Everybody, how are you today? Hope you’re doing well. Happy Monday. So question came in. I’m going to read it. Actually, I’m not going to read it, it’s too long. But what I’m going to do is paraphrase it and it had to do with Mike. Basically I make it sound like it’s super easy. I don’t think the person read the book. How do you develop your style eventually, right? That’s ultimately the question. How come I’m not a day trader as to opposed to doing what I’m doing and this and that? Well, I’m not here to promote the book. I’m giving the damn audiobook away for free, so there’s no money in that. I guess I’ll make it up in volume.
It took me over four years to figure it out. So I don’t really, I think you got the wrong impression of me. I did try day trading. As you know, I tried four different asset classes. I went to Wall Street thinking that I could trade interbank, foreign exchange options, buying and selling, puts and calls, buying and selling stocks and buying, selling commodity futures. And through lots of trial and error, I kind of came to some conclusions that I had certain skills that were better than others. We’re going to talk about that this week. Foreign exchange didn’t work for me because it was 24 7 and I knew I needed downtime, I needed time to go inward, yoga, meditation, that kind of thing. So I said, okay, I don’t want to be doing this 24 7. I’m going to be constantly burn out. I’m not going to have any type of personal life and I want to have balance.
I know when you’re really starting out, you’re like, it’s great. I got all this information, I got my community and this and that, and it’s like I sleep, I eat and drink and sleep the markets, and in my opinion, it’s not terribly healthy. Then everyone knows the story. I don’t want to rehash it. So how did I develop my style? Well, a big part of the discussion on holding periods. At the time, there weren’t discount brokers. The way you know them today, and certainly nothing like Robinhood or what have you. The discount brokers were like Kennedy, Cabot, what was then called Waterhouse, Charles Schwab, and they had flat ticket prices where a wirehouse would charge, say as much as $150 or maybe 3% for a 5K investment in a security. Again, as an investment, not a trade. Charles Schwab would charge $30 flat rate, and they were all kind of similar. All the discount brokerage services were trying to undercut and gather assets by offering virtually no commissions compared to what the wirehouses were charging. Again, you didn’t get the service either, so you always get what you pay for, relatively speaking. You can’t say the lower numbers better, but you have to remember stocks traded in eighths and so the bid ask was at least an eighth, if not more. So that’s 12 and a half cents. So
If you were trading some of the NASDAQ related stocks, anything with four or five letters and its ticker, those things often had 25 to sometimes 50 cents as a spread, and on top of that, you might have to pay an eighth or a quarter. So you can imagine if you’re trading something that’s trading 25 bid offered at 25 50 and there’s an eighth or a quarter markup, you needed to do five, five eights just to get back to breakeven. So it’s fantastically expensive. Now, if you were a hedge fund and you could negotiate with market makers and what have you, and eventually I got to the point where I was trading size, I think they started negotiating at like 2000 shares of stock. If it was trading, say 25 bid offered at 25 and a quarter, you know, might be able to call the market maker and say, could you do it in the middle and save an eighth?
But you’re still looking at 25 cents as a break even now. So again, it was very, very expensive to the point where it was almost prohibitive to try to be a very active day trader. The one benefit you had is that if you had a level two, since everything traded in eights and we weren’t quote stuffing and all this kind of stuff, I think Sal Och was telling me that there’s like 8,000 different types of orders anymore. And so when you’re trying to read the tape now, it’s a little difficult with Decimalization. I’m sure some people can do it, but it didn’t make sense giving the cost structure to have to sit in front of the screen and to try to do all that. Again, if you could read the tape, that definitely helped. But I think to answer the question that that’s why I started to hold things longer because I found out that when I sat out my hands, even with a prevailing 25 cents spread in stocks, for example, that if you held them longer or you got halfway decent at reading the tape and developed a feel for what was going to go, you know, could at least make your money back.
And then some futures were very, very different. Though I had a feel for those markets because I grew up in a state that was chalk rich and full of commodities and crop ears and this and that. So I understood how those markets worked because I kind of grew up in that environment. Then when I went to school, I got that job where they were hedging. So I got to understand the physical side of the business hedging side right before the specul, the speculation side, and then I designed my trading model using load what was then called Lotus 1 23, which was the prevailing spreadsheet of its day. So just like for you, things will unfold in your life that are going to kind of nudge you in one way or the other that will help you find a situation and a trading style for your capital base that will be suitable for you.
