WEBVTT - Brent Donnelly on What It Takes To Be a Winning Trader 0:00:10.760 --> 0:00:14.880 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.920 --> 0:00:19.079 I'm Joe Wisntal and I'm Tracy Allowit. You know, we 0:00:19.200 --> 0:00:23.560 haven't really talked about sort of the pure like markets 0:00:23.600 --> 0:00:25.880 in a while. We've been talking a little bit about crypto, 0:00:26.440 --> 0:00:30.040 We've been talking a bit about macro, We've been talking 0:00:30.080 --> 0:00:34.239 about supply chains a lot, obviously, But the other big 0:00:34.520 --> 0:00:36.480 sort of story for the last year and a half 0:00:36.520 --> 0:00:42.159 has just been in this incredible boom in trading. I'm 0:00:42.200 --> 0:00:45.360 going to ignore the subtle dig at crypto. There this 0:00:45.400 --> 0:00:48.479 idea we haven't been talking about markets except for crypto. 0:00:50.000 --> 0:00:53.360 But yeah, no, you're right. So it feels like so 0:00:53.440 --> 0:00:56.080 long ago, but really it was only six or seven 0:00:56.120 --> 0:00:59.760 months when we had the game stop phenomenon, the big 0:01:00.000 --> 0:01:03.160 whom in retail trading and Wall Street bets and this 0:01:03.200 --> 0:01:06.920 idea that everyone was suddenly pouring into meme stocks. It 0:01:06.920 --> 0:01:11.400 feels so so long ago. It's weird. Yeah, And of course, 0:01:11.880 --> 0:01:15.000 you know, like so I personally first started getting interested 0:01:15.200 --> 0:01:17.959 in markets just as the thing I was interested in 0:01:17.959 --> 0:01:20.080 like in the late nineties and high school, and there 0:01:20.160 --> 0:01:23.039 was a dot com bubble going on, and at that 0:01:23.200 --> 0:01:27.520 time it was just trading. Retail trading was really take off, 0:01:27.560 --> 0:01:29.480 but also just really became like part of the culture. 0:01:29.480 --> 0:01:31.480 People were talking about the stocks they were trading and 0:01:31.480 --> 0:01:33.840 what they were bullish on and so forth. And then 0:01:33.840 --> 0:01:36.240 it went felt like that basically went into like a 0:01:36.280 --> 0:01:40.800 twenty year hibernation, and then when everyone was locked in 0:01:40.840 --> 0:01:44.240 their homes with the coronavirus crisis for the first time, 0:01:44.640 --> 0:01:48.240 it really came back. Yeah. So I remember writing about 0:01:48.280 --> 0:01:50.720 this earlier in the year, and I think the way 0:01:50.760 --> 0:01:54.720 I framed it was flows before pros. So this idea 0:01:54.920 --> 0:01:59.920 that if, like, if you have this immense buying moment 0:02:00.120 --> 0:02:05.280 tom from retail traders or retail investors, then maybe like 0:02:05.360 --> 0:02:07.800 if you're a retail person, you're in a better position 0:02:07.880 --> 0:02:12.400 to judge that momentum than someone with a professional background, 0:02:12.480 --> 0:02:14.799 you know, say a self side analyst at a large bank, 0:02:14.919 --> 0:02:18.960 someone like that who's looking at fundamentals. And I think 0:02:19.040 --> 0:02:22.880 that was kind of borne out, at least temporarily by 0:02:22.960 --> 0:02:25.720 some of the meme stock price action, but it does 0:02:25.840 --> 0:02:29.200 beg the question of what exactly is the difference between 0:02:29.680 --> 0:02:34.080 a retail trader versus a professional trader. Absolutely, and there's 0:02:34.160 --> 0:02:36.200 also the question and of course you know, we've had 0:02:36.240 --> 0:02:38.480 all these people come into the market. Probably a lot 0:02:38.520 --> 0:02:40.840 of them have done really well, Like probably people have 0:02:40.919 --> 0:02:43.160 made a ton of money and made multiples of what 0:02:43.200 --> 0:02:45.920 they make of their daily salaries. And because it's been 0:02:45.960 --> 0:02:47.920 this bowl market, which means some are going to be 0:02:48.040 --> 0:02:51.560 tempted to like go pro on some level, not necessarily 0:02:51.560 --> 0:02:53.959 go work for a bank or a fund, but it's like, oh, 0:02:54.040 --> 0:02:55.720 like I made a ton of money, I could do this, 