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Ex-Market Maker: Algorithms Changed Trading FOREVER... It’s About To Happen AGAIN! — Transcript

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0:00There are thousands of algorithms just
0:02operating within the United States that
0:04are pertaining to trading. So you could
0:06fight artificial intelligence or you can
0:08accept it. Now is that fair, not fair? I
0:11don't know. I [music] don't make the
0:12rules. If you had to stop there, well,
0:14your stock got taken out. You had to buy
0:15it. Who cares who sold it to you? Meet a
0:17master Elliot wave trader with 47 years
0:20of trading experience starting on the
0:23Pacific Stock Exchange and trading in
0:25the US, UK, Netherlands, and Germany.
0:28Meet the one and only Michael Bigger.
0:30>> I have three basic rules for trading. If
0:32you follow those three basic rules and
0:34every single trade that you do, you're
0:36not going to dump an account. What is
0:38the trigger? Why are you [music] getting
0:39into this trade? Second one, what's your
0:41goal on the trade? And the third most
0:43important that one always gets
0:45overlooked is the On this episode, we go
0:48through not only Michael's experience,
0:50but also his philosophy for trading
0:53today. understanding the moving
0:54mechanics
0:55>> the algorithm is doing is [music] going
0:57and scraping all of the data from around
0:59the world and they can do it in about 15
1:01seconds. My brain couldn't do it in 15
1:04years.
1:05>> This unique insights into [music] how AI
1:08and algorithms are impacting the markets
1:11today is truly going to open your
1:13[music] eyes. Do you see a world where
1:15potentially retail traders are no longer
1:17involved in the markets?
1:18>> Um, do I see a world? I suppose I'd have
1:22to say
1:24You have a really great understanding of
1:25how algorithms and quant trading has
1:28come into the markets over the years and
1:30how it's impacted the markets.
1:32>> Yes.
1:32>> And most of all, how traders need to
1:34adapt how they trade and how they
1:36observe the markets when thinking about
1:38how these algorithms are operating.
1:40>> Yes.
1:40>> So I'd love to hear your thoughts in
1:42terms of one, how are these algorithms
1:44operating? How has this changed the
1:46markets to today? And how should traders
1:49be adapting and observing and how can
1:52they use this information to their
1:53advantage?
1:54>> I think it's best to start with that
1:56when the markets became quantitative. So
1:59when everything switched over to
2:00computers, it was just a natural way of
2:03the market how things would go that if
2:06you're writing programs to conduct
2:08things simple things like analysis or
2:10keeping a position and you're doing
2:12things like that that it would be
2:14natural that they would start to become
2:16more advanced. if they were keeping
2:18options trades, if they were creating
2:20option trades and and then booking them
2:23that you would actually figure out how
2:24you can actually construct an algorithm
2:26that would then go and do the work for
2:29you. And so now we've gotten so much
2:33advancement just in that quantitative
2:36sphere, but now we're adding artificial
2:40intelligence.
2:41And I think there's a lot of people
2:43that, oh, I never trust I'm not going to
2:45do it. And I'm like, I would tell you
2:47folks, number one, I'm 71 years old. So
2:50if anybody's going to stand back and
2:52say, "Oh, you know what? I don't trust
2:54those." It's like, that's nonsense
2:56because the way that things are
2:58happening right now, that is the way
3:01that the world is going. So you could
3:03fight artificial intelligence or you can
3:06accept it. And if you accept it and
3:08start to use it, you realize the
3:10advantages it's going to be giving to
3:12your life. Now there are many different
3:14functions that can happen within
3:15artificial intelligence and personally I
3:19use it during for my analysis because I
3:21can ask the question and all that that
3:25the algorithm is doing is going and
3:27scraping all of the data from around the
3:30world from all the available sources and
3:33they can do it in about 15 seconds
3:35whereas my brain couldn't do it in 15
3:38years. That's just too much work. So the
3:42first thing I think to understand about
3:43an algorithm is that how it has speeded
3:46things up, how things become
3:48instantaneous versus you know taking
3:51much longer. I think that if if we don't
3:54accept that the algorithms are real
3:56because it's like we were speaking
3:58earlier and I I was telling you in my
4:01opinion there are thousands of
4:03algorithms just operating within the
4:05United States that are pertaining to
4:07trading,
4:09options trading, futures trading, stock
4:11trading, all the different things and
4:14then the different nuances that go into
4:16building an algorithm. How do we tell it
4:19what options position it needs to go
4:21look for? And the thing is, it's like
4:22they're always out there scouring and
4:24they've been that way for years. I mean,
4:27so when I when I actually came back to
4:29the market, I think it was like in like
4:312011 2013 where I decided I was going to
4:34become a day trader, I had to learn some
4:36different tactics. And part of that was
4:39just having an understanding that this
4:42is all computer-driven.
4:44Every last bit of it is computer-driven.
4:46And so I'm not going to say that the
4:48algorithm is always right, but the
4:51algorithm will always do its function.
4:54It will provide or will perform what
4:57it's being programmed to do, right or
4:59wrong. Now, can an algorithm, you know,
5:02go off balance? Yes. But that's why
5:05there's people sitting there. So they're
5:07not traders anymore. There are people
5:09watching the algorithm, make sure that
5:11it functions or if it breaks down that
5:13it doesn't create too big of a mistake.
5:15So no, they're not perfect, but they are
5:19exceptional. I just want to say they're
5:21exceptional. And if we can understand
5:23what they're doing and what they're
5:25creating, particularly the ones that are
5:27now involved in the options market, as
5:29we were speaking before, if we just
5:31under have an understanding that the S&P
5:33500, the S&P, which is the cash market,
5:37my nickname for the S&P is big daddy.
5:41that is the biggest index that has been
5:44in existence and remains number one in
5:47terms of volume. And so it's just based
5:50on the 500 stocks which of course rotate
5:52and some get pulled and others get
5:54added. Um but it's extremely efficient
5:58and the market and how they trade is
6:01extremely efficient. So as an options
6:06trader, which is where a lot of the
6:07algorithms come in,
6:10we you have to have an understanding.
6:11It's like, well, what is what is the
6:13deal? What why makes it so attractive?
6:16And as an options market maker in the
6:20past, that's not what I do now, but I
6:21have been an options market maker. Your
6:24obligation is to make markets. your
6:26obligation is to stand in a pit at the
6:28time and you made uh markets bid an
6:32offer for the investing public.
6:35And so that function still exists. We
6:40don't call them market makers now. We
6:41call them dealers. And the dealers are
6:43just these very very large firms that
6:46are set up with the algorithms and then
6:48they just turn them on and let them go.
6:50Now, the algorithms are doing the same
6:53function and so they're going to go in
6:55and they're trading the options because
6:57that's that's their responsibility.
7:00Maybe it's S&P options, maybe it's
7:02Apple, maybe it's Nvidia, maybe it's
7:04Amazon, or pick any of the 6,000 plus
7:08issues that trade every single day. All
7:10of them have options.
7:13So, what's really taken over now
7:16is options.
7:18And so there's one gentleman who has a
7:22wonderful service, but his tagline is so
7:26go the options, so does the market.
7:29>> And that's so that is absolutely 100%
7:31true. So bringing that into the trading
7:34sphere, it's like having an
7:35understanding of what those algorithms
7:37are doing and what the function is. If
7:41the dealer which has to make the market,
7:44if the dealer is selling something, they
7:48have to hedge it immediately. So you'll
7:51notice an algorithm they that's done and
7:53this other side gets done simultaneously
7:56almost. And so we get a lot of the
7:59markets will move very quickly depending
8:01on what actually the algorithms are out
8:03and what they're doing. And so because
8:06we've also seen a a gigantic
8:10change in how many things have options
8:14and then what are the expirations so
8:17what I'm building to is like how much
8:19business is being done by an algorithm
8:21how much influence do they have on the
8:23market a lot and the reason is is
8:25because first of all there are options
8:27traded and everything then we have the
8:29ETFs then the the options corp and and
8:32the different exchanges said you
8:34When I was a market maker on the floor,
8:36we had one expiration a month. The third
8:40Friday of every month was an expiration.
8:43Well, then they decided, okay, well, we
8:44can do maybe every Friday. So, they
8:47added those. Then they had, okay, what
8:49if we do Monday, Wednesday, Friday? Then
8:51they started to develop zero DTE, which
8:54is zero days to expiration.
8:57Well, that becomes a vehicle for a lot
8:59of very experienced traders, but it's
9:02really more of a vehicle for the very
9:04large firms who are in their trading.
