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If You Only Have $50, Do This Every Morning (The 3R Rule) — Transcript

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0:00You know, over the last two decades,
0:01I've been consistently making winning
0:03trades that look like this. Right from
0:05the opening bell, using only one trading
0:08setup. But long before I was ever able
0:10to get close to those types of gains, I
0:12traded this very setup every single day
0:15of the week, risking no more than $ 20
0:17to $50 per trade. You see, one of the
0:19hardest lessons I ever had to learn as a
0:21trader is that the more I chased money
0:23over method, the more I got smoked. And
0:27eventually after getting smoked for what
0:28felt like a few hundred gabillion times,
0:31I would come to the realization that if
0:33you can't make $50 consistently, you
0:36can't make 50,000. And the only way that
0:39you can ever become consistent as a
0:41trader at any level is you have to have
0:44a definitive edge. You have to learn to
0:46execute that edge to perfection. You
0:48have to keep your risk small at all
0:50times. And you have to focus on becoming
0:52consistent first before you ever think
0:55about scaling up. Because here's
0:57something that's weird about trading.
0:59The same repeatable process that you
1:01master as a one-figure trader will be
1:03the exact same process you'll be using
1:06if you ever become a six-figure trader.
1:08The numbers may change, but the process
1:10never does. Now, my name is Doug and
1:12I've been day trading now for 26 years.
1:14And in today's video, I'm going to take
1:16all of that experience and show you
1:17exactly what I would do if I had to
1:19start all over again from scratch. from
1:21the type of strategy I would use, the
1:23risk I would use, the assets I would
1:26trade, exactly how I would scale up from
1:28a one figure trader to a six-figure
1:31trader. Let's go ahead and get started
1:33with today's video.
1:36All right, my friends, the goal of
1:37today's video is to teach you the
1:39following. Number one, how you're going
1:41to start trading from here on out with
1:44the lowest risk possible, regardless of
1:47whatever your account size is. Number
1:49two, how you're going to start targeting
1:52larger gains using something we call the
1:55probability factor. Number three, how
1:58you're going to start scaling up
2:00methodically and effectively by using
2:02something we call the Wall Street raise.
2:05And number four, what assets offer you
2:07the best opportunity to start trading on
2:10with just $50 worth of risk. And of
2:13course, as this video goes on, I will
2:14continue to show you a series of live
2:16examples backing up all of these
2:18theories. Now, right before we jump into
2:20that, I want to show you a huge mistake
2:22that most traders make when it comes to
2:24effectively using risk versus reward.
2:26Because I'm sure you've seen your fair
2:27share of YouTube videos and other types
2:29of educational material that tell you at
2:31all times you must trade with a 2:1 or a
2:333:1 risk versus reward, also known as
2:36RR. Now, they're not wrong. That is
2:38important. But it's also incomplete. so
2:41incomplete, it's probably costing you a
2:43ton of money right now or it's certainly
2:46going to give you a huge headache and
2:47cost you a ton of money in the future.
2:49And that's what we need to deal with
2:51because here's the problem. One of those
2:53is controllable and the other is not.
2:56And the one that is uncontrollable,
2:59that's the only one that matters. That's
3:02the one that will either keep you in
3:05this business or kick you out of it. And
3:07that's the one we need to focus on. Let
3:09me show you what I'm talking about right
3:10here on a chart. So, let's first talk
3:12about the controllable part, which is
3:14the risk part. And here's the thing.
3:16Anybody anywhere in the world trading
3:18any asset at any given time of the day
3:20at any market can make a trade with just
3:22$50 risk. I can look at an asset like
3:25this and go, "Wow, this is a really bold
3:27blue candle. Looks like an opening range
3:29breakout. Looks like it's a rip to the
3:30moon. I want to buy this thing." And I
3:32can just smack the button, market buy,
3:35and just drag my stop loss down until I
3:37see 50 bucks. Right? Just like that.
3:39Pretty simple. I can control that part.