0:02:55.800 --> 0:02:58.040 Why would I go back to my job? And so 0:02:58.240 --> 0:03:02.000 some people will be thinking about do they want to 0:03:02.120 --> 0:03:06.239 make trading their full time vocation? Yeah, And again the 0:03:06.360 --> 0:03:09.520 question is whether or not the past six or seven 0:03:09.520 --> 0:03:12.320 months have been extraordinary in one way or another. I 0:03:12.360 --> 0:03:14.919 think we all agree that the experience of COVID and 0:03:15.040 --> 0:03:18.720 the markets during that time have been somewhat unusual. Um 0:03:18.760 --> 0:03:22.240 and whether or not their success over that short time 0:03:22.240 --> 0:03:25.480 frame can carry on longer term. Right, So people are 0:03:25.480 --> 0:03:27.920 gonna be asking themselves a do they have what it 0:03:27.960 --> 0:03:29.880 takes to be a trader and be if they do, 0:03:30.000 --> 0:03:33.040 how to win? So today we're going to be speaking 0:03:33.080 --> 0:03:36.360 to a guest who knows a lot about trading, a 0:03:36.360 --> 0:03:39.280 long time veteran, and he can he will tell us, 0:03:39.840 --> 0:03:42.440 whether you have the stuff, whether we have the stuff, 0:03:42.440 --> 0:03:44.520 whether the listener has the stuff to make it as 0:03:44.560 --> 0:03:46.560 a pro trader, and if they do go into it, 0:03:47.320 --> 0:03:49.480 how to win at it. All. Right, let's do it. 0:03:49.520 --> 0:03:52.240 I'm excited and I'm very excited. We're going to be 0:03:52.320 --> 0:03:55.200 speaking with Brent Donna Lee. He is the author of 0:03:55.240 --> 0:03:59.920 a new book, Alpha Trader, The Mindset, Methodology and mathem 0:04:00.000 --> 0:04:04.080 Addicts of Professional Trading. Is a long time veteran for 0:04:04.080 --> 0:04:09.000 over twenty five years. He's worked at HSBC New Mura City. 0:04:09.480 --> 0:04:12.720 Very excited to learn from Brent. Brent, thank you so 0:04:12.800 --> 0:04:15.880 much for joining us. Hey, guys, great, great to be here. 0:04:15.920 --> 0:04:17.840 I'm a huge fan, so thanks a lot for having 0:04:17.880 --> 0:04:20.640 me on. So I guess, I guess the first question 0:04:20.760 --> 0:04:24.080 I have is what is a trader? What do you 0:04:24.120 --> 0:04:26.760 How do you define a trader? Because some people invest, 0:04:27.000 --> 0:04:31.560 some people sometimes reallocate, some people are moving in and out. 0:04:31.600 --> 0:04:35.279 I guess day trading. But when you talk about a trader, 0:04:35.680 --> 0:04:39.320 what does that mean? Well, so that's a great question. 0:04:39.440 --> 0:04:42.520 So in the course of writing the book, Um, one 0:04:42.520 --> 0:04:44.240 great thing about writing a book is you get to 0:04:44.279 --> 0:04:46.760 talk to a lot of random people because people DM 0:04:46.880 --> 0:04:51.000 me a lot on on Twitter and LinkedIn. And your 0:04:51.080 --> 0:04:53.640 question is a really good one because a lot of people, 0:04:53.720 --> 0:04:58.040 I can tell by their questions to me, don't really 0:04:58.080 --> 0:05:01.160 know themselves whether they're an investor or a trader. And 0:05:01.279 --> 0:05:06.000 to me, I'm unbiased because my whole experience has been trading. 0:05:06.760 --> 0:05:11.360 But my belief inefficient markets is that on short time 0:05:11.400 --> 0:05:14.360 frames markets can be kind of inefficient, and on long 0:05:14.400 --> 0:05:18.480 time frames they're pretty damn efficient. And there's a lot 0:05:18.480 --> 0:05:20.520 of research that supports that, as you guys know, a 0:05:20.560 --> 0:05:23.520 passive versus active, I mean, Charles Ellis was writing about 0:05:23.560 --> 0:05:27.400 that in the seventies, um with data showing that that 0:05:27.560 --> 0:05:31.480 passive beats active. So then I think you really have 0:05:31.560 --> 0:05:34.800 to know what you're doing and know that you're what 0:05:34.839 --> 0:05:36.919 you're doing is trading, and then you might have a 0:05:37.000 --> 0:05:40.880 specific edge. And I think really the difference is, I mean, 0:05:40.920 --> 0:05:43.359 the obvious difference is time