Rebel Traders 042 : A State of Trading Zen

It’s time to cross our legs in the lotus position and hum our way into a state of true trading zen as the Rebel Traders dive in to the mindset of a smarter and more successful trader.

Successful trading is not just about the right moves in the markets at the right time or the perfect strategy. Sean and Phil discuss the mindset and psychological aspects needed to become a master trader.

They’ll discuss the specific strategies used to control those internal influences in our own minds that, with the right strategies, can be forged in to a powerful asset in your trading.

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Automated: It's time to cross our leg in the lotus position and hum our way into a state of true trading zen. Let's rock.
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 and I am joined by my partner in podcasting, the cohort from Rebel Trader, Mr. Phil Newton. How are you doing, sir?
Phil Newton: Omn. Just centering myself for the show, that's all.
Sean Donahoe: You got your chakras all aligned along with my trades and it's all good.
Phil Newton: How dare you talk about my chakra in that tone of voice.
Sean Donahoe: Indeed, indeed. Now, funnily enough this is episode 42. So it's the meaning of trader's life. And just coincidental, a little bit-
Phil Newton: Just coincidence. I just picked up on that.
Sean Donahoe: I just noticed that. And I wanted to give a huge shutout to one of our fans who said this is like the ultimate buddy show for trades. As the feel good buddy show for traders. And you know what, that actually made me smile. I don't know if this means you're Nick Molty and I'm Eddy Murphy or the other way around, something like that. Like the good '80s -
Phil Newton: No, I've gone for the funs. The funs of trading.
Sean Donahoe: . Now, did you do the thumbs? That's what you've got to do as well. You got to do those.
Phil Newton: Yeah, I did. Even though this is a show for radio, I did the thumbs and played up to the camera.
Sean Donahoe: There you go. So unfortunately so did I, but I couldn't resist. It's just part of who we are. So, yeah, we're a little bit crazy. But we are going to be getting a little bit serious here, if we could even attempt that. Because as we've said many times that being a successful trader is not just about the right moves in the market at the right time, or having the perfect strategy. It's a lot more than that. You've also got to have a mindset. And that's what we're going to be talking about here today. The mindset and psychological aspects needed to become, well, basically a successful and profitable trader.
Phil Newton: Arguably, Sean, I think that might be ... I personally think that's the only hurdle to overcome. of all the shenanigans of the industry as always, somewhere amongst all of this at zen columnist. We're going to find the cooler question of where is the trade, or even answer the cool question of-
Sean Donahoe: Abso-bloody-lutly. So diving into this, this is ... I agree with you. It is the biggest hurdle for a lot of people and it's something-
Phil Newton: A longterm success.
Sean Donahoe: Yeah, because this is something-
Phil Newton: Short term you can fake it.
Sean Donahoe: You can. But it's the toll that it can take on you if you don't have the right mindset that can cripple you. And it's one of the biggest reasons that traders quit, is because of the continued mental toughness in the lot of regards that is required. And resilience. But there is a lot of different aspects to this. And I want to start with this one, Phil, because I think this one is the, again, it's an emotional reaction.
Phil Newton: It's the catchall kind of ...
Sean Donahoe: Yeah.
Phil Newton: Yeah, it's the catchall one.
Sean Donahoe: The fear of loss, that is the biggest crippler that stops people moving forward and actually will make people move backwards. Now, this is a natural thing because it goes back to when we're in caves, clubbing dinosaurs, which ... No. We know that humans didn't exist at the time of the dinosaurs. I'm joking. But when we're living in stone age man. Let's just call it stone age man and before where we had to fight for every single thing to survive. It was really ingrained.
Phil Newton: So the pre-internet.
Sean Donahoe: Yeah. Back before the 1995.
Phil Newton: Yes. Pre-internet. Well, we had to go out to hunt and gather and you just couldn't get stuff delivered.
Sean Donahoe: Exactly. Exactly. But at the end of the day we had to fight to survive. And anything that caused a loss into our resources was truly to be feared. So it is literally ingrained in us that we hate to lose. We actually fear loss. And people have actually studied this where they go through a simple exercise.
Phil Newton: It's a bigger motivator-
Sean Donahoe: It's an insane motivator.
Phil Newton: Than the attraction of gain. Because to be fair, if you've got everything ... If you go and do something, you've got a lot to gain. I suppose the old adage, you've worked hard, you've brought . But that fear of loss is a bigger motivator than the potential gain if you did something.
Sean Donahoe: Yeah, and it is actually shocking.
Phil Newton: And I think, in the trading contest, the fear of loss is not the motivator to do the trade. The fear of loss is the motivator to not do the trade in this case. So perhaps with other things, the fear of loss would motivate you to do something. It's that not taking action. We're worried this isn't going to work out, therefore I won't put the trade on. Or it prevents you from putting the next trade on. It's a weird kind of psychological tick, if you like, that fear of loss. But that's generally the thing that prevents people from seeing some sort of success.
  And I don't know, I'm chewing around it, Sean. I'm chewing around it because I know I'm going to end up zoning out, zenning out, and talking about this too much. But it's something I've really struggled with early on. Something that the broad, kind of the psychology of the trade, but it does get to you. If you have a string of losses, that fear of loss prevents you from putting the next trade on.
Sean Donahoe: Yeah.
Phil Newton: I suppose because you're biased by the two or three losses. Or if you've been doing this trading thing for a couple of years and you've not seen any success, that frustration, the actualized losses that you've experienced over the multiple years while you're trying to figure it out, prevent you from putting probably the successful trades.
  So the trap that I see people fall into with that cycle of not trading with the fear of loss, is that they put all the losing trades on in their strategy and then watch all the winning trades that build the confidence up, and then trade the losing trades. Because every strategy has cycles, whether we want to admit it or not. But it does. No strategy is perfect. But you will, as a new trader, fall into that bias, if you like, of watching the winning phase. Yeah, there's a winning trade, there's another winning, there's another winning. So that's right. Okay, I've got the confidence now, I've seen it work out for me. I'm now going to put the trade on and that's the one that statistically would have appreciated the loss. And it does appreciate the lost.
  And then you hit the losing phase of your strategy. You might have one trade that's the win that just keeps you putting the next trade on. But then you hit that patchy, messy, sloppy, inconstant performance of the any strategy experiences. But then you only trade the losing trades and you watch the winning trades. You can see the cycle of it, what's -
Sean Donahoe: Abso-damn-lutly.
Phil Newton: It's a hard one.
Sean Donahoe: And here's the thing, when we feel loss-
Phil Newton: But that is-
Sean Donahoe: That is the scary thing. When we feel loss, it triggers the same parts of the brain as physical pain. So when they say, it hurts. It does actually ... Well, that one, that trade, hurt. It physically is triggering those same receptors and the problem is that we use that as a learning tool. It's like sticking your fingers in a fire. Oh, shit, that's hot. And you learn not to do that again. So while it can be a measure of learning and building experience, it an also literally reinforce negative actions that you actually need to do. So even if your strategy, you applied your strategy perfect ... You have the most perfect strategy in the world that will win every single time, but your application, it doesn't work out. Let's just say it doesn't win all the time. It's got a positive-
Phil Newton: That's a real polite way of saying it.
Sean Donahoe: Yeah.
Phil Newton: It sucks.
Sean Donahoe: You've got a positive expectancy, but if in that you have a losing trade, you'll start to think, oh, crap. That doesn't work. But also, here's the other thing. If you nearly win, and this is something we've talked about in the past, if you nearly win but ultimately lose that reinforced ... It basically releases the same chemicals of elation that a win does. So if you almost win, you think, ah, I was just almost there. Damn. Now I'm like, okay, I'll make that same mistake again, because, hey, it almost won last time. So, again, you've got to be able to take a step back and almost have a little check list. Did I do that right? Yes. Did I do that right? Yes. Did I do that right? Yes. Did it win or lose? And this is one thing I try and reinforce in everyone is you need to be dispassionate from the wins as well as the losses.
Phil Newton: That's not easy. We're not goin to lie to you.
Sean Donahoe: No, it's not. It takes a-
Phil Newton: It's not easy. But it can be done.
Sean Donahoe: It does and it comes with experience and also the ability and, again, forcing yourself to rationalize your action. Did I do this right? Did I do this right?
Phil Newton: Another reason to trade smart. From a psychological viewpoint, another reason to trade smart position size, as small a position as possible. Because it allows you to weather that psychological storm in this case. So, yeah, you might have a string of losses, but they're not going to be as ... Imagine position size like a volume dial. All that voice going on in your head. Oh, is this one going to be another losing trade? If you imagine position size or that the per trade risk, the dollar amounts, like a volume dial on your emotions, that little voice at the back of your head that says do this or don't do this or all the fears that go on and such.
  I don't know why I'm suing my hands, Sean. But I'm imagining a volume dial. Turning that volume dial down is the reducing your position size part. That's a big factor and it helps you to not get rid of the emotional impacts that we're talking about here. It just allows you to get on with the job and that you were just describing. To go through the checklist without having the voices in your head causing you to do all sorts of crazy stuff.
Sean Donahoe: It's a lot easier to manage it, right, from a psychological perspective. To be a Johnny one lot rather than doing a thousand contracts or 10 thousand contracts, or what have you. It is significantly different.
Phil Newton: So what if one lot is too big? That's essentially what I was just thinking about there for a moment. What if one lot is too big? What if you can't reduce your position size? Because just kind of preempting the next question, because we said reduce your position size. Well, what if you're already down to one lot? You go a couple of strikes out the money with stock options, we can also start thinking about debit spreads as a way to reduce the overall position size that helps you turn that volume dial of the emotional impact down. Well, what are your thoughts on that, Sean?
Sean Donahoe: I agree. I mean, one of the things we advocate with our students is well you're getting started and everything else, start with about a half of a percent of your total capital. That is a manageable bite sized chunk, but you can chew and swallow. And as you get more and more experience and more confidence you can raise that up to a comfortable level. Don't go crazy because you want to have that diverse portfolio so that you're not worried about just one position and fixating on that. You have a whole basket of small positions that allow you to have ... Again, mitigate your risk, which is one thing we're all about. When you have lots and lots of trades in ... And this is one thing that I think is also very important, in a with a positive expectation strategy, you're going to have trades that are coming home in trades that are not. And the thing is that you will see is you're having one loss you're having other wins and stuff like that. And it balances out. And that-
Phil Newton: But the portfolio allows you to get that experience as well. That's the other thing that we just want to if the size here. That's the big thing that we always advocate is trade small, use spreads if you need to get smaller. But it's because you can put more positions on it. It's very counterintuitive. But that's, for me personally, that's the big kind of contributing factor that allows me to reduce the emotional impact. It's that portfolio experience. Because you're not worried about one trade anymore, you're worried about the average.
Sean Donahoe: Exactly.
Phil Newton: And that's the kind of the message there that were trying to ... We're chewing around the idea. There's lots of angles that we can come at this from.
