This Mistake DESTROYS Trading Accounts

0:00 [Music] there are a handful of Concepts that you need to master if you're going to stand
0:05 any chance at finding success as a Trader we call it your MVP minimal
0:11 viable product for day one in the simulator and then of course minimal viable product for day one of trading
0:17 with real money which will include a proven track record of success in a simulator but one of the things that
0:24 I've learned in all my own years of trading but also in my experience as a mentor for students at you're trading is
0:31 that there is one critical skill that is so fundamental to success as a Trader
0:37 that if you don't have it you are almost guaranteed to blow up your account
0:42 sooner or later this critical skill is the concept and the ability to have
0:50 successful red days successful red days are critical to long-term success as a
0:56 Trader so how do we Define a successful red day a successful red day is a day
1:02 where you are red however what's very important is that these are days where
1:08 you followed the rules of your strategy you also followed your risk parameters
1:15 which means you did not exceed your max loss you did not go Rogue and become
1:21 emotionally hijacked and end up Revenge trading digging yourself a crazy big
1:26 hole spiraling snowballing capitulating and finding yourself at you know five or
1:33 10 times your max loss and I say all of that because those are all things that I
1:38 have done in my own trade at different periods of time I have had days where I became completely emotionally hijacked
1:45 and I spiral so the concept of successful red days is one that is very
1:5 1elusive to master and that is something that I still struggle with at times
1:5 6today in my own trading one of the things that I've come to real realiz is that the emotions that come with trading
2:05 are not something that will ever entirely go away even after Decades of
2:11 trading in the market you will still feel emotion when you have big Winners or big losers and you will still be
2:19 susceptible to becoming hijacked by those emotions you would think that you
2:24 know it's like learning to ride a bike once you learn to ride a bike you're you know for the most part you're good and I
2:31 suppose maybe the analogy goes a step further because just because you have the skill of learning how to ride a bike
2:37 does not guarantee that you won't fall off the bike it doesn't guarantee that you can't make a mistake and have an
2:42 accident and the same I suppose is true with trading no matter how many years of experience you have you know we always
2:49 kind of have that little that little devil voice on our shoulder who is going
2:5 5 to feed us the exact wrong information at critical times just after having for
3:02 instance a really big loss that little voice is going to say hey um why don't
3:07 you add back to that position with like two times the size that you were just in with you know uh or when you're in a
3:14 loss hey why don't you average down on this loss that little voice is a very
3:19 primitive part of our mind it's responding to the emotional uh trigger
3:25 we've become triggered by an event typically it's a big loss could be a big win but typically it's a big loss and
3:31 it's now caused us to completely change our our frame of Mone and now we're trading from the perspective of
3:38 desperation trying to recoup losses and just complete stubbornness I was talking
3:43 with a Trader just a couple weeks ago to give you some context they had a red day and it was early in the day and they
3:5 0 they told me they were down um close to Max loss and I had just had a big red
3:5 7 day myself so I was like let's don't do what I did you're only down you
4:03 know 5 00 bucks and $11,000 your max loss like throw in the towel right now I'm
4:10 telling you walk away the market is not hot from my own perspective as well it's
4:15 not worth it call it a successful red day a small red day who cares well later in the day he sends me uh you know a
4:22 message he says uh in a chat he says you know Ross look I I'm down whatever it
4:28 was I can't remember it was like three times is Max loss or something like that maybe four times so he went from being
4:33 down 5 00 to being down 1,000 2,000 3,000 $4,000 and I was like why did you keep
4:40 trading why did you do that he said well you know I had been on this consecutive
4:46 Green Day hot streak and I didn't want to break it with a red day and I was like that's so classic you
4:5 3 know that because I I'll tell my I'll have the same thoughts go through my mind I'll have a day where you know I'm
4:5 9 I've been trading really well I might have 10 15 20 consecutive green days and I get so stubborn I don't want to
5 :07 possibly give up this green streak I don't want to have a red day and even
5 :12 though I'm only down $300 or $5 00 I start digging my heels in I start