frame. You know, to me, 0:05:43.520 --> 0:05:47.799 trading is is something probably less than one or two months, 0:05:47.920 --> 0:05:49.600 and then you can call it kind of call like 0:05:50.040 --> 0:05:52.640 two months to one year swing trading. But that's getting 0:05:52.640 --> 0:05:56.440 closer to investing and much more fundamentals. But I would 0:05:56.480 --> 0:06:00.720 say that the definition of real trading is something that's 0:06:00.800 --> 0:06:04.159 that you're doing that short term where you have a 0:06:04.200 --> 0:06:07.560 solid risk management process and you have an edge that 0:06:07.640 --> 0:06:10.479 you can identify and you can explain to somebody who's 0:06:10.520 --> 0:06:13.320 not an expert in the business. I definitely want to 0:06:13.320 --> 0:06:16.360 ask you about the risk management aspect and also the 0:06:16.400 --> 0:06:19.040 idea of an edge in trading, But before we do, 0:06:19.400 --> 0:06:23.320 just because I think this will help maybe um conceptualize 0:06:23.360 --> 0:06:26.320 the idea of a trader. But over the past ten 0:06:26.400 --> 0:06:30.479 or twelve years, basically since the two thousand eight financial crisis, 0:06:30.520 --> 0:06:34.039 would you say that's been a good time to be 0:06:34.160 --> 0:06:38.280 a trader or a poor time? Because we've sort of 0:06:38.880 --> 0:06:41.600 heard it both ways. So there are people who argue 0:06:41.640 --> 0:06:46.320 that valuations are completely based on momentum and inflows, and 0:06:46.360 --> 0:06:49.560 the more money that's flowing into something, the more valuable 0:06:49.560 --> 0:06:52.080 it gets, and it doesn't really matter about, you know, 0:06:52.120 --> 0:06:57.560 things like price to book ratios and traditional measures of fundamentals. 0:06:58.200 --> 0:06:59.800 On the other hand, there are plenty of people who 0:06:59.800 --> 0:07:02.160 say that markets have been skewed by central banks and 0:07:02.279 --> 0:07:05.280 you don't really know like where anything is going anymore, 0:07:05.520 --> 0:07:08.160 and nothing makes sense. So I'm just curious, like if 0:07:08.200 --> 0:07:12.080 you could characterize the past decade or so um, for 0:07:12.200 --> 0:07:16.640 a trader, sure, So I would say anything related to 0:07:16.720 --> 0:07:20.640 valuation doesn't matter for traders. Um, that would be my opinion. 0:07:20.680 --> 0:07:23.520 And so I mostly trade currencies, but I have a 0:07:23.520 --> 0:07:27.040 lot of experience trading equities and that if you're trading, 0:07:27.160 --> 0:07:30.160 if you're a trader in my in my definition, you 0:07:30.200 --> 0:07:33.720 don't really care about valuation. And so one concept that 0:07:33.760 --> 0:07:35.720 I get into a lot in the book is the 0:07:35.760 --> 0:07:40.320 idea of adaptation. So anyone that's saying like this is 0:07:40.360 --> 0:07:43.480 a bad market, this market is a joke, this is manipulated. 0:07:44.000 --> 0:07:46.200 That person is not adapting and they're not playing the 0:07:46.200 --> 0:07:49.880 current game. So my question is always like, do you 0:07:49.880 --> 0:07:52.840 want to live in a world of you know, the 0:07:52.840 --> 0:07:55.720 current reality and play the current game or do you 0:07:55.720 --> 0:07:57.960 want to play a game that you wish existed? And 0:07:58.560 --> 0:08:00.640 then the subsequent question is do you want to make 0:08:00.680 --> 0:08:02.480 money or not? And if you want to make money, 0:08:02.480 --> 0:08:05.200 I think the key really is to first of all, 0:08:05.320 --> 0:08:08.640 understand what game you're playing, um, and then number two, 0:08:08.680 --> 0:08:12.960 adapt to that game. So I feel like the just 0:08:13.080 --> 0:08:16.000 the idea of saying like this was a good period 0:08:16.000 --> 0:08:18.800 to trade, this was a bad period to trade, isn't 0:08:18.800 --> 0:08:21.960 a great mentality for traders, because what you really should 0:08:21.960 --> 0:08:24.720 be doing as a good trader is adapting to the 0:08:24.720 --> 0:08:29.000 current environment. Now obviously that's