9:07And I'm glad that they're in their
9:08trading because as I mentioned on the on
9:11the other uh podcast that we did that if
9:14the market didn't have the amount of
9:16money swirling around in via trading all
9:19these different vehicles,
9:22it would be dead. be like what are what
9:25are any of us doing? So without the
9:27money, without the investment to not
9:29being necessarily made by individual
9:31people, it's huge corporations, you
9:34know, JP Morgan, Goldman Sachs, Citadel,
9:37Simplex, a lot of these very very large
9:39firms that that trade options that have
9:41these these things. So the algorithms
9:43themselves has changed how we trade. It
9:48has changed many different things
9:49because of the speed of which things are
9:51done. So what is it? For example, I'm an
9:56Elliot wave analyst and we talked about
9:58that previously. There are things that
10:01I've noticed that are different, not
10:02necessarily breaking the rules, but
10:04suddenly it's like you wouldn't look for
10:06that type of a form or that type of a
10:08structure in this particular wave, but
10:11now I'm seeing it more often. uh or just
10:15seeing certain ways that this shouldn't
10:17expand the way it's doing, but it does
10:20because it's the algorithm not
10:22necessarily doing it on purpose. It's
10:23just the nature of what it's trading. So
10:26things can get a little weird, so to
10:30speak. But my point again is that we can
10:34deny it. We could say I don't like it.
10:37We could say I don't trust it. It's like
10:39then you're not going to trade.
10:41But if I understand that they're in
10:43there working and I understand that it's
10:46not just one
10:48but you have some basics of like for
10:50example we were discussing that there
10:52are algorithms that their purpose is
10:55that they have orders to buy or to sell.
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11:50below. Now, let's get back to the
11:52episode. And if it's large enough, then
11:55also programmed into that algorithm are
11:58where resting orders are stacked either
12:00to the upside or to the downside.
12:03that becomes like a magnet
12:06for that algorithm. It may never get
12:08down there, but be having an awareness
12:11that they're not just programmed to go
12:13and search for stops. Yes, those exist,
12:17but what what the algorithm is
12:19attempting to do, and this is something
12:21that that I find very interesting
12:23because other people say, well, isn't
12:24that kind of like the wrong way to
12:26trade? It might be, but you have an
12:29algorithm that can go up there starting
12:31to trigger
12:33say they're going to the upside. So,
12:35what's going to be sitting there? A stop
12:37because someone might be short and if
12:38they it goes beyond that level, they got
12:40to cover the trade. Well, big enough,
12:44right? You have somebody that goes up,
12:46I'm going to go up and take those stops
12:48because that's me becoming a buyer. And
12:50then as they turn around having to
12:52trigger all those stops, they're the
12:53seller.
12:55Now, is that fair or not fair? I don't
12:58know. I don't make the rules. I don't
13:00I'm not going to pass judgment. It's a
13:02trade. If you had to stop there, well,
13:05your stop got taken out. You had to buy
13:06it. Who cares who sold it to you? You
13:08just you're glad to have it covered. So,
13:11again, but other people might say, "Oh,
13:12that's not whatever." But it happens and
13:15it happens frequently and it happens
13:18many times in a day. And so
13:22those levels are also important to
13:24understand because as we discussed
13:25before um there are with options trading
13:29there there's the what we call the
13:31option Greeks and the basic ones are
13:33delta gamma theta vega there's row
13:38there's all different and they all have
13:39their their function. So, you know, if
13:42if you're long delta or you're short
13:44delta, it tells you what if something
13:46happens in the stock, what's going to
13:47happen to your to your option price. And
13:50then gamma is decay,
13:54right? Your theta is decay. Your gamma
13:56measures the theta and how much delta
13:59has to change and what happens to your
14:00position. Having an understanding of
14:02options trading, options are designed to
14:05go to zero,
14:07right? Either they're in the money or
14:09they're out of the money.
14:11So basically an option's life cycle is
14:14to go either in the money or to zero no
14:17value.
14:19When you're dealing with all these
14:20different numbers and all these
14:22different the gamma levels as we spoke
14:24before they're very important to try to
14:26understand because they are
14:28algorithmically
14:29triggered
14:31and to know what happens when that
14:34trigger happens. First of all, the
14:36algorithm is going to put the position
14:38on and sit it in a different place
14:39because that's what the dealer is
14:41determining that's what they want to do.
14:43Either they want to be long or short,
14:45particular call or group of calls or
14:47puts and they build a position. That
14:50position then gets calculated out as
14:53either being a large gamma position, a
14:56call wall, a put wall, or something
14:59that's also very important to me, a
15:01volatility trigger.
15:03And what that brings into the picture is
15:06that there basically two ways that
15:10people that larger firms are trading and
15:13a lot of that is could be fund managers
15:16and one is risk on trading. And so it's
15:21where the a volatility trigger if you're
15:23going going up and you break the
15:25volatility trigger it produces some
15:27additional buying. it produces
15:29adjustments to the buy side and then so
15:32it switches then the whole concept of
15:35risk on trading. So risk on trading is
15:39where the whomever's constructing the
15:42trade the first thing they do is they
15:44sell the VIX. VIX is a cash market, not
15:47the VIX, that's just an index, the
15:50future, the VX.
15:52And so they sell that, they get the
15:54cash, and then they take that money and
15:56they're buying then the volatility of
15:59the underlying stocks.
16:02Now, to understand, it's like, well, why
16:03are you going to how are you going to
16:04buy volatility? Well, you're going to
16:06buy either the call or the put.
16:09So, the options now come into life.
16:12risk on trading, you're buying the
16:14underlying volatility. You're mostly
16:16buying the the call. So when I said
16:18right, risk on trading is to buy, what's
16:22the dealer have to do? You're the
16:24public. You come in to buy the call. The
16:26dealer has to sell you the call. What do
16:28they then have to do? Hedge that trade.
16:31What's the hedge? Buy it. Buy the stock.
16:34So now let's do the reverse. And you're
16:35talking about risk off trading, which we
16:38saw triggered today, right? As the
16:41market started to come down this
16:43morning, it broke the volatility trigger
16:45in the NASDAQ. It broke the volatility
16:47trigger in the Q's, which is just
16:49another ETF based on the 100 stocks in
16:53the NASDAQ 100, but they're all options,
16:56right? And what that volatility trigger
17:00got broken to the downside. You saw
17:02suddenly the market started to
17:03accelerate selling because the positions
17:07that were there now triggers that they
17:11have to make an adjustment to the
17:12positions but it also changes the tone.
17:15So in other words breaking it going on
17:18back down it becomes riskoff trading.
17:23So you're no longer buying the
17:25underlying volatility. you're selling it
17:28and you're not buying the VIX, you're
17:31selling it. Now, what does the dealer
17:34then have to do? The dealer then is
17:38reversing a position and also sells.
17:42So, if you have to adjust a position
17:44after breaking a volatility, you're
17:46selling. So, you can see something
17:49accelerate. Same deal on the way up. if
17:52it's going to break what we what some
17:53people would call a call wall. That's
17:55where there's just a large position of
17:57calls and it's there because the calls
17:59are short likely, right? So, it becomes
18:01resistance.
18:02>> Sometimes it holds. So, if they go up
18:05there, they'll nibble, they'll play and
18:07then if there's enough, they push right
18:09through it. What does that do? it
18:11triggers adjusting or covering that
18:14position
18:16because what happens is that because
18:18they might be short the call each time
18:20it ticks above that price, that strike
18:23price that they have, they're not
18:25getting long, they're getting shorter.
18:28So, you're losing money every time it
18:30ticks. And so, it can go really fast.
18:32And so, depending on the size, that can
18:34push the market really fast. So again,
18:37it just changes how people want to look
18:39at is this a bullish move, is it a
18:41bearish move in terms of the the
18:43terminology? Yeah, market goes up,
18:45that's bullish. Market goes down, that's
18:47bearish.
18:48>> But what's behind it? What's what is
18:50there? Oh, they suddenly turn positive
18:53on Apple, they suddenly turn maybe,
18:57but if they just broke a call wall, no,
19:00they're covering,
19:02you know, they're they're just
19:03reassessing. It's there's nothing
19:04bullish or bearish about it. And it
19:06doesn't have to have news.
19:09That's the other thing about today.
19:11Today we came in and and I personally
19:14I've been looking for the market to go
19:15down to fulfill a particular uh Elliot
19:19count that I have. And but I remember
19:22telling people if it starts, this is one
19:25of my favorite things. I say it's going
19:27to start to go down, it's going to go
19:29fast and it won't look back. So, what I
19:32mean by that is like they're not going
19:33to look back to go like, "Oh, I need to
19:34buy this in or or something." It's just
19:36they just keep selling.