Sean Donahoe: Absolutely. And the thing is, we've done it all because we had to do it ourselves and we had to do with our students because everyone's different. Thing is, there's no one solution for any one person. So we're going to put a lot of different stuff out there that will either resonate with you or not. But there are some hard and-
Phil Newton: Some people have just got that mental fortitude and I hate every single one of them for it because I had to struggle through this the hard way.
Sean Donahoe: Yeah, and you know what? I'll be honest, I had a headstart in that I used to be ... And I've mentioned this a few times in the past, I wanted to be a professional gambler and I learned from a few pros what it takes to have that mental fortitude. Because when you're in a casino, it's a very different pressure environment. It's literally you versus the dealer. Because it was blackjack, was my game of choice. It's you versus the dealer and then you're relying on all the other guys at the table not to do stupid stuff for whatever's going on with the cards and everything else. And you have to have a little fortitude. When you're at a high-stakes table and you're laying 5K on the table per hand or 1,000 on the table per hand, it gets ... There's a lot of direct pressure.
  And when you can survive in that kind of environment, you can survive in the market. And that was one thing that I was fortunate enough to go through. And this is one thing that I want to really hammer home. And we've talked about this in terms of reducing position size, which is a very important thing because it allows you to be able to develop this skill. And it's the diversement of emotion towards money.
  First of all, I want to make it absolutely freaking clear, you should never trade with money you cannot afford to lose. One of the biggest things we see are people who over leverage themselves, or they take money that they think they've got the perfect strategy. They go into the market and they've got ... They don't have the emotional side.
Phil Newton: And they have this emotional experience.
Sean Donahoe: Yeah.
Phil Newton: On paper, the strategy works. Because let's face it, it's easy to have that emotional detachment when you research something, but as you just pointed out there, it's like, well, as soon as you've got real money on the line you've got some skin in the game. Suddenly, it's a very different game. It's a very different experience and that's essentially the crux of what we're talking about.
Sean Donahoe: Yeah, you've got to be able to afford to lose the money. Now, if you accept that you can lose that money and it will not destroy your life, your family, or anything else then you have the ability to then disconnect. Because if you then work on capital preservation as well as capital growth and you come at it from that protective, conservative, yet aggressive or positive expectancy strategy, some of the stuff that we actually teach, then again, you are going to be able to trade it without the fear, or with less mitigated fear, as you move forward.
  And again, this all comes with time and experience. When you're first getting started, and again, this happens to every trader. Whether you're going from, say, paper trading to actual live trading, you could have all of your paper trading down to a T, you could be Warren freaking Buffett. When you get live in the markets you're going to become the uncertain school boy on his first date. Okay? It doesn't matter. Everyone goes through that, it's normal. But as you get more and more involved, as you're seeing things rolling out, that confidence builds. But don't get complacent. Be able to take a step back.
  And this is one thing that is very, very important. Take a step back, evaluate when you've had a win or when you've had a loss. You should come at it with the same emotional, literally, ruthlessness. I mean, you almost have to be narcissistic. Just remove all ... And then, not in the negative way, but I just mean the unemotional way. And looking at it with a complete diversement of emotion. But it does take time to be able to do that. What do you say about that?
Phil Newton: So how can we actually kind of speed up the process, because to be fair, we all want it fast, we all want it now. How can you circumnavigate that emotional reaction? We already talked about one way, which is to reduce your position size. Now, and that's going to ... Again, it's going to diminish the little voice at the back of your mind that tells you to do stupid things. Do the thing that I can do, which it surprisingly is the same thing that every successful business does. Have a plan. Have a physically written .
Sean Donahoe: Yeah. Absolutely.
Phil Newton: Go on to something else. Yeah. So it's just that helps you develop that discipline. Now, I've got to admit that was something that I did from quite early one. It was I needed a physically written . Because I always had it in my mind that I was treating this like a business and I knew that the mindset and the psychology was a hurdle that I was going to overcome. And I realized that very, very early on. So I was not only keeping, to be fair, following a rule set but I was keeping that journal. So that leads us on to the second thing. As you were saying earlier, be ... Dear diary, almost, we're going to be writing about the trades, but also something that I strongly suggested to everyone in the past is to keep an emotional journal alongside that so that you know your emotional state of mind as you're placing the trades. And all these things combined are going to help you achieve this robotic discipline. It's going to help you weather the psychological storm. Because what you'll start to see is that actually while I'm really essentially crapping myself over this particular type of trade or this particular set up, it's like, well, I can start to see the results I was emotionally, on the edge as it were, with this trade. Before, during, and after. But then looking at the results, oh, actually it was a good result.
  So not that you can associate that emotional, what you think is an negative emotional response. But you can now associate that with, hey, these are usually the good trades. That was my experience by doing that.
Sean Donahoe: Absolutely.
Phil Newton: Does that make sense, Sean? Yeah, and again, I know we've commented on this in the past.
Sean Donahoe: Yeah, absolutely.
Phil Newton: Finally enough, taking it the other way, is what I was able to also notice is the ones I was most confident with when I was comparing the, okay, I'm really confident with this trade. Yes, I'm high-fiving myself as I click send on the order. That's how confident. Always doing arrogant points of view. And what I'd notice was that those were the trades that were the least at performing. And that was such a big eye-opener for me. The confident trades, the ones that I was swaggering around the house about because, yes, this is going to be a trade. It's going to be amazing and they were the ones that weren't working out.
Sean Donahoe: Bloody hell. That's funny. I like that. Now, one of the things which you tapped on is the importance of a trading log. You really need to keep that outside of the trading plan, which you should develop as well. Which is literally a process for your entire business. It's like the standard operating procedure, the SOP document in a lot of businesses. These are things that you should develop. And again, we can help you with that. If you want to contact us, we'll show you what we do and talk about that. It's no problem. But when you start recording this it's allowing you to be more objective and forcing yourself to be more objective. And this is the cool thing with doing this, it becomes habit forming because you create this almost Zen-like state.
  Anyway, but one thing I wanted to lead into, which is when you sit down to trade in the markets you need to remove all distractions, you need to make sure that you have the right environment to put yourself in that zone. That's something I want to talk about for a second. Because one thing that ... Now, I began in Texas. So I'm an hour ahead of the markets in terms of times zones. So when the markets open at 9:30, it's 8:30 here and everything else. Now, I'm usually the first one up. Okay? In the day, I'm usually up at 6:00 AM or what have you. I'm not suggesting everyone get up at 6:00 AM or what have you. But what I am suggesting is, yeah, there you go. But one thing that really I am very focused on is my trading environment. When I trade ... Now, we only trade about an hour a day or less. And most of the time it's only 30 minutes for me. But when I am trading, all my instant messages are off. My cell phone is out of the way so I don't get interrupted by calls. Because, again, I run multiple businesses. So my phone's going off all the bloody time. So I have to disable that for that time. And I tell everyone that I'm not available from this time onwards.
  I literally have a sign that goes on my office door that says ... It says on air, but basically it just means don't disturb me. See, if my family sees that up it means do not come in, do not knock on the door, this is it. Now, the reason that I do this is I literally put myself in that cone of silence. And I might crank on some music that's feel good music because I want to get in the zone. I want to have that positive state of mind. And this does sound a little woo-woo, but I do want that positive state of mind so I'm not stressed, I'm relaxed, I'm enjoying ... I'm smiling. I'm just like, okay. But I wasn't trading to be a positive experience, even when I'm having draw downs or if I'm having a bad streak. As long as I can have the right environment I can tape step.
Phil Newton: Trying to reduce the stresses and the distractions that could cause you to make errors.
Sean Donahoe: Exactly.
Phil Newton: Trying to create a positive environment.
Sean Donahoe: Yeah.
Phil Newton: And let's be fair, that's different for everyone.
Sean Donahoe: It is. It is. And I'm just saying what I personally do because it might help some people out there. Because we have cats, dogs, kids, and everything else. Sometimes we just don't have the ability to have that cone of silence. But if you have a partner and thyre able to respect that or what have you and you need that to really focus, to get in the zone, then again, make everyone part of that decision. Okay? And get people's buy-in basically. Because it's going to help you focus on what you do.and having that focus really allows you to avoid making the mistakes. I can't tell you how many times before I started doing this that I had a phone call or I have a developer for one of my businesses try to call me on Skype unscheduled, or there's some fire in one of my businesses that needs to be put out. And I'm looking at my trades like, oh, what was I doing there? And I'm pressing the send button before everything's really on an order, before everything's really dialed in, or I forgot to check one thing or something like that. Because, again, I'm being distracted away from the process. And it's like, oh, crap. Then I've either got to cancel the order, redo it, or I'm giving the broker free money. Or it get overlooked and then yeah.
Phil Newton: Or it gets overlooked.
Sean Donahoe: Exactly. So again, whatever you need to do to create the right environment-
Phil Newton: Minimize the distraction.
Sean Donahoe: The distraction, yeah. Get rid of the distractions. Whatever you need to do to put yourself in the zone. And make a habit, make it something you look forward to. And heres the other thing that I think is something we talk about a lot, but I really want to make sure that we emphasize this is develop a strategy that doesn't require you to be in front of the monitors all damn day. Continuously checking your trades like an obsessive mother with her child.
Phil Newton: .
Sean Donahoe: Because at the end of the day it's just going to stress you out. It's just going to stress you out more and more.
Phil Newton: It's not going to change. It's up a tick, it's down a tick, it's at the market at the moment. It's either up a day, down a day, up a day.
Sean Donahoe: I know.
Phil Newton: Down a day. Sometimes it's up and down. You have like a fiddlers elbow. I thought, when I heard you say there, Sean, just the kind of be ... How can people take that away and apply that to their own life? Dedicate to some time to the active trading. I mean, like we always say, it's coming out from the other's perspective is people always ask me about day trading and how can I day trade. Well, my immediate reaction is, do you have the time to day trade? Well, no. Well, when are you going to day trade if you don't have the time? But that's what you just said.
  So understand what you're doing, when you're doing it, while you're doing it. But also what time do you need to actually do that. Because were not doing anything else. And we've got a very refined process that is replicable, and mechanical, and algorithmic-like. We can deploy that strategy in 20-30 minutes. Often it's less, but usually 20-30 minutes if we ... I need to be fair, we might pop the kettle on in between things, but it takes about 20 minutes. So maybe put aside a 30 minute window for you to sit down, have a cup of tea, your notepad, and just go through this methodical systematic approach to find it, filter, and sort stocks to manager open positions and then shut everything down for the day. And come back tomorrow.