5 :18 getting stubborn I start getting frustrated I start feeling that desperation and in those
5 :25 moments and it happens very quickly I become hijacked by emotion and as I get
5 :31 glued to my computer and I refuse to walk away I start just digging in deeper
5 :36 and deeper and deeper trading more and more aggressively doing anything and everything possible to avoid having um
5 :43 you know a red day I actually had a day just recently where I was down $900 now my Max loss is
5 :51 $5 ,000 I was down 900 it's not even close to my Max loss it's not a big
5 :57 deal but I got stubborn I didn't want to have a red day I didn't want to break
6:02 the consecutive Green Day streak that I was on same thing that H that happened to this other Trader and I said uh to
6:10 myself you know I'm only down 900 I'm sure there'll be another opportunity to recoup this before the end of the day
6:17 even though I don't typically trade past uh you know 10 or 11:00 a.m. I I'll
6:23 stick it out here because all I need to do is make 400 or five or 900 and then I'm maintaining my green streak and so
6:29 so I they kept trading and next thing you know I was down, 15 00 I lost another
6:35 600 bucks and then I was down 2700 and then I was down
6:433 700 and then I was down 4,700 and all of a sudden I was right at my Max loss of 5 ,000 and now the stakes were getting
6:51 higher CU this is no longer a small red day now this is a big red day you know relative to me for me it's a Max loss
6:5 8 day and again at this moment I could have said time to walk away but by this
7:05 point I was too far sucked in the emotion had completely overcome me and
7:12 in these moments this is where things can get really dangerous and I ended up taking a trade and losing $5 ,000 on that
7:18 trade and I ended up finishing the day down 9 Grand I was so upset about being down
7:25 900 I let myself lose $9,000 trying to chase after a $900 loss
7:33 now obviously you could you could tell how silly this is you know even after all my years of experience that I could
7:39 fall into that kind of trap of thinking but that trap will always be
7:45 there in the market I was talking with Ted who runs a trading psychology program at Warrior trading about this
7:5 1 cuz I said you know it's so frustrating to me because I feel like I keep you
7:5 7 know having the same thing happen like I I'm kind of like this is unbelievable H how can I be so stupid to fall into this
8:05 kind of trap of emotional thinking like how do I not recognize it's happening
8:10 and he said this is the funny thing is you wish that it was something that you could
8:16 grow out of that you would just stop doing but this is he said this is exactly why trading is so difficult
8:24 because no matter how many years of experience you have trading is going be difficult in
8:30 this regard it tests you emotionally and once you cross this sort of threshold
8:37 you've crossed a point of no return and you won't even realize it's happened until it's already too
8:45 late and that's the that's the worst thing about so you'll look back in hindsight and be like oh my gosh of
8:5 1 course I should have walked away you know was here or I should have walked away here or whatever the case is but
8:5 6 you didn't and in the moment you were too absorbed to possibly let that happen successful
9:02 red days the better you get at having small
9:08 red days the more likely you are to be successful long to having successful red
9:14 days is critical so here's something that I'm trying in my trading right now and I'm really liking it I'm feeling
9:20 really really good about it it's a strategy that involves scal scaling in
9:26 and scaling out as I trade through the day that I think I've always done to a certain
9:32 extent but I haven't systemized it the way I have just recently I remember
9:37 having um a student a couple years ago maybe it was asking me Ross you know
9:43 what's your I like what is the set of rules that you follow for how much risk
9:5 0 you take on every single trade and like when to scale in and take more risk and
9:5 5 when to take less and and at the time I was like you know I it's it's it's a gut feeling it's not
10:00 a it's not a specific system it's on any particular day how am
10:10 I feeling is the market hot then I'm going to be aggressive is it cold then I'm going to be more conservative you
10:15 know it's not I it's not something I'm able to really quantify um as clearly as
10:21 as I wish I could and it's something that I think all Traders sort of gain
10:27 this intuition with more time but this is what I've started doing so I
10:33 know my daily goal is 5 ,000 I know my Max loss is 5 ,000 and as I was looking at my worst trades in the last like 90
10:41 days the worst trades and the worst days were on days where on my very first
10:48 trade first trade of the day I got slammed big loss I went in a little over