19:38And that's what happened because they
19:41broke a call wall. They broke a large
19:43gamma position. They broke the
19:45volatility trigger. And each time they
19:48breaks that, it just turns things back
19:51into I have to adjust. And that calls
19:53selling.
19:54And the same thing can happen if to the
19:56upside.
19:58>> Does that mean that the market's
19:59bullish? No. I mean, in terms of what's
20:02happening, yes, but it's not like, oh,
20:04the Fed lowered the rates or the Fed
20:07jacked up the rates or this happened.
20:10So, has nothing to do with any of that.
20:12Just is it's just trading.
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21:52below. Now, let's get back to the
21:53episode. And just to give clarity as
21:55well, today is November 4th.
21:57>> Yes. For anyone watching, regardless of
21:59when this comes out, you can always go
22:00back and see what happened in the
22:01markets, but there was so much to unpack
22:03there. And I'd love that you were able
22:05to break that all down because it gives
22:07that level of insight of what's
22:08happening in today's markets. And the
22:11beauty of it is is that you've actually
22:12lived and experienced the changes up
22:15until now to not only understand what's
22:17going on,
22:18>> especially with the experience of being
22:19an exarket maker.
22:21>> Yeah. But on top of that to actually
22:23visibly see the changes of quantitive
22:25trading coming in uh algorithms running
22:28the markets the changes in options
22:30itself which is very interesting because
22:33>> I believe a lot of people who aren't
22:35options traders maybe they're futures
22:37traders especially futures traders maybe
22:39stocks traders
22:40>> and they don't use utilize options some
22:43who don't even understand options right
22:45>> what does what do you think when you
22:47hear that if someone's a futures trader
22:49or a stock trader in particular
22:51and they they don't have any
22:52understanding of options. Do you think
22:53they're doing a disservice um and the
22:56kind of maybe looking at the markets
22:58with only one eye?
22:59>> If you not necessarily I think it's like
23:01if you're chose if you're choosing that
23:03you want to trade stock and you want to
23:05day trade stock a lot of people do that
23:08or you want to day trade a future. I
23:10think that's all great to understand
23:13what can be behind or what you can look
23:16for. So, for example, it's like if you
23:19knew that that the volatility trigger
23:21was there, which we did because th those
23:24numbers come out and and so I know
23:25exactly where they are, and then you see
23:28it broken, it's like, okay, well, I know
23:30that's going to produce a sell.
23:32>> So, you can either sell with them or if
23:35you're working a position, say you
23:37you've already been you decided, well,
23:39the market's going down, so I'm going to
23:40sell this particular stock and I'm just
23:42going to wait. or you could even sell
23:43the index
23:45or you buy a put or you sell a call say
23:48in the S&P for example and you you can
23:53actually watch to see well if I know
23:55that the volatility triggers here or
23:57these levels are stacked here then
24:00you're going to pay very close attention
24:02because it's going to affect your
24:03position if they go through all of them
24:06which they can often or then you're like
24:08oh how great let me just lower my stop
24:10and put my order in down
24:12and you can make your money. So I think
24:14a lot of times it it can bring clarity
24:17if you have an understanding of why is
24:19the market doing what the market is
24:20doing right now. Did someone suddenly
24:23turn bearish? No, not necessarily. It
24:26has everything to do with the options
24:28and because that's where the largest
24:31growth has come. And so for example, we
24:36have daily expirations.
24:39We have tri-weekly. So it's Monday,
24:41Wednesday, Friday expirations. They're
24:42still considered zero DTE. But then we
24:45have weekly, we have monthly, we have
24:47quarterly.
24:49Now they can build up positions in each
24:51one of those. But it's to understand
24:54what's the nominal value of all the
24:58gamma that's sitting out there that's
24:59going to expire. So the other thing to
25:02understand as well is to what happens
25:06when all of this gamma that's been
25:08sitting there waiting for this
25:10expiration expiration comes and goes.
25:14Those positions get closed and if
25:17they're in the index or another thing
25:19it's cash. You don't get stock you get
25:21cash. Either you're paying it or you're
25:23receiving it. So in that respect, what
25:27happens to all that gamma?
25:30It's gone. What does it do to the
25:33market? Well, good question.
25:37And many times when when that much gamma
25:39gets released,
25:41the market pops.
25:44When that much volatility
25:47gets released via the gamma, volatility
25:51pops.
25:53So now often depending on where that
25:55gamma was sitting, you know, you can see
25:59a stock adjust because whoever had the
26:02position is like, okay, I just going to
26:05have I'm getting I'm inheriting X amount
26:07long. I don't want to be long. So
26:10they'll go put the sell order in. So you
26:13can get a little bit of better
26:15understanding if you just get a little
26:17bit of a knowledge base around what is
26:19all this action.
26:20>> Exactly. Yeah. Because that was my
26:22thought process wasn't less necessarily
26:24that you know futures or stock traders
26:25need to trade options. is more so having
26:27that understanding as you said in terms
26:29of the expirations
26:30>> right
26:31>> and uh how it operates within the
26:33markets how it has an impact
26:34dramatically on the markets so that even
26:36if you don't trade it no problem at all
26:38but having that understanding allows you
26:40to make wiser more informed decisions as
26:43a futures or stock trader
26:45>> right
26:45>> but just going back to the algorithms
26:47quickly how can traders utilize the
26:50knowledge of how they're operating in
26:53the markets even as a futures trader or
26:55stock trader all options.
26:57>> That's a very good question because I
26:58was just going to talk about that
27:00>> and again we're dealing with an
27:03expiration, right? Um which we'll have
27:06one tomorrow and then we'll have one
27:07again on Friday. The Friday ones are
27:09always going to be a little bit bigger.
27:11Um algorithms
27:14can be set up depending on where these
27:17large positions might be. And so we'll
27:20see these big moves during the day up
27:22and down. We have to understand that
27:25there are very very large traders,
27:28dealers. They might run it down because
27:31they want to monetize
27:33a particular position. Long or short,
27:36they want to monetize it. When they're
27:38done
27:40turns, it goes back. So having that type
27:43of an understanding. So understanding
27:46where are these large things sitting you
27:50know and you can do that just by going
27:52to for example the S&P pages the options
27:55pages and you see where the open
27:57interest is and when you can see wow
28:00look at the open interest there. I
28:01wonder who wants to pin it there. So and
28:04you can do that on they can get pinned
28:06on a daily basis. I mean, there there's
28:09a very very large trader and he's not
28:11associated with the firm. I didn't think
28:12he's an individual and um he's been
28:15nicknamed Captain Condor because he
28:18trades in the S&P, but he'll put in a 20
28:20or 30,000 contracts in a condor. Well,
28:25that's like an open target for an
28:28algorithm. It's like, well, let's go
28:29take this side out or let's go take that
28:31side out. What What's he gonna do? You
28:33know, what's going to happen? whether
28:34it's intentional, whether I don't think
28:36there's any malice in there. It just is
28:39what it is because maybe he's put it on
28:42and the dealer is the one that had to
28:44sell it to him or buy it from him. Now,
28:46they want to go and monetize that
28:48option.
28:50If it upsets his position, so what? It's
28:53there and that's what happens. So, just
28:56having a little bit of an understanding
28:58is going to help you get through a day.
29:02We saw it again today. Not only was it
29:04just breaking the the volatility
29:06triggers and and the other large gamma
29:08positions that were sitting there, but
29:10in the S&P.
29:13It's a daily expiration.
29:15Where were those strikes? Where did they
29:18go to? Did they monetize and then flip
29:20and go back up? I dare say yes because
29:23there was one point it's like they just
29:24started to buy it, buy it, buy it. And I
29:26think it was because they were looking
29:28to monetize in a particular stock or a
29:31strike price within one of the indexes.
29:34>> One interesting thing you did mention as
29:36well early on in terms of the use of AI
29:38and how that's coming regardless of
29:40whether people like it or not, embrace
29:42it or not,
29:43>> right?
29:43>> And you did mention as well in terms of
29:45how yes, these algorithms are operating,
29:47but there are still traders on hand in
29:50case one breaks, in case one
29:51malfunctions, right? uh to get it back
29:53on track and and to observe I recently
29:57had on the podcast Ral Pow who's more of
30:00a macroeconomic uh economist sorry and
30:03you know looks at larger secular trends
30:04and one of the biggest things he's
30:06saying is the huge shift in AI and and
30:10you know society as we know it and his
30:12thought process is that trading you know
30:15uh the average trader the discretionary
30:18trader the retail trader will no longer
30:21exist when AGI comes Right.