not like as easy as 0:08:29.040 --> 0:08:30.920 just saying, okay, today, I'm going to do this, because 0:08:31.000 --> 0:08:34.040 it's obvious what the environment is. Regimes change in a 0:08:34.080 --> 0:08:37.200 subtle way, but then sometimes it's pretty obvious that the 0:08:37.200 --> 0:08:40.720 regime's changing, like for example, when the algos started two 0:08:40.720 --> 0:08:44.600 thousand four. Two thousand five is the first period when 0:08:44.640 --> 0:08:48.520 I really remember the algos, the algorithmic trading really becoming 0:08:48.520 --> 0:08:51.599 a forced in currency markets, and I remember there was 0:08:51.640 --> 0:08:54.959 a really sharp split on the desk um so at 0:08:54.960 --> 0:08:58.319 that time I worked at Lehman Brothers and talking to 0:08:58.360 --> 0:09:00.240 people in the market, not just the traders at even 0:09:00.280 --> 0:09:02.840 but just in general that there was a split between 0:09:02.880 --> 0:09:06.760 people saying, this is bs these algals are it's not 0:09:06.840 --> 0:09:08.720 a real market. Every time I put a bit in 0:09:08.880 --> 0:09:11.360 it comes in one point higher. And then there was 0:09:11.400 --> 0:09:13.720 another group of people that were like, this is weird, 0:09:13.880 --> 0:09:16.400 Like the market the texture is different. I wonder, how 0:09:16.440 --> 0:09:18.960 how can we beat the algals? What are the algals doing? 0:09:19.080 --> 0:09:21.800 Can we mimic them, but do it's smarter, you know? 0:09:22.200 --> 0:09:24.320 Can we figure out what they're doing and reverse engineer 0:09:24.400 --> 0:09:27.360 and then make money off of that. And so I 0:09:27.400 --> 0:09:29.600 feel like that was a real eye opener for me 0:09:29.640 --> 0:09:32.439 because like that was whatever fifty and sixteen years ago, 0:09:32.520 --> 0:09:35.480 so I was still kind of like transitioning between junior 0:09:35.480 --> 0:09:38.440 and senior trader, and it was really obvious that some 0:09:38.480 --> 0:09:42.680 people were adapting and some people were complaining. And so 0:09:43.320 --> 0:09:47.839 that has been consistent throughout my career is you see 0:09:47.880 --> 0:09:50.720 that people that adapt tend to do well in the 0:09:50.760 --> 0:09:54.040 long run, and people that don't tend to maybe have 0:09:54.160 --> 0:09:57.080 periods of success and then fail. So going back to 0:09:57.120 --> 0:09:59.720 your original thing about, um, you know, a lot of 0:09:59.720 --> 0:10:04.440 new traders have come in. Another thing that I've I've 0:10:04.520 --> 0:10:07.760 witnessed from conversations with a lot of retail traders is 0:10:07.800 --> 0:10:11.000 that a lot of people did really well in and 0:10:11.040 --> 0:10:15.480 are struggling now. And so an obvious explanation for that 0:10:15.520 --> 0:10:18.680 would be if you're if you were buying calls around earnings, 0:10:18.760 --> 0:10:22.160 Let's say that was a really good strategy. However, this 0:10:22.280 --> 0:10:26.480 hasn't been a good strategy, especially recently. So, UM, what 0:10:26.679 --> 0:10:30.080 I tell people who are new is that you you 0:10:30.160 --> 0:10:34.360 need to become an expert in one market, which could 0:10:34.360 --> 0:10:37.360 be a security or for me, it's G ten f X, 0:10:37.800 --> 0:10:42.160 but really it could be any kind of narrow part 0:10:42.240 --> 0:10:45.959 of capital markets. And then become an expert in that, 0:10:46.000 --> 0:10:48.959 but don't become an expert in a particular strategy like 0:10:49.040 --> 0:10:53.200 I'm a breakout trader, or like I buy options before zooms, 0:10:53.360 --> 0:10:57.559 earnings or whatever. Um. Like, the more narrow your strategy 0:10:57.679 --> 0:10:59.840 is the less chance that you're going to make money 0:10:59.840 --> 0:11:03.400 in the long run, because it's all about adapting to 0:11:03.440 --> 0:11:06.160 the new regimes. Um. Not that there's a new regime 0:11:06.200 --> 0:11:09.840 every single day, but certainly new regimes come their cyclical 0:11:09.840 --> 0:11:13.360 ones and their structural ones. So the structural ones being 0:11:13.440 --> 0:11:16.439 like retail kind of you know, was huge in ninety 0:11:16.520 --> 0:11:18.920 from ninety nine to or ninety eight to O two, 0:11:19.160 --> 0:11:21.920 and it's getting huge again. Algorithms came in, and then 0:11:21.920 --> 0:11:25.240 there's cyclical ones that are more about volatility, like is 0:11:25.240 --> 0:11:27.360 the VIX at ten or is the VIX at forty? 