3:42Obviously, the part I cannot control is
3:44I can't make the market I'm trading give
3:47me the 3:1, which in this case would be
3:49like 150 bucks up somewhere up there,
3:51right? That's the part I don't know. But
3:54the risk I do. Now, there are two
3:57problems with both of these. Let me give
3:59you those with risk first. The problem a
4:02lot of us suffer with when it comes to
4:04using risk is we do what I just did
4:05here. We base it on a monetary number
4:08like 50 bucks, a h 100red bucks. I used
4:10to do this all the time. Like I only
4:11want to give up $100 and I'd use $100 of
4:14risk. But here's the thing. It can't be
4:16just monetary. It has to be structurally
4:21located. Your stop loss must be in the
4:25right place. If it's not, this is what
4:28happens. And you know what it is. If you
4:32don't put it in the right place, you
4:34become vulnerable to that right there.
4:36Instant stopouts only to see the asset
4:39start to trend in the direction you
4:41thought it was going in the first place
4:44and now it's running without you and
4:46that is frustrating. So, rule number one
4:49here is your stop must be located in the
4:53proper area. Number two becomes the
4:56reward. So, let's go back and let's take
4:58a look at this trade. When you make a
5:00trade, not only do you have to make sure
5:03you accidentally don't get stopped out,
5:06you have to make sure that the reward
5:08you're looking for and the risk that
5:11you're taking is worth it and the market
5:13that you're trading actually has the
5:16ability to deliver this to you. And this
5:20again is what I feel most traders
5:23struggle with the most and don't really
5:25pay enough attention to it. And if you
5:26don't believe me, let me just ask you
5:28this question straight up front. How
5:30many times have you been in a trade and
5:32you said this? I wish I would have held.
5:35How come you didn't hold? And I'm not
5:37casting judgment. I did it, too. How
5:40come we don't hold? Now, there could be
5:42a lot of different psychological reasons
5:44as to why, but most of the time it's
5:46either we don't trust the process or
5:49we're just not sure that the reward
5:51itself exists because sometimes it's
5:54unrealistic. So in a case like this,
5:57getting a 3:1 is kind of unrealistic
5:59here. It tries to move itself up, but
6:02after spending several hours just
6:04failing to reach that level, it finally
6:07pukes towards the end of the day. And
6:10here's the thing we're going to talk
6:11about now. There's a way to figure that
6:14out right there in a simple manner.
6:17There's a way to figure out that that
6:19was never going to hit that threshold.
6:21And that's what we're going to talk
6:23about is something called the
6:24probability factor. It will help you
6:27enhance your risk-to-reward formulas.
6:29And the probability factor revolves
6:31around three important things. Number
6:34one, understanding the trend bias of the
6:38instrument that you are trading. Number
6:40two, understanding where the premium
6:44hence premium liquidity zones are
6:47located on the chart that you're
6:49trading. and range. Does the asset have
6:52enough value for you to actually make
6:56money? Now, let me show you exactly how
6:58you're going to use this three-step
6:59process. So, the first thing that we're
7:01going to talk about is the trend bias.
7:02Now, we need this for two reasons.
7:04Number one, we need to know who is in
7:08control of the chart on a midterm basis
7:11because that's most likely who is going
7:13to win out. When I say who's in control,
7:15I'm talking about buyers versus sellers.
7:17That's the side that we want to be on.