  Set alerts if you need. Like a circuit breaker for the market. If something big happens, you got an alert that says, well, there's been a 40 point to move on the S&P. Like there has been right now as were doing this. It just makes you, maybe I should check my positions and find five minutes to do that. But the point is, you've got your dedicated 20-30 minute window every day and it's businesslike. You've got no distractions. So you can do that anytime of day. Just find that 20 minute window. I think that's what I heard you say there, Sean, is be businesslike and be dedicated to that business approach to your business of trading.
  Just like if you had a side business. You wouldn't be doing other things. You wouldn't be, I don't know. Whatever you side gig is. We're saying you could have your stock trading as a side gig, if you want. It's also the full-time gig. It's just happens to only take 20 minutes.
Sean Donahoe: Exactly.
Phil Newton: So that's what we're trying to say. Be dedicated. Find a time window that you can dedicate to your business of trading. And that's the takeaway here.
Sean Donahoe: Perfect, perfect, perfect. And again, as we wrap this up here, I just want to kind of ... We've covered a lot of different ground so far, but one thing I kind of want to reiterate and finish with is fear and doubt caused mistakes. That's okay. Experience and confidence come over time. So even if you're going into this and thinking, well, geez, I have to manage my emotions? How do I do that? Listen, it comes with time, comes with experience, it's a lesson. It is a lesson that's learned sometimes a little awkwardly, sometimes a little painfully. We've given a lot of different strategies here that can help minimize that to reduce the stress, reduce the fear, reduce the doubt. To give you an environment, not only from a physical perspective, but also from a mental perspective, where you can rationalize your actions, your approach, your strategy, your success rates, your loss rates, and everything else. And realize that this is a longterm process. It's a longterm game. It's not like going into a casino and then walking out when you run out of money after an hour because you've just given the markets your money. You've done something stupid.
Phil Newton: .
Sean Donahoe: It's like don't play roulette or something like that. But at the end of the day, the literally you can walk into this but it's a longterm game. This is a multi-year game. So every trade is just one ... I'll put it in video game perspectives. This is one MPC you've just destroyed. Okay, great. You've won. Great, you've won that one wee battle in the game. Now that video game is multiple levels, it goes on infinitely as long as you want it. And, again, longterm, longterm, longterm.
Phil Newton: That's it.
Sean Donahoe: Every trade is one step.
Phil Newton: It's that longterm gain, isn't it? For the approach. And this is the psychology aspect, the mental side of trading is going to keep you in the game longterm. Now, to be fair, some people don't have an issue with it. They've just got natural mental fortitude. And as I've explained before, I hate each and every one of them. Because for me personally, I had to struggle with it. But having this disciplined approach that we've skirted around and come at from the psychology kind of viewpoint of how you can develop discipline. Have a strategy, have the checklist, and all the things that we've been talking about.
  And I also, I sort of earlier, as you know, Sean, and I got sidetracked. I remembered what it was. It was redefine a win. That's what I was going to mention earlier but completely lost my train of thought.
Sean Donahoe: Awesome.
Phil Newton: So, again, ... What is a loss? It's that fear of loss that we were talking about at the beginning of the show. The fear of loss. How can you avoid a fear of loss? Well, let's redefine what a win looks like and just because you've lost money doesn't mean that that's a losing trade, because then you're ... As you were saying, you're reinforcing that kind of that negative experience when following your strategy. Did you do everything that you said you were going to do before, during, and after the trade?
Sean Donahoe: Yeah.
Phil Newton: But it just happened to product a monetary loss. That's still a winning trade in my book, because you did everything that you said you were going to do.
Sean Donahoe: That's a very valid point and it's also a good thing that when you have those near wins, if it didn't check all the boxes, then that's a loss. And it helps you define that that was a near win and I screwed up right there. I shouldn't have done that even though it worked out well.
Phil Newton: Well, did you screw up though?
Sean Donahoe: Well, that's what I mean. If it wins-
Phil Newton: Yes, did you screw up though? Was it a monetary loss?
Sean Donahoe: Yes.
Phil Newton: Yeah, if it was a monetary loss but it wasn't a losing trade.
Sean Donahoe: That's it.
Phil Newton: That's what we're trying to get to. So, yeah, you might have lost some money. So if you did everything that you said you were going to do before, during, and after the trade, it's got to be a winning trade. But if you didn't follow the plan, and you didn't go through your checklist, and it was a nearly trade but you put the trade on anyway, which is what you were just talking about. It was nearly there but let's do it anyway. That's a losing trade right there. That's what you want to avoid.
  That's why you've got the business plan. That's why you've got the check list. That's why we're doing the reduced position size and we're focused on managing risks. That's why we're doing all these things that we just talked about because we've defined our win. I always take this thing for granted, Sean. But what I consider a winning trade is not what everyone else calls a winning trade. And I think that's what separates most people who are successful. Perhaps not just the trading but anything in life. They've got a very specific definition of what they're going to consider a win.
Sean Donahoe: Yeah, that's very true.
Phil Newton: And it's not what most people consider. I lost some money. Well, you're still successful. It just didn't produce a favorable monetary -
Sean Donahoe: That's very true.
Phil Newton: Redefine the win. I think that's a good place for me to stop talking now.
Sean Donahoe: Now, that's perfect. I just want to underscore that because on the flip side of that is if you have a money positive trade, and again you're doing that ruthless evaluation I said, across both wins and losses, redefining and taking a step back and evaluating them. And you realize you didn't check one box. Guess what? You made a mistake and you'll try and learn. Crap, don't do that again. Okay. Even though it produced a monetary gain means that's a warning sign. So, again, there's flip sides to that. But, again, that's what requires you to be able to take a step back. And if you win a trade, great, what's next? If you lose a trade, walk it off. It's just a flesh wound. Okay?
Phil Newton: It's only a flesh wound. It was a part of the plan. Would you do that again? When you're back-testing the strategy you would have included that so it's got to be a winning -
Sean Donahoe: Exactly.
Phil Newton: It just didn't produce the monetary outcome that you wanted.
Sean Donahoe: Now, we've covered a lot of ground in this. We've covered a lot of different strategies that you can cherry pick to help yourself.
Phil Newton: And we've not even been ... We've not even rattled or shaken -
Sean Donahoe: No, we haven't. We have not.
Phil Newton: It could be considered a little bit woo-woo, but this is what's going to keep you sane in the next ... This is what's going to keep you trading for 20 years. It's that psychological aspect of the trading.
Sean Donahoe: Yeah. And you know what needs to be done, so get off your ass and do it.
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 Rebel Trader tip of the week. Here's something, and this is kind of connecting back to what we were just talking about. And it's one thing that we really fondly enough focus on a lot personally, both myself and Phil, is making sure our brain's up to spec. Because the brain is a muscle. It needs to be exercised and it's the same with your emotions. You need to be able to exercise those emotions so that when you come to your trading you're in the peak conditions, so to speak. And it's easy to do, but it's very important that you do exercise your brain with trading. I mean, a bad run could really tax your emotions as we've talked about. A positive run can also have a different effect on your emotions as well because it creates a false level of confidence.
Phil Newton: You can get complacent.
Sean Donahoe: Yeah. Absolutely. And, yeah, we've developed our strategies to aid us in that quest. But the only person that can master this aspect of your psychology, your brain, your emotions, is you. So find ways to do that. Find ways to relax, to exercise your brain. Maybe you want to do some mental exercises. Because the more you exercise the brain the more stronger your synapses become, the quicker you are to reason, to rationalize. I mean, there's all sorts of different ways that you can exercise your brain rather than just jelling out in front of the television. Because, again-
Phil Newton: Broadly speaking, put some fun in your life.
Sean Donahoe: Abso-damn-lutly.
Phil Newton: Just do something that you enjoy doing. Exercise is a great way to do it and if you're not into that ... But yeah, just have some fun. Watch comedy, if you like that. And I'm trying to think of alternative ways that are not the typical. You should meditate because I am a big advocate, and you're a big advocate, of ... I meditate for an hour every day. I have programs, I have routines that help keep that mental health. The nature of what we're doing, we're constantly juggling numbers and the little gray cells are always in motion.
Sean Donahoe: Yep.
Phil Newton: I do a lot of pleasure reading, which puts me into kind of like a mild state of alpha. But it's nothing to do ... I don't actually ... I do a lot of reading of fiction and science fiction. So that helps switch off and give you some pleasure. But if you can just do things that create pleasure, Sean.
Sean Donahoe: me.
Phil Newton: Just get those happy endorphins ... Well, yeah, I think just listening to comedy. Just have a 20 minute/30 minute window. And to be fair, it will just make you a better person in life because you've got some measure of pleasure going on in your life. You're not always work, work, work, grind, grind, grind, hustle, hustle, hustle. I personally think that's bad for you. It's unhealthy.
Sean Donahoe: As he keeps telling me all the time because I run multiple businesses.
Phil Newton: I know, we're . Yeah. But just get someone else to do it. What you want in your life, I think if you think about a life that you want to have, because I did this probably about 10 years ago now. What life do you want to have now? And try to design your work and family life ... And there's no work life separation, and balance, and all that. It's just everything is all at once. So have a measure of happiness in your life and fun and enjoyments. And what's the life that you want to live? If you could redesign your life, how would you want that to look like? And then include the elements, the modules, that would make up that. For me, it's including trading. I like to read. So I'd go to a coffee shop and read for an hour every day, I meditate for an hour every evening, I go to the gym. I do the things that I want to enjoy doing because I've designed my life around what I enjoy doing. And trading helps me support that. And this, helping people to achieve financial freedom and create wealth from the start, I enjoy that
  These are all elements of the life that I want to live. I think that just coming at it from a different perspective, Sean, think about the bigger picture, well, part of that is keep your brain happy.
Sean Donahoe: Abso-damn-lutly. Couldn't have put it better. So there you go. Rebel Trader tip of the week.
Automated: If you've got questions, they've got answers. Sean and Phil dive into the virtual mailbag for this week's Rebel Trader's quick fire round.
Sean Donahoe: Okay, so let's rummage in the mail bag. And we're going to do this in a quick fire round here. And I'm going to throw this one at Phil.
Phil Newton: We should rename the quick fire round because, well, whatever we're like it's not a quick fire round.
Sean Donahoe: This is true, this is true.
Phil Newton: We should call it the mostly going slow round.
Sean Donahoe: There you go. That's actually, funny enough, pretty actuate. Because we always tend to take our time with this. So it's really not quick fire, indeed. So the first one for you, Mr. Newton, what exactly is insider trading?
Phil Newton: Well, I like to trade indoors. So I would consider that inside trading. There you go.
Sean Donahoe: Okay. Martha Stewart is not here. So, okay.
Phil Newton: I've always got to go for the flip answer, you know that, Sean. Insider trading, it's essentially where people are privy to information that the general public either don't have or they get information ahead of the general public. Therefore, they're privy to sensitive information. And then what they then do with that information is they would act ahead of maybe a general release of that information so they're benefiting from the information.
