we mean. Give yourself the ... Just because everyone else is doing something doesn't mean that you should be doing it.
Sean Donahoe: Absolutely. And you know it's always ... I mean there's many analogies I could use and everything else, but I want to basically take the ones that are going to be most successful to me as a business. In business, if you're presented with a whole wide range of opportunities, you tend to discount the ones that have the highest risk for the ones that ... Or let's just say the ones that have the highest probability of success are the ones that are going to most appeal to me regardless of the risk and everything else. Maybe the high risk ones going to have high rewards. That's fine. That's great. And I might take a speculative position on that. But we are looking at the markets. We don't want to throw our money away. We want to manage our risk and manage our gains. So why not have the ability to stack the odds in your favor, take full advantage of the tools at your disposal, bring a gun to a knife fight, and boom. Execute the target. That's really what it comes down to.
Phil Newton: Yeah. Exactly. And this is why we can confidently say that 65% of the time we make money because we've got a systematic approach to deploy all of what we just talked about. Yeah. So yeah. I like it.
Sean Donahoe: Absolutely.
Phil Newton: So where we're at now is the Sicilian's been bested. For all intents and purposes he's just poisoned himself. The battle of wits wasn't as witty as he thought. And the princess is now being rescued. The man in black is basically navigating through the fire swamp, and he's basically ... What we now know is the man in black is Wesley. And it's her long lost ... Or their long lost love from the beginning of the movie. And basically he's telling the princess of how he disappeared because what we know is that the Dread Pirate Roberts basically kidnapped him and he leaves no one alive. So we just thought that he'd been killed. So he's now telling the princess the story of how he became the Dread Pirate Roberts who we know is Wesley, which is the princess's true love.
So Wesley ... Basically when he was captured by the previous Dread Pirate Roberts, asked for his life to be spared. And to cut what's turning out to be a long story short, the Dread Pirate Roberts agreed and spared his life. And for three long years, while he was basically a slave to the Dread Pirate Roberts, for three long years the old Dread Pirate Roberts said to Wesley, "Good night. Sleep well. I'll kill you in the morning." You know I think this film doesn't get the credit it actually deserves. It's already a good film. I think there's some great one liners. But the lesson I'm ... You know every time I put a trade on, I'm sure that my trade say this to me. I don't know about you Sean, but it's, "Good night. Sleep well. I'm going to kill you in the morning." We just don't know what's going to happen next.
Sean Donahoe: That's a very interesting point.
Phil Newton: But this is the experience that every new trader has and feels. You know when they move maybe from a demo account, or paper trading, to a live account, suddenly the emotions get engaged. And every trade feels like it's trying to kill you. But I mean, to be fair Sean, what are your experiences with that? You know when ... If you can think back that long, when you went from kind of like having this as an interest and you've had that, "Okay I've got enough confidence and knowledge to go ... Let's put some money on this. I need to get involved." Did you feel like that trade was trying to kill you? That first trade you placed?
Sean Donahoe: You know that's a very good point. And yeah absolutely. The transition ... Now that's going back a little bit. But yeah, I remember going from that to
Phil Newton: I remember my first trade really, yeah.
Sean Donahoe: It's ... The problem was I know a lot of the ... And I made a mistake that a lot of traders make, is my first positions were too big.
Phil Newton: They're not mistakes they're lessons.
Sean Donahoe: They're lessons. They're lessons. But the lessons they're painful lessons. But again it's the ability to sleep at night and everything else because you've got that fear of loss. My position was too big. I mean my early positions I was trading too large. Same mistake a lot of traders make in the beginning.
Phil Newton: We've all done it.
Sean Donahoe: And we've all done it. But the thing was that even as I started getting used to that and I became immune to that fear so to speak, and I started realizing that I'm too emotionally attached trading smaller positions and everything else, occasionally there'd be trades where again, I would rate ... Because of the probability factors or stacking the odds and everything we've talked about here, that I would take those larger positions because of my confidence. But then I would be that trade was trying to kill me because I know that I was stepping outside of the comfort zone of where I was. And now I'm again risking real money so again that kind of emotion starts creeping in. But you become, and you can, train yourself -
Phil Newton: Get conditioned.
Sean Donahoe: To become immune to that. But if you're again, trading positions, and you've got a good strategy. You're trading smaller positions so you're not too emotionally invested or you've got too much risk on the table. But again, that emotional stress can abate. I hope it won't take three years for you guys. For everyone else. It didn't for any of our students or us.
Phil Newton: No I think most of our experience ... I think most of our early experience ... And to be fair, every trade seems like it's trying to kill to this day. You just get conditioned for it. I don't think that ever goes away. I just think the tolerance for it gets greater and greater. You know like when you first start running. If you try to run a mile, it's going to feel like it's killing. But eventually after a month of running a mile you're going to get ... You build up a tolerance for that distance. And I think it's the same with trading. You build up a tolerance for it. It doesn't go away. But every trade does feel like it's trying to kill you at first. You know all you need to do to get through that I think, well I believe, I know is to reduce your position size and keep it small and manageable, and tolerable. And ironically, we've said it many times, but placing multiple positions actually takes a lot of the stress away because now you're not worried about one trade, you're more focused on managing a portfolio.
Again, just like a business you've not got one product you're trying to sell. You've got multiple products, multiple colors, multiple styles, multiple streams of income. You know they're not focused on ... You've used the shoe shop example that I always use. You're not focused on trying to get the ankle boot size nine, color black. That's not the only product that you have, and you've only got one pair of them to sell. You've got lots of variety, lots of colors, all on the shelves. You got multiple ways to earn an income and keep the business running. And same with trading. If you've got multiple accounts, multiple positions, then you're going to be less focused on the one trade that feels like it's trying to kill you versus the portfolio you're more focused on ... To go to the Naval example, you're more focused on captaining the ship rather than being in the engine room stoking the fire with coal.
Sean Donahoe: Absolutely.
Phil Newton: That's what you're more focused. So reduce the paranoia, reduce your position size.
Sean Donahoe: Love that.
Phil Newton: And truly there's no one in the shadows trying to kill you.
Sean Donahoe: Now what's the next part because I know one thing that you highlight there, and I thought was really good, is -
Phil Newton: It's just the statements. Yeah, it got to me on many levels actually. There is ... Okay. So let's fast forward through the film slightly now. The king of the realm who has been chasing the princess also all along has caught up with the man in the black who we now know is the Dread Pirate Roberts, who we now know is Wesley and is caught up with them and the princess. And essentially there's a stand off. And it looks like Wesley is about to be slaughtered. But the princess decides to step in saying, "I will come with you," to the king, "If you will spare Wesley's life." And basically they come to an agreement where Wesely's going to go ... Who's the Dread Pirate Roberts. He's going to go back to his ship, and they're going to basically let him go, and the condition is is that the princess will go with the king and marry him.
Basically she's sacrificing herself for true love. That's the scene. That's the stage. So princess goes off. King goes off. And the evil henchmen ... The evil henchman was it ... We don't know his name do we? He was just known as the six fingered man I think.
Sean Donahoe: Yeah.
Phil Newton: Anyway, the evil henchman basically looks at the man in black, the man in black looks at the six fingered man and says, "We're men of action. Lies don't become us." And it was just a phrase that kind of spoke to me on many levels. You know we can take this in a lot of different ways. But you know essentially that the king lied to the princess to say that he's going to spare the man in black, or Wesley. Everyone else knew other than the princess that it was a load of BS. So he says, "Look. We're men of action. Lies do become us." And I think it's just be true to yourself. Don't like to yourself and let's be fair, just generally in life don't lie to others, don't lie to yourself, and just be a man of action. You know actions do speak louder than words. And there's no need to ... I don't know, just say that you do things or don't do things.
Again this is more like philosophical view rather than anything trading related. I just felt that it spoke to me on many many different levels. "We're men of action. Lies don't become us." Yeah, just actions speak louder than words. You know I'd rather be doing something than saying that I'm going to do something. So you know if I say I'm going to do something, but really have no intention of doing it, I'm only lying to myself. So you know, action's going to speak louder than the lies that I'm telling myself. I'd rather be doing something and take an action moving forward and being involved than saying, "Yeah. I'll do that tomorrow." It's just a lie. You know do it no or not at all. Lots of different ways to take this.
Sean Donahoe: Yeah, lots of different ways and I think self-deception is something we've talked about a few shows ago. Long time ago when we had an entire show dedicated to the lies that we tell ourselves in trading. The self-deception I think is more accurate about what we're doing as a trader. We tend to tout our wins and not our losses even to ourselves.
Phil Newton: I think when you're paper trading ... Yeah. I think when you're paper trading it's easy to do that. Just to cite the bitcoin crypto thing revolution again, "Oh yeah, I would have got in here." And that's the lie that you can say. So whether you're paper trading and looking back, of course you would've got in here. Of course you would've traded that then. Of course you would've done that. Because in a perfect world you would have done that. You're just telling lies to yourself. What did you do in real time? As we said earlier, on the hard right edge of the charts what did you do? Nothing. Okay well, don't like to yourself. You know take action or don't take action, but certainly don't bullshit anyone about it.
Sean Donahoe: Absolutely. There you go. So now the next one, praying doesn't help at all. Now let's set the stage here. Inigo Montoya is desperate to find the man in black and resorts to praying to his dead father to help guide his sword to where the man in black is hidden. And just to remind you, this is a fantasy story and such things happen in fantasy land -
Phil Newton: Such things like praying do happen in fantasy.
Sean Donahoe: Indeed. But we all know that praying or hoping will work out does not work. You can create your sacrificial altar to the gods of the DOW, and the New York Stock Exchange. It won't help you.
Phil Newton: Insert the deity of your choice. Yeah.
Sean Donahoe: Indeed. It won't help one bloody bit. The market's going to do what they're going to do and you know I'm not ... Again, having faith or belief is nothing we're against here absolutely. But let's just assume that you're trades are going to do what they're going to do regardless of how many goats you may sacrifice or how many virgins you have on your altar. Whatever you're doing -
Phil Newton: Or crocodile god's
Sean Donahoe: Yeah that's it. Yeah. Whatever you're doing. Terry Pratchett reference by the way guys. But there is a lot of different things that you might want to do but it ain't going to affect your trade.
Phil Newton: Hoping doesn't help. Yeah. Hoping doesn't help.
Sean Donahoe: That's really -
Phil Newton: I think ... Just to go back to the movie, it's a wonderful scene though because there's some mystical ... You got a nice close up of the sword that he's got as well which is quite magnificent in itself, just to be a little bit of a buff about the movie for a moment. But yeah, he's basically looking for the man in black, and he's just on his knees praying and hoping that he can find the man in black. And I don't know about you, but I've had one or two occasions in my life from a trading point of view where I've been on my knees praying for the trade to turn around. And the reality is is that hoping for an outcome doesn't give me the outcome that I want.
And the reality in ... The one that I'm thinking about, I actually ended up blowing about 50% of my account. And it was through stupidity. And it was in two trades. And they just went wrong and stop losses at the time ... I wasn't trading options at the time. But stop losses weren't in place and my account just got destroyed very very quickly. And emotionally that's quite ... As you can imagine Sean, that's quite grating. But I do remember saying, "Please pleas please. Help me fix it." And for an hour I was just like a rabbit in the headlights. It didn't help me one little bit because ... I did resort to ... Not necessarily praying, but certainly I was hoping a hell of a lot that things would change.
Sean Donahoe: Yeah man. You know there's been a few trades where I'm suddenly looking at the screen and trying to will the use of the force -
Phil Newton: Use the force.