10:5 6 aggressive overconfident the market had been pretty hot so I was feeling like
11:01 it's time to step up to the plate but I stepped up to the plate and got smoked
11:07 and so I started the day either halfway to Max loss or at Max
11:12 loss so down $ 3,000 to $5 ,000 on the first trade and when that happens uh now
11:20 suddenly immediately emotions are coming out I'm having big emotions I'm like you
11:26 know whoa whoa whoa whoa this how did this happen this this is crazy for me that's a really bad way to start the day
11:31 it's it's really hard to reenter myself after that kind of um that kind of start
11:39 so I after my big loss like four weeks
11:44 ago almost I put myself into Trader rehab and Trader rehab is a program I
11:49 talk about all the time it's um it's a set of rules that you follow to stop the bleeding after you've had a couple big
11:5 6 losses it's no longer about recouping losses and making as much as you can it's
12:03 about no longer losing stop the bleeding and so I was like I need to stop the bleeding and that means I need to big
12:09 time scale down my shair size and go small and so I did that for about a week
12:15 and I felt pretty good and then as I was coming out of that I was like you know some of those days from the last week I
12:24 never really felt like I should increase my share size you know some of those
12:30 days I I felt like I was sort of sized perfectly even though I was sized down for trade to rehab it felt like it was
12:37 perfect sizing uh and but there were a couple of days where I felt like I was leaving some money on the table so I thought
12:44 what so how could I build this a little bit into a post Trader rehab strategy
12:5 1 and I said to myself my daily goal is 5 ,000 but if on
12:5 7 my first two or three trades my first order of business during trade or rehab
13:03 was just trying to build myself a cushion of like 1,000 bucks and if I was up $1,000 and certainly if I did that in
13:09 like one trade with smaller share size then that's when I was like okay the Market's on my side today I'm feeling
13:15 good if I traded 10 15 times and I was struggling to get to $1,000 or
13:21 $1,5 00 then those are the days where it really didn't make sense to scale up because the market wasn't that hot and
13:27 so I decided as I was coming out to trade a rehab because I recouped about
13:33 half of my draw down usually that's when I start to take the guard rails off a little bit I said you know I think what
13:39 I'm going to do is I'm going to start each day with Trader rehab share size
13:45 which is about 20% of full size for me and I'm going to see with 20% of full
13:5 1 size if I can get to about you know 20% of my goal a quarter of my goal 1,000 bucks and if I can if I could do that
13:5 9 pretty easily then I'm going to I'm going to lift the Shar size cap to full size and be aggressive by doing this
14:06 today was a perfect example because today with small share size on my first
14:11 trade I lost $271 no big deal right my daily Max loss
14:18 is 5 grand so losing 200 is is nothing now if that trade had worked for me I would have probably made $5 00 to maybe
14:24 $700 which would have put me you know pretty close to that first ,000 which which would have been great but it
14:30 didn't work and so I took the loss but it was a small loss so I didn't feel emotionally triggered I didn't feel
14:36 frustrated or angry I was just like okay no big deal and then on my second trade
14:41 of course I kept the share size small because I was already on a red day and I was like this might be a red day but
14:46 we'll make it a successful red day so it with small share size on the second trade I made about um $200 190 so I was
14:5 4 still down like 80 bucks on the day I was like all right you know clearly the Market's not hot today I don't think I'm
15 :00 going to I might not even scale up at all today third trade I made like 200
15 :06 bucks so now up like you know 20 or something on the day and again I was like okay like we're
15 :12 moving in the right direction but I'm still not even close to my ,000 goal and then we had a stock that had news at
15 :18 8:15 a.m. and I took a couple trades on it next thing you know I was up 700 and
15 :23 I was up all that M on that stock and I was like okay now I'm up over a th000 on the day it's time to take the limits off
15 :31 let's be aggressive and I work my way up to just shy my daily goal and I was like this is terrific and and once I got
15 :37 close to my daily goal uh you know this is an area where in terms of managing the profit uh
15 :46 usually what I'll do is I will trade really aggressively until I give back
15 :5 1 like 10 to 15 % of my profit so I don't stop at my goal or even stop being aggressive when I hit my goal I'll just
15 :5 8 keep Trading and that's how I end up with days where I'm up five times my
16:03 daily goal in one day so those days are important it's important to get those really nice uh big green days but um but