Sean Donahoe: Yeah. It's very ... It's considered-
Phil Newton: That's a very broad stroke answer. I'm not sure if I-
Sean Donahoe: No. It is pretty good. It's pretty accurate. Because the funny thing is, the speed of information right now is so fast and stuff is released so frequently or there's ... We were talking about this with Andrew a few episodes ago where we were talking about the satellites. Satellite imagery that can look even through a factory window or a skylight to see how busy a factory is or something like that. Or what's the volume at a trade port. Is it going up or down? That can be a possible indicator.
Phil Newton: Is the ship low in the water or high in the water?
Sean Donahoe: Well, exactly. If you can tell that from space, but yeah.
Phil Newton: If you can tell that, well, yeah.
Sean Donahoe: Yeah, exactly. So when you get started getting that kind of information that is publicly available information. You might be paying for it because you have to have a subscription to these services. But we were talking about that. When does this become insider trading? Because it's not easily available to the public, but it is there. If they were in a dingy looking at that boat to see how low it was in the water, that is kind of an indication. It is possible a member of the public can do that. But also, the literal interpretation right now is that, yeah, the un-privy ... Well, the privy to information the public that is not available to or is coming out ahead of an announcement.
Phil Newton: An example might be when Equifax sat on their data breach for, what? Three weeks was it?
Sean Donahoe: Mm-hmm (affirmative). And the executives dumped their stuff.
Phil Newton: It would be like the directors selling some of their share ... It would be like the directors selling some of their share holdings ahead of the announcements they inevitably have to make that would cause their particular stock to take a swan dive.
Sean Donahoe: Which did happen.
Phil Newton: Insider information.
Sean Donahoe: Yeah. That did happen.
Phil Newton: So when did that happen, Sean? I didn't realize. I was just floating an example out there.
Sean Donahoe: Yes, they did. Yes, they did. And that was-
Phil Newton: What a surprise. No, but that would be an example of insider information. That cashing out at the more favorable stock price, for example. When the bad news happens then they're not impacted by that .
Sean Donahoe: Yeah. Yeah. Perfect much. I mean, that's it dead on a nail. So what else we got in the mail bag?
Phil Newton: Awesome. So next question, given the current mocking condition, Sean, I think it's quite relevant. Are we on the cusp ... I like that word. It rolls off the tongue quite nicely. Are we on the cusp of a bear market?
Sean Donahoe: We're on the precipice I would say. Looking at this and we were talking about this last night amongst ourselves.
Phil Newton: Well, what is a bear market? I think that bears taking notice.
Sean Donahoe: Wouldn't, yes. Well, we're looking at-
Phil Newton: it's just for fun.
Sean Donahoe: Yeah. There's a difference between a correction and a serious decline. And right now we've been on a nine year bull run. The market's are perfect much ... Although we had a couple of kind of stagnate years.
Phil Newton: We've had statistical bear markets, which is ... What is it? It depends on your definition, I suppose. But the two back to back, is it months or quarters? I can never remember.
Sean Donahoe: I believe it's two quarters back to back.
Phil Newton: Yeah, we've had a statistical bear market where it was like .01% contraction of the economy. It was essentially a pause as you were just describing.
Sean Donahoe: Yeah. And what we're looking at is, I mean, the ... Right now it's hard to determine if we're in correction territory and we're at the bottom of that movement or if we're going to punch through the 200 day moving averages, what we were talking about last night. And for me, I think it's a self-fulfilling prophecy, it's tickling that 200 day moving average. The S&P punched through it at the time of recording, which is we're recording on the fourth here. That was yesterday we were looking at that. And this, and Phil was saying, oh, it looks like it's going to be an inside day. Turned out to be. And-
Phil Newton: I swear it was.
Sean Donahoe: Yeah, well done. And then today has so far been a negative day. But it's holding above that 200 day moving average.
Phil Newton: We're just at the opening bell and I'm looking at 40 points down on the S&P shocking.
Sean Donahoe: It is insane. It is insane. And I mean-
Phil Newton: It's still only a small move, looking at the charts.
Sean Donahoe: It is. It is.
Phil Newton: I still laugh at it, although we-
Sean Donahoe: Yeah, yeah. And, I mean, a lot of the other are all tickling their limits as well. They're not quite wanting to punch through but at ... My thought, my opinion on this, is I think we are going to have a kickback. This is not financial advice. I'm looking at this, and the fact that it's holding this level, I think is a positive sign. However, we have had tariff talk and more saber rattling.
Phil Newton: A lot of out there. Yeah.
Sean Donahoe: Yeah. A lot of negative news that I think that if that punches through the 200 day moving average, I think a lot of money is going to start saying, oh, okay, we're in a bad market. And I think-
Phil Newton: Lighten the load.
Sean Donahoe: I really do believe so. I think people are waiting-
Phil Newton: Now, I think it's also-
Sean Donahoe: And holding their breath.
Phil Newton: Yeah, I mean, what we're focusing the issue on is we're talking more about from the price activities point of view it's looking like a bear market, starting to roll over. Fundamentally, surprisingly I'm raising the subject for a change.
Sean Donahoe: Hold on, I'm going to ... Hold on, hold on, hold on. Stop.
Phil Newton: Yeah, yeah. Sit down for this, Sean. Sit down for this.
Sean Donahoe: I'm going to mark it on the calendar. I'm marking it on the calender, we're going to have an anniversary next year.
Phil Newton: Well, I've got to come back to what is the definition of a bear market? It's an economic contraction. Is the economy contracting?
Sean Donahoe: Mm-hmm (affirmative).
Phil Newton: Not yet. But from a price point of view it looks like prices are about to roll over. But fundamentally, the economy is not yet contracting. It's certainly slowing down, but has it contracted? They've got the film.
Sean Donahoe: Yeah. And-
Phil Newton: I don't think we're there yet. I think this is going to be a painful correction. Yes, we might go below this magical 200 rest of the week if we see a little bit further of a push down. But bear market, I think people are going to be talking ber markets and as soon as they do we'll see prices rally. Because whatever the crowd's doing, I want to be doing the opposite. So I don't think we're there yet. It's going to be a painful correction I think. Will it be a bear markets?
Sean Donahoe: When we see-
Phil Newton: a contraction. That's the official word-
Sean Donahoe: Definition.
Phil Newton: Off the streets.
Sean Donahoe: I think we're tickling ... Yeah, I think we're tickling -
Phil Newton: I've been bearish for many years, as you know. I am a bear. This printing money and expecting the value of that money to be retained is ... It's not sustainable. It will happen, I just ... When it happens, I don't know. I mean, nine years later. It's going to happen soon, but for nine years we've been saying it's going to happen soon.
Sean Donahoe: Yeah, exactly. Now, the market's literally just opened it's opening-
Phil Newton: .
Sean Donahoe: It's opening below-
Phil Newton: Blood on the streets.
Sean Donahoe: Yeah, yeah. As so.
Phil Newton: Wonderful. I've got to say, I'm looking at it, it's absolutely wonderful. At least half of my portfolio is benefiting, Sean.
Sean Donahoe: Well, there you go. And that's the benefit of a balanced portfolio. But at the end of the day, yeah. I think we are right on the edge of it. I think it's not going to take much to knock it over for a while. We certainly had a lot of exuberance, irrational exuberance, for the last-
Phil Newton: Ooh, That's a sexy phrase. I like that. Yeah.
Sean Donahoe: I love that phrase. Thank you, Alan Greenspan, for that one.
Phil Newton: Word of the day.
Sean Donahoe: There you go. But we certainly had a lot of volatility since the new year and this is now an uncertain market. There's a lot of volatility market to swing in wide each day. I mean, like you said, market opens already moving-
Phil Newton: 40 points at, 40 points down.
Sean Donahoe: 40 points. Yeah.
Phil Newton: It's still not broke that low from a couple of days ... I think we break the ... From a price action point of you, just purely from price, I think that if we breach the big selloff that we saw, what's the official word on that? There's still uncertainness to whether we're calling it a crash or not.
Sean Donahoe: Let's call it a correction. A rapid correction.
Phil Newton: A major correction. The rapid correction that we saw, I think we preached those lows. I think that's when everyone's going to start to really panic and start selling positions, because then we will have seen the higher low breached and a lower high developed officially on the market. For a price point of view that's the definition of a downward move is prices are making lower highs and lower lows. And when that happens is when people are going to start hitting the eject button on positions. And that will create that further downward spiral that you're speculating on.
Sean Donahoe: Yeah. Now, the funny thing is that that one in February literally reversed right on the 200 day moving average. I am not one for saying it balanced off of this level and everything else, because we know-
Phil Newton: Gag, retch.
Sean Donahoe: Exactly. But it is coincidental. Self-fulfilling prophecy. People look at the 200 day moving average.
Phil Newton: A lot of people look at it. A lot of people look at it.
Sean Donahoe: As, yeah. It's something that I keep up on a lot of my charts just because I want to see human psychology at play. You know me, guys, I'm always looking at the herd just to see what they're doing and then anticipating their moves to be on the profitable side of that. Again, we just kind of punched through the 200 day moving average on the S&P at least. And on the future's, it's looking kind of bleak as well.
  So if that stays in holds the course, we'll see if there's any other news or if it comes back a bath. But, yeah, again, I'm looking at that level because it's kind of hesitating and pausing right there. That's going to be the deciding factor I think. So an elongated answer to that. But, yeah, the environment is changing.
Phil Newton: There is no single right answer. We're starting to see signs, economic contractions is how it's generally assessed. But, yeah, follow price. If it's going down, sell it. If it's going up, buy. That's what price strategy tells me to do.
Sean Donahoe: Absolutely. And here's the thing -
Phil Newton: In a bear market or a bull market, to be quite honest, I don't really care.
Sean Donahoe: I was going to say-
Phil Newton: If it's going down, sell the . If it's going up, by the dips. We own that, I don't care.
Sean Donahoe: I was going to say exactly the same thing. Because there's a bull market everywhere, even in a bear marked. There's always an opportunity, there's always a short opportunity. There's lots and lots of things. In generally, yeah, I don't really worry about it. But like Phil says, we've been calling a bear market for a long time because this irrational exuberance, I got to use it again-
Phil Newton: Very strong principal.
Sean Donahoe: Yeah, there you got. It's an irrational moves. We've seen a lot of irrational gains and now it's time to pay the piper, I guess. So we'll see what happens. But I's certainly be aware of it. So, last question there for you, sir. How do I avoid loss in intra-day trading? Now, this is harking back to you. You meant to skirt around it earlier on. Day trading. But this is one we got. How do I avoid loss in intra-day trading? My flipping answer is just don't do it.
Phil Newton: You're trickling over ... You're trickling over what I was going to say there, . How do you avoid losses in intra-day ... You don't trade intra-day. It's as simple as that.
Sean Donahoe: That's what I was going to say as well. Perfect.
Phil Newton: Well, if you want to, don't trade. How do you avoid losses? Don't trade. That's it. That's as simple as it's going to be. Yes, it's the flipping answer. But if you're worried about losses, then why are you trading? Broadly speaking, it would be like saying you're worried about losing money if you start a business. Don't start a business. Go and get a job. There's plenty of jobs available. Go and get one. Go and stock shelves somewhere. If you're worried about losing money, then this isn't right for you. I know that sound harsh, but unfortunately it's the truth. If you're worried about something, don't do it.