30:23>> So what what are your thoughts on that
30:25in terms of as someone who does embrace
30:27AI, as someone who's seen technology
30:29change trading over the years? However,
30:31retail traders are still possible to
30:33trade. If anything, they still have
30:35edge.
30:35>> Yeah, they are.
30:36>> What are your thoughts when you look at
30:37some, you know, something as AI coming
30:39in, especially if AI can transition to
30:41AGI where it maybe doesn't need human
30:44interaction to keep itself on track and
30:47to recognize if it's broken. Again, as
30:50someone who's seen technology change and
30:52seen it impact the markets, do you see a
30:54world where potentially retail traders
30:56are no longer involved in the markets?
30:58>> Do I see a world? I suppose I'd have to
31:00say yes, but I would want to get a hold
31:03of those retail traders and say get some
31:06education, smarten up, you know, learn.
31:11Anybody can open up chat GPT,
31:15put together a question,
31:18you know, how do I d and that thing will
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34:31always. Now, let's get back to the
34:32episode.
34:33>> You can talk about a position. What is
34:35what is a good position? What do I do
34:36here? It depends on the input that
34:38you're going to give the algorithm to
34:40come give you the answer. Retail traders
34:43are already using it.
34:46Hate to say it, but I'm going to say it.
34:48I coach people that I basically help
34:51them learn options trading while it's
34:54gone far enough that they've gotten so
34:57good, but they're now programming
35:00through AI.
35:02And the AI can tell them how to hedge,
35:05what position to put on, when to roll
35:07the position, what to increase, what to
35:10decrease. And it's amazing. It's amazing
35:12because what AI can do in a matter of
35:16seconds would take us as individual
35:19human beings with our brain power months
35:23to either program or to research.
35:27So that's the difference. That's, you
35:30know, when he's talking about will
35:31retail traders even exist. I can see the
35:34answer being yes and I can see the
35:36answer being no. It depends on what as
35:39that retail trader are you willing to
35:41do. I mean I can take it even to the
35:44point which like even learning Elliot
35:47there are people that just will never
35:49accept that it works. Oh, you have too
35:52you're just too wishy-washy. You know, I
35:55can't figure that out or I don't
35:56understand it. It's like if you
35:58understood it and you knew how to use
36:00it, you wouldn't be talking like that.
36:03So my answer to that same question be
36:05like, well the retail trader,
36:08they may be melded in to a larger firm
36:11that will trade for them.
36:14Fine, right? You still want to trade.
36:17You still want to invest your money. But
36:18there are a lot of people they just
36:19enjoy the whole action.
36:21>> They enjoy being that trader.
36:24>> Expand your knowledge.
36:27Go pick up chat GPT. Right now it's free
36:31and you can pay for a little bit more
36:33advanced versions which will give you
36:35some more, you know, ability to put in
36:37complex, you know, equations. Um, do it.
36:41It's it's not expensive. It'll be well
36:43worth your time and your effort because
36:46you'll suddenly be opened to hearing and
36:48understanding, wow, that's what they're
36:50doing.
36:50>> Yeah.
36:52So
36:52>> to your point
36:54or one feedback we got actually because
36:56RA said the same thing. Open chat GBT
37:00put in a chart and you'll find out it
37:02knows more than you.
37:03>> Yeah, you will.
37:04>> Right. But one of the or a few of the
37:06responses should I say were I tried to
37:09put it into Grock or Chad GBT or one of
37:11these AIs that are available and it had
37:14no idea what it was doing. But to your
37:16point is that it's the quality of
37:18question and priming that you build
37:20because essentially if you just open
37:22chat GBT or Grock and then go here's a
37:24chart no question just what do you see
37:26it has nothing to work off there's no
37:29foundation that's been built so
37:30regardless and I think a lot of traders
37:33are guilty of this in terms of trying to
37:37skip
37:37>> that foundational work and think there's
37:39some sort of fast route and back to your
37:41point in terms of Elliot wave again
37:44People assume there's some strategy out
37:46there that you know it's it's just a
37:48toz. It's just this is how it works and
37:51this is how it's done and that's it
37:53versus there's discretion involved. The
37:56markets are ever moving and
37:58transitioning and there are adjustments
38:00that need to be made. And I think that
38:02is a mistake traders make is that okay
38:04let's keep hunting for the thing that is
38:07just textbook. It's copy and paste,
38:10>> right?
38:11>> And they're looking for ease. And so you
38:13how important is it to one build that
38:15foundational work whether using chat GBT
38:17or not even as a discretionary trader
38:19who's just trying to trade. How
38:21important is it to build that foundation
38:23as a trader so that anything you build
38:25on top of that actually holds weight and
38:27and has benefits
38:28>> right? I think there are several people
38:31that come into the market because they
38:32hear the well we both post on YouTube.
38:36YouTube is a lot of people if you want
38:37to learn how to trade come and get my
38:39system go and do this. a lot of people
38:40with systems, a lot of people that do
38:42things that do nothing. But that's
38:44great. You know, it's a marketplace. Um,
38:47I think that if you really want to trade
38:52and don't come in like this guy said he
38:56made $250,000
38:58trading Tesla. Yeah, I imagine he did,
39:02but I don't know how much of it was
39:03luck. How much of it was that's what
39:05Tesla was trading like, and it's not
39:07trading like that now.
39:10Oh, so there's there's a lot of factors
39:12that go in that can disappoint people
39:14and then they just toss it up and tell
39:15you you're full of you know what and
39:17that doesn't work. It does. Take the
39:21time. Like you just said,
39:24chat GPT will work, but be more specific
39:27about what you're asking. And because of
39:30the experience and the analysis
39:32experience that I have, I can be very
39:34specific about what I'll ask chat GBT.
39:36And I also have the larger version. So I
39:39can pull the information that I want.
39:42But I consistently asked it right
39:44through through this whole period of
39:45time. I wanted to know what the timeline
39:48and what the market was going to do
39:50between now and year end.
39:52>> And from when I started running it till
39:55now, it's basically told me the same
39:57thing. And that that is is that the
40:00market will decline at the end of
40:01October into the beginning of November.
40:04Here we are doing exactly that.
40:06Meanwhile though, it has truly rallied
40:09extremely hard at the same time. So it's
40:13not wrong and it's but it's not 100%
40:15right. But it is in terms of the time
40:17factor.
40:19So, and it's also been telling me and I
40:21what what I can look for now from mid-
40:22November, let's say, till like December
40:25the 10th.
40:27So, it's taking me up to the next FOMC
40:30meeting.
40:31But it also alerted me to the fact that
40:33it's like we all knew that the Fed was
40:35going to cut 25 basis points when they
40:37did on on the 19th of November, but
40:41everybody was like, well, we should have
40:42this reaction in the market. It's like
40:43why? We all know that it's going to
40:46happen. What are we reacting to? We
40:48already did.
40:50>> So, I think it's like if you really want
40:51to be a trader and you really want to
40:53come into the market and earn money,
40:55which I believe is possible, it's not
40:57going to happen overnight. Do your
40:59homework, come in, get smacked, stand
41:03back up, and learn what you did wrong,
41:05and make improvements.
41:07Nobody Nobody wins on every single
41:09trade. If somebody tells you, "Oh, 100%
41:11of my trades are winners." It's like,
41:12"Thank you very much. to have a good
41:14day. Seriously, it's like, you know, I
41:17don't have winning days every single
41:19day. I don't not every one of my trades
41:21is a winning trade. And sometimes I get
41:23real stubborn and I'll be down way more
41:26than I want to be. But it depends on
41:29your account size and what you can
41:30handle and how how stubborn you're going
41:34to be at a particular time.
41:36But if your battle is against an
41:37algorithm,
41:39they're not doing this against you.
41:43They're just performing the algorithm's
41:45purpose.
41:47And if the purpose is to buy and keep
41:49buying, for example, go back to when
41:52it's on risk on trading, the market will
41:55walk itself higher, pull back this much
41:59and walk higher and pull back slightly.
42:03>> So, wouldn't it be great to understand
42:05what risk on really is? And when you see
42:07it in full motion, if you're a futures
42:10trader, just buy a future and just hang
42:12on to it and let them go and make your
42:16money or buy an option that maybe
42:19expires the end of that day or that you
42:20can get out at the end of the day and
42:22watch what it does. So just having the
42:25knowledge
42:27is is your best
42:29>> your best avenue.