0:11:27.520 --> 0:11:31.440 Your trading strategy has to be different in those two regimes. 0:11:31.600 --> 0:11:35.160 And generally, I would say a lot of people are 0:11:35.240 --> 0:11:38.400 good at specific strategies, but in order to be good 0:11:38.640 --> 0:11:41.760 to to have a you know, multi year or multi 0:11:41.760 --> 0:11:45.319 decade career, you need to be able to identify regimes 0:11:45.400 --> 0:11:49.160 and then adapt and trade the regime and trade what works. 0:11:49.600 --> 0:11:52.720 And that's kind of the philosophy of like do what's 0:11:52.760 --> 0:11:56.520 working and stuff doing what's not working. That reminds me always, 0:11:56.520 --> 0:12:01.040 of course, you know poker advaceive owing the table that 0:12:01.120 --> 0:12:03.040 you're at and all the good ones to talk about 0:12:03.040 --> 0:12:05.360 the ability to shift gears. If you're going to make 0:12:05.400 --> 0:12:07.720 it as a professional trader, you have to have an 0:12:07.760 --> 0:12:11.320 identifiable edge, something that you can articulate. All right, So 0:12:11.440 --> 0:12:15.040 you've been a trader for over twenty five years, what's 0:12:15.080 --> 0:12:18.760 your articulate to us non professionals? Well, your edges that 0:12:18.800 --> 0:12:21.680 allowed you to have such a rare and durable career. 0:12:22.640 --> 0:12:25.240 My edge, in a nutshell, just try and keep it 0:12:25.320 --> 0:12:29.559 relatively short, is that I look at the macro world. 0:12:29.600 --> 0:12:33.920 So I'm my if if if any of your listeners 0:12:33.920 --> 0:12:36.280 have read my stuff, I tend to talk like fairly 0:12:36.360 --> 0:12:41.319 macro in terms of macroeconomics, fed policy, you know, Australian 0:12:41.400 --> 0:12:43.880 cp I, all that kind of stuff. And so what 0:12:43.920 --> 0:12:46.800 I'm trying to do is understand the current equilibrium where 0:12:47.160 --> 0:12:49.320 price is the sum of all the information that's in 0:12:49.360 --> 0:12:53.160 the world, and then as new information comes in. I 0:12:53.200 --> 0:12:57.320 think my edge is understanding what that information means in 0:12:57.320 --> 0:13:00.719 the context of the current or slightly in the past equilibrium, 0:13:01.280 --> 0:13:06.840 and entering trades into currencies before they move in order 0:13:06.880 --> 0:13:12.040 to capture the momentary disequilibrium from the new information. So 0:13:12.120 --> 0:13:15.000 that doesn't necessarily always mean like an event comes out 0:13:15.080 --> 0:13:18.240 and then euro goes up and I buy it after 0:13:18.280 --> 0:13:19.839 the event and sell it after the event. It can 0:13:19.880 --> 0:13:22.760 also mean something a lot more subtle, which is that 0:13:23.280 --> 0:13:27.360 as a narrative starts to get really really fully subscribed, 0:13:27.440 --> 0:13:30.839 you start to see positioning by metrics, but then also 0:13:30.960 --> 0:13:33.600 by because I have a pretty good network of people, 0:13:33.640 --> 0:13:36.520 I get a sense of not just what positioning is, 0:13:36.559 --> 0:13:40.000 but also like there's like an emotional edge to positioning sometimes, 0:13:40.000 --> 0:13:42.840 like if I send out a Barish AUSSI piece and 0:13:42.880 --> 0:13:46.520 I get like seventeen angry emails all like with pretty 0:13:46.640 --> 0:13:50.200 weak rebuttals, then I'm like, Okay, I'm definitely onto something. 