  However, if you can get past that fear, because we've been talking about the fears. Reduce your position size, keep any loses as small and acceptable. And I don't mean like use an exceptionally tight stop loss or risk management, whatever you're using. But keep the losses acceptable small to allow you to put the next trade on. Because you don't want to be fearful of the next trade if you have a loss on this trade. So if you keep the loss, a dollar amount, small it allows you to stay in business. And what we mean in the trading world, is it allows you to put the next trade up. Because if you have that emotional reaction to the current trade that you've just closed and it happens to be a monetary loss, that will prevent you from putting the next trade on.
  You can't avoid losses, I think is ultimately one I'm skirting around, Sean. They're going to happen, they're going to be a fact of life. How can you minimize the loss, reduce your position size, how can you reduce the emotional reaction, reduce your position size. How do you keep the losses' infrequence? You have a strategy that is time tested and proven.
  And if you really insist on intra-day trading, then find someone who is exceptionally good at intra-day trading that can also teach. Because those two things are separate from each other. And people good at trading but they're not necessarily good at teaching you to be able to replicate that process. And there's some really good people that can do it. I'm one of them but the way that I want to trade is I find it quite stressful so I don't do it anymore. It doesn't meant that I'm not good at it or I can't teach it, it just means that I prefer not to do it. I don't see why I should intra-day trade. It's a big myth that the money's made in intra-day trading or day trading. Yes, there can be a lot of money there made, but it's not the only way to trade. I want a more relaxed approach. I personally think that day trading is a heart attack sport if you don't know what you're doing. And even if you do know what you're doing, it can be a heart attack sport as we both know, Sean.
Sean Donahoe: Abso-damn-lutly.
Phil Newton: Particularly in these current market conditions. How do you avoid a loss on rambling, Sean? Catch me if you can. And don't do it if you're really worried about day trading, don't do it.
Sean Donahoe: Absolutely. And I read a statistic the other day that about 95% of day traders lose money. And that I think is also-
Phil Newton: No, for retail the traders lose money because they don't have a plan, they don't have a system, they don't have a method. And I keep going back to this answer, Sean. Treat it like a business. Most people come at trading like it's a hobby. And if you want a hobby, take up golf or fishing or something else. You can waste your money on a rod that you're never going to use and it sits in your garage. The training equivalence is not having a plan and putting a trade on because it looks good and then you lose money. That would be like buying a $1,000 fishing rod and throwing it in the garage and forgetting about it. It's just an expensive hobby if you don't come at this like it's a business. Because, guess what? It's a business. Treat it like a business.
Sean Donahoe: Abso-bloody-lutely. Couldn't put it better myself.
Phil Newton: Oh, Mr. -pants made a final appearance at the last minute.
Sean Donahoe: Absolutely. The soapbox was ready just in case.
Phil Newton: Just in case. It was on standby.
Sean Donahoe: Okay. So, yeah, let's rock on.
Automated: Don't forget, if you have a question you want to ask Sean and Phil, just got 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 hijinx and hokum or so called experts. Yep, it's time for bullshit of the week.
Sean Donahoe: So bullshit of the week and this is a doozy. I love this one. Now, I have a lot of respect for this guy and I lost it. Okay, John McAfee is a legend in the software community. He's a pretty smart dude when it comes to security, which funnily enough one of my background, when I was in the IT industry, was network security, intrusion detection, and basically stopping hackers. Many, many years ago. And so John McAfee is kind of like one of the most well known people in that industry and has continued to be so. He's the developer, obviously, and the original owner of McAfee, which is the software, antivirus software and security software, which I don't believe he owns anymore. But I think he's got stake or something like that. But he basically doesn't own it anymore. However, he's a smart cookie and he's dived into the crypto world and he was a subject of a previous bullshit of the week when he said he was going to eat his ... And I'll insert the body part that you probably can guess if I'm not actually mentioning it. That if bitcoin doesn't hit a million dollars by 2020.
  Okay. He raised that bet from $500,000 to a million dollars by 2020 based on the exuberance, the irrational exuberance ... Three times in a show. I've got to use that phrase. Of crypto before Christmas. So okay, stupid-
Phil Newton: Eye roll.
Sean Donahoe: Yeah.
Phil Newton: Insert eye roll here.
Sean Donahoe: Indeed. So here's the thing, if you have initial coin offering in ICO that you want to promote, because he is talking about ICOs all the time and he's deeply embedded in the crypto world. But if you want him, on Twitter, to mention and refer to your ICO it's going to cost you $105,000 for 140 characters. That's $375 per character. So if you use an ellipse at the end of your sentence that's $1,000 right there. It's ridiculous. So, yes, now I am all for sponsorship. I am all-
Phil Newton: Sigh, eye roll.
Sean Donahoe: Now, yeah, exactly. I am all for getting paid and using influence in marketing. It's, again, one of my ... My marketing company talks about it a lot.
Phil Newton: We're capitalists.
Sean Donahoe: We're capitalists.
Phil Newton: We're capitalists at the end of the day. Well, then this sounds more like extorsion to me.
Sean Donahoe: It is, it is. It really is. But then again, at the end of the day, sure, this guy will talk about your ICO. He's got a hot market that is all over these. But as we know, most of the ICOs are complete bullshit. Most of the ICOs are basically big scams. Now, he says, oh, we go through this vetting process.
Phil Newton: Really, Sean? Are they all schemes?
Sean Donahoe: How freaking surprising. But with nearly half of all the ICOs in 2017 falling, people do want to invest some in recognition. But 105 ... What got me was $105,000 per Tweet or $375 per character. I said to-
Phil Newton: That will be disappearing in about seven seconds on your newsfeed.
Sean Donahoe: Exactly. Exactly. I had to laugh. I said to Tam last night, "What? An ellipse? That's $1,000 right there." And she's just giggling because it's like, yeah, that's exactly it. It's ridiculous. But, hey, you know what, if you buy into that bullshit and recommendation with someone on Twitter or some post, always think what's behind it. That's a little bit of common sense.
  I like getting paid to promote. There you go. Are they saying it because, hey, they found a really good opportunity and they're letting you know? Or are they being sponsored to say that? Now, here's the thing, pundits on television, it's illegal for them to do that. There's a guy on, I think it was Fox business. And again, I'm saying allegedly, from ... I want to say Change Wave Tobin Smith? Or something like that? Got kicked off the show because he got, allegedly, again I'm putting this in, paid to promote a particular or mention it on the air. And he did. Now, again, I'm saying allegedly around everything else. Yeah, you'll have to look it up.
  But, yeah, that was kind of ... And this was someone that I respected as well. And yeah, got kicked off because they were paid to promote a particular stock and they did so on the air. See, that's illegal. That's against FDC rules I believe, and a few other things as well. And, yeah, so ...
Phil Newton: Influence on marketing to do that. I was just quiet while I was trying to phrase. It's that influence on marketing that they're wrong about.
Sean Donahoe: Yes.
Phil Newton: Celebrities can do it, but you can't do it because they're employed to be objective, which is laughable in the first place.
Sean Donahoe: I know. But if you think, when it comes to financial instruments, you've got to be very careful.
Phil Newton: You've got to be. Yeah.
Sean Donahoe: Yeah. Instagram followers who promote their latest yoga pants-
Phil Newton: You lost me at crypto. Yeah.
Sean Donahoe: Yeah, there you go. But, yeah, I mean, if you're doing this on Instagram and you see all of these models who are Tweeting about their day and then they've got these new yoga pants that they just got from somewhere, you're guaranteed that that's a paid Tweet. I mean, the Kardashians are famous for leveraging their audience per Tweet by mentioning products. And they get-
Phil Newton: Fair play. I'm not a fan, but fair play.
Sean Donahoe: Absolutely. So there are ways to do that to get exposure.
Phil Newton: I was going to -
Sean Donahoe: But if you talk about Kim Kardashian and exposure.
Phil Newton: Oh, don't start with me. Don't start with me.
Sean Donahoe: She tends to expose herself a little too often, but there you go.
Phil Newton: If you're into that, fair enough. If you're not, whatever. I don't really care what humbugs who's got and who's sleeping with who. Forget it, it doesn't matter. But I think in this particular case you're absolutely right. It's bullshit and being paid to say what the latest ... So what effectivity is going on? Someone who's supposedly a thought leader in this particular area. I mean, I'm just leaving the name out. They're effectively ramping up an artificial opportunity. That's pump and dump right there. This is-
Sean Donahoe: Absolutely.
Phil Newton: Going to be amazing, it's going to be fabulous. And the reality is it probably isn't. You might as well just get an email from a random guy asking buy this wheat stock.
Sean Donahoe: Indeed, indeed. And the funny thing is, we're not joking. We both get those emails from the same person.
Phil Newton: That's the way it all happens.
Sean Donahoe: Absolutely. And yeah -
Phil Newton: On the ground floor there, Sean.
Sean Donahoe: Indeed. Yes, yes, yeah. Enough said. Enough said. So there you go., ladies and gentlemen. That's it for this week's show. Hope you've enjoyed it. Hope you enjoyed listening to this show. We love putting this stuff together and sharing this with you because it just gives us ... It basically makes me smile. I do this because I enjoy it. So does Phil. We love talking to each other. And the fact that we can have an opportunity to talk to you guys as well-
Phil Newton: , Sean.
Sean Donahoe: Just makes it more fun. All right, bugger off then. Miserable sod. Miserable sod. Okay, so anyway. If you've enjoyed this show, please remember this show is not free. It does take a lot of effort and time to put everything together. So please leave us a five star review. Just go to Tradecanyon.come/Rebeltraders. Pick your favorite platform that you listen to us on and leave us a review because we love to hear from you. Again, like we mentioned earlier on, gentleman who said this is like the Buddy show for traders, I actually loved that. And gave a lot of kudos to the team as well. So that makes us smile.
Phil Newton: Specifically me.
Sean Donahoe: He had to mention that.
Phil Newton: Not so much Sean, but specifically me.
Sean Donahoe: Very funny. Anyway, so that being said-
Phil Newton: I'll take it, I'll take it.
Sean Donahoe: Yeah, go ahead. You need all the help you can get.
Phil Newton: Yes, I do.
Sean Donahoe: So anyway, rock on and, as I said, this helps us reach more traders and investors just like you.
Phil Newton: Yeah, you can also connect with us on the socials. You can get to us on Facebook and Twitter. If you go to the same link, Tradecanyon.com/Rebeltraders you can certainly connect with us there or reach out and send us all the adoring fan mail that you want. Or you can send me the adoring fan mail. If there is a message, send us a question for next week's show, that would be great. And what have we got coming up in next week's show, Sean?
Sean Donahoe: Oh, well, next week we're going to be talking a little bit more about trimming the hedge. We're going to be looking at hedging positions, different strategies, different things you can do. Basically mitigating risk and loss. Different ways that we're going to do that. And we're going to be having Mr. Andrew Page on the show as well because he's got some different strategies that he uses in the futures and commodities sector. So we'll be taking a wide range of different aspects to, again, help you minimize that loss and risk, look at different ways to do that, and that will help you with a lot of the stuff we're also talking about in today's show as well. So as we get in and end our state of zen we'll rock the hell on and see you all next week. For now, take care.
Phil Newton: Bye for now.
Automated: For more cutting edge trading advice and a free trader workshop to help you build a personalized trading plan and make smarter trading decisions, go to tradecanyon.com now.
Automated: Features, options on features, 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 Inc. provides only training and educational information. If you actually understood and listen to this, then that means you were awesome. Congratulations and well done. Notice: this product may contain nuts.