42:31One interesting thing is that there's no
42:33excuse really because you know
42:36it's not to be disrespectful actually
42:38the opposite and give praise of like 71
42:41years old trading for 46 years and yet
42:44you've embraced
42:45>> AI
42:46>> while a lot of people might go in that
42:47position go
42:49>> or is it dangerous this is no no use
42:52>> or some of my friends like uh it's time
42:54for me to retire
42:56>> I'm like yeah I get that you know there
42:59are days when like I don't I live in San
43:00Francisco, I don't want to get up at
43:024:30 in the morning, but I do, right?
43:06But I think about it. Well, maybe I do
43:08want to pull back. But trading, yeah, I
43:13have to I'm going to just tell you it's
43:14like an addiction.
43:17If you don't do it, you get really
43:19squirly
43:21like I'm going to I want to check my
43:23phone. I want to check my wrist, which
43:24is going to give me the latest, right? I
43:26I feel a buzz on my wrist. I'm going to
43:28go look at it because it's some the
43:30market's telling me something. Um,
43:33but I I do have days where I'm like, you
43:35know what, I just want to walk away. But
43:37having the luxury that you can do that,
43:40>> you know, is is really important. I
43:43think
43:46it's also I really enjoy the analysis
43:50and why because it's figuring out a
43:52puzzle.
43:54>> Zella, pull up my trading performance.
43:56Certainly, RZ,
44:00>> what's my most profitable trading day?
44:02>> Thursday, RZ.
44:04>> And my best performing strategy,
44:06>> your opening range breakout. Although,
44:07I've noticed something concerning, RZ.
44:09>> What is it?
44:09>> After two consecutive losses, you tend
44:11to overtrade. Your performance drops.
44:13>> Wait, how much has that been costing
44:15you?
44:16>> More than you might think, RZ,
44:18>> how are you even tracking all this?
44:19>> Tradezella automatically journals trades
44:21from 500 plus supported brokers and prop
44:24firms. So, you're telling me stocks,
44:26options, futures, forex, and crypto
44:28>> all supported, RZ?
44:30>> You know what? Show me which setups are
44:32actually making money.
44:33>> And which ones are quietly losing it?
44:35RZ,
44:35>> can I back test my strategy?
44:37>> Describe the rules, RZ, and I can test
44:39it against historical market data.
44:40>> Hold on. You can back test it and I
44:43don't have to do it manually.
44:44>> That's correct, RZ. No coding required.
44:47>> That is crazy. Why should people use
44:49trading? An analysis of 5,000 trading
44:52accounts found that traders who
44:54journaled every trade had a profit
44:56factor of 1.42 RZ. Those who didn't
44:58journal just 0.91.
45:00>> So you're telling me the people who
45:01actually journal performed better?
45:03>> Yes, RZ. With a 56% higher profit
45:06factor.
45:07>> And how many traders are using
45:08Tradzella?
45:09>> Over 100,000 traders maintaining their
45:11subscriptions, RZ, and more than 20
45:13billion trades journaled.
45:14>> What about the reviews?
45:15>> Over 955star reviews on Trust Pilot. You
45:18don't get that kind of feedback for no
45:20reason. Zela, tell me, what's the offer
45:22for Words of Wisdom?
45:23>> Code W gets you 20% off yearly or use
45:27RIZ for 10% off monthly.
45:29>> And where do they stop?
45:30>> Tradezzella.com. Link in the
45:32description.
45:32>> Well, Zella, thank you so much. I will
45:34catch you later. Let's get back to the
45:36episode. And when you can put all the
45:38pieces together and like, oh my god,
45:40there it is.
45:42It's I feel really good. I feel like
45:45I've achieved something. And then then I
45:48you know I spread it out to my
45:49subscribers which is great. Um but
45:53there's a lot of satisfaction to it. But
45:56then there are the days I walk away and
45:57go look I can't do this. I am so tired
45:59of it. Because it'll be one more day
46:02where it's like why are these algorithms
46:06still coming in and doing the same
46:07trade?
46:09>> Because it's available.
46:12Because an algorithm is not going to do
46:15a trade that's not going to make it
46:16money.
46:18A dealer is not going to stay a dealer
46:20if they can't make money.
46:23So, as long as they can sell the premium
46:25and hedge it,
46:28they will do it until the cows come
46:30home.
46:31And I think that's something people need
46:33to understand.
46:35You might be, I need the market to go
46:37down. I need the market to go down. It's
46:38like don't let your position talk to you
46:40and determine what you do.
46:43Smarten up. Learn why is the market
46:46going up? Yep, it may come down
46:48eventually, but how long can you hang
46:50on?
46:52And that's the big thing. So either we
46:55adapt to what's actually happening now.
46:59And if your goal is that you really want
47:01to stay and you want to become a trader
47:02and you want to improve your skill and
47:04you want to make a living off of it, I
47:07think that's a great goal. Get some
47:09education on it. You're not just going
47:11to step in and it's going to come to you
47:13just through osmosis. There's a lot of
47:15work behind it. and the people that do
47:18that work.
47:19I think now I I have coaching clients
47:24that I've been working with and I told
47:28one the other day I said I'm living
47:30vicariously through you [snorts] because
47:32as a market maker I could care I often
47:35carry very very large positions because
47:38you're a market maker you can do that
47:40>> well and when I stopped actually being a
47:43market maker I oh good that's a relief I
47:46don't need to risk that much money and
47:48so then I sleep at tonight but at the
47:51same time watching somebody else do it
47:53watch because of saying this is the
47:55position you want to look at that now
47:56you need to trade the position you need
47:58to manage the position and making sure
47:59they understand what all that means I'm
48:01watching them do it and then watching
48:03the P&L
48:05I get I get big smiles on my face it's
48:08just it's just it's really joyful it's
48:11not impossible
48:13even I get I have day traders but
48:16something we mentioned Four,
48:19I think many people come in and they
48:20don't have the right mindset.
48:24>> And when your worst enemy is you
48:27>> because of something that you brought in
48:29with you
48:31and you can't seem to get over it. So
48:35you become fearful.
48:37Your fear of missing out, your fear of
48:39losing your, you know, that is your
48:42worst nightmare.
48:44But there are ways to get around that.
48:45So, one of the other things that I' I've
48:47come about to to teach basic basically
48:49because I had to teach myself
48:54as an options trader, you can hedge it.
48:57Well, oh, that's easy. Okay. As a
48:59futures trader, maybe you could, but
49:02that's not your goal. Your goal is not
49:04to hedge it. So, what do you have to do?
49:05You have to have a different mindset.
49:08So, I teach people my I have three basic
49:11rules for trading.
49:14You know, you can take them and you can
49:15just put in whatever you want, but if
49:20you follow those three basic rules and
49:22every single trade that you do,
49:25you're not going to lose your shirt.
49:27You're not going to dump an account.
49:30It's when you break it for yourself
49:34that you'll end up getting fearful,
49:38losing losing an account. And if it's
49:42like because we also spoke it's like I
49:45work with people that they're trying to
49:48get funding, right? So they a lot of
49:50prop firms are out there and very
49:52reputable and there are people making a
49:54ton of money. So say well how are you
49:58doing that? It's like well they likely
50:00learned what worked, what didn't, how to
50:03protect, how to get out. So it's like
50:07and it takes time.
50:08>> What would be those three rules? of the
50:11three rules.
50:13What is the trigger? Why are you getting
50:15into this trade? Is it because it broke
50:18a call wall, a put wall, a volatility
50:20trigger, or broke below or above a
50:22moving average, or one of your other
50:24indicators? Did that provide it? Second
50:27one, what's your goal? What's your goal
50:29on the trade? Uh, I want to make $1,000.
50:32Okay, plot it out.
50:35And the third most important that one
50:38always gets overlooked.
50:40Where are you going to get out of the
50:41trade if it becomes invalidated?
50:44You know how many people walk past the
50:45stop? Oh, it's going to come back. It's
50:47going to come back. It's going to do
50:48this. Really? Are you sure? Oh, yeah.
50:52I'm really sure. It's like, okay, oh
50:54man, I'm down five grand. It's like,
50:56where was your stop? You know, why did
50:59you walk away from your stop? And many
51:01people learn that the hard way.
51:02Unfortunately, if you lose an account,
51:03you lose an account.
51:05>> But learn learn from the mistakes. So
51:08those are three simple basic.
51:11>> As someone who's been trading for 46
51:14years, you've seen different market
51:15cycles. You've seen technology come in
51:17and completely change the way that we
51:19trade.