0:13:50.960 --> 0:13:54.440 So there's like a more subtle aspect of positioning that 0:13:54.440 --> 0:13:57.280 that I sometimes can tease out as well. But then 0:13:57.400 --> 0:14:00.120 also the on the other side, it can be something 0:14:00.200 --> 0:14:04.439 like say news comes out and um, it's a New 0:14:04.480 --> 0:14:07.280 Zealand housing number comes out, and so in that example, 0:14:07.320 --> 0:14:10.720 I know the markets really interested and really cares about 0:14:10.880 --> 0:14:13.920 Kiwi housing. But then say another number comes out, and 0:14:13.960 --> 0:14:16.320 I'm like, I know the market doesn't isn't really that 0:14:16.400 --> 0:14:19.800 fixated on that, but you know, currency moves twenty pips 0:14:19.800 --> 0:14:21.560 on it. Then I'll take the golf fade and I'll 0:14:21.600 --> 0:14:24.480 take the other side. So I think my edge is 0:14:24.680 --> 0:14:28.360 understanding what matters and what doesn't, because that's one thing 0:14:28.400 --> 0:14:31.440 that's really frustrating for a lot of people is and 0:14:31.520 --> 0:14:35.520 actually for financial journalists as well, is trying to understand 0:14:35.600 --> 0:14:39.600 sometimes why things move when it doesn't always totally make sense. 0:14:40.040 --> 0:14:43.280 So if you, for example, like the classic example is 0:14:43.280 --> 0:14:48.120 current account deficits, so generally currency markets don't care about them, 0:14:48.120 --> 0:14:50.720 but every five or ten years will trade off of 0:14:50.760 --> 0:14:52.520 them for like a year, and then we stopped trading 0:14:52.520 --> 0:14:55.560 off of them. But the current account deficits themselves are 0:14:55.600 --> 0:14:58.600 pretty sticky. They don't change that much. Kind of knowing 0:14:58.720 --> 0:15:01.280 what matters as well is an important part of that. 0:15:01.400 --> 0:15:04.359 So for example, like if you trade a lot of correlation, 0:15:04.400 --> 0:15:08.880 which I do, knowing which assets people care about and 0:15:08.920 --> 0:15:10.840 which ones they don't, So like if oil has been 0:15:10.840 --> 0:15:14.600 in a forty five range for eight weeks. The correlation 0:15:14.640 --> 0:15:17.640 to dollar cat probably isn't that significant. But if oil 0:15:17.720 --> 0:15:19.760 is like on the front page of Bloomberg every day 0:15:20.120 --> 0:15:22.640 and it's breaking to new i'll, you know, new three 0:15:22.680 --> 0:15:25.680 year highs, then the correlation to cat is probably going 0:15:25.760 --> 0:15:27.760 to pick up. And so I have a good sense 0:15:27.840 --> 0:15:30.160 of like, Okay, I gotta have oil on my radar 0:15:30.240 --> 0:15:34.400 because we're you know, it's all over Bloomberg or or not. 0:15:34.640 --> 0:15:37.320 So then sometimes, like if you don't know what you're doing, 0:15:37.960 --> 0:15:39.640 you might see like the oil has been in a 0:15:39.920 --> 0:15:42.840 range for six weeks, and the range is and it 0:15:42.880 --> 0:15:45.880 goes from forty one to forty four, and people are like, 0:15:45.880 --> 0:15:47.840 how come dollar cats not moving? And it's like, well, 0:15:48.000 --> 0:15:51.360 because oil is not front of mind right now. Um So, 0:15:51.360 --> 0:15:54.760 so my age is understanding the current narrative and then 0:15:54.840 --> 0:16:14.600 surfing the move to the new narrative. What does an 0:16:14.680 --> 0:16:18.200 edge look like for retail traders? Because you're talking about 0:16:18.320 --> 0:16:23.280 you know, professional experience, maybe some insight into flows and positioning, 0:16:23.520 --> 0:16:27.760 which your average retail investor is not going to have. Sure, 0:16:28.240 --> 0:16:30.680 so I don't want to overstate positioning just to be clear, 0:16:30.760 --> 0:16:33.520 because actually, oddly enough, I think that's one of the 0:16:33.560 --> 0:16:38.680 most overrated variables. My view on positioning is that it 0:16:38.800 --> 0:16:41.920 kind of matters at the super extremes, and it can 0:16:42.000 --> 0:16:44.560 be like the only thing that matters at the super extremes, 0:16:44.920 --> 0:16:47.160 but most of the time it just doesn't matter. Um 0:16:47.160 --> 0:16:51.240 Like macro and stuff tens and and flows and all 0:16:51.280 --> 0:16:55.200 that tend to override positioning. But as a retail in person, 0:16:55.520 --> 0:16:57.920 