Sean Donahoe: Waving my hand, just kind of clenching my muscles and just kind of willing this trade to go the other way. No it doesn't work. I've tried.
Phil Newton: What did help ... What did help was actually going and pushing a few buttons and one I got past the emotional shock of the situation, and it was ... I wouldn't say it was easy but I made a decision and the decision was to take certain actions. And ultimately I had to cut the loss. You know it's just another way of dealing with. Just cut it out and move on. But praying certainly does not help. Taking action as always. I suppose this is a good example of lies do not become us. We are men of action, take action. Lies don't become us. So you know by hoping for an outcome, I'm just lying to myself. I'm just deceiving myself that something else will happen proving more favorable. But you know taking action is always going to to give you results whereas hoping for results is never going to give you results.
Sean Donahoe: Absolutely. Absolutely. So okay. Now moving on from that. What's the next part?
Phil Newton: We could probably know that about this film all day long. But what we're going to do next is we're going to kind jump ahead into the heart of them because all we want really is what trading lessons can we learn from the Princess Bride? But essentially what happens is that Wesley aka the man in black aka The Dread Pirate Roberts has been captured as we know from our previous discussion. But he's now being killed by the king. And on discovering that Wesley aka the man in black aka The Dread Pirate Roberts, has been killed the Inigo Montoya and is it ... I can't remember. I can't remember his name now. The ... Andre the Giant. I've always known as Andre the Giant. Fezzik?
Sean Donahoe: Fezzik. Yeah.
Phil Newton: Fezzik. Yeah, so they've kind of met up again and they need his help because they've discovered, or Inigo Montoya has discovered where the six fingered man is, his nemesis of 20 years. And he needs help. And he decides that he needs The Dread Pirate Roberts' help. The man in black. But they've discovered that he's dead. And they found him. So what they need is they need a miracle. So because it's a good fantasy book and film, they decide to go and buy from Miracle Max who is the purveyor of miracles. So Miracle Max informs them after checking them out and investigating them, and a bit of negotiation over the price of such a miracle. But Miracle Max informs them that he's not dead. He's only mostly dead.
Sean Donahoe: Which means he's a little bit alive. Yeah.
Phil Newton: Which mean's he's a little bit alive as Miracle Max said. Now what you can gather, I absolutely love this movie and I've said it a few times now, but there's so many lessons that we can draw not just from trading but just from life in general. Now we can always draw a comparison somewhere. But this is one that will keep you in business for a long time. And it's to make sure that if or when something bad happens, that you only become mostly dead. Well, what I mean ... Not physically but you know, in your trading account, you know what I meant Sean. In your trading accounts you don't want to make sure that you're ever truly dead. You want to make sure that you're only mostly dead. Now I actually touched on this just a few moments ago where I described that I'd blown up half my accounts. I didn't blow up my accounts, and I've done this twice over the years.
Thankfully I've got more systems in place to prevent that from every happening, but it's a horrible experience when you kind of wake up and a large chunk of your account is missing. And to be fair it was literally user error. Had nothing to do with the ... Literally was just pressing the wrong buttons. But we live and learn. So the point is is don't blow your accounts up with one or two large positions, or if you have errors make sure you've got a good system in place to protect and preserve accounts. We want to trade small and frequently which is what we advocate, and one of the things that I advocate. This is one of the lessons I learned a long long time ago now. So that if something bad does happen, you've still got ... The business can still open.
As I said before I've had it happen twice where I've blown up my accounts. And thank fully, I've been set up in such a way that my accounts has only been mostly dead and it's never been truly dead because truly dead means that you've got zero cash. You're not in business. The doors are closed. The shop's burnt down. We are truly dead. We can't do anything about it. But if you're only mostly dead, then you can do something about it. So what I'm trying to kind of get to is just make sure that you don't bet the farm. You know, as I said earlier, when I got over the shock of losing a good portion of my accounts, and again it's happened twice through user error, stupidity, call it what you want. But I've survived by being mostly dead and I've got the ability to be up and running and still in business when the shop wears off.
And you know, you don't need a Miracle Max. Don't bet the farm. You don't need a miracle. And you know being mostly dead is actually slightly alive. So you can always be in business tomorrow. I think I said this to you when we first met Sean. You know my objective with trading, the overarching principle of what I do is to be in business tomorrow.
Sean Donahoe: Absolutely. That very much resonated with me back in the day. And you know as because it was very much like what I was doing. And it is. We want to be in business tomorrow, next week, next month.
Phil Newton: With anything. I think with anything yeah. I mean we're just in the trading equivalents of making sure that we've got, I suppose from a business point, we've got regular cash flow, our overheads are not too bad. The revenues are creating profits and we've got a good operating business. You know that's what we want. And if something bad happens, the worst case scenario happens, we're not truly dead. We're only mostly dead because if we're only mostly dead then we're slightly alive.
Sean Donahoe: Absolutely. And it gives you the ability to bounce back which is the main thing from the movie. And I think every trade Every trader goes there at some stage. They have one moment where they're like, "Oh crap." Everything's going against them and everything else, and they're like -
Phil Newton: Sean, do you want me to tell you something that shocks you? I mean I've been coaching people for ... This'll be my 18th year coaching people. I've been trading about 22 ... This is my 23rd year. And so I've been coaching for quite a ... The conversations that I've had with thousands of traders over the years is that usually novice traders who try to figure it out on their own, they've usually blown three trading accounts on average. Some of them have done it a lot more. Some of them have done it a few less. But usually two to three times is usually what people tell me. "How many accounts have you blown up?" "This'll be my ..." And often you tend to speak to people shortly after they've blown up another account. And then they realize that, "Hey maybe I need to get a coach. Maybe I need to get a mentor."
And usually after some horrible event like they've blown another account up. Not just they've blown up, but they've blown another account up. And they need to go and get some help and do something about it. And it's shocking that the amount of times it happens just because you think you know better, but learning it the hard way is ... Well it's called the hard way for a reason. You know, get some help.
Sean Donahoe: Abso-damn-lutely. No, we've all been there. And again, a lot of it is because they don't have the right strategy upfront or they're trying to learn themselves, or they've got strategy that -
Phil Newton: And there's nothing wrong with that. But just understand it's the hard way. And it's called the hard way for a reason.
Sean Donahoe: Abso-damn-lutely. Now with that being said, we're going to switch over here and we're going to go back to Fezzik a little bit, aka Andre the Giant as he's shouting at all the guards to run away. We've got him bellowing at the top of his lungs, and we have -
Phil Newton: So we're nearer the end of the film now. We're hunting down the six fingered man. Miracle Max has performed said miracle, and Fezzik ... Fezzik's being dressed up in an even bigger version giant.
Sean Donahoe: Absolutely terrifying presence. And this is where all ... As I said, all the guards run away in fear from his bellowing and his just pure presence. And this is just like when you put on a trade and it goes against you immediately. Now we've all been there and in fear you close the position, or in extreme fear doubt yourself and flip it the other way. Go long, then short, then long, then short. Brokers love that by the way because every time you trade
Phil Newton: Want me to tell you a secret Sean?
Sean Donahoe: Yeah, go ahead.
Phil Newton: Shall I tell you a secret?
Sean Donahoe: Tell me a secret. Tell me a story.
Phil Newton: Most of my positions, initially go against me.
Sean Donahoe: Shock. Shock and awe.
Phil Newton: And I don't make money every time immediately.
Sean Donahoe: No no. You know it's ... We're not ... Yeah. Yeah. It happens. It happens more times than most people will admit.
Phil Newton: Most of them don't. But yeah that's a thing they omit. I'm not ashamed to admit it. But then on average, 65% of the time we make money. But no one makes money every time immediately. I think that's the thing where they're ... I mean some of them do. And some of them do the exact opposite as well. They go the other way. But here's the thing. You know, we shouldn't be scared off by as you just said there Sean, we shouldn't be scared off from the trade. You know what happened Fezzik aka Andre the Giant, he was shouting and he was causing mayhem and bedlam, and he was one man storming the castle on a back of a wheelbarrow. And 60 men just ran the other way because they were scared. They go the fear in them. That's what's happening with the position.
You know you put the trade on. It doesn't make a profit immediately, that puts the fear of God in you, or it can do. Especially with new traders because you think, "Bugger. What have I done wrong." And it might not be that you've done anything wrong. It's just that ... Hey, it's just at that particular moment not going the right way. It's maybe your viewpoint's wrong. So what can we do to actually combat that? You know we can ... You know one of the ways to not worry about if you're wrong and how wrong you might be is to trade with stock options. I really am a convert of my own methodology in that the risk involved is factored into the price that we pay for the option. So it's limited risk, and there's not stock loss needed.
Whereas if you were trading more traditionally, you might get stock doubts if you were initially wrong on the direction and then that creates the doubt, and the fear, and there's the stress of you should have put another trade on, and all that self doubt and emotional worry and anxiety. You know we can get rid of it by managing the risk in a very sensible, very smart way by using a different trading method. Stock options. That's the first thing that I would suggest. Reduce your position sizes, another one that's always going to be my first port of call with anyone who's got any type of issue with trading. Reduce your position size, and then trade more frequently so that you're not scared by the one position that's trying to kill as we keep saying. You can trade more frequently, more occurrences and then you're not worried about one trade that is literally causing you a lot of grief and anxiety because you're focused on, again captaining the ship and navigating the portfolio versus trying to keep the engine running and stoking the coal in the engine room.
You don't need to do that. So reduce and the impact of the fear and basically creates certainty by reducing your risk, and then you don't have to worry about The Dread Pirate Roberts coming for your soul. Trying to kill you.
Sean Donahoe: Yeah. The Dread Pirate Roberts.
Phil Newton: Just getting to me what he was saying. "The Dread Pirate Roberts is here for your soul."
Sean Donahoe: I forgot about that. That's absolutely classic. I love that. So as Phil said, the simple solution is reduce the risk, the elements that will cause you fear. Either your position size, use a strategy and stick to the strategy, and stand firm, don't run away like a little girl. So we've seen that happen too.
Phil Newton: That's what they all did in the movie. That's what they did in the movie. I've seen many occurrences. Well let's not sidebar on the already long sidebar.
Sean Donahoe: Absolutely.
Phil Newton: So Sean, I want to ... I of course want to do something special for you Sean. Because where would we be without you being the captain of this podcast ship, being able to finish how we started because I know you've been itching to say this.
Sean Donahoe: Absolutely.
Phil Newton: I've kind of got to ... Have a sip of water. Clear your throat. Because to be fair, where we would be without talking about one of the most iconic movies from the 80's. And my personal , and even to this day it's still an iconic film for a new generation of people. But where would we be without one of the most famous scenes in the movie, as well as the internet, finishing on a high note as it were. So I will hand it over to you Sean. What is the most famous of lines from the Princess Bride?
Sean Donahoe: "My name Inigo Montoya. You killed my father. Prepare to die." Love that freaking line.
Phil Newton: Perfect. Perfect.
Sean Donahoe: Love that line. I actually have it on a T-shirt that I'm wearing right now because that is my favorite line in the movie, and I think it's everyone's favorite line. But yeah.
Phil Newton: It's just ... It's a wonderful line by a brilliant actor. So Inigo who spent 20 years plotting revenge, he finally meets the six fingered man who killed, as Sean just said, who killed his father. One more time Sean? Just for -
Sean Donahoe: No it's okay. I will stop the suffering of everyone trying to listen to my poor attempts at accents. But yes.
Phil Newton: But yeah, so basically he finds the six fingered man ultimately. And the phrase that he's said many times through movie he manages to say to the six fingered man. Simple lesson here. You can turn very very bitter and make some very bad trading decisions, as well as life decisions, when you're trading for revenge. I'm sure you've heard people say this, or this described. You know if you've stopped out or you've had a bad trade, or as we've just you put the trade on it goes the wrong straightaway or you stock gets pinged and then price turns around and goes the other way. It does what you thought it was going to do. It gets the emotions flowing. It makes the blood boil. It makes you react emotionally where you should be trying to be logical. It's nothing personal. It just is.