51:19>> Yes, I have.
51:20>> And I feel like we're in a period that
51:23we are going to see another market cycle
51:25change. And we're going to see the
51:27nature of trading change. No, maybe in a
51:29massive drastic way, but there are
51:31people who right now as you say using
51:33prop firms or not who have been
51:34profitable say the last year, two years,
51:37maybe three, four, it might be the first
51:39sort of string of of wins.
51:42>> And I think a misconception that happens
51:43is once you're profitable, you're always
51:45profitable.
51:46>> But all it takes is that change. And so
51:48I would love to hear your advice for
51:51traders that from experience maybe what
51:54some of the hurdles were when having to
51:56adjust and adapt to market changes and
51:59technology because as you mentioned
52:01you've had a zero DTE options that is
52:03completely you know change the nature of
52:05markets and I'm sure there will be more
52:07advancements to come. We've seen
52:09overnight trading become uh more
52:11prevalent. We're seeing potentially 7
52:12days you know and the markets open up
52:14even more. We've seen the PDT rule
52:16potentially going to get removed. All of
52:18these things have the ingredients to
52:20change market cycles and the way that
52:22markets operate.
52:23>> Yes.
52:23>> On top of technology, right? Increasing
52:26>> and the AI conversation we had. But
52:28essentially the question comes back to
52:30you've been through many changes.
52:32>> I have.
52:33>> And there will be traders listening
52:34right now where this is their first
52:35market cycle maybe second. What would be
52:38your advice in terms of hurdles of
52:40adapting to these changes to be aware
52:42of? But equally, the best advice to make
52:46adjustments and to push forward because
52:47I think a lot of people when these
52:49adjustments take place and their P&L
52:51starts to change or cease up or dry up,
52:54a lot of people wash out,
52:56>> right?
52:56>> And they don't continue. And that's a
52:58shame. One of the first things I would
52:59tell a new trader or somebody really
53:02wanting to put their heart and soul into
53:05making this their own business and their
53:08sole source of income. You do not care.
53:11And I mean this sincerely. You do not
53:13care if the market goes up or if the
53:15market goes down. You do not care. You
53:18don't care why. You don't care how or
53:22when. You just want to be there and
53:24participate. You can have an inclination
53:27like following Elliot wave and doing
53:29things like I'm kind of looking for this
53:30correction to kind of come in and then
53:32you can also can determine the degree
53:34like we did this morning. We talked
53:36about that where this is just minuette
53:38degree that's pretty small still
53:41powerful because the NASDAQ was down 500
53:45and it's a minute fourth and it's only
53:48the last leg of it. So like that's
53:50that's a big move but still can be done
53:54today.
53:55and tomorrow we go back in the other
53:57direction. You do not care if it goes
53:59up. You do not care if it goes down. You
54:02just need to be there and be open and
54:04participate.
54:05Whatever your strategy is going to be,
54:07whether you're a day trader, futures
54:09trader, options trader, you can
54:11participate for the day and make a lot
54:14of money. So, you just have to remain in
54:18the market. That would be the biggest
54:20thing I'd say. Just get into your head.
54:22You do not care. I don't care what goes
54:25up or down. And I don't care why. I need
54:28to get my point. It's like, "Oh, it just
54:29broke there. I'm getting on board.
54:32What's my goal? I want to make 500
54:33bucks." When I do, boom, I'm out. Thank
54:35you very much. And what it does for you
54:36is you're not sitting there worrying
54:38about the trade. You're out now. You're
54:39looking to see what my next trade is.
54:41And it might be doing the opposite.
54:44Right? Markets don't just go straight up
54:46and straight down. Although some days
54:47they appear to be, but they correct and
54:50they go back and they correct. And this
54:52So that's what I'm saying. You don't
54:53care if it goes up or down. If you get a
54:55trigger that's to the downside, use the
54:58same strategy.
55:00Work with a stop. Don't forget the stop.
55:04You want to live to do another trade.
55:06Why do you want to risk it all?
55:09So, pick how much you're comfortable
55:10with and risking on per trade. And then
55:13make sure that the that the instrument
55:14that you're using, for example, if
55:18you're using a futures market, like the
55:21NASDAQ,
55:22which they tell you it's like, well,
55:24it's $5 a tick. The last time I saw them
55:28that the NASDAQ traded in ticks, I think
55:30was probably 1990.
55:33It trades in dollars. That's how fast
55:36it'll move. So, it's $20
55:40per point.
55:42And I think it's like you and I were
55:43watching at one point it was like see
55:44there just moved $10. Why? Oh well
55:48because Nvidia went up 50 cents
55:51and Apple went up 30 or whatever. There
55:54goes the index. Now do I care? No. I
55:59just either need to get out of something
56:00if I'm short or I need to get in because
56:02it's long and I I want to make that
56:04money.
56:06So that's what I think your time frame
56:08whatever it is. If you're going to be a
56:10position trader, different world, but I
56:14think it's very very possible and it's
56:15very possible today. And therefore, you
56:17can use artificial intelligence to help
56:20you get an idea of what the market's
56:22doing, what it should, can do, what it
56:26may do, and that could be both
56:28directions. And then you can build a
56:30position accordingly
56:32and learn about using
56:36leaps which are you know far out
56:40so which are very profitable and
56:44understand how to use them. So in other
56:46words it's like if you're going to come
56:47in you want to be a trader and you want
56:50to trade options learn
56:53what does it mean? What do all the
56:54Greeks mean? What is how do I use the
56:57leaps? What are these positions?
57:00Right? Because you can have, well, I got
57:01a butterfly. I got a broken wing
57:03butterfly. Well, I have an iron condor.
57:04I just have a plane condor. Or I have a
57:06put spread, but I got this going
57:07underneath. And like, you know,
57:11or what they call a broken wing
57:12butterfly. There's so many different
57:14positions. And they all work,
57:17but how do you manage it? What do I need
57:20to do? What do I need to look for? Now,
57:23here's the other thing. I'm going to be
57:24an option trader. In the United States,
57:26we have early exercise
57:30that is going to affect how much you pay
57:34and what happens if you put a spread on
57:37and one side of it gets exercised.
57:41What do I need to do? So, these are
57:42things like that's all learnable.
57:45>> You don't need to be sitting out there.
57:47You will learn sometimes by mistake just
57:50because you didn't react and hopefully
57:53you won't lose your account. But it's
57:55like learn. There are enough people out
57:57there that are honest
57:59>> and that will sit and coach you.
58:01>> And we we talked earlier that you're
58:03mainly a scalper, right? Has that always
58:06been the case or
58:06>> No.
58:07>> Well, what did you uh do before? Were
58:09you more swing trading or
58:10>> No, I was an option trader.
58:12>> Oh, yeah.
58:12>> I was a position trader.
58:15And the one thing I will share with you,
58:18it's like when I lived in I lived in
58:20Amsterdam for 10 years and I traded on
58:21the European Options Exchange. Um, but
58:24they don't have early exercise. So, one
58:27of my favorite positions is a conversion
58:29reversal. And that's where you're doing
58:30a put and a call and you're taking the
58:32underlying, you stick an A in the
58:33middle, and no matter what happens to
58:35the stock, you've made your money
58:37because you have the call and you have
58:38the put and they can't be exercised
58:41until that day, till that expiration. So
58:45I could do these positions, set them
58:46over in a different account and just let
58:48them expire and then collect the money
58:50then. Well, now that doesn't exist here
58:53in the United States. So it's a
58:55different a little bit of a different
58:56game. Not impossible, but it's a little
58:58bit different. So I think just learn the
59:02method, learn how things work and and
59:05understand how you need to work with
59:08them, not against them. because the the
59:11again algorithms they don't know us
59:15they're not coming after you
59:17a lot of people take things personal
59:19right um and when you're sitting at home
59:22by yourself in front of your own screen
59:25I can say from my own experience I don't
59:27I'm not proud of some of the things that
59:29have come out of my mouth
59:30>> in terms of uh you mentioned earlier
59:32sometimes there'll be times where you
59:34may be having to handle draw down and
59:36losses
59:36>> yes you know what are some of the
59:40things that have allowed you to overcome
59:42that because that is one of the largest
59:44hurdles that traders face is handling
59:46losses, handling draw down periods,
59:49>> right?
59:49>> A lot of the time maybe due to the
59:51misconception that it's normal and that
59:53they don't really accept that
59:55>> and they assume that really profitable
59:57trading should be yes, some losses may
59:58be in there but nothing significant. The
1:00:01reality of your random distribution of
1:00:03your edge playing out is that you will
1:00:05have losing streaks and they can be
1:00:07quite significant ones.