I can answer that easily because that's what I did 0:16:58.000 --> 0:17:01.360 from us and three that's what I did. I was 0:17:01.400 --> 0:17:05.080 trading my own account during the nasdack bubble, and at 0:17:05.119 --> 0:17:08.359 that time my edge was first of all, I didn't 0:17:08.359 --> 0:17:11.720 have very much money, so I would risk management. My 0:17:11.800 --> 0:17:14.560 risk management was really good. I worked at a place 0:17:14.600 --> 0:17:17.159 called Swift Trade, which was like a place where you 0:17:17.200 --> 0:17:19.640 go in and sit down and it's you have it's 0:17:19.680 --> 0:17:22.600 a trading floor, legit trading floor, and you pay commission. 0:17:22.640 --> 0:17:25.600 I think it still exists actually, um Like people kind 0:17:25.600 --> 0:17:27.280 of call them bucket shops, but this was like a 0:17:27.280 --> 0:17:30.520 professional place. It wasn't a bucket shop. And whenever people 0:17:30.560 --> 0:17:32.800 walked by my screen, people used to always say, how 0:17:32.800 --> 0:17:34.720 can be your Your P and L is always green, 0:17:35.280 --> 0:17:38.679 And essentially the reason was so that obviously if you're up, 0:17:38.680 --> 0:17:40.320 it was green, and if it was if you were down, 0:17:40.320 --> 0:17:43.240 it was read. Was that I just cut my losing 0:17:43.280 --> 0:17:47.840 positions really really fast. So everything I did was momentum based, 0:17:48.160 --> 0:17:51.320 essentially looking at futures, and I had the future squawk on, 0:17:51.440 --> 0:17:53.520 and then when futures started to you know, you could 0:17:53.520 --> 0:17:56.320 get a sense of there was some electricity in the futures. 0:17:56.760 --> 0:17:58.960 Then you would get on the bid in six stocks 0:17:58.960 --> 0:18:01.920 that trade super wide, and then try and get given 0:18:01.960 --> 0:18:04.199 by other retailer, by whoever, and then ride it up 0:18:04.200 --> 0:18:06.240 a little bit. But I always cut my losses really fast. 0:18:06.280 --> 0:18:09.560 So one edge can be really good risk management, and 0:18:09.600 --> 0:18:11.800 the other one was I was really fast on the keys, 0:18:12.280 --> 0:18:16.240 which sounds stupid, but in those days there were so 0:18:16.280 --> 0:18:19.720 many ridiculous things happening. Like somebody would go on CNBC 0:18:19.880 --> 0:18:22.359 and say, hey, my stock of the week coming up 0:18:22.400 --> 0:18:26.320 after these commercial messages. It's a optical network maker in 0:18:26.400 --> 0:18:30.040 Texas or whatever. So you just frantically google like optical maker, 0:18:30.440 --> 0:18:33.239 you know, and find the three biggest ones or in 0:18:33.280 --> 0:18:36.440 that case there's probably only one. You buy it and 0:18:36.560 --> 0:18:38.479 go up four percent and you sell it. So there 0:18:38.520 --> 0:18:42.399 were so many trades like that that essentially almost felt 0:18:42.400 --> 0:18:45.119 like zero risk. But then I can give you the 0:18:45.119 --> 0:18:48.080 rest of that story, which could because that again relates 0:18:48.080 --> 0:18:53.439 to my my adaptation thing is that so what I 0:18:53.520 --> 0:18:57.000 was doing relied on pretty wide bid offer and then 0:18:57.080 --> 0:19:00.240 just catching brief momentum and kind of catching the the 0:19:00.320 --> 0:19:02.359 wide bid offer on a lot of these stocks. So 0:19:02.440 --> 0:19:06.760 every morning I printed out a sheet or a list 0:19:06.880 --> 0:19:09.119 of all the stocks over a hundred dollars, and it 0:19:09.160 --> 0:19:11.800 was around four pages long, and those are the ones 0:19:11.840 --> 0:19:14.240 I focused on because you need like high nominal value 0:19:14.280 --> 0:19:18.400 to have wide bid offer. And in two thousand two, 0:19:18.440 --> 0:19:20.480 when I printed out that thing, there were four stocks 0:19:20.520 --> 0:19:22.720 on it, so went from four pages to four stocks. 