So that revenge ... What do you think Sean? Revenge trading?
Sean Donahoe: Oh absolutely. I mean one that we talked about on a previous show, which I haven't mentioned for a while, was Electronic Arts. Electronic Arts. Every time I have an opportunity to short that stock -
Phil Newton: I can tell it in your voice. Yeah.
Sean Donahoe: Yeah. That's one ... That was my revenge trade is every time I have an opportunity to short it, I will. But then I also try and avoid that particular one because again I've got a personal thing going on there actually with Electronic Arts. But I will try and find it.
Phil Newton: Yeah. You're looking for a reason to show us.
Sean Donahoe: Yeah. I will try and find a reason to say, "Eh, know what? Screw these guys. I'm going to short it." Not that my position really makes any major difference on their portfolio but -
Phil Newton: You just give them the broker's commissions.
Sean Donahoe: Exactly. And you know it's ridiculous. But it's one I tactically avoid now.
Phil Newton: Sean? Is it inconceivable?
Sean Donahoe: It is truly inconceivable. Absolutely. Dear me. But yeah.
Phil Newton: We can't not do it. Can't not do it. Can't even ... No but yeah. Placing another trade just because you got stopped out, it's no reason to put a trade on. And that's essentially what we're talking about here. It's the revenge trade. "Grr. I've just been stopped out, therefore I'm going to place another trade." Why are you doing that? There's no ... It's immediate response to literally something that happened that literally is nothing personal. You've just been stopped out. There could be a whole host of reasons why that's happened. And this comes back to what we were saying, the fear your trade's trying to kill you. Now the trade is, in this case, killing you. In this case you've just been stopped out. Somethings happened. You've had an emotional reaction to the trade and the situation, and therefore you're going to go and put another trade on. Just for the sake of putting that trade on.
And that does lead to a downward spiral. As your blood boils and it continues to worse and worse and worse, as you put another trade on, and probably there's not justification for that trade. So chances are that that's not going to work out either. And then that causes another trade. And that's probably not going to work out. And maybe ... You see where we're going with this Sean. You know it spirals out of control and your reasons to trade get thinner, and thinner, and thinner, until there's just no ... You're just clicking the button. Click click send. Click click send. Click click send. There's just no reasons for the trade.
Sean Donahoe: It just becomes a point of discipline. It really is. And anyway you just, "Okay. Is it fitting with my strategy? Yes. No. Okay. That's it." Anything else is irrelevant and that tips into discretionary or speculatory and we don't do that.
Phil Newton: Well discretion suggests that you've got some sort of strategy in the first place. This is just an emotional reaction. I mean I think you just said a moment ago, have a plan. Does this trade meet your trade requirement? Your trading plan? Again you need to have a physically written plan of action. You know, trade with ... And trade with small position size. But if you've not got a physically ... To be fair, just question to our adoring and loving listeners, thank you for bearing with us this long on today's show. But do you have a physically written trading plan? Because if you've not, you've not got a business. Simple as that. Every successful business has a business plan. And what we want as traders is a trading plan. If you don't have one then you're going to fall into this trap that Inigo Montoya did. And you're going to spend 20 years revenge trading.
It's a horrible experience. It's nothing personal, just get a physically written trading plan. Follow it to the letter. And have a systematic approach to find, filter and sort stocks and trade with discipline. And that's it. Don't revenge trade.
Sean Donahoe: Well there you go. And that is the end of this monster look at the Princess Bride and how it relates to trading. I think that was a lot of fun.
Phil Newton: Epic. It was epic.
Sean Donahoe: That was an epic. And it was good fun. I mean this thing is you can learn these trading lessons everywhere you look. There's always examples and reminders in life that you can apply to trading and the business of trading, and that's what it is at the end of the day. So as inconceivable as it is, there are lots of opportunities to -
Phil Newton: I don't think it means what you think it means, Sean.
Sean Donahoe: Improve the trading. Oh probably not. But with that being said, let's move on and we'll dive into one more tip with the Rebel Trader tip of the week.
Automated: And now it's time for the Rebel Trader tip of the week brought to you by TradeCanyon.com. Ready to take your trading game to the next level? Discover where smarter traders come to get coached by the best and learning to trade just got way easier. Trade Canyon. Smarter traders live here.
Sean Donahoe: Okay so we kind of touched on this in our main segment here, but one thing that I had with a student today that I was a great point to raise, and kind of highlight and kind of underscore a little bit, is don't be afraid to step out and hold on to a losing position that you cannot change. If you've got a position, and this is talking traditional stock trading where you're actually holding physical stock, or a future's contract, or something like that. CFD, whatever. If it's going against you, and you can't use the force, you can't pray to any deity that you want. It's just going against you, it's a bad ... You realize you've made a bad decision. It's a bad trade -
Phil Newton: And it's actually trying to kill you perchance.
Sean Donahoe: Maybe. Maybe. Yeah. Maybe it's dropped some extra poison in your chalice. Whatever way it is, be ruthless and don't hold on to hope. This is a business. And the student I was talking to this morning had this very same problem. They had a trade that they wanted to stay in because they were hoping, not that they had any strategic belief, not there was anything that made them think, "No actually this is just a temporary thing." It was ... They were hoping and praying, crossing their fingers, crossing their toes, holding onto their any other part of their anatomy, just hoping for the best. And that is not business. That's gambling. And that's one thing that we don't do as rebel traders. This is a business.
If you've made a bad decision, or a bad trade, if you can't change it, roll it, or if ... Like we do, we have positive expectation because of our options positions, or time to be right because we're primarily options traders. You've got to be ruthless. Cut that position. This is a business. You don't want to throw just money away just because it might. Too many times I've seen traders -
Phil Newton: Give you clarity as well because as I suggested earlier with my experience, you're probably not thinking straight as well. So other reasons beyond just hoping that it turns around. Just get rid of it. You're probably not going to think straight. You're not going to make any sort of sensible decisions around it. So to be fair, thinking back to my experience. You know what happened is I'd misplaced my orders. So there was no protected stop loss in place. And the first thing that I did was place ... When I kind of got the senses back, was put a stop lock in place so that I could start to make decisions. And just that act of doing something and putting a stop loss in so that the pain stops here. That's where it stops. And doing that it allowed me some sense of clarity. And the reality is that five minutes later I ended up closing the position anyway.
And that gave me so much more clarity as to how could I now recover my situation and start to form a plan of action. So just from a psychological viewpoint, closing that position ... Don't hold onto it. If you can't make those decisions sensibly and logically, and without discrimination, then get rid of it. Give yourself some peace of mind. That for me is paramount importance. You know being able to make a trading decision is more importance than hoping that a not so great trade turns around.
Sean Donahoe: Absolutely. And a perfect point. Now as I said, with options we don't have that concern because you have time to be right. You have probabilities in place that allow you to walk away. But at the end of the day if you don't have the ability to manage your risk, if you're not managing your losses. I mean you can manage your wins, but if you're not managing your losses you're leaking. It's like a hole in the bottom of your boat. So you got to consider what is your strategy actually saying. What is your trading plan that we just mentioned determining how you manage these positions, and stick to it.
Emotion doesn't come into this. You really will become irrational around your trades if you keep losing and hoping for a turnaround and everything else. It will literally be like a malware in your strategy here because it will start eating away at all of the pieces inside your strategy. You'll start becoming more and more speculative rather than disciplined. And ultimately it's going to lead to long term losses. And that's not a place you want to be. So with atha being said, let's move on.
Automated: If you've got questions, they've got answers. Sean and Phil dive into the virtual mailbag for this week's Rebel Traders quickfire round.
Sean Donahoe: Okay so, in this epic show that this has turned out be we've got a few questions from the audience. And I'm going to fire the first one at you here Phil. "With the markets pushing higher and higher, I keep hearing about a meltup. Rather than a meltdown, or a correction, or anything else, people are talking about a meltup. What the hell does that mean?"
Phil Newton: Well I like mine with a little bit of cheer buttered bread. Maybe lettuce, tomato -
Sean Donahoe: There you go.
Phil Newton: Sometimes I'll have a little bit of tuna and then I'll pop some cheese on it, and then I'll just pop that onto the grill for a nice tuna melt.
Sean Donahoe: There you go.
Phil Newton: Sorry were you talking about something else?
Sean Donahoe: I was trying to talk about something else. But now you're making me hungry and I need some lunch.
Phil Newton: You know what? I think it's ... Firstly I think it's one of those buzzwords. You know another way of saying it is markets don't crash up is how I've kind of heard it in the past. Which is literally stupid word ... Stupid phrase in the first place. Of course it doesn't crash up you idiots. But now I think people are starting to think that the markets are behaving very differently because we're literally are not seeing a downtake in the markets. And we haven't seen one for ... Now we're into the ninth year. #NineYearsStrong. It's just ... The markets only ever seem to go up. And we've covered this a lot in the past. But -
Sean Donahoe: Irrational exuberance is what I'm calling it. Irrational Exuberance.
Phil Newton: Yeah. I mean lots of reasons why. We're not seeing the markets put in any sort of healthy retracements which would be a normal part of cyclical behavior in the markets to put a fancy word around it. But you know we're essentially looking at the markets only going straight up. Again an example that might be commonplace just because it's topical would be cryptocurrencies that ... Bitcoin for example only ever goes up. Or that's what it seems to do because it only gets talked about as it rockets through another $10,000 mark for the day or whatever stupid numbers it's out these days.
That'd be an example of an extreme movement. And that's what this usually refers to. An extreme movements. But it doesn't normally happen on such a regular basis outside of a bubble on a regular basis. That's my viewpoint on it anyway.
Sean Donahoe: That's a fair enough point there. And you know that's exactly what I was talking about with someone this morning funnily enough. Talking about the meltup and it's just ... It's irrational exuberance. Right now there are things that rationally are driving the markets and making people very very happy, and there's lots and lots of different things going on. But at the end of the day, hey it's money in the bag. Just have an awareness, and don't worry about whatever fancy name the news, the market media, or the news media comes up for these different things. Yeah we're looking a lot of optimism. We're looking at a lot of gains. People are throwing money into the markets and having fun with it, and that's absolutely wonderful. Fantastic. Well done. At the end of the day, what's happening in your portfolio is more important.
Phil Newton: Okay. So the next question we have is with regards to ultra low volatility. "Is it possible to actually find profitable trades?" So I think what this question is about is talking about a lot of traders saying that they can't find profitable trades because they're probably trading with options, and they can't find the profitable trade. But they're not sure what that actually means. Are they able to find profitable trades low volatility with options. Can that be done?
Sean Donahoe: Absolutely. Because here's the thing. A lot of the ultra low volatility environment that you've been hearing about is that there are indexes that are fixed. You know, and it's all time lows. It's only a nine. It's been there it's just ... There's no volatility in this market and everything else. And as always, I call BS on that, that you can't find trades.
Phil Newton: But the markets are moving. It's just I think what we need -
Sean Donahoe: Individual items are going to be moving and volatile.
Phil Newton: Yeah. I think what we need to keep in mind is that it's usually volatility ... Think about it like fear's probably the best way. When the markets are fearful, they're usually going down. That creates uncertainty, and fear, and then that will increase implied volatility. The possibility that something worse, or something more could happen. And that possibility ... I like to describe it like Christmas Carol. The ghost of Christmas Future becomes ever increasingly uncertain. So when that happens, when the markets move down, then the uncertainty factor, the fear, the volatility, the implied volatility specifically, gets higher. Now what we're in at the moment, because of this nine year bull market, the markets only ever seem to go up, then the volatility overall is at all time lows.