1:00:09>> The nature of being human is that we'll
1:00:11make mistakes and we'll it could all it
1:00:13could take is one bad day, a bad sleep
1:00:15argument, something that's taken your
1:00:17eye off things and you're heightened in
1:00:20your emotions and you take a loss and
1:00:21that could trigger a snowfall.
1:00:24So what are things one the reality of
1:00:26draw downs but two what are things that
1:00:28have helped you overcome those moments
1:00:30where the draw down may be a bit more
1:00:32steeper than normal whether
1:00:33self-inflicted or just the edge playing
1:00:35out.
1:00:36>> I have suffered larger losses and some
1:00:40at my own hand and others because I
1:00:42backed traders and
1:00:46they just kind of walked over and said
1:00:48oops and it ended up being a very large
1:00:50amount of money.
1:00:52First of all, you have to get over the
1:00:54shock. That's like, wow, that's a lot.
1:00:57Um, and you have to figure out what the
1:00:59position is now and what you can or
1:01:01cannot do and what you need to do. So,
1:01:05it's a matter of
1:01:07how you react
1:01:09and if you fall apart, then basically
1:01:13consider you're going to lose your
1:01:14account. If you can stay connected,
1:01:20understand what you can do to reverse it
1:01:24to co if you need to cover it, cover it.
1:01:27I've seen people like they're afraid to
1:01:29cover it because they think it's going
1:01:30to come back. I was like, why?
1:01:34My experience is cover it. If it was a
1:01:38mistake, cover it immediately. If it's a
1:01:41position that's turned bad, suddenly get
1:01:44out of it because and the reason is is
1:01:46you need to clear your head. You need to
1:01:49get back to the center line so that you
1:01:51can consider and think what's my next
1:01:53move. What do what do I need to be
1:01:56trading? Yep, I just dumped 10 grand or
1:01:5925 grand or 100 grand. Yes, it hurts
1:02:04because however long it took us to make
1:02:06that amount and you can lose it in a
1:02:08blink.
1:02:10That's part of the market.
1:02:13And unfortunately, I hate to say it, but
1:02:16it's usually a lesson that every single
1:02:18trader has to learn. And how we react is
1:02:22what's going to be more important. So, I
1:02:24know there are a lot of trading coaches
1:02:26available and that's where we that's
1:02:29where we step in as a coach because a
1:02:32lot of it is psychological. A lot of it
1:02:34is what what's playing in your head?
1:02:36What are you telling yourself?
1:02:39And so that same coach needs to kind of
1:02:41like smooth it out. It's like, okay,
1:02:43let's go look at what did you what did
1:02:45you do wrong without judgment.
1:02:48I think the other thing is we as traders
1:02:50will do. We we demand perfection from
1:02:53ourselves. And so when we make that
1:02:56mistake, we're our worst enemy and we're
1:02:58just being very very critical of what
1:03:01we've done. Oh, you were stupid. How
1:03:03could you do that? It's like, no, I'm
1:03:05not stupid. I put on a good position. It
1:03:09turned sour because of this
1:03:13and because you didn't react right away,
1:03:14it cost you double.
1:03:17So I think if we could just analyze
1:03:19anatomy of a trade, it's a function that
1:03:22I that's what I call it. But either I do
1:03:25it to for myself like well let's take a
1:03:28look at that trade. What did you do?
1:03:31Like well I bought futures and I went
1:03:33down and bought some more and then I
1:03:34went down I bought some more. I was
1:03:35like, "So, where was your mistake?
1:03:39You didn't have for me. You didn't have
1:03:41where where is that support?
1:03:44Oh, look. It got broken.
1:03:47So, why were you still buying?"
1:03:50So, again, it's just going back and
1:03:53looking at what you did. Now, sometimes
1:03:55you put on a position, an options
1:03:57position, and and maybe you've got it
1:04:00hedged, but most of the times it's only
1:04:01hedged to a certain point.
1:04:03then it'll either start losing money,
1:04:06right? Or you have a position on and one
1:04:09side of it gets exercised.
1:04:12Now you've got a losing position.
1:04:16And so it's just recognizing it. Don't
1:04:19freak out,
1:04:21which can be hard. Um, correct it. If it
1:04:25needs to be closed, get out of it.
1:04:28Consider it an error. We all make
1:04:30mistakes,
1:04:32so you can't at at the moment, you can't
1:04:35go bang your head against the wall
1:04:36because you're losing.
1:04:39So, it's just keep your wits.
1:04:43One thing you mentioned earlier, which I
1:04:45found super interesting and something I
1:04:47would not want to have to do myself,
1:04:50especially after just being here for a
1:04:51few days,
1:04:52>> but waking up 4:30 a.m. to be prepared
1:04:55for the markets, right? That's a level
1:04:57of discipline and preparation that has
1:05:00to be really fought out and embedded
1:05:02into your routine,
1:05:04>> right?
1:05:04>> And even at 71, I wouldn't guess 71
1:05:06number one. Um, you know, the
1:05:09articulation you still have, the
1:05:10activity as you can tell with with the
1:05:12markets is completely still there and
1:05:14even to this day still sticking to such
1:05:15a routine. But how important and how
1:05:18much edge is found in your preparation
1:05:20outside of the markets
1:05:23so that you can execute effectively your
1:05:25edge, effectively your strategy and be
1:05:28able to be sharp and adaptive especially
1:05:31you you know uniquely for you in this
1:05:33time zone for example at the such early
1:05:35hours but just generally speaking as
1:05:37well. How important is it to really
1:05:40focus on how you set up your lifestyle
1:05:42and your day-to-day routine so that when
1:05:45it comes to your trading window
1:05:47>> that you can execute effectively?
1:05:49>> One thing that I will say that I think
1:05:51we all should be doing is we have to
1:05:53some physical some physical exercise
1:05:56something to keep the body active. Um
1:05:59whether it's going and taking a walk,
1:06:01whether it's getting on a treadmill,
1:06:02whether whatever the situation is, just
1:06:04get that physical exercise every day.
1:06:07every day. Um, mentally, I think there
1:06:11are times when I can sit quiet, but I'll
1:06:14tell you what my mental exercise is each
1:06:16day, and that's doing my analysis.
1:06:19That's kind of weird because if I'm
1:06:21stuck, I will just sit there and pick it
1:06:24apart and keep looking at it, keep going
1:06:26like, "Okay, what about that? What about
1:06:27this?" Until suddenly like, "Oh my god,
1:06:29there it is." And then I'm then I'm
1:06:31realizing what what I need to do. But
1:06:34it's because I still provide analysis.
1:06:38So that's a big part of what keeps me in
1:06:41line, keeps me motivated and more
1:06:44prepared each day. And the first thing I
1:06:46do at 4:30 in the morning is I get up
1:06:48and I make two updates. I put out a
1:06:50morning report, one for this S&P and one
1:06:52for the NASDAQ. So I'm I'm walking in
1:06:55going like, well, I just did that, so I
1:06:57got an idea what I should be looking for
1:06:59today. And so if it doesn't then I can
1:07:03turn that around and again put on an
1:07:05intraday alert because I have
1:07:08subscribers but it also is just that
1:07:10that internal mechanism. It's like well
1:07:12sit down and do the work, sit down and
1:07:14do that. So taking care of one
1:07:17physically is very very important. Um
1:07:22getting enough sleep is very important.
1:07:24Of course, I have to say when I was a
1:07:27market maker on a trading floor
1:07:30back in the day, well, you know, alcohol
1:07:33and drugs played a big big part of
1:07:35everybody's daily life. Well,
1:07:39you see what the result of that can be.
1:07:42And it's sad, but it's true. So I think
1:07:46that being kind to oneself,
1:07:50you know, take good care of yourself,
1:07:53take good care of your body, that's the
1:07:54biggest thing I can say. Dealing with
1:07:56one's emotions, I think is very very
1:07:59important. Um, anger can kill you and I
1:08:05think in the market it's so easily
1:08:07triggered.
1:08:09So, it's understanding what your
1:08:11triggers are because some some people
1:08:14are going to be built to go and do this
1:08:16and they don't get excited and other
1:08:18people will be like screaming at the top
1:08:19of their lungs because the market did
1:08:22something against them. It's like no, it
1:08:24didn't. Market doesn't know you exist
1:08:27and nor does it care. And that's a harsh
1:08:31lesson to learn.