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[00:00:10] Show Introduction

[02:58] Sean: Diving into this, this is the biggest hurdle.

[03:09] Phil: For long-term success. Short-term, you can fake it.

[03:11] Sean: You can, but it's the toll it can take on you if you don't have the right mindset that can cripple you, and it's one of the biggest reasons quit. It's the continued mental toughness that is required and resilience, but there are a lot of different aspects. I want to start with this one because it's an emotional reaction.

[03:39] Phil: It's the catch all.

[03:42] Sean: The fear of loss. That is the biggest crippler and stops people from moving forward and actually makes people move backwards. This is a natural thing. It goes back to when we're in caves clubbing dinosaurs - no. We know humans didn't exist at the time of the dinosaurs, I'm joking. When we're living in stone age man when we had to fight for every single thing to survive. It was really ingrained.

[04:15] Phil: So pre-internet. You had to go out and hunt and gather. You couldn't just get stuff delivered.

[04:25] Sean: Exactly. We had to fight to survive. Anything that caused a loss to our resources was truly to be feared. It is ingrained in us that we hate to lose. We fear loss. People have actually studied this.

[04:53] Phil: It's a big motivator.

[04:52] Sean: It's an insane motivator.

[04:52] Sean: It's an insane motivator.

[04:54] Phil: Bigger than the attraction of gain. To be fair, if you go an do something, you've got a lot to gain. The fear of loss is bigger than the potential gain if you actually did something.

[05:11] Sean: It is actually shocking.

[05:14] Phil: In trading context, the fear of loss is not the motivator to do the trade. The fear of loss is the motivator to not do the trade. It's that not taking action. I'm worried this won't work out so I won't put the trade on. It's a weird psychological tick. It's something I really struggled with. It does get to you. If you have a string of losses, that fear of loss prevents you from putting the next trade on, because you're biased by two or three losses. If you've been doing this trading thing for a couple of years and you've not seen any success, the actualized losses you've experienced prevent you from putting successful trades. The trap that I see people fall into of not trading with the fear of loss, they put all their losing trades on in their strategy and then watch all the winning trades to build their confidence up. Every strategy has cycles, whether we want to admit it or not. No strategy is perfect. As a new trader, you will fall into that bias of watching the winning phase - yeah there's a winning trade, there's another winning setup, okay I've got the confidence now, I've seen it work out for me. I'm now gonna put the trade on and that's the one that statistically would have appreciated the loss, and it does appreciate the loss. Then you hit the losing phase or you might have one trade that's the win that just keeps you putting the next trade on, but then you hit that patchy, messy, sloppy, inconsistent performance of any strategy experiences, but then you only trade the losing trades. You watch the winning trades... You can see the cycle we're talking about?

[07:35] Sean: Abso-damn-lutely. Here's the thing. When we feel loss, it triggers the same parts of the brain as physical pain. When they say that trade hurts, it physically is triggering those same receptors and the problem is we use that as our learning tool. It's like sticking your fingers in a fire. Oh shit, that's hot. You learn not the do that again. While it can be a measure of learning and building experience, it can also literally reinforce negative actions that you actually need to do. Even if you applied your strategy perfectly, you have the most perfect strategy in the world that will win every single time, but your application doesn't work out. You've got a positive expectancy, but in that you've got a losing trade, you'll start to think, oh crap, that doesn't work. But also, if you nearly win, but ultimately lose, that basically releases the same chemicals of elation that a win does, so if you almost win, you think ahh, I was almost there. Damn. Okay, I'll make that same mistake again because hey, it almost won last time. You've got to be able to take a step back and almost have a little checklist. Did I do that right? Yes. Did I do that right? Yes. Did it win or lose? This is one thing I try and reinforce in everyone: You need to be dispassionate from the wins as well as the losses.

[09:25] Phil: It's not easy, but it can be done. We're not gonna lie to you.

[09:27] Sean: No it's not. It comes with experience and forcing yourself to rationalize your action.

[09:42] Phil: Another reason to trade small, as small as possible. It allows you to weather that psychological storm. You might have a string of losses. Imagine position size like a volume dial. That voice is going on in your head, is this one gonna be another losing trade? If you imagine position size or that the per trade risk is like a volume dial on your emotions. Turning that dial down is reducing your position size, that's a big factor. It helps you to not get rid of the emotional impact, it just allows you to get on with the job, to go through the checklist you were just describing without having the voices in your head causing you to do all sorts of crazy stuff.

[10:43] Sean: It's a lot easier to manage from a psychological perspective, to be a Johnny One Lot, rather than doing a thousand contracts or ten thousand contracts or what have you. It is significantly different.

[11:00] Phil: What if one lot is too big? What if you can't reduce your position size? What if you're already down to one lot? You're a couple of strikes out the money with stock options. We can also start thinking about debit spreads as a way to reduce the overall position size that helps you turn that volume dial of the emotional impact down. What are your thoughts?

[11:33] Sean: I agree. One of the things we advocate with our students while you're getting started is start with about half a percent of your total capital. That is a manageable bite-sized chunk you can chew and swallow. As you get more experience and more confidence, you can raise that up to a comfortable level - don't go crazy - because you want to have that diverse portfolio so you're not worried about that one position and fixating on that. You have a whole basket of small positions that allow you to mitigate your risk, which is one thing we're all about. You have lots and lots of trades in, so with a positive expectancy strategy, you're gonna have trades that are coming home and trades that are not. The thing is, as you're having one lost, you're having other wins. It bounces out.

[12:26] Phil: The portfolio allows you to get that experience. That's the big thing we always advocate. Trade small. Use spreads if you need to get smaller. It's very counterintuitive, but for me personally, that's the big contributing factor that allows me to reduce the emotional impact. It's that portfolio experience, because you're not worried about one trade anymore. You're worried about the average.

[13:02] Sean: Absolutely and the thing is we've done it all because we've had to do it ourselves and with our students. Everyone is different. There's no one solution for any one person. We're gonna put a lot of stuff out there that will either resonate with you or not.

[13:19] Phil: Some people have just got that mental fortitude and I hate every single one of them because I had to struggle through this the hard way.

[13:25] Sean: You know what, I'll be honest. I had a head start in that I wanted to be a professional gambler. I learnt from a few pros what it takes to have that mental fortitude. When you're in a casino, it's a very different pressure environment. It's literally you vs. the dealer. Blackjack was my game. You're relying on all the other guys at the table not to do stupid stuff and you have to have mental fortitude. When you're at a high-stakes table per hand, there is a lot of pressure. When you can survive in that environment, you can survive in the markets. I was fortunate to go through it. This is one thing I want to hammer home. We've talked about this in terms of reducing position size. It allows you to develop this skill, and it's the divestment of emotion towards money. First of all, I want to make it absolutely fricken clear. You should never trade with money you cannot afford to lose. One of the biggest people we see is people who over-leverage themselves, or they go into the market and they don't have the emotional side.

[13:25] Sean: You know what, I'll be honest. I had a head start in that I wanted to be a professional gambler. I learnt from a few pros what it takes to have that mental fortitude. When you're in a casino, it's a very different pressure environment. It's literally you vs. the dealer. Blackjack was my game. You're relying on all the other guys at the table not to do stupid stuff and you have to have mental fortitude. When you're at a high-stakes table per hand, there is a lot of pressure. When you can survive in that environment, you can survive in the markets. I was fortunate to go through it. This is one thing I want to hammer home. We've talked about this in terms of reducing position size. It allows you to develop this skill, and it's the divestment of emotion towards money. First of all, I want to make it absolutely fricken clear. You should never trade with money you cannot afford to lose. One of the biggest people we see is people who over-leverage themselves, or they go into the market and they don't have the emotional side.

[15:06] Phil: On paper their strategy works, but let's face it - it's easy to have that emotional attachment when you research something. But as soon as you've got real money on the line, you've got skin in the game.

[15:21] Sean: You've got to be able to afford to lose the money. If you accept that you can lose that money and it will not destroy your life and your family or anything else, you have the ability to disconnect. If you then work on capital preservation as well as capital growth, and you come at it from that protective, conservative yet aggressive or positive expectancy strategy, some of the stuff we actually teach, then you are going to be able to trade without the fear or with less fear. This all comes with time and experience. This happens to every trader. When you're going from paper trading to live trading. You could have it all down to a T, you could be Warren Fricken Buffet, when you get live in the markets, you're gonna be the uncertain school boy on his first day. It doesn't matter. Everyone goes through that. It's normal. As you get more involved, confidence builds. But don't get complacent. Be able to take a step back, it's very important. Evaluate whether you had a win or a loss. You should come at it with the same ruthlessness. You almost have to be narcissistic in the unemotional way. It does take time.

[17:10] Phil: How can we speed up the process? We all want it now. How can you circumnavigate that reaction. We already talked about one way which is to reduce your position size. It's gonna diminish the little voice in your mind that tells you to do stupid things. The other thing you can do, which is what every successful business does, is have a physically written plan. Most traders don't do it. They've researched their idea but they've not written their rule set down. They think they can go from memory. But if you write down a checklist, step 1, 2, 3, that condition's not been met.

[18:03] Sean: Move on.

[18:06] Phil: It helps you develop that discipline. It's something I did from early on. I needed a physically-written trading plan because I always had it in my mind that I was treating it like a business and I realized I had to overcome the mindset and psychology. I realized I was keeping that journal. Dear Diary. We're gonna be writing about the trades, but also keep an emotional journal alongside that so you know your emotional state as you're placing the trades. All these things combined are gonna help you achieve this robotic discipline. You'll start to see that while I'm crapping myself over this type of trade or setup, I can start to see the results. I was emotionally on the edge with this trade. Now that you can associate what you think is an emotional response, you can now associate it with good trades. That was my experience.

[19:26] Sean: Absolutely.

[19:33] Phil: Taking it the other way, I also noticed that the ones I was most confident with were the trades that were least performing - the ones that I was swaggering about the house over.

[20:06] Sean: That's funny. I like that. One of the things you touched on, outside of the trading business plan, is a journal. The business plan is the SOP - standard operating procedures. It forces you to be more objective. It becomes habit-forming. You create almost this zen-like state. One thing I wanted to lead into is when you sit down to trade in the markets, you need to remove all distractions. You need to make sure you have the right environment. I am in Texas so I am an hour ahead of the markets. When the markets open at 9:30, it's 8:30 here. I am usually the first one up, at 6am. One thing I am very focused on is my trading environment. We only trade for an hour a day or less, but when I am trading, all my instant messages are off. My cell phone is out of the way so I don't get interrupted by calls. I literally have a sign on my office door that says ON AIR. It means don't disturb me. If my family sees that up, it means don't come in. Don't knock on the door. The reason I do this is I put myself in that cone of silence. I might crank on some music to create a feel good state of mind. This does sound a little woo woo, but I want it so I'm not stressed. I want trading to be a positive experience, even when I'm having drawdowns or having a bad streak, as long as I have the right environment, I can take steps.

[22:49] Phil: Trying to reduce the stresses and distractions that could push to make errors.

[22:59] Sean: I'm just saying what I personally do because it might help some people. We have cats, dogs, kids. Sometimes we just don't have the ability to have that cone of silence. If you have a partner and they're able to respect that, make everyone part of that decision. It's gonna help you focus on what you do. Focus allows you to avoid making that mistake. I can't tell you how many times before I started doing this I had a phone call or I had a developer for one of my businesses trying to call me on Skype unscheduled or there's some fire that needs to be put out in one of my businesses, and I'm looking at my trades thinking 'what was I doing there?' and pushing the send buttons before everything's dialed in. I'm being distracted from the process. Then I've either got to cancel the order, re-do it or giving the broker free money. Whatever you need to do to create the environment and make it habit and something you look forward to. And here's the other thing we talk about a lot. Develop a strategy that doesn't require you to be in front of the monitor all damn day, continually checking your trades like an obsessive mother with a child. It's just gonna stress you out.