7:19The second, which is the most important
7:21thing, which is what this video is
7:22about, is the reward. That's the side we
7:26want to be on because that's where the
7:28big rewards come from. The three, four,
7:31five, six to one type of rewards come
7:33from being on that side. So, here's how
7:35we set this up. The first thing you want
7:37to do is take whatever asset you're
7:39trading. I don't care what it is. Just
7:40for reference, I'm going to start this
7:41video out with TSLL. This is an ETF that
7:45mirrors the movements of the stock
7:47Tesla. We're going to talk about ETFs
7:48here in a little while. But what we want
7:50to do is take whatever we're trading and
7:52move it to a daily chart. And now you'll
7:53have a series of daily bars. Once you've
7:55done that, all you have to do is simply
7:57come up into your indicator menu and
7:59find the indicator simple moving
8:02average. Click on that and it'll lay a
8:04line over top of that chart. Let's kind
8:06of open that up where everybody can get
8:07a good look at it. And then from there,
8:09we just want to make sure that that is
8:12set to a 50day
8:15period. So in the length, type in the
8:1850. Maybe it automatically sets it for
8:20you. I don't know. No other filters need
8:22to be done. And click it. And now the
8:24line will be adjusted. So here's what we
8:27need to understand, at least at this
8:28point in the video. Why do we need the
8:3050-day moving average? What does it tell
8:32us? If the price of the asset we are
8:34trading is above the 50-day simple
8:38moving average, it normally means that
8:41buyers are in control of that chart. So,
8:44what we should do as traders are the
8:46following. 80 to 90% of the trades that
8:48we're thinking about making for that day
8:51should be to the buy side or the long
8:53side. If we take our long positions,
8:56they should be at full risk because
8:59that's the side of the trend regardless
9:03of what the intraday structure may look
9:05like. We want to be aggressive with the
9:08targets on the long side. This is where
9:11we're getting those three, four, five,
9:13and six to one types of targets. Now, if
9:15we choose to go the other direction and
9:18we short an instrument that's trading
9:20above the 50-day moving average, in
9:22theory, we are contrarian trading. And
9:25when you contrarian trade, the general
9:27rule is to begin with smaller position
9:29sizes and focus on taking scalps only.
9:33So, if you're new to trading, the term
9:35scalp means a very, very short-term
9:38trade, like 30 seconds, 1 minute, 2
9:40minutes. Everybody has a different
9:41definition, but it's a very fast
9:43in-n-out trade. The best strategies that
9:45work in this situation are breakout
9:47trading and dip reversals. They are the
9:50best types and those are the strategies
9:52we're going to look for. We'll talk
9:53about that in a minute. Now, on the flip
9:54side of this, if the asset is below the
9:5650-day moving average, we're taking that
9:57same process and just flipping it
9:59around. So, 80 to 90% of the trades that
10:01we are looking at should be sellside
10:04oriented, meaning short sell positions.
10:06Our short positions should be using full
10:09risk because that's the side of the
10:10trend. We should be very aggressive on
10:13our targets if we're short selling. And
10:15if we decide to go long on an asset
10:17below the 50-day moving average, that's
10:19a contrarian trade. So, we want to be
10:21smaller with our size, focus on
10:24short-term scalps only. Strategies that
10:27work best in this are breakdown selling
10:29and topside reversals. Now, let's move
10:32on to the next part. Liquidity zones. On
10:35every chart, there are four major areas
10:37that hold all the keys to what you need
10:40to know to capture the biggest trades.
10:42And they are the range high, range low,
10:44swing high, and swing low. I'm going to
10:45show you here real quickly how you're
10:47going to set those two. So, what we're
10:49going to do is come back to the intraday
10:50five-minute chart here on TSLL. If you
10:54can look up here, I now have the
10:55five-minute chart selected. And what I
10:57want to do is first define something
10:59called the range high or the range low.
11:01Now, it goes by different names, but
11:02that's what we're going to call it
11:03today. The range high and the range low
11:05is the previous day's high and low price
11:09of the asset you're trading. So, if I
11:11kind of move over to the left and I see
11:13this black shaded area, this is the
11:15previous day's trading activity for
11:17TSLL. All I want to do is just lay a
11:20line on the highest price I see and a
11:23line on the lowest price that I see. And
11:26those two represent the range high and
11:28the range low. Next, we need to set two
11:30additional lines. The swing high and the
11:33swing low. The swing high is the next
11:36high above the range high. So, here's
11:39our range high. We just scoot over to
11:41the left until we bump into the next
11:44level. Now, this doesn't matter where it
11:45is. It could be the previous day, 2
11:48days, 5, 10, 12, 25. Go far back as you
11:51need to go until you find that level.
11:53Inverse relationship to the bottom. We
11:55want to go from the swing low, the range
11:58low, excuse me, and find the swing low.