16:13 what I decided to do today and what I've been doing for the last couple weeks is once I get to my goal or very close to
16:20 my goal I bring the share size back down to preserve the profit and this has been
16:25 helpful again with kind of managing emotions so I don't have days where I go from daily goal to giving back half in
16:33 one trade because that's something that unfortunately was happening to me several times in the last couple of
16:40 weeks so a successful red day for me right now is a day where I if I do end
16:48 up um taking that first trade and losing 200 whatever it is 300 I take the next
16:5 5 trade I lose another couple hundred I take a third trade and this is where I'm kind of starting to follow the three
17:01 strikes you're out um philosophy right so I have one loss I have two losses I
17:07 have three losses all right dude accuracy is not here today maybe it's me
17:12 maybe it's the market doesn't really matter I'm not making money let's just stop right here so to be honest right
17:17 now I'm kind of like thinking my Max loss is really closer to like $1,000 to
17:25 $1,5 00 and that's a successful red day now truly my Max is still 5 ,000 but I
17:30 think by the time I'm down 1100 1200 the writing here is on the wall that it's
17:36 not happening why would I increase my share size the only reason I would increase my share size is if I'm
17:41 starting to get desperate to make back the loss and if I'm doing that I'm
17:46 getting emotional so I would say on those days where I'm down a th I should
17:5 3 continue trading just with small size and until the point where I either hit the three strikes you're out or I just
18:00 sort of admit defeat and I'm like look look the market is just is not happening today and my window is closed cuz I have
18:06 a window of time where I make the most money and that's between about 7:00 a.m. and 11:00 a.m. so if it's past 11: then
18:13 the window's closed you know if I'm still red and it's 10:30 it's not going to happen for me like could it maybe but
18:20 statistically it's not and why push it on a day where already I'm kind of up against the wall but this is where so
18:27 many beginner Traders do the exact opposite they're down a th000 like I was and and this it's not just beginners cuz
18:32 experienced Traders will do it too when they get emotional you'll be down a th000 and you'll think well you know if all I have to do is take 10,000 shares
18:39 and make 20 cents I'll be up two grand you know I'll flip from down 1,000 to up a th000 you do that you lose two grand
18:46 right cuz you're not thinking as clearly next thing you know you're done three grand and now you're thinking well I only need to make 6,000 that's only you
18:5 2 know 30,000 shares and 20 cents and if you actually follow that train of thought next thing you know you're going
18:5 8 to be down 9,000 12,000 and you could keep doing that again and again and again until you've blown out your entire
19:05 account one day and I know because I've had this exact type of thing happen to me I used to call it a snowball day
19:11 where things would just spiral but it truly is the better term for it is a a state of emotional hijack and if I could
19:19 have just been okay with accepting a small red day as a successful red day I
19:28 would have saved I if I had been able to do this my whole career I could have saved myself hundreds of thousands of
19:34 dollars perhaps o over a million dollars maybe more um for a beginner Trader the
19:41 line between success and failure you know it's very thin the difference can
19:47 be so subtle so small the difference between consistently making 5 cents a day and losing 5 cents a day it's only
19:5 4 10 cents a day difference per share that's the difference between success and failure so it can be very very small
20:00 and unfortunately on those red days those are days where the losses get drawn out because you get emotional you
20:07 start capitulating you start holding longer and then it can start to spiral and it can just get worse and worse and
20:13 worse and worse so I think if you're someone who is also struggling with having successful red days I would give
20:20 you a couple words of wisdom the first is to try testing the water each day
20:26 with smaller share size and see you know whatever your goal is let's say your goal is $1,000 doesn't matter whatever
20:34 your goal is first try to get just about like 25 % of the goal you know so if your goal is $1,000 try to get $25 0 if you
20:41 could do that with you know smaller share size than your full size right
20:46 then this is a day where the Market's on your side it's time to lean in and be aggressive if you go red with small
20:5 2 share size then right away you've dipped your toe in you're getting out you're keeping the loss small and this is telling you the market is not super