[24:52] Phil: It's not gonna change. Up a tick, down a tick. Up a day, down a day. Sometimes it's up and down like a fiddler's elbow. How can people apply this? Dedicate some time to the act of trading. People always ask me about day trading. My immediate reaction is do you have the time to day trade? No. Understand what you're doing, when and why. But also, what time do you need to actually do that? Because we're not doing anything else, we've got a very refined process that is replicable and mechanical and algorithmic-like. We can deploy that strategy in 20-30 minutes. Often it's less. Maybe you put aside a 30-minute window for you to sit down, have a cup of tea, and just go through this methodical approach to find, filter and sort stocks, manage open positions, and then shut everything down for the day and come back tomorrow. Set alerts up if you need if something big happens, like there's been a 40 point move on the S&P. Maybe I should just check my positions for five minutes. The point is, you've got your dedicated 20-30 minute window everyday and it's business-like. You've got no distractions.

[27:21] Sean: I just want to kind of want to reiterate is fear and doubt cause mistakes. That's okay. Experience and confidence come over time. Even if you're going into this thinking I have to manage my emotions, how do I do that? It comes over time. It's a lesson that is learned a little more quickly, sometime a little painfully. We've given a lot of different strategies that can help minimize that to reduce the stress, fear and doubt, to give you an environment, from a physical and mental perspective, where you can rationalize your actions, your approach, your strategy, your success rate, your loss rate, and everything else and realize that this is a long-term process. It's a long-term game. It's not like going into a casino and then walking out when you run out of money after an hour. It's like go play roulette or something. At the end of the day, you can walk into this but it's a multi-year game. Every trade is just one MPC you've just destroyed, to put it in video game perspectives. Okay great, you've won that one wee battle in the game, now that video game is multiple levels and goes on infinitely. Every trade is one step.

[28:54] Phil: It's that long-term gain. The mental side of trading is gonna keep you in the game long-term. In fairness, some people don't have an issue with it. They've got it naturally. As I've explained before, I hate each and every one of them. For me, I had to struggle with it. Having this disciplined approach helped me. I remembered something I was gonna mention earlier but lost my train of thought, and it was redefine a win. Something else is what is a loss? It's that fear of loss. How can you avoid that? Let's redefine what a win looks like. Just because you've lost money, doesn't mean that's a losing trade. You're reinforcing that negative experience with following your strategy. Did you do everything you said you were going to do before, during and after? Yes? But it happened to produce a monetary loss? That's still a winning trade in my book.

[30:16] Sean: That's a very valid point and it's also a good thing that when you have those near wins, if it didn't check all the boxes, then that's a loss, and it helps you define that was a near win and I screwed up. I shouldn't have done that even though it worked out well.

[30:30] Phil: Well did you screw up though? Was it a monetary loss? It was, but it wasn't a losing trade. If you didn't follow the plan and go through your checklist but it was a monetary gain, that's a losing trade right there. I always take this one for granted and I consider a winning trade is not what everyone else does, and I think that's what separates people who are successful. It's not just in trading. They've got a very specific definition of they're gonna consider a win. Redefine the win.

[31:45] Sean: That's perfect. I just want to underscore that. On the flip side, if you have a money positive trade and again, you're doing that ruthless evaluation across wins and losses, redefining and taking a step back and you realize you didn't check one box, guess what? You made a mistake. You'll try and learn don't do that again. Even though it produced a monetary gain, that's a warning sign. If you win a trade, great. If you lose a trade, walk it off. It's just a flesh wound.

[32:23] Phil: It's only a flesh wound. Was it part of the plan? Would you do that again?

[32:32] Sean: Exactly. We've covered a lot of ground and strategies you can cherry pick to help yourself.

[32:39] Phil: We've not even shaken the tree yet. It could be considered a little bit woo woo, but this is what's gonna keep you trading for 20 years. It's that psychological aspect.

[32:54] Sean: And you know what needs to be done, so get off your ass and do it.

[00:32:57] Rebel Trader Tip of the Week

[33:16] Sean: Okay so, Rebel Trader Tip of the Week. Here's the thing. It's one thing we both focus a lot on personally is making sure our brain is up to spec. The brain is a muscle. It needs to be exercised. It's the same with your emotions. You need to be able to exercise those emotions so when you come to your trading, you're in the peak condition. It's easy to do, but it's very important you do exercise your brain with trading. A bad run could really tax your emotions. A positive run can also have a different effect on your emotions as well. It creates a false level of confidence. We developed our strategies to aid us in that quest, but the only person who can master this aspect of your psychology, your brain, your emotions, is you. So find ways to do that, to relax, to exercise your brain. The more you do, the stronger your synapses become, the quicker you are to reason, to rationalize. There's all sorts of different ways rather than just gelling out in front of the television.

[34:40] Phil: Broadly speaking, put some fun in your life. Do something you enjoy doing. Exercise is great. Watch comedy. I'm trying to think of alternative ways to meditation. I am a big advocate and you are too. I meditate for an hour every day. I have programs and routines to keep that mental health. The nature of what we're doing, juggling numbers and little gray cells in motion. I do a lot of pleasure reading which puts me into a mild state of alpha. I do a lot of fiction and science fiction reading. That helps switch off. If you can just do things that create pleasure, Sean.

[35:36] Sean: Dear me.

[35:35] Phil: Just get those happy endorphins. Listening to comedy. It will make you a better person because you're not always work, work, work.

[35:59] Sean: As he keeps telling me all the time because I run multiple businesses.

[36:00] Phil: Get someone else to do it. Think about the life you want to have and try and design your work and family life, and there's no work life separation. Everything's all one. So have a measure of happiness and fun in your life and enjoyment. For me, it's trading, I like to read, so I go to a coffee shop and read for an hour everyday. I meditate for an hour every evening. I go to the gym and I do the things I enjoy doing because I've designed my life around what I enjoy doing and trading helps me support that. This, helping people to achieve financial freedom and create wealth from the stock market, I enjoy that. These are all elements of the life I want to life. Part of that is keep your brain happy.

[37:09] Sean: Couldn't have put it better. So there you go, Rebel Trader Tip of the Week.

[00:37:12] Quickfire Round

[37:25] Sean: Okay so, let's rummage in the mailbag. I'm gonna throw this one at Phil.

[37:33] Phil: We should rename the Quickfire Round, because it's not a Quickfire Round. We should call it the mostly going slow round.

[37:44] Sean: That's actually pretty accurate because we always tend to take our time with this. It's not really quickfire indeed. So, first one for you, Mr. Newton. What exactly is insider trading?

[37:58] Phil: Well I like to trade indoors, so I would consider that inside trading.

[38:01] Sean: There you go. Martha Stewart is not here.

[38:10] Phil: Insider trading is when people are privy to information that the general public either don't have, or they get information ahead of time, or are privy to sensitive information. What they then do with that information is they would act ahead of a general release of that information. They're benefiting from the information.

[38:38] Sean: It's pretty accurate because the speed of information is so fast. We were talking about this a few episodes ago with Andrew and satellite imagery that can look even through a factory window or skylight to see how busy a factory is. What's the volume at a trade port? Is it going up or down? That can be a possible indicator.

[39:16] Phil: Is the ship low or high in the water?

[39:19] Sean: Exactly. When you start getting that kind of information, that is publicly available information. You might be paying for it because you have to have a subscription to these services, but we were talking about when does this become insider trading? It's not easily available to the public but it is there. If they were in a dinghy looking at that boat to see how low it was in the water, the public can do that. The literal interpretation right now is people trading with information that came out ahead of an announcement, or with information they are privy to the public is not.

[40:01] Phil: An example might be when Equifax sat on their data beach for three weeks.

[40:09] Sean: And the executives dumped their stock.

[40:12] Phil: It would be like the directors selling some of their shareholdings ahead of announcements that would cause their particular stock to take a swan dive.

[40:24] Sean: Which did happen.

[40:36] Phil: But that would be an example of inside information. They're cashing out at the more favorable stock price. When the bad news happens, they're not impacted.

[40:45] Sean: That's it. What else we got in the mailbag?

[40:50] Phil: Awesome. Nice question given the current market conditions. I think it's quite relevant. "Are we on the cusp of a bear market?"

[41:03] Sean: We're on the precipice. We were talking about this last night among ourselves.

[41:11] Phil: Well what is a bear market?

[41:20] Sean: There's a difference between a correction and a serious decline. Right now, we've been on a nine year bull run. Although we had a couple of pretty much stagnant years...

[41:39] Phil: We've had statistical bear markets. Is it two back to back months, or quarters? I can never remember.

[41:47] Sean: I believe it's two quarters back to back that are down.

[41:51] Phil: Yeah we've had a statistical bear market where it was like 0.01% contraction of the economy. It was essentially a pause.

[42:00] Sean: Yeah. What we're looking at is... Right now, it's hard to determine if we're in correction territory and we're at the bottom of that movement, or if we're gonna punch through the 200-day moving average. For me, I think it's a self-fulfilling prophecy. It's tickling that 200-day moving average. The S&P punched through it at the time of recording. We're recording on the 4th here. That was yesterday we were looking at that. Phil was saying it looks like it's going to be a inside day. Turned out to be. Today has so far been a negative day, but it's holding above that 200-day moving average.

[42:42] Phil: We're just at the opening bell and I'm looking at 40 points down on the S&P Futures. Shocking.

[42:47] Sean: Yeah it’s insane.

[42:51] Phil: It's still only a small move looking at the charts.

[42:56] Sean: A lot of the other indices are all tickling their limits as well. They're not quite wanting to punch through, but my opinion is I think we are gonna have a kickback. This is not financial advice. I'm looking at this and the fact that we're holding this level is a positive sign. However, we have had tariff talk and a lot of negative news. If that punches through the 200-day moving average. I think people are waiting and holding their breath.

[43:41] Phil: Yeah, what we're focused on here Sean is we're talking more from the price activities point of view. It's looking like a bear market. It's starting to roll over. Fundamentally, I'm raising the subject for a change.

[43:58] Sean: Hold on. Stop. I'm gonna mark it on the calendar. We're gonna have an anniversary next year.

[44:10] Phil: The definition of a bear market is an economic contraction. Is it contracting? Not yet. But from a price point of view, it looks like prices are about to roll over. But fundamentally, the economy is not yet contracting. It's certainly slowing down. I think when it does, it's going to be a painful correction. Yes, we might go below this 200 moving average. The talking heads are gonna absolutely lose their mind over it. I can foresee what the news is gonna be like if we see a little further of a push down. People are gonna be talking bear markets and as soon as they do, we'll see prices rally. Whatever the crowd's doing, I want to be doing the opposite. I don't think we're there yet but it will be a painful correction. Will it be a bear market? When we see an economic contraction.

[45:07] Sean: I think we're tickling it.