It doesn't mean that there's no opportunities. It just means that everyone's like in complacency mode. The stock market only ever goes up, and no one thinks anything can go wrong. So the suggestion that something bad will happen next week, it's not really all that ... It's not really on anyone's mind. So that's what we mean by that low volatility environment. It doesn't mean that there are no opportunities. Does that make sense Sean?
Sean Donahoe: No, absolutely. That's exactly it. And if you're looking at ... If you have on universive stocks, we actually have highlighted the ones that we like the most. The 475+ higher opportunity, or I should say high ... These are the ones that we look at every damn day.
Phil Newton: They're just highly liquid stocks there -
Sean Donahoe:
Phil Newton: Ebb and flow, back and forth on a regular basis. You now some of them are going to have Individually, they'll have some of them high implied volatility. The possibility that something worse could happen. And some of them will have low implied volatility. That's the same with the markets. I mean some of them are going up, some of them are going down. That's just the way it is.
Sean Donahoe: Absolutely. And that can make a significant difference across the board is making sure you're looking at the right stocks that give you the best opportunities. It's about 27,000 US equities plus. And more growing every single damn day. But that doesn't mean every single one of them is going to present an opportunity. If you're looking at the DOW as a measure, there's only 30 stocks in that. Okay some blue chips and everything else. Great. There's the SNP 500. That's 500 stocks that make up that, but does that mean every single one of them is great? No, it doesn't. It means they've got some measure of market capital, what have you that the SNP feels is good to add to that list and everything else in that list doesn't change that often with what they consider their 500. But at the end of the day, doesn't mean all of them are optionable. Doesn't mean they have liquidity that we're looking for, or the range of movement that we're looking for.
So -
Phil Newton: Let me But you know most penny stocks don't move that much.
Sean Donahoe: Exactly. So at the end of the day, there's opportunities abound regardless of the volatility. You've just got to hunt in the right areas. You don't hunt in the Sahara Desert for your game. You hunt where there's water, where there's an oasis, where there's a jungle, where there's plentiful opportunity. And that really is the difference between liquidity and not if you think about it. You don't have much liquidity in the desert unless you're trading sand. So that's what we're looking for. So yeah, keep that in mind at the end of the day and don't listen to all the traders who can't find a watering hold. Go find your own and keep quiet about it, and then you rocket on doing good.
So, next question, and last question for this section. "What exactly is a market maker, and what do they do?" So I'm assuming that this person's heard the phrase, market maker. And I know we've talked about market makers briefly in the past. But I'll throw this one at you Phil. What is a market maker? What do they do? Putting up -
Phil Newton: The flippant -
Sean Donahoe: Grocery store.
Phil Newton: Yeah. I mean the flippant answer is, well why do you need to know that? You don't necessarily need to what it is and who they Don't really impact what we're doing anymore. But this ... I think just to be really ... Facetious, is that the right word? Just to be weird about it. This is one of those things you don't really need to know to be a better trader. WE touched on this earlier. Just knowing something doesn't make you a better trader, and this is one of those things you don't need to know to be a better trader as far as I'm concerned.
But to give you the quick answer, a market maker as the name suggests, they make a market and the underlying instruments. Tada.
Sean Donahoe: That's it.
Phil Newton: That's it.
Sean Donahoe: The clue is in the name.
Phil Newton: They essentially take ... Yeah. The clue's in the name. They make a market and the underlying instruments. You need two people for a transaction. You need a buyer, and you're a seller. And if there is no buyer or seller in the open markets, a market maker, their job is to make the markets. To be the other side of a trade. So if you wanted to buy a certain number of stock, there job would be to find the stock to sell to you. And computers do a lot of this these days, but there are certain professional market makers and liquidity providers would be kind of related to this as well. But a market makers job is to make a market and the underlying instruments.
Sean Donahoe: Mm-hmm (affirmative). And that's basically it. That's it.
Phil Newton: That's it.
Sean Donahoe: A simple answer, a simple question. So there you go. So with that being said, let's rock on.
Automated: Don't forget, if you have a question you want to ask Sean and Phil, just go to TradeCanyon.com/RTQuestions and your question may be featured on a future show. Uh-oh what's that smell. It's time to call out the Wall Street shenanigans, mainstream confusion, and outright hidings and hokum of so called experts. Yep, it's time for bullshit of the week.
Sean Donahoe: All right. So as we come to the end of today's epic show, we've got one more that we're going to throw out there which is ... This is Phil's pick of the week. And it is a little So go ahead Phil. What is your pick of the week?
Phil Newton: Well my pick of the week for bullshit was ... I'm going to precursor this with an apology. I'm sorry. It's just ripe for opportunity to call bullshit on. But surprise surprise, it's cryptocurrencies again. And again, it's topical. It's just something that keeps coming up, but it's called Doge coin. Dog-E coin. So yeah ... It's ... What can you say? I'm flummoxed. Doge coin. It's a joke coin. I think the funny thing about this is that this is a cryptocurrency that was set up as a joke at first. And it's based around an internet -
Sean Donahoe: It was a parody. Yeah. It was a complete parody.
Phil Newton: An internet meme. Yeah. But the surprising part of this, and this just really for me highlights the current bullshit around the whole industry, is that a joke currency crossed two billion in market capitalization recently as we're recording this. And it's bullshit like this that really prevents me from taking any sort of digital currency in it's current ... In the current way that it's being deployed, I can't take it seriously. I do believe that cryptocurrency will be, or a digital currency will be in our futures in a serious way. But it's when I see nonsense like this, I just can't take it seriously. Doge coin. Really?
Sean Donahoe: That's funny as hell. And this is the thing. A lot of the reason a lot of these altcoins, I think about 1300 current coins -
Automated: Another reason why you can't take it seriously. There's too many of them.
Sean Donahoe: Yeah. And they're all built with this hope that they have some sort of credibility or growth. But this one was created purely as a parody. As a joke by a tech nerd just like myself who sat in his home, came up with this idea based it on a meme -
Phil Newton: It's a handsome looking dog as well.
Sean Donahoe: Aye. It's a beautiful wee doggy. But that's fine. That's fine. But the idea is that it's because ... I've been seeing with a lot of these descendants of Bitcoin is the fact that they're perceived as cheap compared to Bitcoin, and you know they're ... It's just insane. But this has reached ... I mean it's a fraction of a fraction of a penny. I mean it's tiny, tiny percentage of a penny. But the problem is -
Phil Newton: So yeah. It's inexpensive. I think you raised a point there. It's inexpensive. Doesn't mean it's cheap.
Sean Donahoe: It's purely speculatory. And I want you to go into that a little more. Because we talked about this before the show.
Phil Newton: Yeah. I mean it -
Sean Donahoe: Inexpensive versus cheap. Go ahead and explain what you mean by that.
Phil Newton: It's an important distinction. Just because something is a few pennies doesn't mean it's cheap. If I was ... Do remember ... Hey Sean, do you remember blackjacks? Did you have them in the US?
Sean Donahoe: Yes. Yeah no I had those when I was a kid. Loved those. Blackjacks.
Phil Newton: Blackjacks. It's a sweet for all intents and purposes.
Sean Donahoe: Little candy. Let me just translate for our American audiences. Yeah it's candy.
Phil Newton: a tuppence. They were low cost. Cheap. If I was to try and sell you a penny blackjack for 10p, 10 pence, 10 cents. Whatever ... Insert your local currency here. But it would be expensive by comparison. So there will be a higher cost to it. What I'm trying to draw a distinction to is that the cost versus the ... Cheap being low cost. So a penny blackjack is low cost. Now 10p, 10 pence is still low cost. You could probably find ten cents, or ten pence wherever you are. Ten euros. You could find a few pennies on the floor or behind down the couch. You know there's a low cost involved to buying a black jack for ten cents. A piece of candy.
But it's not cheap because it would normally be a penny, or tuppence. Does that make sense? That's the distinction between cheap and low cost. Ten cents is the low cost. Very low cost But it's not cheap.
Sean Donahoe: Very much.
Phil Newton: So I mean, trading example. Penny stocks. Penny stocks are cheap for most people because they can afford them. That doesn't mean that the penny stock is inexpensive. There's a very big difference. So just because a penny stock ... Again let's just say that you're paying 10, 20 cents per share for a stock. Doesn't mean it's cheap. It means it's inexpensively priced compared to what you perceive as good value. And that's a very individual experience. So it could be expensive for ... An expensive evaluation for a stock. What we're saying here is ... I think cryptocurrencies, lots of them are pennies or fractions of a penny a piece. Just because they're low cost, doesn't mean they're cheap from the market's point of view. Or inexpensive. They could be high cost for what they are.
Whoo. I nearly was circling around meself. Does that make sense Sean?
Sean Donahoe: No, absolutely. You nailed it.
Phil Newton: It's a little bit of a circular conversation sometimes. You know I just want to -
Sean Donahoe: It's a semantic. It's a semantic conversation and it's the subtlety of difference.
Phil Newton: Very important when we start talking about money and investing in the stock market, and also sorts of investments. It's a very important conversation the distinction between cheap and inexpensive.
Sean Donahoe: Yeah. Absolutely.
Phil Newton: Actually Sean, implied volatility. Low implied volatility gives you cheap, inexpensive options by comparison to high implied ... Same option. You can be overpriced. So it could be expensive because the implied volatility is high. Just to bring it on to something that we're used to. So maybe with low implied volatility because the options are priced inexpensively, we would prefer to be a buyer. Vice versa when the implied volatility is exceptionally high, maybe we should be a seller of those options. Take advantage of the overpriced, the expensive options.
Sean Donahoe: Absolutely. I love it. I love it.
Phil Newton: Yeah. So I just don't want to be Bitcoin. It just starts the conversation. Doge coin. What's next? Hamster coin?
Sean Donahoe: I'd say ... Well we had the Crypto Kitties, so what the hell else So all good. All good. And with that being said, ladies and gentlemen -
Phil Newton: A flying squirrel coin does sound interesting.
Sean Donahoe: Yeah. I'd go with that one. I'd jump into that one. So with that being said, that's it for the show here. And it was a little bit of an epic. Seriously, if you haven't watched the Princess Bride, go watch that damn movie.
Phil Newton: I can't believe it might even be considered if you've not seen it -
Sean Donahoe: Inconceivable.
Phil Newton: Inconceivable.
Sean Donahoe: Got to do it. Go to ... And you've got to go out ... This is your mission today guys. Is go out and use that phrase, that line, in your conversations today. So ... But please remember that this show is not free, and we do appreciate listening to the show. But it will cost you a five star review. Just go to TradeCanyon.com/RebelTraders where you can subscribe and review us on your favorite way to hear the show. This helps us reach more traders and investors just like you.
Phil Newton: And if you'd like to reach us on the social media, the Facebook or the Twitter, you can also find us at the same link. And if you'd like to get in touch with us there, you can certainly contact us there. What have we got coming up in next week's show Sean?
Sean Donahoe: Well, we're going to have a little bit of fun. We are going to have the Four Horsemen of the Trading Apocalypse. With all the -
Phil Newton: Do I need to get half a coconut for the sound effect?
Sean Donahoe: Absolutely. Yeah you can. You know I'll get my horse called Binky. And we are going to kind of look at what is going on. I mean we're having a meltup, a meltdown with crypto all over the place. What is going on? What can you do? And we're going to talk a lot about mitigating risk, and what you can do in these environments and how to look out for the signs and signals of the coming trading apocalypse. So with that being said, ladies and gentlemen, that's it for this week's show. We'll see you next time. And take care for now.
Phil Newton: Bye for now.
Sean Donahoe: Adios.
Automated: For more cutting edge trading advice, and a free trader workshop to help you build a customized trading plan, and make smarter trading decisions, go to TradeCanyon.com now.
Automated: Futures and options on futures, stock and stock options trading involves a substantial degree of risk. It may not be suitable for all investors. Past performance is not necessarily indicative of future results. Trade Canyon Incorporated provides only training and educational information. If you actually understood and listened to this, then that means you are awesome. Congratulations and well done. Notice, this product may contain nuts.