12:00We're going to keep on moving back. And
12:01in this case, we do have to go back a
12:03few days, and we want to lay another
12:05line right there. And that constitutes
12:08the range high, the range low, the swing
12:11high, and the swing low. Now, what you
12:13need to know at this stage of the video,
12:14again, we're going to tie all this
12:16together here in just a second, but the
12:17most important thing to understand is
12:19that the upper level represents the
12:21strongest sellside force. This is where
12:24your highest and most influential
12:26sellers are located. And the bottom is
12:29where the most influential buyers are
12:32located. So for right now, I want what I
12:34want you to place in your mind is we're
12:36going to try to sell here and we're
12:38going to try to buy here. So just kind
12:41of add that with step number one. The
12:43last is determining something called
12:46range. And I've done videos about this
12:48before, but range is a way for us as day
12:51traders to snapshot value. For this, I'm
12:54going to come back to this daily chart.
12:56I'm going to go into my indicator menu
12:59and look for the average true range
13:02indicator. And I'm just going to click
13:03it like that. It's going to give me a
13:05line. Again, much like the 50-day moving
13:07average, no filters are needed here for
13:10this either. So, we're going to come
13:11over here and you're going to see it
13:13lays a line on the bottom of the chart.
13:15Over to the right here, you're going to
13:17see a number. In this case, it's about
13:196970.
13:21That means 70 cents per share. So, if I
13:24am trading this TSL, my value in this is
13:28either.7 cents to the upside or 70 cents
13:31to the downside. That's my expected
13:34value or my my expectation when it comes
13:37to targets and trading. Now, anything
13:39can happen at any given time in a
13:41market, but these are our baseline rules
13:44that we're going to follow. Let me show
13:46you how when you tie all three of these
13:48together simultaneously,
13:50you create one of the most incredible
13:52trading opportunities via risk and
13:54reward that you ever will see. So, let's
13:56go back to our intraday 5-minute TSL
13:59chart. We're going to tie all three of
14:01those together and decide what is the
14:03best trade you and I should make. So,
14:05first let's say we're just looking at
14:07this chart. We're just paying attention
14:09to intraday structure only. Correct me
14:11if I'm wrong. This looks like a breakout
14:12to me, right? You broke the top of the
14:15early morning range. Got a couple of
14:16powerful blue bars moving up. This looks
14:19like a buy, but not so fast. What did we
14:22determine from the 50-day moving
14:24average? That TSL is below it. We should
14:27be thinking sell, not buy. The second
14:31thing we should take a look at here is
14:33the range high and swing high. Note that
14:36the current price of TSL is much closer
14:39to the range high and the swing high
14:41than it is the range low and the swing
14:44low. So what this means is it's probably
14:47going to be stuffed or sold or an
14:50attempt to be sold is going to take
14:52place somewhere in this area. Now let's
14:55say you just can't help yourself. You
14:57have to buy it. Let me show you the
15:00downfalls of doing this. So let's just
15:02say I panic. I'm chasing this bad boy. I
15:04got to buy it. Well, the thing about
15:06risk that we discussed early is what?
15:09Risk can't be just dollar amount. It has
15:11to be structured amount. And in order to
15:13prevent that, we don't accidentally get
15:15stopped out like we did in the first
15:17example, our stop loss should
15:19technically, if we're using technical
15:21analysis, technically be placed below
15:24the low of the day, the strongest buyer.
15:27That's where technically it should be.
15:30Which means in order for us just to get
15:32a simple two to one, we need $400
15:36of profit here. That's a big move. So,
15:39is it really unrealistic? Well, if we
15:42come back here and we take a measuring
15:43tool, what's the next piece of the
15:45puzzle? Range. Here was the closing
15:47price. It's already up 33 cents on the
15:51day. Now, that's not extremely
15:53overbought, but you've chewed up a
15:54pretty sizable amount of the 70 range.
15:58But here's the thing. In order for you
16:00to get all the way up there to get that
16:02target, you've got to be a$110.
16:05That's way more than the 70 cents of
16:08range. So, you need more than a 100%
16:12range move to get your target. So, you
16:16guys are probably smart enough to know
16:19that doesn't work out mathematically.
16:20That's no way to run a trading business.