20:5 8 favorable yet now that could change as the morning goes on it only takes one stock with news to start squeezing up
21:05 and you know give you some some great opportunities but at a certain point if that doesn't happen and your window is
21:11 closing then that'll just be a day where you end up going red and saying well you know I gave back a little bit of profit
21:16 but it's a small red day it's a successful red day and you'll be you'll be so grateful for it because it's so
21:23 easy to recover from small red days you know one one decent Green Day and and you're right back at your top so like
21:31 why chase a red day you know why be so desperate to try to recoup the loss it's
21:37 just not worth it I mean that's just my opinion but it's based on all my years of experience and my experience as a
21:42 mentor for students at Warrior trading so start with small size if you go red
21:48 then obviously don't increase size and while we all have a Max loss you know I
21:5 4 could say all right my Max loss is 5 ,000 like you know could I be starting each day with 25 ,000
22:01 shares and as long as I don't you know go down 5 ,000 but the problem for me is
22:06 that that Max loss really is a little too big relative to what makes me
22:11 comfortable and and I probably should tighten it up and not even have it at 5 ,000 but it's what I've had for a long
22:17 time $5 ,000 Max loss $5 ,000 daily goal I I probably should tighten it to like
22:23 25 00 that's more of a line where it's like I can live with that and it's not that bad
22:29 um a 5 ,000 is just right now it's a little too big for me you know it wasn't a couple years ago but right now for
22:35 whatever reason it is so that maybe is another thing of what's your max loss and are you truly okay with being red
22:41 that much um because right now I'm not really that okay with being red five grand on a day it just doesn't feel good
22:49 so maybe tighten up the max loss a little bit as needed but if you start the day with small size you can kind of
22:5 5 break the ice dip your toe in and get a feel and if it's feeling good you can increase quickly and start to scale up
23:01 be aggressive when the Market's hot we know that's important but if it's cold then those are the days where you just
23:06 say all right this is going to be a successful red day now when it comes to individual stocks when I'm focusing on
23:13 trades I will say and I'll say this a million times but I'll say it again right now the um the best trades for me
23:20 are in the very beginning of a move so when a stock first has news like at 8:15
23:26 8:30 whatever usually that first like the first sort of 20 30 minutes the beginning of the move when the stock is
23:33 really on the front side and it's squeezing up during that period the macd the moving average convergence
23:38 Divergence indicator is going to be moving apart once it crosses back the first
23:43 time and and goes negative below the signal line usually from that point forward the stock starts to get choppier
23:49 it doesn't mean that we won't sometimes see you know this really nice move up a pull back and then a move higher but in
23:5 6 colder markets and we've been in a little bit of a colder Market I just find that the easier money for me is in
24:04 the first leg of the move and that second leg a lot of times we end up seeing these really nasty false
24:10 breakouts where it like pops up and then Jack knifes down and I look at the chart and it's like well you
24:17 know it may not be exactly the backside of the move if it's moving higher but
24:23 you can just tell like the stock has gotten crowded it's choppy and I think
24:28 this is the nature of the market that we're in right now that there's so many participants that there are people that
24:34 just sort of crowd into these stocks and they're getting in getting out getting in getting out and this frenzy level of trading it it just starts to make the
24:42 stocks very congested and more prone to false breakouts and seeing walls of big sellers something that I'm trying to get
24:48 better at is um reminding myself to trade aggressively at the beginning of
24:5 4 the move so build my cushion and then try to lean in and then once it's sort
24:5 9 of pulling back and the first leg is over at least right now sort of putting that stock on the back burner and
25 :06 looking for the next stock that's on the front side of the move cuz sometimes what I'll notice is that I will
25 :11 overtrade one stock and I might be up 2,000 or 3,000 or even $5 ,000 on it and
25 :17 then I overtrade it and I give back maybe half or I give back a third of that profit and I'm like man I should have just walked away sooner but in the
25 :25 meantime another stock will have popped up and I'll be trading that one so my p&l will stay kind of relatively the
25 :31 same but I'm giving back profit overtrading the choppy crowded one and