(Click the time stamp to jump directly to that point in the episode.)

[00:00:10] Show Introduction

[00:04:10] Phil: So, Peter Folk, AKA Colombo, is reading his sick grandson a story, which starts off with a bit of a romantic scene, which is interrupted by his grandson played by Fred Savage. He says you didn’t say that they’re be kissing involved, because he’s not at that age where kissing has become kind of interesting. It kind of gets you thinking, as traders, we’re not romanced by opposition, but yet so many traders are suckered into being married to their position. We’ve got a nice lesson here, that no romance should be involved with your trading. What are your thoughts Sean? We’ve all got a few nightmare stories.

[00:05:43] Sean: One of the things we’ve talked about in these shows is the emotional divestment of trading, of money. A lot of it is not the emotional entanglement, but the fear of loss and the elation of winning. Those do drive a lot of emotions. A prime is example is crypto. Take a look at your Facebook feed. Everyone’s talking about their wins, their gains, how wonderful crypto is. And then when you see it retracing or when Bitcoin went down from 17,500 to 13,700. Now people are not talking Bitcoin, they’re even talking down Bitcoin.

[00:07:10] Phil: To be fair, I’ve noticed that over the years, when the stock market is going up, when stocks are performing well, there’s lots of kissing and cuddling and showboating all over social media. It’s the same thing with most tradable instruments. When the markets are moving one way of the other, to keep it on point, there’s plenty of kissing involved. Everyone’s an expert.

[00:07:45] Sean: Absolutely. It’s the emotional attachment. The point of this is it’s a business. You’ve gotta take the emotion out of this. You’ve gotta come at your trading with a cyborg mentality with one prime goal of continuously and consistently making money. You’ve gotta be a terminator. The markets are Sarah Connor.

[00:08:29] Phil: Quick way of doing that. Most people get married to the positions. Most will just place one or two positions, which kind of encourages them to be married. They’re just looking at that one position which is usually too big. There’s two factors there we can address. The obvious one is reduce your position size. Trade as small as possible but then increase the frequency of trading that you do. Trade more positions in a variety of different markets and instruments. You don’t think it would, but surprisingly, it does take that emotional involvement out of the trading so that you can just focus on the task at hand.

[00:09:25] Sean: So you’re saying instead of having a single focus target, you want a harem of targets.

[00:09:47] Phil: A harem. I’m gonna hand off the next thing relating to the movie. What was the Sicilian’s most famous one-liner?

[00:09:55] Sean: This has ruined this one word for me. It’s inconceivable! I said that once in a high-end business meeting. We were cutting a really big deal and I did it subconsciously, that complete impression. There were a couple of Princess Bride fans in the room who bust a gut laughing. I threw that in there and it broke all the ice.

[00:11:07] Phil: Sometimes that’s needed. But the strange and weird short person that nicknamed himself the Sicilian. His name was Bassini. Whenever anything didn’t go his way, it was inconceivable! But then Andre the Giant, I forget his name, leans down to the Sicilian, and he says, I don’t think it means what you think it means, and that’s the lesson here. Knowing the name of the patterns and tools doesn’t make you a trader. I’ve met many knowledgeable persons on the subject, but it doesn’t make them a trader. Like an armchair commentator who knows everything about a sport, they're not an athlete.

[00:14:31]I love that and there's one point point I want to reiterate. Every trader should keep this in mind. It's probably a concept you've not heard or are not familiar with, but it's where the traders are found on the hard right edge of the chart. In other words, we're not looking, and are stuck in history. We're looking at what the markets are telling us right now.

[00:15:07]Phil: We're making decisions without the benefit of hindsight.

[00:15:09]Sean: Exactly. It's one thing to keep in mind for yourself. The real action, the real trades, are on the far right side of every chart. Keep that in your head. It kind of becomes your mantra. It'll keep you on track. You're not gonna be bouncing around like a yo-yo. Of course, you've gotta look back. One thing we do talk about is looking back over 200 bars or a year's worth of data if you're on the daily's. But you start on the hard right edge. What's happening right now? Where are we? Okay, so, that's a good one-

[00:15:56]Phil: And plus we get to say inconceivable at every opportunity.