16:22You can't risk that much. So, what you
16:25have to do if you're itching is you have
16:27to take such a tight stop like this,
16:30which causes you to what? Choke your
16:32reward because you're most likely going
16:34to get tapped out. Now, again, the
16:37danger of doing this, you can certainly
16:38do this. It works at certain times, but
16:42is it really where you want to lay your
16:45chips down? Now, let's just go ahead and
16:46play it through. Let's go ahead and play
16:47the game. You'll see in this case, it
16:48actually did pay out for you. But over
16:51the course of time, what you're doing is
16:53you're condensing your risk versus
16:55reward. Now, let me show you something a
16:57little bit different, a little bit
16:59different way to do this. Note, as you
17:01move here later, about an hour or so
17:03later, the inability of TSLL to dispatch
17:07of the upper swing high. Note the seller
17:11continues to come back and compress TSL.
17:15So, we know we want to sell. We know
17:18we'd like to sell along with the regular
17:20sellers. So, if we choose to sell with
17:24the sellers up here that are compressing
17:26the chart, let me show you something
17:27completely different. If I sell here, my
17:30stop can be just placed right above
17:32there. Look at the amount of risk I'm
17:36taking. Now, this is the same 4550 bucks
17:38that we took back here, but the
17:40difference is this is structurally
17:41correct. This one was not. And we almost
17:44got stopped out right there on that red
17:45bar. But here's the beauty. The target
17:48on a trade like this should come back
17:50down to the early liquidity in the
17:54morning. So when you're looking at
17:56something like this on a measurement,
17:58the risk versus reward in this case is
18:02somewhere an outstanding amount of like
18:05four to one, right? So if I kind of move
18:09this over, this is the beauty. Now up in
18:11this kind of situation, you can actually
18:13risk more since the risk is so tight. So
18:16if I play it through, what ends up
18:18happening takes a little while.
18:20Sometimes they do, but it eventually
18:22makes itself all the way down to the
18:24base of that range. But the only reason
18:27that trade was possible was tying those
18:30together. You should have been thinking
18:31sell in the first place. You should have
18:34known the range was close to being
18:35tapped out. definitely was as soon as it
18:38got to the top of this range range high
18:40and swing high, it was definitely much
18:41closer to that 70 C threshold. And when
18:44you tie all those together along with
18:46the liquidity zones, now you got
18:48something that's pretty special. Now,
18:50this is exactly what happened here today
18:52in something like the YM, for example.
18:54This is a trade we were talking about in
18:55the squad room. Same kind of principle.
18:58This looks like one hell of breakout.
18:59Like this thing's just going to the
19:01moon. But look where it is. It's backed
19:04up against the previous day's liquidity.
19:07And not only that, this thing has gone
19:08on a non-stop run all from 981 points
19:13when the current ATR on the daily below
19:16is 600. So, this thing is hella
19:19overbought on the short term. And one
19:21last piece of that puzzle, here's the
19:2350-day moving average. It's below that.
19:25So, I'll just point blank ask you a
19:28question. You tell me what I know it
19:30looks good. I know it looks like a flag.
19:33You tell me what what are you going to
19:35do here? What do you think happens to
19:38this instrument? It's going to get
19:40plowed, right? It's going to get plowed.
19:43Not because it's bearish, right? Not
19:45because everybody hates the market,
19:47because you have those three components.
19:48You're trading underneath a 50-day
19:50moving average. You gapped up so high
19:52into the previous day's liquidity zone,
19:54and you're already two times range in a
19:56non-stop movement. You tie all those
19:59together, the value is not to the
20:01upside, the value is to the downside.
20:04Let's talk about this Wall Street raise.