What I’m cautious to say is if your account is underfunded, right, meaning less than 25 K, you can find yourself developing bad habits because there’s virtually no commissions when you think about it. So some places are like they start you at a penny or share over up to a certain amount. Then you get fractions of sense above and beyond that. Some places obviously can do it for free, but that might induce you to trade when there’s technically no trade there, you see. So I think the cost-prohibitive, cost-prohibitive nature of the environment that I was in when I started actually was a good thing because it didn’t give me too many choices. It was very black or white. Nowadays, everything has been commoditized so that the commission structure is down 99 to a hundred percent compared to was it to where it was when I started. So you had to be much more selective right now, again, I had a bit of an edge. I didn’t know it was an edge at the time because I didn’t even know there was such a thing as a trading edge. So that’s how stupid I was compared to how smart all of you are.
I just knew I had to be selective and focus on one thing and do that one thing very, very well. We’re going to talk about that again this week because I get so many emails about process and things around that nature. I was also very hard on myself, just to be honest. So if you f and it doesn’t really pay when I didn’t have to be because why I was showing up and working hard and working very smartly. I was eliminating things and I think that’s, I said before, traders are leaders and leaders have to be very, very decisive. I was very decisive. It was also impulsive, which I’ll admit to, but there’s a huge benefit to being impulsive. You can sit there, there’s a form of procrastination called thinking. Cause as long as you’re thinking, you’ll be like, man, I’m working hard. I’m thinking about all this stuff.
I’m trying to figure it out, and you could fool yourself into thinking that that’s actually work when that’s actually a form of procrastination. You’ve all heard this expression blank or get off the pot, you know, get paid to do stuff, right? So when I say kind of tongue in cheekly, we don’t get paid to know stuff. We get paid to execute. That does not include thinking. You have to do some level of thinking. But remember in the book thinking simp, simple heuristics that make us smart, reduce the process down to one, two or three steps and then pull the trigger because you have to get into execution mode. I didn’t have any problem with that because I knew that it was in the doing right. I had other experiences in my life where I knew that I had to execute, I had to take action.
I had to ask people for their business. You see, so what else can I tell you? Why did it take four years? I mean, that’s just the time that it took. I also had other income streams, so I was afforded a longer period of time where I didn’t necessarily have to worry about getting my bills paid based from how well I was trading or not. So I was very, very deliberate with everything, but I didn’t have to trade under the duress of being broke, right? Two, I had all day to figure it out. I didn’t have here on the west coast, Coco for example, opens at five 5:00 AM local time. I don’t know about you, but I’m not exactly sharp at 5:00 AM and I don’t make any apologies about it. But what I do do is call in my orders the night before because there’s someone on the CTA desk who’s more than happy to execute my orders and get paid very handsomely for it.
So technically my orders are on the floor from people who are in a different time zone and who are very, very alert and who get paid to do a good job for me. So it’s not old school, it’s called professional school. You can do things how you see fit, but what ends up happening for some folks here in California is that they have to get up and be available for work, whether they’re on the road or remotely. So they have a one or a two hour window in the morning and then they have to go do their day job and maybe peek in during lunchtime or kind of cheat and take 15, 20 minutes during the day when they should be doing their, what they’re getting compensated for. I think that makes it hard, which is really not that much time, and if you say, well, I’m going to trade from six to say eight o’clock Pacific time, a lot of prop firms wouldn’t even let you trade in the first 90 minutes, and it’s probably be better for that because you could have head fakes, you could have a whole slew of things that happen at the beginning of the day.
We were told when we were coming up that it’s the retail side that does their business in the morning, and the institutions are actually kind of doing and executing their trades, either adding risk or removing it towards the close, which is typically at least on the exams, like the last say, 15 minutes of the day. Again, there’s no judgment here. This is just how things came to pass for me, given the environment that we’re in is very, very different now. Almost anything that I learned when I was cutting my teeth in the tactic side on the tactical side is the useless to you today because the mark world is a very different place 35 years later. All I can share with you is the emotional constitution of not necessarily quitting and focusing on your strengths, which is something we’re going to talk about tomorrow. Anyway, happy Monday. I hope you have a great week and I’ll see you tomorrow.

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The post How You Develop Your Trading Style first appeared on MartinKronicle.

The post How You Develop Your Trading Style appeared first on MartinKronicle.