[00:15:59]Sean: And I dare anyone to get that stuck in their head. Here's your homework: Work it into a conversation randomly today and do the impression. Okay so, the next one, later on in the movie. In this case, I'm gonna be playing the part of Dread Pirate Roberts and Phil's gonna be Inigo Montoya here, because I've just sailed up to the cliffs and he's been tasked with stopping me proceeding and we're gonna get into a wee bit of a sword fight, fighting left-handed and trash talking to each other. I'm gonna turn around to Phil and say hey, why are you smiling?

[00:16:47]Phil: So, as I'm Inigo Montoya, we're dueling away, I'm smugly with my shit-eating grin, and you say to me, why am I smiling? So, I have something to tell you. That's my attempt at a Spanish accent.

[00:17:08]Sean: So we're going to offend everyone here with our really poor accents.

[00:17:16]Phil: We're not trained actors, are we? But I've got something to tell you, I'm not left-handed. I'm gonna jiggle my sword back to my dominant hand, my right hand. And then I'm gonna be better fighter. What do you think of that, the man in black?

[00:17:37]Sean: I could say lots of different things that would be inappropriate, but okay. The point is here that a lot of traders often hobble themselves and prevent themselves from having success. They literally stab themselves in the foot somewhat, by doing things the hard way, just to satisfy their ego or to look good to someone else. Now, why?

[00:18:06]Phil: Which is what Inigo Montoya was doing. I think I'm gonna fight him with my left hand.He wanted the challenge because he thinks he's the best in the world at what he's doing. He's just hobbling himself unnecessarily. If your object is to kill someone or to win, why would you want to hobble yourself?

[00:18:37]Sean: Now why do you think traders do that? Give us some examples.

[00:18:41]Phil: I think making it difficult for themselves, going the cheapest routes for tools, going with the lowest cost broker and using the worst tools available. I appreciate that everyone's got different budgets when they're starting out and different account sizes. But these days, getting a good charting package to help you find, filter, and sort opportunities and have a good basic tool set to allow you to analyze the charts well enough is a must. If you're gonna go down the technical analysis route, you want a reasonable charting package. The first thing that people go for is free or as good as free. If you're serious about being profitable, it comes down to it's a business. If you've got to put your hand in your pocket to spend some money on a charting package or some tools to help you achieve your goal which is to make a business of trading, which means to make consistent analysis and find stocks. We don't want to spend hours and hours doing it, so that does require some access to some tools. Some brokerages have fairly good tools that come with it. Even though a brokerage comes with a good tool set, they'll still hobble themselves, because they don't want to pay an extra few pennies on the commissions. You're gonna pay for it somewhere. Because it costs a little bit more, they don't think about what they're getting for the price. If you want no frills McDonald's Happy Meal, you're gonna get a shitty meal. If you want good quality food, you're gonna pay a little bit more. It's the same with charting. You're hobbling yourself, so what's the point trade-off? We take about 15-20 minutes to find something, and then trade it. It takes us about 30 minutes to do it. Hobbling yourself might be using a free tool that doesn't have the indicators or tools or functionality. Even a basic functionality for you to be efficient in your scanning process. You're creating more work. What should be a 20 minute task for us becomes a 3 hour task for someone else, for the sake of $20-30 a month. Reasonable charting packages, like StockView, are inexpensive for what you get. They're at the lower end of the price range, but there is a cost involved.

[00:22:03]Sean: They're nothing. It's pretty inexpensive. Tradingview, for the main markets, is like $5. If you want to go into futures and the expanded data... But at the end of the day, you just need the basics. Get the real-time data so you can live on the right side of the chart, not just visit there once a day because you've got end of day data.

[00:22:54]Phil: Get something that has the tool set and the functionality that you need. If the free tool does the job for you, that's great. But make sure you utilize it. Other examples would be to satisfy ego or look good to others. Looking back on what would have been the perfect trade. You'll state after the fact what you've done versus stating what you're doing in real time. That's just a lack of confidence. You don't need to fight left-handed.

[00:24:00]Sean: I was gonna throw a different one in there. Back to the emotion side of things. You can show off and flourish, but I'm gonna compare this to bringing a knife to a gunfight. You can waive your sword around. I've got a background in martial arts.

[00:24:20]Phil: I suppose we'd draw parallels to martial arts as well. Until you've mastered the basics, none of the advanced stuff matters. When you've become a master at something, you only need the basics.

[00:24:39]Sean: We've all seen this in the movies. There's a big threat and the hero is at the end of a gun and there's a 20 minute monologue before he tries to pull the trigger. I'm gonna compare that to John Wick. I love that movie. The protagonist, the one he's been after the entire movie just walks up to him and doesn't even say a word and doesn't even say a word and just shoots. Boom. Done. That's it. Target done. That's what you want to be like in the markets. There's no monologue, no witty banter.

[00:25:21]Phil: Can we not reference an 80's movie? Raiders of the Lost Ark! The guy with the giant curved sword. Indiana just pulls the gun out and shoots him. That's the object. Use the tools you've got available.

[00:25:49]Sean: Great reference.

[00:25:52]Phil: More importantly, let's bring it back to the Princess Bride. Where are we in the movie? The man in black has bested Inigo Montoya, and he's now catching up to Fezzik, Andre the Giant. He was ridiculously huge. He basically is challenging the man in black to a fair fight. As he says, skill versus skill, which is ironic because it's completely mismatched. The man in black asks, do you mean that you should put down your rock and I'll put down my sword and we kill each other like civilized people?

[00:27:04] Sean: Great line. As a trader, you have nothing to prove to anyone else. There is literally no one to beat but yourself. Your only measuring stick should be your past performance.

[00:27:37]Phil: It's a solo occupation. It's a very lonely occupation. This mismatch - Fezzik, 7 ft tall, versus the man in black, an everyday guy. It's David and Goliath. I think the new trader falls into the trap of trying to compare themselves to other traders. Why is the other person more successful? It's not because they're more skilled. It might just be because they've been doing it a little longer. I regularly tell our students when they've gone through our program - you don't know anything different than I know. I'm more polished with 20 years of experience. It's just having that systematic approach. The new trader can have the same opportunity as the guy who's been at it for 20 years. The only difference is experience. Instead of being jealous or envy, compare yourself to where you were last week. Keep track of your records, trading, your strategies. This is how you can measure your success as a trader. This is what businesses do. Does that make sense, Sean?

[00:30:25]Sean: Absolutely. It's a solo game, trying to level up. A lot of people start off thinking I can be the next Warren Buffet, or the one that gets me is when, this is something that happened to me years ago. I did well on a trade. I think it was a CitiBank trade. I was talking to someone who did the same trade as me and made about 10% more on the trade. I'm thinking what did I do wrong? And then I'm thinking, no that was really successful. Why am I stuck wondering where that extra 10% could have come from. It doesn't matter. Different mindset, philosophies, entry points, it was the same trade. Why should I measure against that?

[00:32:40]Phil: I know what you mean. It changes your perspective of the success you had. What we need to underscore is stop finding giants to fight and just trade and don't worry about other people. The only measure of success is against yourself.

[00:33:38]Sean: Absolutely. Now we gotta move on because we have so much we can cover.

[00:33:46]Phil: The giant has been bested.

[00:33:50]Sean: There you go. We're gonna look now at the Sicilian battle of wits. This is where the man in black wits with Bassini and has to guess which wine goblet the poison was placed in and both of them drink to the death.

[00:34:12]Phil: I've got to interject. I'd love to be able to re-enact it but there is some wonderful monologue by Bassini. There is someone monologue and dialogue - witty banter.

[00:34:43]Sean: I watched the scene again this morning just before we started. I'm gonna put the YouTube video on the website for the fun of it. Anyway, laughing they're going back and forth until they both pick up their goblets and take a drink. And then man in black drops dead.

[00:35:35]Phil: It's Bassini though laughing hard saying you guessed wrong. But the man in black confidently states you only think I'm wrong. Bassini switched the goblets when his back was turned. But what we find out later on is that both the goblets had poison in them. Bassini didn't have the immunity built up to what was essentially a bad trade. What the man in black did was build up a resistance to the poison. In a game of wits, he stacked the odds in his favor by poisoning both the goblets because he has a tolerance. That's what a strategy is. We have a conveyor belt of tactics that develop the strategy that confirms our opportunity or signal. Stop trying to guess which goblet the poison is in. Stop doing what everyone else is doing. What are your thoughts?

[00:37:56]Sean: I think that's exactly right. I'm all about tactical advantages. I always look to say why would I be in a particular trade if it doesn't give me high probability of success? Why take the risk? Why throw your money into a market where you aren't giving yourself a strategic advantage for a higher probability of success.

[00:38:34]Phil: This is what we're seeing in crypto in the moment. Everyone's saying it's the next best thing since sliced bread. My stance is I don't think I yet have a tactical advantage to get involved in it. It doesn't mean I can't or won't make money with it. Just because everyone else is doing something, doesn't mean you should be doing it.

[00:39:06]Sean: As always, there's many analogies I could use, but I wanna basically take the ones that are gonna be most successful to me as a business. In business, if you're presented with a range of opportunities, you discount the ones with the highest risk. The ones that have the highest probability of success are the ones that are going to appeal to me, regardless of the risk. Maybe some high risk will have high reward. I might take a speculative position on that. But we don't want to throw our money away. We want to manage our risk and manage our gains. So why not have the ability to stack the odds in your favor, take full advantage of the tools, and execute the target?

[00:40:15]Phil: Exactly. This is why we can say that 65% of the time, we make money. We've got a systematic approach to deploy everything we just talked about. So yeah, I like it. Where we're at now is the Sicilian's been bested. For all intents and purposes, he's just poisoned himself. The battle of wits wasn't as witty as he thought. The princess has now been rescued. The man in black is basically navigating through the fire swamp. What we now know is the man in black is Wesley, her long lost love from the beginning of the movie. He's telling the princess how he disappeared. What we know is the Dread Pirate Roberts kidnapped him and he leaves no one alive. So we just thought that he'd been killed. So, he's now telling the princess the story of how he became the Dread Pirate Roberts who we know as Wesley. Wesley, when he was captured, asked for his life to be spared. The Dread Pirate Roberts agreed and spared his life. For three long years, while he was a slave to him, the old Dread Pirate Roberts said to Wesley, goodnight, sleep well, I'll kill you in the morning. I think this film doesn't get the credit it deserves. The lesson I'm learning, I'm sure that my trades say this to me.