20:06Like I said there in the introduction,
20:08the same tactics and strategies that you
20:10use as a one figures trader will be the
20:12same you use as a six-fig trader. You
20:13just need to scale up. I think you guys
20:15know that too. But here's what else you
20:17know because I went through this too. We
20:20tend to scale up too fast. I remember in
20:22the old days I'd have like two winning
20:24days and I'm like I'm a pro, dude. Then
20:26I just start leaning into everything. I
20:29also don't understand, still don't
20:31understand to this day, how come the
20:33first time you try to scale up that
20:35trade's always a loser, right? I don't
20:37know why. So, we have to kind of prepare
20:39for that. So, for today, I just put a
20:41quick guide. This is just a hypothetical
20:42guide to get you started because you
20:44need to be more aggressive early. I
20:46mean, more structured early, more
20:48aggressive later. So, on this chart that
20:50I have, let's say you're starting out
20:51with a $5,000 account balance and you're
20:54trading 50 shares. Again, this is
20:55hypothetical. You won't always trade 50
20:57shares, but for every 10% account
21:00growth, which would be 500, that would
21:03be 55 total account balance, I would add
21:0610%
21:08to my share size. So, I'd go from 50 to
21:1055 and I'd work my way on down the line.
21:15What I want to say about this is as you
21:17grow your account, maybe past the 30%
21:19threshold, you can be a little more
21:21aggressive. This is a very conservative
21:23uh mockup plan for it. But in the
21:26beginning, you need to establish
21:28consistency first. Like three days out
21:31of the five each week, you're
21:33profitable. Then you're slowly scaling
21:35up to condition yourself to handle the
21:37rigors of trading. That way, you just
21:39don't just say, "I'm going to just
21:40quadruple my size." And that's a bad
21:42trade, and you get blown out of the
21:44water. Now, obviously, a mockup like
21:46this has issues with if you have a huge
21:49account. If you're starting out with a
21:50$300,000 balance, 10%'s a lot. You don't
21:54have to wait that much. What you should
21:56do in the beginning is trade as small as
22:00you can. Small and to where your heart
22:02rate stops pounding around. Make sure
22:05you're consistent three out of the five
22:06days each week. At least put a couple of
22:09weeks together of consistency before you
22:12size up. This will ensure that you do it
22:14the right way in the right way that'll
22:16make sure that you stay around for the
22:18long term. Now, let's just spend a
22:20minute or so on the assets to trade. The
22:23way I would go about this if I was
22:24starting all over again, I truly believe
22:26you can make money in any one of these
22:28assets I have listed here. And the most
22:30popular ones are stocks, futures,
22:32foreign currencies, cryptos, options,
22:33and commodities. If I were to start over
22:37again,
22:39I would start with futures. I believe
22:42that futures, talking most specifically
22:44about ES- mini, S&P 500 futures, NASDAQ
22:48futures, Dow Jones futures are the
22:52easiest ones for new traders to start
22:54with. Not that you can't make money in
22:56the other ones, but the other ones come
22:59with far more negatives or problems than
23:02trading just futures. And here's why.
23:05Because the futures allow you as a new
23:08trader to make the most amount of
23:10mistakes and get away with it. The
23:12biggest edge that futures has is futures
23:16go up about 80% of the time. So, for
23:20example, I just did this back testing
23:23research that over the last 15 years, if
23:25you just bought the SPY, which is the
23:27ETF for the S&P 500, you could
23:29accomplish the same thing with the ES
23:31mini futures. If you bought at the open,
23:34just like punched market, no strategy,
23:38no candles, no indicators, you just
23:40pushed the button, you sold it an hour
23:42later, you'd make 51%. You'd win 51% of
23:46the time. Two hours later, 53% a full
23:49session, at the end of the day, 54%. So
23:52if if you're not winning at least half
23:54of the time, if you just blindly bought
23:57and blindly sold based off the clock and
23:59not the chart, you would win more than
24:0250% of the time. That has to be one of
24:05the dumbest edges that you can be just
24:09basically spoonfed as a trader. So when
24:12you're just doing that, everything else
24:14you learn like charts and indicators and
24:17candlesticks just just enhances that and
24:20creates a much better edge. So anyway
24:22guys, I want to thank you for watching
24:24today's video. I hope you got some value
24:25out of it. As always, if you need help
24:27with your trading, you can always get a
24:29copy of our free watch list we put
24:31together every week. It's down there in
24:33the description box. As always, I
24:35appreciate you giving me your time
24:36today. I hope you learned something. As
24:39always, take care, trade well, and until
24:41the next video, cheers.

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