0:19:23.119 --> 0:19:27.159 And then in the meantime in two April one it 0:19:27.240 --> 0:19:29.159 was either April one or O two, I can't remember, 0:19:29.160 --> 0:19:33.800 but stocks went to decimalization. And so when the nominal 0:19:33.840 --> 0:19:37.080 value of stocks was way lower and then there was decimalization, 0:19:37.200 --> 0:19:40.280 the bid offers size collapsed, like so instead of some 0:19:40.359 --> 0:19:43.479 stuff was trading like fifty cents wide tons of stocks 0:19:43.480 --> 0:19:46.320 at that time, we're trading like one one cent wide. 0:19:46.800 --> 0:19:49.639 So what I was doing stopped working, but I just 0:19:49.720 --> 0:19:52.000 kept on doing it. So my account went from like 0:19:52.040 --> 0:19:55.120 twenty five thousand to three D fifty thousand back down 0:19:55.119 --> 0:19:59.480 to like seventy thousand by O two oh three. And 0:19:59.600 --> 0:20:01.679 it was as I never adapted. I just kept on 0:20:01.720 --> 0:20:04.440 doing the same thing. And so one thing I say 0:20:04.440 --> 0:20:07.480 in the book is one of the reasons that you 0:20:07.560 --> 0:20:09.440 really have to have an edge that I don't think 0:20:09.480 --> 0:20:11.800 people fully understand, and I try to lay it out 0:20:11.920 --> 0:20:16.440 in in with some graphs of gross and net, is 0:20:16.680 --> 0:20:20.840 that you can be gross positive and net negative and 0:20:21.000 --> 0:20:24.240 that's not going to pay the bills. So generally what 0:20:24.359 --> 0:20:26.960 happened to me was throughout my whole time when I 0:20:27.000 --> 0:20:29.359 was day trading, I was always gross positive, so I 0:20:29.400 --> 0:20:31.919 always made money. I had some kind of edge. But 0:20:32.080 --> 0:20:34.760 there's commission, right, So as I was trading more and 0:20:34.800 --> 0:20:37.320 more shares because the value of the stocks went down, 0:20:38.040 --> 0:20:41.679 they're my commission was slowly rising, rising, rising, until the 0:20:41.720 --> 0:20:44.280 point where a lot of days I was net negative, 0:20:44.320 --> 0:20:46.840 even though I was still mostly gross positive most days. 0:20:47.480 --> 0:20:51.440 And so people have to understand that, Like people think, oh, 0:20:51.440 --> 0:20:54.199 it's a zero sum game. I'm a smart person. I 0:20:54.240 --> 0:20:57.280 cannot smart. You know, I'm smarter than average, which is 0:20:57.320 --> 0:21:00.119 that the classic bias. But anyways. But the thing is 0:21:00.160 --> 0:21:02.679 it's actually a negative some games. So you have to 0:21:02.720 --> 0:21:06.720 be able to whether you're paying you know, visible commission 0:21:06.760 --> 0:21:08.960 or not you are paying attacks every time you trade. 0:21:09.000 --> 0:21:12.200 Even as an institutional trader, there's still brokerades and prime 0:21:12.240 --> 0:21:14.680 brophees and bid offer and all that, so you have 0:21:14.840 --> 0:21:17.440 people have to understand it's it's a negative some game, 0:21:17.800 --> 0:21:22.679 and so that's why it's so difficult. So anytime people 0:21:22.880 --> 0:21:25.280 bring up dot com your stories, I get excited because 0:21:25.359 --> 0:21:28.320 I was a small retail trader around then too, and 0:21:28.680 --> 0:21:31.840 you know, I definitely saw exactly what you described, especially 0:21:31.840 --> 0:21:34.720 with friends who like made a ton of money in 0:21:36.200 --> 0:21:39.879 early two thousand and it didn't they didn't realize that 0:21:39.920 --> 0:21:42.399 the market had shifted for like two years, and so 0:21:42.440 --> 0:21:44.320 they just kept doing the same thing, and so that 0:21:44.440 --> 0:21:48.720 really resonated. But actually, so I graduated from college and 0:21:48.760 --> 0:21:52.840 O two and I got a job offer. I was 0:21:52.960 --> 0:21:55.359 kind of a job offer at one of these like 0:21:55.640 --> 0:21:58.760 trading shops, and like two people applied and they gave 0:21:59.320 --> 0:22:01.520 four people offers, and it was like one of these 0:22:01.520 --> 0:22:03.480 places where they would like start you with X amount 0:22:03.560 --> 0:22:05.639 and if you did well, and it was you know, 0:22:05.800 --> 0:22:07.920 I actually got one of the offers, and I didn't 0:22:07.960 --> 0:22:10.439