[45:11] Phil: I'm a bear. I've been bearish for many years. This printing money and expecting the value of that money to be retained is not sustainable. It will happen. But for nine years, we've been saying it's got to happen soon.

[45:33] Sean: Exactly. The market's just opened.

[45:43] Phil: I'm looking at it and it's absolutely wonderful. At least half of my portfolio is benefiting.

[45:47] Sean: That's the benefit of a balanced portfolio. At the end of the day, I think we're right on the edge of it. I think it's not gonna take much to knock it over. For a while, we've had irrational exuberance (thank you Alan Greenspan for that one). But we've certainly had a lot of volatility in the new year and this is now an uncertain market. There's a lot of volatility. Markets are swinging wide each day. Like you said, market opens and it's already moving 40 points.

[46:22] Phil: 40 points down. It's still not broke that low from a couple days ago. From a price action point of view, I think if we breach the big sell-off we saw. It's still uncertain to whether we're calling it a crash or not?

[46:40] Sean: Ah, let's call it a rapid correction.

[46:43] Phil: That rapid correction. If we breach those lows, that's when everyone's gonna start to really panic and start selling positions, because we will have seen that the higher low breached and a lower high developed officially on the market. When that happens, people are gonna start hitting the eject buttons, which will create a further downward spiral.

[47:18] Sean: The funny thing is, that one in February literally reversed right on the 200-day moving average. I am not one for saying it bounced off of this level. It is coincidental. Self-fulfilling prophecy. People look at the 200-day moving average.

[47:38] Phil: A lot of people look at it.

[47:41] Sean: It's something I keep up on a lot of my charts because I want to see human psychology at play. You know me, guys. I'm always looking at the herd just to see what they're doing and anticipating their moves to be on the profitable side of that. Again, we've just punched through the 200-day on the S&P and on futures, it's looking kind of bleak as well. If that stay and holds the course, we'll see if there's any other news. Again, I'm looking at that level because it's kind of hesitating and pausing right there. That's gonna be the deciding factor I think. An elongated answer, but the environment is changing.

[48:20] Phil: There's no single right answer. We're starting to see signs. But follow price. If it's going down, sell. If it's going up, buy. That's what my strategy tells me to do. And to be fair, in a bear market or bull market, I don't really care.

[48:42] Sean: I was gonna say exactly the same thing. There's always an opportunity. There's always a short opportunity. In general, I don't really worry about it. But, like Phil says, we've been calling a bear market for a long time because of this irrational exuberance. We've seen a lot of irrational gains and now it's time to pay the piper. We'll see what happens. But certainly be aware of it. So, last question there for you, sir: "How do I avoid loss in intraday trading?" You mentioned day trading earlier on. My flippant answer is don't do it.

[49:41] Phil: How do you avoid losses intraday? You don't trade intraday. How do you avoid losses? Don't trade. That's it. Yes it's the flippant answer, but if you're worried about losses, then why are you trading? Broadly speaking, it would be like saying you're worried about losing money if you start a business. Don't start a business. Go and get a job. There's plenty of jobs available. Go and stock shelves somewhere. If you're worried about losing money, then this isn't right for you. It sounds harsh, but unfortunately, it's the truth. If you're worried about something, don't do it. However, if you can get past that fear... Reduce your position size. Keep any losses as small and acceptable. I don't mean use an exceptionally tight stop loss or risk management. But keep the losses acceptably small to allow you to put the next trade on. You don't want to be fearful of the next trade if you have a loss on this trade. It allows you to stay in business. If you have that emotional reaction to the current trade you've just closed and it resulted in a monetary loss, that will prevent you from putting the next trade on. You can't avoid losses. They're gonna happen. They're gonna be a fact of life. How can you minimize loss? Reduce position size. How can you reduce emotional reaction? Reduce position size. How do you keep the losses infrequent? You have a strategy that is time-tested and proven. If you really insist on intraday trading, then find someone who is exceptionally good at intraday trading that can also teach. Those two things are separate from each other. People who are good at trading are not necessarily good at teaching you to replicate that process. There's some really good people who can do it. I'm one of them, but the way I want to trade, I find it quite stressful, so I don't do it anymore. It doesn't mean I'm not good at it or I can't teach it, it just means that I prefer not to do it. I don't see why you should intraday trade. It's a myth that the money's made in intraday trading or day trading. Yes there can be a lot of money that can be made, but I want a more relaxed approach. I personally think that day trading is a heart attack sport if you don't know what you're doing. Even if you do know what you're doing, it can be a heart attack sport as we both know, Sean.

[52:28] Sean: Absolutely. I read a statistic the other day that about 95% of day traders lose money.

[52:36] Phil: Most retail traders lose money because they don't have a plan, a system, a method. I keep going back to it. Treat it like a business. Most people treat it like a hobby. If you want a hobby, take up golf or fishing. You can waste your money on a rod that you're never gonna use and it sits in your garage. The trading equivalent is not having a plan and putting a trade on because it looks good and then you lose money. That would be like buying a $1,000 fishing rod and throwing it in the garage and forgetting about it. It's just an expensive hobby if you don't come at this like a business. Mr. Ranty Pants made a final appearance at the last minute.

[53:22] Sean: Absolutely. The soapbox was ready just in case. Okay so, yeah. Let's rock on.

[00:53:31] Bulls**t of the Week

[53:59] Sean: So, bullshit of the week. This is a doozie. I love this one. I had a lot of respect for this guy and I lost it. John McAfee is a legend in the software development community. He's a pretty smart dude. When it comes to security... funnily enough, my background when I was in the IT industry was network security, intrusion detection, and basically stopping hackers many years ago. John McAfee is one of the most well-known people in that industry and has continued to be so. He's the developer and original owner of McAfee, which is the anti-virus and security software, which I don't believe he owns anymore. I think he's got stake or something like that. However, he's a smart cookie and he's dived into the crypto world. He was the subject of a previous bullshit of the week when he said he was gonna eat his [insert body part] if Bitcoin doesn't hit a million dollars by 2020. He raised that bet from 500,000 to a million dollars by 2020 based on the irrational exuberance of crypto before Christmas. So okay.

[55:21] Phil: Eye roll. Insert eye roll.

[55:24] Sean: Indeed. Here's the thing. If you have an initial coin offering, an ICO, that you want to promote, because he is talking about ICOs all the time and he's deeply embedded in the crypto world. But, if you want him on Twitter to mention and refer to your ICO, it's gonna cost you $105,000 for 140 characters. That's $375 per character. So if you use an ellipses at the end of your sentence, it's $1,000 right there. It's ridiculous. So, yes. I am all for sponsorship. I am all for getting paid and using influence and marketing. My marketing company talks about it a lot.

[56:15] Phil: We're capitalists at the end of the day. But then this sounds more like extortion to me.

[56:21] Sean: It is. It really is. But at the end of the day, this guy will talk about your ICO. He's got a hot market that is all over these, but as we know most of these ICOs are complete bullshit. Most of the ICOs are big scams. He says oh, we go through this vetting process. With nearly half of all ICOs in 2017 falling, people do want to invest some in recognition. But what go me was $105,000 per tweet or $375 per character.

[57:06] Phil: That will be disappearing in about seven seconds on your news feed.

[57:09] Sean: Exactly. And I had to laugh. I said to Tam last night, put an ellipse, that's $1,000 right there. And she was just giggling because eh, that's exactly it. But, hey you know what, if you buy into that bullshit and a recommendation on Twitter, always think what's behind it. It's a little bit of common sense. Are they getting paid to promote? Are they saying it because they found a really good opportunity or are they being sponsored to say that? Pundits on television - it's illegal for them to do that. There's a guy on who I think was on FOX business. I'm saying allegedly. Was it Tobin Smith? He got kicked off the show because he got allegedly paid to promote or mention it on the air. This is someone I respected as well, and got kicked off because they were paid to promote a particular stock on the air. See that's illegal. That's against FTC rules and a few other things as well.

[58:25] Phil: Influencer marketing. Celebrities can do it, but you can't do it because they're employed to be objective, which is laughable in the first place.

[58:43] Sean: When it comes to financial instruments, you've got the be very careful. Instagram followers who promote the latest yoga pants... If you're doing this on Instagram and you've got all these models tweeting about their day and they've got these new yoga pants from somewhere, you can guarantee that's a paid tweet. The Kardashians are famous for leveraging their audience by leveraging their audience per tweet by mentioning products.

[59:12] Phil: Fair play. Not a fan, but fair play.

[59:16] Sean: Absolutely, there are ways to do that and get exposure. Not Kim Kardashian exposure.

[59:21] Phil: Don't start.

[59:23] Sean: She tends to expose herself a little too often.

[59:32] Phil: I don't really care what handbag who's got and who's sleeping with who. I think in this case, it's bullshit being paid to say what's the latest ICO. What's going on is someone who's supposedly a thought leader in this particular area is effectively ramping up an artificial opportunity. That's pump and dump right there. This is great. It's gonna be fabulous, and the reality is it probably isn't. You might as well just have some email from a guy saying buy this weed stock.

[1:00:09] Sean: Indeed. And the funny thing is, we both get those emails from the same person. Enough said. So there you go, ladies and gentlemen. That's it for this show. I hope you've enjoyed listening to this show. We love putting this stuff together and sharing this with you. It just makes me smile. I do this because I enjoy it. So does Phil. We love talking to each other and the fact that we can have an opportunity to talk to you guys as well just makes it more fun. Anyway, if you've enjoyed this show, please remember this show is not free. It does take a lot of effort and time to put everything together. So, please leave us a five star review. Just go to tradecanyon.com/rebeltraders. Pick your favorite platform that you listen to us on and leave us a review. We love to hear from you, like the gentlemen earlier on who said this is like the buddy show for traders. I absolutely love that and gave a lot of kudos to the team as well. That makes us smile.

[1:01:22] Phil: Specifically me. Not so much Sean, but me.

[1:01:28] Sean: Very funny. Anyway, rock on. This helps us reach more traders and investors like you.

[1:01:45] Phil: You can also connect with us on the social. You can get to us on Facebook and Twitter at the same link, tradecanyon.com/rebeltraders. Connect with us there or send me all the adoring fan mail that you want. Send us a message. Send us a question for next week's show. What have we got coming up in next week's show, Sean?

[1:02:05] Sean: Next week we're gonna be talking a little bit more about trimming the hedge. We're gonna be looking at hedging positions, different strategies and things you can do. Basically, mitigating risk and loss and we're gonna be having Mr. Andrew Page on the show because he's got some different strategies that he uses in the futures and commodities sector. We'll be taking a wide range of different aspects to help you minimize that loss and risk, look at different ways to do that, and that will help you with a lot of the stuff we've been talking about in today's show. As we end our state of zen, we'll rock the hell on and see you all next week. For now, take care.

[1:02:47] Phil: Bye for now.

Resources & Links Mentioned in This Week's Show

3 Key Takeaways From This Show

  • Be aware of your own emotional reaction to wins as well as losses. Develop a dispassionate response to both.
  • Fear and Doubt are replaced over time with Experience and Confidence
  • Keep a trade log of everything you do and develop a trading plan (and stick to it!)

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