1:08:33You know, I think I hear so many times
1:08:36from people, well, they just they're out
1:08:39there looking for the stops. It's like
1:08:40nobody's out there looking for the
1:08:42stops. They may have written an
1:08:43algorithm that's going to go see what's
1:08:44there, but they're not looking for you.
1:08:48That's just an algorithm. They don't
1:08:51know you exist. Or you know that they
1:08:53they do that on purpose. It's like, why
1:08:55would they do that on purpose?
1:08:58Do you ever walk that through? So I
1:09:00think sometimes
1:09:02when we're thinking in our heads if we
1:09:04would just come up with like why would
1:09:06you why would the market do that to you
1:09:10or even to a group of traders or
1:09:13everybody thinks like for example uh JP
1:09:16Morgan
1:09:19does every quarter on the last day of
1:09:21the quarter or last trading day they
1:09:23roll a hedge for their hedge funds and
1:09:28it's a very very large put and call
1:09:31position
1:09:33and everybody thinks, "Oh, they're going
1:09:35to go down there. They're going to test
1:09:36them." It's like, do you think JP Morgan
1:09:38cares?
1:09:40I was like, can I just share with you
1:09:42that JP Morgan has no problem if you
1:09:45want to go down there or if the market
1:09:46wants to go down there and upend that
1:09:49position because number one, they won't
1:09:52because the traders are stealth and good
1:09:55enough that they'll just go over to the
1:09:56zero DTE and trade around what they're
1:09:59trying to do and they'll still make
1:10:02money.
1:10:04So, why waste the time?
1:10:08So I think I think it's like be kind to
1:10:11oneself.
1:10:12>> In terms of uh data,
1:10:15>> how important as a trader is it to
1:10:17meticulously collect and review your
1:10:20data in order to perform? Especially,
1:10:21you know, going back to the theme of
1:10:23what we've talked about in terms of
1:10:24market changes, adapting, being able to
1:10:27keep your edge or at least form a new
1:10:30edge if necessary.
1:10:31>> How is how possible is that without
1:10:34data?
1:10:35Not very. It really isn't because the
1:10:39data is changing. The methodology of how
1:10:42the data is delivered is changing. Um
1:10:46AI, you know, I think it's like it's
1:10:48very important to stay up with the data,
1:10:51but I don't know if if I have to kind of
1:10:54know every number. It's like m maybe not
1:10:59because I have different things that I
1:11:02pay attention to that a number comes
1:11:06out. Right now we haven't had any in two
1:11:09months, but I know that they'll come
1:11:10back eventually once this this shutdown
1:11:13is over. But what I've told people, it's
1:11:15like, you know, we'll get a PPI, we'll
1:11:18get a CPI, we get this gigantic reaction
1:11:22within 10 minutes after the market
1:11:24opens.
1:11:26Do we have a number?
1:11:28Why? Because the algorithms don't give a
1:11:30crap. They're not programmed to, oh, you
1:11:33need to pay attention to that because
1:11:35we're going to start selling. If it's
1:11:37that hard, then you're going to know
1:11:39from the start that the algorithms have
1:11:42taken it in and they're changing.
1:11:45But again, most of the time they just
1:11:47continue to do what they're programmed
1:11:49to do.
1:11:51And I think that's the biggest thing you
1:11:52can you can accept. You have to accept
1:11:55these things. They're they are not going
1:11:57to change.
1:11:59There are firms that I'm sure you're
1:12:01aware of and I'm aware of. They have
1:12:03spent billions of dollars, not millions,
1:12:05billions building these algorithms to do
1:12:09what they want to do. in terms of like a
1:12:12discretionary trader collecting and
1:12:14journaling their trades in terms of uh
1:12:17being able to adapt to market conditions
1:12:18as you said even like with these data
1:12:20points and we'll see shifts take place
1:12:24where CPI is the thing that everyone's
1:12:26watching and is creating volatility even
1:12:28if just for a moment or sometimes
1:12:30extended sometimes it'll be the interest
1:12:32rate a lot of the time it will obviously
1:12:33be the interest rates but there'll be
1:12:35elements where things shift attention is
1:12:37focused on certain areas of course we've
1:12:40seen tariffs and when that's taking
1:12:42place or Brexit back in uh 2016 and
1:12:46we'll see these different themes that
1:12:47come along that
1:12:48>> is shifting the market and creating
1:12:50volatility in terms of the individual
1:12:53trader journaling their trades and
1:12:55reviewing their trades being able to
1:12:57again going back to
1:12:59>> when to adapt
1:13:00>> when maybe the edge is eroding or the
1:13:02edge is changing because of these market
1:13:05conditions changing how important is it
1:13:07for the day-to-day trader to collect
1:13:09their data
1:13:10>> I think It's very important actually but
1:13:13I think you can do it through G uh chat
1:13:15GBT you can use artificial intelligence
1:13:18to collect your own your history your
1:13:22what you're doing and so a journal I've
1:13:26known people that they journal and they
1:13:28get a benefit short term then they stop
1:13:32journaling but if you're willing to
1:13:34journal and you're going to go give it
1:13:35to you know artificial intelligence it's
1:13:38going to give you the
1:13:40of maybe what all this journaling is is
1:13:43you're trying to tell yourself
1:13:46specifically what you said what's
1:13:47changed algorithm is going to be able to
1:13:50tell you that because they're going to
1:13:51go collect all that data for you you
1:13:53know what did I do wrong on this trade I
1:13:56did this this and that and it it might
1:13:58spit out the answer or it might not but
1:14:01I think recognizing what you're doing
1:14:04particularly in the beginning is good
1:14:07habit
1:14:09so that you know what you're doing.
1:14:12>> Michael, I'm sure there's so many more
1:14:13topics that we could uh go over and dive
1:14:15deep into and hopefully we'll be able to
1:14:17do this again in the future.
1:14:18>> I would love it.
1:14:20>> Just as a finishing last request, if you
1:14:22will, for the audience again, we've
1:14:25talked about the wealth of knowledge,
1:14:26the observation of market changes and
1:14:31how how you have to adapt
1:14:33equally. you know, you've observed and
1:14:35worked with traders over the years as
1:14:37well. If you could just for the
1:14:40audience, give your best advice to them
1:14:43in terms of what they, you know, how to
1:14:45to focus and hopefully accelerate their
1:14:48trading regardless of whether they're
1:14:49losing right now, break even, or even if
1:14:51they are profitable, right?
1:14:53>> What would be your your best advice to
1:14:54the audience listening right now in
1:14:57terms of moving forward?
1:14:59>> Accept AI.
1:15:01And there's a lot of different companies
1:15:03that produce it. Accept AI. Use it
1:15:08and use it to your advantage.
1:15:11It isn't so important to understand how
1:15:13others are using it. Use it to your
1:15:15advantage
1:15:16every day.
1:15:18That's my advice.
1:15:21>> Yeah. It's interesting when I landed in
1:15:23San Francisco. I've not seen it anywhere
1:15:25else and I've traveled quite a lot uh
1:15:27recently as well, but every billboard
1:15:30and advertisement is AI.
1:15:32>> Yeah. Well, we're AR central here.
1:15:34>> It makes sense. Yeah.
1:15:35>> You know, Chad GPT is here. Sam Alman
1:15:37lives here.
1:15:39>> Um, in fact, they just ran an article in
1:15:41the Chronicle and they were talking
1:15:43about the billionaires and where they
1:15:44live in San Francisco. We have a lot and
1:15:48a lot of it. You can never fault one's
1:15:52success. It's what they do with it, of
1:15:54course. But there are a lot of
1:15:56billionaires. The the home sales in San
1:15:58Francisco, those are like, you know,
1:16:01from 10 million up. $10 million for a
1:16:03home. Well, yikes.
1:16:05>> But it's happening.
1:16:06>> And it's it's like great.
1:16:10>> So, I think Yeah. Yeah. You're gonna see
1:16:12a lot of billboards.
1:16:14>> I can I can see loads. But Michael, it's
1:16:16been an absolute honor. Again, I'm
1:16:18looking forward to doing this again in
1:16:19the future. Everyone at home, drop a
1:16:22comment with your biggest takeaway from
1:16:23this episode. We went really, really
1:16:26deep into so many topics and I know that
1:16:28you would have enjoyed this. Now, make
1:16:30sure you hit like and subscribe and most
1:16:32of all, Michael's links will be in the
1:16:33description below, so make sure you
1:16:35check those out as well. Well, other
1:16:37episodes are on screen right now. Check
1:16:39those out. And we've been here at Words
1:16:41of Wisdom here in San Francisco. Until
1:16:43next time, everyone. Take a

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