[00:42:14]Sean: That's a very interesting point.

[00:42:19]Phil: But this is the experience that every new trader has and feels when they move from a demo account or paper trading to a live account, suddenly the emotions get engaged and every trade feels like it's trying to kill you. So, what are your experiences, Sean, if you can think back that long, from when you went from having this as an interest to making trades? Did you feel like that trade was trying to kill you?

[00:42:57]Sean: Absolutely. The transition. My first positions were too big. It's the ability to sleep at night because you've got the fear of loss. I was trading too large, but even as I started getting used to that and I became immune to that fear, I started realizing I'm too emotionally attached to trading smaller positions. Because of the probability factors, I would take those larger positions because of my confidence but then I would feel that trade was trying to kill me because I know that I'm stepping outside of the comfort zone of where I was. Now I'm risking real money. You can train yourself to become immune to that. If you've got a good strategy and you're trading smaller positions. I hope it won't take three years for you guys. It didn't for us or our students.

[00:44:44]Phil: I think it never goes away, your tolerance just gets greater and greater. When you first start running, it's gonna feel like it's killing you. But eventually after a month, you build up a tolerance for that distance. All you need to do reduce your position size. Placing multiple positions takes a lot of the stress away. Now you're not worried about the one trade. You're focused on managing a portfolio. You're more focused on captaining the ship than being in the engine room stoking the fire with coal.

[00:46:22]Sean: Absolutely. What's the next part? One thing you highlighted

[00:46:39]Phil: It's just a statement. It got to me on many levels. Let's fast forward through the film slightly now. The king of the realm who has been chasing the princess all along has caught up with the man in black, who we now know is the Dread Pirate Roberts, who we now know is Wesley. Essentially, there's a standoff. It looks like Wesley is about to be slaughtered but the princess decides to step in, saying I will come with you to the king if you will spare Wesley's life. Wesley's gonna go back to his ship, they're gonna let him go under the condition the princess will go with the king and marry him. She's sacrificing herself for true love. Princess and king go off and the evil henchmen, we don't know his name, he was just known as the six-fingered man I think. But anyway, the evil henchmen looks at the man in black, the man in black looks at the six-fingered man and sayswe're men of action. Lies don't become us.And it was just a phrase that spoke to me on many levels. The king lied to the princess and said he'd spare Wesley, but everyone else knew, other than the princess, that it was a load of B.S. So he sayswe're men of action. Lies don't become us, and I think it's just be true to yourself. Actions speak louder than words. I'd rather be doing something than saying I'm going to be doing it.

[00:49:14]Sean: We had an entire show dedicated to the lies that we tell ourselves in trading, self-deception. We tend to tout our wins and not our losses.

[00:49:36]I think when you're paper trading it's easy to do that. Just to cite the Bitcoin revolution thing, I would have got in here.In a perfect world, of course you would have. You're just telling lies to yourself. What did you do in real time? Take action or don't take action, but certainly don't bullshit anyone.

[00:50:13]Sean: There you go. So, the next the one. Praying doesn't help at all. Inigo Montoya is desperate to find the man in black and resorts to praying to his dead father to help guide his sword to where the man in black is hidden. Just to remind you, this is a fantasy story. But we all know that praying or hoping in vain does not work. You can create your sacrificial altar to the gods of the DOW and the NYSE. It won't help one bloody bit. The markets are gonna do what they're gonna do. I'm not against having faith or believing, but let's just assume that your trades are gonna do what they're gonna do regardless of how many goats you may sacrifice or how many virgins you have on your alter.

[00:51:35]Phil: Hoping doesn't help. I think just to go back to the movie, it's a wonderful scene. You've got a nice close up of the sword. He's basically looking for the man in black, on his knees, praying and hoping. I've had one or two occasions where I've been on my knees praying for the trade to turn around. The reality is is hoping for an outcome doesn't give me the reality that I want. The one I'm thinking of, I actually ended up blowing up about 50% of my account. It was through stupidity in two trades. They just went wrong and stop losses weren't in place and my account just got destroyed very, very quickly. Emotionally, that's quite grating. I do remember saying please, please, please help me fix it. For an hour, I was like a rabbit in the headlights and it didn't help me one little bit.

[00:52:58]Sean: Dear me, there's been a few trades and I'm trying to will the use of the force, waving my hand and clenching my muscles and willing this trade to go the other way. No, it doesn't help.

[00:53:16]Phil: What did help was going to push a few buttons and when I got past the emotional shock of the situation, but I made a decision to take certain actions and I had to cut the loss. There's no other way of dealing with it. Move on. Praying does not help. Taking action, as always, does. We are men of action. Take action.

[00:54:04]Sean: Absolutely. Moving on from that, what's the next part?

[00:54:10]Phil: We could nerd out about this film all day, but we're going to jump ahead into the part where we can learn trading lessons from the Princess Bride. What happens is that Wesley has been captured, but he's now been killed by the king. On discovering that, Inigo Montoya and Fezzik, they've met up again, and they need his help, because Inigo has discovered where the six-fingered man is, his nemesis of 20 years. He decides he needs the man in black. They've discovered that he's dead, and they've found him. So what they need is a miracle. Because it's a big fantasy film and book, they decide to go and buy one from Miracle Max, the purveyor of miracles. Miracle Max informs them that he's not dead, he's only mostly dead, which means he's a little bit alive. This is one that will keep you in business for a long time. When something bad happens, only become mostly dead in your trading account. I touched on this a few moments ago. I blew up half my account. Make sure you've got systems in place to prevent this. We want to trade small and frequently which is what we advocate so if something bad does happen. Don't bet the farm. My objective with trading is to be in business tomorrow.

[00:58:28]Sean: Absolutely. I think every trader goes there at some stage.

[00:59:30]Phil: Do you want me to tell you something that shocks you? I've been coaching people for 18 years. I've been trading 23 years. The conversations I've had with thousands of traders over the years is that usually novice traders who try to figure it out on their own, they've usually blown three trading accounts on average. Some of them have done it a lot more, some of them less. But usually 2-3 times. Often you tend to speak to people shortly after they've blown up another account and then they realized that maybe I need to get a coach. It's shocking the amount of times it happens because you think you know better. It's called learning it the hard way for a reason.

[01:00:37]Sean: Absolutely. We've all been there. A lot of it is because they don't have the right strategy up front or they're trying to learn themselves, or-

[01:00:49]Phil: And there's nothing wrong with that, just understand it's the hard way.

[01:00:55]Sean: With that being said, we're gonna switch over here and go back to Fezzik here, as he's shouting all the guards to go away.

[01:01:11]Phil: We're near the end of the film now, hunting after the six-fingered man, Miracle Max has performed said miracle, and Fezzik has been dressed up in an even bigger presence of a giant.

[01:01:25]Sean: Terrifying presence. All the guards run away. This is just like when you put on a trade and it goes against you immediately. We've all been there. In fear you close the position, or in extreme fear, doubt yourself and flip it the other way. You're gonna go long then short, long then short. Brokers love that by the way because they get commissions. You're not standing firm in the face of that fear because markets have gone against you either immediately or you just don't have the confidence in the trading position. You're not quite sure.

[01:02:17]Phil: Let me tell you a secret. Most of my positions initially go against me. Shock!

[01:02:34]Sean: It happens more times than most people will admit.

[01:02:46]Phil: No one makes money every time immediately. Some of them do. We shouldn't be scared off from the trade. What happened with Fezzik. He was causing mayhem and 60 men ran the other way. You put the trade on. It doesn't make a profit immediately. That puts the fear of God in you, especially as a new trader, because you think bugger, what have I done wrong?It might not be that you've done anything wrong, it's just at that moment it's not going the right way. It's maybe your viewpoint is wrong. One of the ways to not worry if you're wrong and how wrong you might be is to trade with stock options. The risk involved is factored into the price we pay for the option, so it's limited risk. There's no stop loss needed. If you were trading traditionally, you might get stopped out initially if you were initially wrong on the direction and that creates the fear. We can get rid of it by managing the risk. I recommend trading options. I also recommend reducing your position size and then trade more frequently. Then you don't have to worry about the Dread Pirate Roberts coming for your soul.

[01:05:30]Sean: I love that. So, as Phil said, the simple solution is reduce the risk, the elements that will cause your fear. Use a strategy and stick to it, and stand firm and don't run away like a little girl.

[01:06:00]Phil: I want to do something special for you, because where would we be without you being the captain of this podcast ship? I know you've been itching to say this. Where would we be without talking about one of the most iconic movies from the 80s? I will hand it over to you. What is the most famous of lines from the Princess Bride?

[01:06:45]Sean: My name is Inigo Montoya. You killed my father. Prepare to die. Love that line! I actually have it on a t-shirt that I'm wearing right now because that is my favorite line in the movie.

[01:07:04]Phil: It's just a wonderful line by a brilliant actor. Inigo, who spent 20 years plotting revenge, finally meets the six-fingered man who killed his father. The phrase that he said many times through the movie, he manages to say to the six-fingered man. Simple lesson here. You can turn very bitter and make bad trading decisions and life decisions when you're trading for revenge.

[01:08:22]Sean: Absolutely. One that happened was Electronic Arts. Every time I have the opportunity to short that stock it, I will. I also try to avoid it because I have a personal thing going on with them. It's ridiculous, but it's one I tactically avoid now.

[01:09:11]Phil: Dare I say, Sean, is it inconceivable?

[01:09:14]Sean: It is truly inconceivable.

[01:09:22]Phil: You can't not do it. But placing another trade just because you got stopped out, it's no reason to put another trade on. It's a knee jerk response. That does lead to a downward spiral.

[01:10:40]Sean: It just becomes a point of discipline. It really is. Is it fitting with my strategy? Anything else is irrelevant and that tips into discretionary or speculative and we don't do that.

[01:10:58]Phil: Well discretion suggests you've got some strategy in the first place. This is just an emotional reaction. I think you just said, have a plan. Does this trade meet your requirements? Do you have a physically written plan? Get one, follow it to the letter, and trade with discipline. That's it.

