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I got some great feedback on the case study that we did last week, so thank you very much for that. Look folks, this is all shapes and sizes. There’s probably four or five right answers to any particular situation. I don’t have all the answers. I can see them all and understand them all, but I appreciate you all taking the time to say what would you do? We couldn’t make the assumption that the positions themselves were just stocks so that the capital allocated was like one position. Now, I’m one at times to be overweight as what you might consider overweight in terms of position size. The thing is, is that knowing how I position size and knowing how I use my protective stops at key strategic spots allows me to go to bed at night. Some of you are having some panic attacks about my position sizing and this and that, so let’s go back and take a look and now we can see that the world has changed a little bit.
We are making and losing money at the same time. So I wanted to kind of come back to this. These are to me real life scenarios that you can find yourself in and if we could talk about it, it might help you when you get there yourself. We had started with a hundred thousand dollars and in the last lesson case study, so to speak, we had $30,000 in cash and our account balance was at $92k. ABC was up $7k RST was up $5k. So now we have a situation where you continued to put on trades, but those trades ended up being losers while you did the right thing and you let your winners go. So we can say ABC is gold futures. Maybe it’s two year treasury notes. It could be a short sugar position, it could be a Tesla position, right? All it means is it call this variable one that might be even better and this is what I had to post in order to maintain the position.
So that could be equity or it could be buying power. So it doesn’t really, you don’t have to think of it as just stock or otherwise. Same thing with RST. I was just using tickers, but if I could put variable one in position two, it doesn’t really matter what the underlying is, but now you’re in a spot, and this actually comes from a real life scenario where in the mid from 2005 / 2006 I was in a similar situation like this and the accountant ended up doing very, very well, but I had to go through and live through certain scenarios in order to get to where I wanted to go. And so here, and I was trading it a little bit more aggressively than many of you, but here you have a spot where now the equity that you had in ABC is up, right? And now you have $9,000, so your gains have increased from $7,000 to $9,000 and in RST, your gains have grown from $5,000 to $6,000. The time period doesn’t necessarily matter other than it’s not day trading or scalping. This is overnight over the weekend. So consider this several days to who knows what several weeks later where you’ve put on some trades where you can actually see that you’re down 4K on the cash side, and so now you’re sitting here, you have things, you’re up even more in your winners, but your account is down. This is a real life spot where you’re going to find yourself perhaps frequently, especially if you’re holding onto your winners for as long as possible, maybe even adding to your winners. There will be other trades that you put on that you get knocked out of for losses and that might cause you to start to think about doing things in the overall account because of how you feel about losing the $4k from the cash account.
So how would that make you feel? Right? I know some of you, I know lemme just say this. There’s some folks who are like, you can’t take the NASDAQ 100 home overnight. That’s a stupid thing to say. If your account is too small, I get it, it probably doesn’t make sense for you because I understand now that they changed the margin. There’s a day margin where if you’re sitting with your hand on the trigger, you’re probably trading something that’s too big for you, so you have to be able to look away or put your protective stop in and walk away. Sitting there at the screen I think is the last thing you really want to do. You think you want to do it because you saw somebody else do it, but it’s not the most popular way to do things. I would encourage you to learn how to position size, find a contract that’s good for you that you can have overnight and then stick with it or a requisite amount of equity.
You’ll have to figure out, talk with whoever you talk to, your financial advisor or whomever to figure out what’s the best strategy for you for what you want to do. You’re like, well, Mike, I want to be the financial. Well, no, you should have people who help you who know more than you. Everybody should have a financial advisor. If you don’t want to hear the answers that they tell you, then that’s a different ball of wax. But everybody needs to have financial advisors because you don’t know your ass from a hole in the ground when it comes to money right now and trying to wing it on yourself and make up your mind and make all these decisions. You need somebody who has more wisdom than you. You see, that’s what I always did and I still do. I’m always talking with people who are, I’m punching up as they say, so I wouldn’t get locked into these crazy things that you say. They’re almost comical, but nonetheless, I just delete ’em because there’s no sense in trying to call anyone out or embarrass people. I generally think people are trying to do their best, although, like I said, some of the things that come out of their mouth, they’re like the dumbest things I’ve ever heard, but you have to do what’s best for you. What I know is that if you look at the Magnificent Seven and think about certainly their meme stocks for sure, but you can still separate yourself from all of that and think about a position size. And so if you look at how many dollars per share they’ve attained over the last, say, six months to a year, and you can only talk about taking a couple of bucks out of it, what you’re doing is not helping you. Your model is not working for you because taking out nickels and dimes over moves that are $10 to several $100 and if you’re undercapitalized, you might consider stopping and finding a way to get access to more money, real money, not these funding things because then you’re going to have to try to trade somebody else’s rules.
You really want to develop yourself and your own rules. So what would you do? Now you’re in a situation where you did the right thing, you followed your signals, you put those trades on. They could have been, say, eight trades at $500 each. Maybe you made a little, but net, net you lost $4k since the last period, albeit your, these two big winners have continued to grow for you, but now the account’s down 12% despite the fact that you have winners that are still making you money.
So this is a spot that you’re going to find yourself in. What do you do? What’s your plan? You have to have this stuff all worked out. I think beforehand, no one really talks about the management of the trade. They’re like, okay, I’ll wait for my setup. I got my chart pattern, I have my entry, my exit, I move my protective stop, blah, blah, blah. But this is real portfolio management. What do you do now? You’re in the trades. You’ve already adjusted your stops on ABC, and RST, but your account is still down, so what’s your plan? Leave your comments below. We can kind of keep the conversation going. Try to not generalize about what’s good or what’s bad, what’s good for you. I don’t care if you’re going to hold the data to 150,000 that’s in fantasy land. That doesn’t, if the future doesn’t exist, you have to think about what you’re going to do right now and think of it this way so that you have the plan so that when you’re in it, you follow your rules and you don’t freak out. I don’t want to say what I would do because this is more to help you understand. Plus you probably intuit like what I do. Anyway, leave your comments below. I’ll leave the good ones up.

The post Case Study Part 2: New Challenges first appeared on MartinKronicle.

The post Case Study Part 2: New Challenges appeared first on MartinKronicle.