25 :37 and then that that just offsets the gains I'm making trading the front side of the next stock so focusing on the
25 :42 front side of the move not over trading the backside is really important and using the macd can be helpful for sort
25 :48 of better visualizing you know are we right now on the front side of the first leg or has the macd crossed over again
25 :5 5 you know a really hot market like 2020 2020 1 that's an exception but that's
26:01 not the norm the norm is that you know we might get two really strong legs to
26:07 the upside so first leg up pull back second leg higher pull back and maybe we
26:13 get a third and then we start looking at that same pattern forming on the 5 minute chart you know first move higher
26:20 pull back second move higher but beyond that it starts to get overdone unless stock just has phenomenal news but even
26:27 with really good news news we just haven't been seeing that level of exuberance so I think it's important to
26:35 be able to uh sort of you know temper your expectations to the market you're
26:41 in and for me right now trying to stay really disciplined about being
26:46 consistent each day is giving me a sense of confidence because after a stretch of
26:5 2 you know 3 four 5 days that are like solid you start to feel like okay like this feels good I feel like I'm in
26:5 9 control uh of myself of the way I'm trading I'm minimizing my downside Risk
27:04 by dipping my toe in the water I'm trading aggressively on the front side of each stock when I see a stock that's
27:10 clean with news I'm not I'm going to try not to overtrade it too much and I'm going to make sure I walk away when I
27:16 hit certain thresholds like giving back certainly more than half but even sooner than that once I start to give back even
27:21 15 20% I'm like okay caution flags up giving back 30% okay time to step back
27:27 so I give back all my profit cuz then that by itself becomes an emotional trigger and then that is something you
27:34 can carry into to the next day so I really think that if you can work on successful red days you're going to be
27:41 better off as a result a couple of things that you can do as I already mentioned a few a couple other things
27:46 you could do number one is start journaling your trading so taking notes not just about every individual trade
27:5 2 but on each day as as a whole so what's your sort of general feeling on each day
27:5 7 was it a good day was it a bad day are my emotions in check or they kind of wild out of control so sort of measure
28:03 your emotions each day and start to develop a sense of awareness around where you're doing well and where you're
28:10 getting a little bit um out of control for me I recognize a couple of different
28:16 triggers um one of my triggers is the fear missing out fomo right I just am
28:23 like I don't want to miss this move uh this thing might go higher I should I want to try to trade it and then I end
28:29 up overtrading it but another Catalyst for me or trigger for me is the feeling
28:34 of frustration and anger I get I can get frustrated and trading is difficult it can be frustrating if you lose 3 4 5 6 7
28:418 nine 10 times in a row you can only lose so many times in a row before you you get really frustrated it's only
28:48 you're we're only human right so knowing that that's a trigger for me I've been
28:5 3 doing um some meditations on um letting
28:5 8 go on being more patient on dealing with frustration and stress and anger and
29:04 I've been finding them to be really helpful in my trading I I've said this a million times
29:10 but a couple of things I think are important uh are exercise and meditation both of them force you to be disciplined
29:17 and if you can exercise discipline in other aspects of your life it only strengthens that muscle for when you
29:23 need it in the moment when you're trading I tend to be a little bit lazy and I will only have like a strong
29:31 practice when both with exercise and and meditation when I feel like I need it
29:38 and when I'm kind of struggling and when I don't feel like I need it I'll sort of back off of doing it and the problem
29:43 with that for me is that then I'll get complacent I'll get sloppy and then I'll have a setback and then I have to bring
29:49 it back and I'd be so much better off if I could just be consistent so I made a pledge to myself to do this consistently
29:5 7 every single day for the next 30 days and to journal and to see how it affects
30:02 my trading I encourage you to do the same thing I really think that you might find it to be very helpful so I hope you
30:08 enjoyed this episode of me U breaking down what I think is uh one of the leading causes of failure as Traders not
30:15 being able to have successful red days I hope you're able to have some successful red days in your career and as always I
30:20 hope you hit the thumbs up I hope you subscribe the channel I'll see you for the next episode real [Music]
30:26 soon n