[01:12:10]Sean: There you go. That is the end of this monster look at the Princess Bride and how it relates to trading. It was good fun. You can learn these lessons everywhere you look. With that being said, let's move on and we'll dive into one more tip with the Rebel Trader Tip of the Week.

[01:13:00] Rebel Trader Tip of the Week

[01:13:17]Sean: Okay, so we kind of touched on this in our main segment here. One thing I had with a student today was don't be afraid to step out and hold onto a losing position that cannot change. If you've got a position, holding physical stock trading, and it's going against you, you realize it was a bad decision, whatever way it is, be ruthless and don't hold onto hope. This is a business and the student I was talking to this morning had this problem. They had a trade they wanted to stay in and were hoping, not that they had a strategic belief. They were hoping and praying for the best. That's not a business. That's gambling, one thing we don't do as Rebel Traders. If you've made a bad decision and you can't roll it in options, you've got to cut that position.

[01:15:14]Phil: It will give you clarity as well. As I suggested, with my experience, you're probably not thinking straight. I misplaced my orders with no stop losses in place. This was before I was trading options. The first thing I did was put a stop loss in place so I could start to make decisions. Just that act of doing something allowed me some sense of clarity. Five minutes later, I ended up closing the position anyway and that gave me so much more clarity as to how I could recover my situation and start to recover my plan of action.

[01:16:32]Sean: Absolutely. Now, with options you don't have that concern, but at the end of the day, if you can't manage your risk, you're leaking. You have to consider what your strategy is. Emotion doesn't come into this. You will become irrational if you keep losing and hoping for a turnaround. It will be like malware in your strategy here. You'll start becoming more and more speculative rather than disciplined and ultimately it will lead to long-term losses. With that being said, let's move on.

[01:17:44] Quickfire Round

[01:17:56]Sean: Okay so, in this epic show, we've got a few questions from the audience. I'm gonna fire the first one at you here, Phil. With the markets pushing higher and higher, I keep hearing about a melt-up. Rather than a meltdown or a correction, people are talking about a melt-up. What the hell does that mean?

[01:18:16]Phil: Well I like mine with a little bit of buttered bread, lettuce, tomato, sometimes I'll have a little bit of tuna, and then I'll pop some cheese on it and then I'll pop that under the grill for a nice tuna melt. Sorry, were you talking about something else?

[01:18:35]Sean: I was trying to talk about something else but now you're making me hungry and I need some lunch.

[01:18:36]Phil: I think it's one of those buzzwords. Another way of saying it is markets don't crash up, it's how I've heard it in the past. I think people are starting to think the markets are behaving very differently because it's going into the ninth year. #nineyearstrong. The markets only ever seem to go up.

[01:19:22]Sean: Irrational exuberance is what I'm calling it.

[01:19:26]Phil: Yeah... lots of reasons why. We're not seeing the markets put in any healthy retracements, which would be normal part of cyclical behavior. An example would be cryptocurrencies. That would be an example of an extreme movement. That's what this usually refers to. It doesn't normally happen on such a regular basis outside of a bubble.

[01:20:13]Sean: That's a fair enough point. It's irrational exuberance. Right now, there are things that, rationally, are driving the markets and making people very happy. But at the end of the day, it's money in the bag, just have an awareness. Don't worry about whatever fancy name the market media comes up with. Yeah, we're looking at optimism and a lot of gains, and that's wonderful. But what's happening in your portfolio is more important.

[01:21:03]Phil: Okay, so the next question we have is with regards to ultra-low volatility. Is it possible to actually find profitable trades? I think what this question is about is a lot of traders saying they can't find profitable trades because they're probably trading with options. Are they able to find those trades in low volatility?

[01:21:34]Sean: Absolutely. A lot of the ultra-low volatility environment you've been hearing about is that there are indexes in the fix and it's all-time lows. I call B.S. on that.

[01:22:02]Phil: The markets are moving. We need to keep in mind that volatility is usually like fear. When the markets are fearful, it creates uncertainty. That will increase implied volatility, the possibility that something worse or something more could happen. The ghost of Christmas future becomes every increasingly uncertain. When that happens, the uncertainty factor, the implied volatility, gets higher. Because of this nine year bull market, the markets only ever seem to go up. The volatility overall is at all-time lows. It just means that everyone is in complacency mode. No one thinks anything can go wrong. Does that make sense, Sean?

[01:23:26]Sean: Absolutely. That's exactly it. If you're looking at our universe of stocks, we have highlighted the ones that we like the most, the 475+ high opportunity.

[01:23:43]Phil: They're just highly liquid stocks that ebb and flow back and forth on a regular basis. That's just the way it is.

[01:24:07]Sean: That can make a significant difference across the board. There are about 27,000 US equities, but that doesn't mean every single one will present an opportunity. If you're looking at the DOW, there's only 30 stocks in that. There's the S&P 500, that's 500 stocks. It means they've got some measure of market cap. It doesn't mean all are optionable or have the liquidity or the range of movement.

[01:24:55]Phil: Penny stocks might be a quick movement of that - lack of movement, lack of interest. Most don't move that much.

[01:25:10]Sean: Exactly. At the end of the day, there's opportunities abound, regardless of the volatility, you've got to hunt in the right areas. You don't hunt in the Sahara Desert for your game, you hunt where there's water. That really is the difference between what's liquid and what's not. You don't have much liquidity in the desert unless you're trading sand. Next question, what exactly is a market maker and what do they do? I'll throw this one at you, Phil.

[01:26:17]Phil: The flippant answer is why do you need to know that? They don't impact what we're doing anymore. To give you the quick answer, as the name suggests, they make a market in the underlying instruments. You need two people for a transaction, a buyer and a seller, and if there's no buyer or seller, the market maker's job is to make the other side of the trade. If you wanted to buy stock, their job is to find the stock to sell to you. Computers do a lot of this these days, but there are certain market makers and liquidity providers.

[01:27:28]Sean: And that's basically it! Simple answer, simple question. With that being said, let's rock on.

[01:27:35] Bulls**t of the Week

[01:28:06]Sean: As we come to the end of today's epic show, we're gonna throw one more out there, and this is Phil's pick.

[01:28:11]Phil: I howled when I saw this.

[01:28:12]Sean: you howled. Okay, nice pun. You'll understand why that pun is important in a second. So go ahead, Phil, what is your pick?

[01:28:16]Phil: My pick of the week for Bullshit was... and I'm sorry for it, but it's just ripe for opportunity. But surprise, surprise, it's cryptocurrencies again. It's called Dogecoin. It's a joke coin. I think the funny thing about this is a cryptocurrency that was settled as a joke at first.

[01:28:45]Sean: It was a parody.

[01:28:48]Phil: An internet meme. But the surprising part of it is that a joke currency crossed 2 billion in market capitalization, as we're recording this. It's bullshit like this that prevents me from taking any sort of digital currency in the current way it's being deployed. I can't take it seriously. I do believe a digital currency will be in our future in a serious way, but it's when I see nonsense like this, I just can't take it seriously. Dogecoin.

[01:29:19]Sean: That's funny as hell, and this is the thing. A lot of the reason a lot of these altcoins, I think about 1,300 current coins, there's too many of them. They're all built with this hope that they have some credibility or growth in line, but this one was created as a parody. A lot of these descendants of Bitcoin are perceived as cheap. It's insane but this has reached, it's a fraction of a fraction of a penny.

[01:29:54]Phil: It's inexpensive. It doesn't mean it's cheap.

[01:29:58]Sean: It's purely speculative and I want you to go into that a little more because we talked about this before the show. Go ahead and explain what you mean by that.

[01:30:03]Phil: It's an important distinction. Just because something is a few pennies, doesn't mean it's cheap. Do you remember blackjacks? It's a sweet, a candy. They were a penny when I was a kid. They were low cost. If I were to try to sell you a penny blackjack for 10 cents, it would be expensive by comparison. There would be a higher cost to it. You could probably find 10 cents on the floor or behind the couch. There's a low cost involved for buying a blackjack for 10 cents. Penny stocks are cheap for most people because they can afford them. That doesn't mean that the penny stock is inexpensive. If you're paying 10, 20 cents per share for a stock, it doesn't mean it's cheap. It means it's inexpensively priced compared to what you perceive as good value. And that is a very individual experience.

[01:31:40]Sean: You nailed it. It's a semantic and it's the subtlety of difference.

[01:31:46]Phil: Low implied volatility give you cheap, inexpensive options compared to high implied volatility. Same option can be overpriced. It could be expensive because the implied volatility is high.

[01:32:20]Sean: I love it.

[01:32:26]Phil: I don't want to be always ragging on Bitcoin, it's just a conversation starter. Dogecoin. What's next? Hamster coin?

[01:32:33]Sean: With that being said, that's it for the show. If you haven't watched the Princess Bride, go watch that damn movie. This is your mission today, go out and use inconceivable. Please remember, this show is not free. It will cost you a five-star review. Just go to https://tradecanyon.com/rebeltraders/ where you can subscribe and review us on your favorite way to hear the show. This helps us reach more traders and investors like you.

[01:33:27]Phil: If you'd like to reach us on the social media, the Facebook or Twitter, you can also find us at the same link. You can certainly contact us there. What have we got coming up in next week's show?

[01:33:44]Sean: We are gonna have the four horsemen of the trading apocalypse.

[01:33:44]Phil: Do I need to get half a coconut for the sound effect?

[01:33:50]Sean: Absolutely. I'll get my horse called Binky. We are going to look at crypto, mitigating risk, and how to look out for the signs and signals of the coming trading apocalypse. With that being said, ladies and gentlemen, that's it for this week's show. We'll see you next time. Take care.

[01:34:27]Phil: Bye for now.

Resources & Links Mentioned in This Week's Show

3 Key Takeaways From This Show

  • You can find trading inspiration anywhere if you look hard enough.
  • Don’t hold on to losing positions and hope or pray for a turn around. Be logical, ruthless and disciplined with your trades.
  • Never measure your success against anyone else’s. Your only competitor is yourself and you should measure your growth and success as a trader against your own track history.

Connect With The Rebel Traders

Download our Private "Universe of Stocks"

Download the 350 "Core" stocks we look at every day that present the best opportunities. Just enter your name and email below to download now...
DOWNLOAD THE LIST NOW
We value your privacy and will never spam you

Comments are closed.

×
HEADLINE HERE
SUB HEADLINE