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Yesterday we talked about habits and doing things that were habitual, right? I put the bitch in habitual. No. So at the end of the day, I know it’s risky for some folks because nowadays this is actually something like talk about being an idiot. I just learned this the other day because we have all the money we’ll ever need. I understand now that for certain firms, they have a day trader margin, but then they have an overnight margin, and for some traders, their accounts are not large enough to be able to carry the risk home overnight over the weekend. So yesterday we talked about habits. If you’re in a winning trade, I think it’s a bad habit to take off winners just because it’s at the end of the day. Now, some of you are like, well, Mike, you just said you have a smaller account.
Well, I know I’ve published videos about the difficulties of having an underfunded account. There’s certain realities out there that I can’t help you with. If the money’s not there, it’s not there. So then what happens is your trading model becomes a coping mechanism. You have to cope with the fact that you don’t have enough money to keep an overnight trade on, which to me, again, brings on bad habits because there’s no reason why you should offset a winning trade just because it’s the end of the day. I know some of you feel differently, but then you have to wake up tomorrow and reinvent yourself and look for another setup. I don’t want to have to keep doing all that work if I already have found a winner, they’re hard enough to find in the first place. I don’t get excited about doing blue collar work around trading.
You might be at that stage of your career where it feels good to work hard. I know what that feels like, but after a while, again, I don’t want turn trading into a Raymond Carver short story and have it be full of blue collar despair. I want to do as little as possible. That’s how I maximize the return on my work, right? Advertisers and digital marketers look at ROAS return on ad spend, return on ad spend, ROAS. And so what they want to try to do, knowing where their revenue is or what their lifetime value is, their average order value is, they know how much they have to pay for paid traffic. What are they actually spending to generate all the leads? Then divided up the cost by the number of leads. They come up with a cost per lead. And so if they can, then that becomes, again, expected values.
So if you’re struggling with this and you can’t do it only what’s the right asset class for you, right? You figured you are interested in certain asset class, whether it be stocks or commodity futures or options or foreign exchange. I can’t really help you with that. I don’t know you well enough to make that observation. I know what I got good at, so I kind of stuck with what I was good at. Looking back, it makes a lot of sense now that that would’ve been the case, that for me it was commodity futures. At the time, I didn’t know. I didn’t have the awareness. So for some of you who were struggling with that and you were looking to trade your equity curve, and you want to get out of the habit of taking small gains, but you have an underfunded account, you might consider trading options so that at least buying options puts or calls because at that point, you’ll know what your max loss is.

Whenever you have a debit or a net debit balance or an options trade, that’s always going to be your max loss. So if you buy calls or puts outright and you trade directionally, whatever you spend on that premium premium, I guess is plural. You know what the worst case scenario is going into the trade. Now, if you do bull call spreads or bare put spreads, those are also net debits and they could be lower cost than just outright directionals. And if they are net debit, right? Because at that point you’ll buy a call, a bull call spread. You’ll have a call with a lower strike and you’ll sell a call on the same instrument with a higher strike.
That’s going to have a lower premium. So it will bring in some credit, right? So that structure will be cheaper. You also trade off the upside because theoretically you’re capped at the upper strike price. You also have to think about what the net deltas are going to be. So it gets a little sophisticated. The point being is that that’s one way to learn how to conjugate your feelings with your trading style in and around taking risks home overnight and over the weekend, because you know what the worst case scenario could be. You can’t wake up and find yourself in a disaster. So as a little coaching tip, you might find that that’s something that’s digestible for you. If you bought, I don’t know, look at SPY calls that go out two weeks of a premium of a dollar, you risk a hundred dollars. I don’t know what your account balance is.
You’ll have to think of it as a percentage of your overall capital. Obviously you want it to be probably half a percent or lower, but there are ways that you can experiment with that to learn how to conjugate your emotional constitution and your trading psychology with what you know how to do, and then not have to worry and play somebody else’s game. Because when you’re sitting there trying to day trade stuff and you know can’t hold the position overnight because the margins are too high, you want to stay in control and make sure that you’re trading your rules, not trading somebody else’s rules. And that goes for prop trading firms and some of these funding accounts too. You don’t want to adopt somebody else’s behavior. You, you’re going to be excellent becoming your own person and executing your own behavior. That’s my 2 cents on it.

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