WEBVTT 00:03.190 --> 00:12.070 And this video I'm going to touch on trading psychology and risk management strategies now, this is 00:12.070 --> 00:18.040 a area of trading that, quite frankly, takes up its own course most of the time or even books are 00:18.040 --> 00:21.950 huge volumes of books written about this one subject. 00:22.510 --> 00:27.310 And that's because one thing that I would point out, and it took me a long time to learn this, that, 00:27.310 --> 00:29.870 you know, anybody can learn to read a chart. 00:29.890 --> 00:32.080 The question is, can you hang on to the trade? 00:32.080 --> 00:37.360 Can you recognize when it's time to get involved and can you accept losses? 00:37.390 --> 00:44.410 There are a lot of different things out there that you need to pay attention to and when you get involved 00:44.410 --> 00:44.900 in a trade. 00:45.520 --> 00:51.340 So, for example, I mean, Goldman Sachs in front of you and you can see we formed a bearish candle 00:51.340 --> 00:52.960 right here at. 00:53.870 --> 00:59.910 Previous resistance in New Zealand, and that's fine, you know, I could teach anybody to do that. 00:59.930 --> 01:01.030 That's not the hard part. 01:02.780 --> 01:06.290 The question is, are you comfortable as it's going against you? 01:06.830 --> 01:11.600 Do you accept the fact that not every trade is going to work out for you? 01:13.490 --> 01:19.070 You know, an analogy that I would use is that a lot of you have retirement accounts out there and the 01:19.070 --> 01:26.420 retirement account, you know, let's just say it brings back, I don't know, just 10 percent a year. 01:27.800 --> 01:31.710 That's probably pretty decent, steady returns in a retirement account. 01:31.730 --> 01:36.020 You know, some years it'll be five percent, some years it'll be 15, whatever. 01:36.020 --> 01:42.300 But, you know, if you average 10 percent, you're relatively happy with that trade trading activity. 01:42.710 --> 01:50.520 So the question then is, do you micromanage every trade that the fund manager takes? 01:50.560 --> 01:51.370 Well, of course not. 01:51.830 --> 01:56.060 You know, you're not going through and saying, OK, well, you lost two percent here. 01:56.450 --> 01:59.030 You lost one point one percent here. 01:59.330 --> 02:01.940 You gained two point six. 02:01.940 --> 02:02.690 That's great. 02:03.020 --> 02:05.510 You know, and you gained one point one. 02:05.900 --> 02:07.150 But, you know, what do you do? 02:07.280 --> 02:12.620 A losing point, five percent here on this trade for, you know, whatever the trade was. 02:13.630 --> 02:17.650 No, you look at the total returns, and that's something that you have to focus on. 02:17.680 --> 02:22.120 You can't focus on any one train, that's the the hardest thing for some people to do, because you 02:22.120 --> 02:23.020 get very emotional. 02:23.500 --> 02:27.310 But you have to understand that sometimes things just happen. 02:27.320 --> 02:32.560 You can have the best technical analysis in the world and you can have what looks to be a sure thing, 02:32.560 --> 02:38.020 just blow up in your face because of some random comment from a central banker or a scandal in a company 02:38.020 --> 02:42.520 or a multitude of other, you know, a hurricane and or an earthquake, whatever. 02:44.050 --> 02:54.880 So one of the best ways to look at this and to take advantage of the markets but also make it so that 02:54.880 --> 02:58.320 you can stay in the market, is have a risk management strategy. 02:58.900 --> 03:02.400 And in my case, I only risk one percent on any particular trade. 03:02.410 --> 03:05.650 So and that's one percent of the total portfolio. 03:05.680 --> 03:12.190 So just to keep things simple, let's say it's one hundred dollars in my little, you know, portfolio 03:12.700 --> 03:14.470 and I risk one percent and I lose. 03:14.470 --> 03:23.560 And that puts me at ninety nine dollars and I risk one percent there and I lose again. 03:24.040 --> 03:33.700 And that puts me, you know, instead of 98 this time it's ninety eight ninety eight point one. 03:35.080 --> 03:45.760 And then a risk one percent and my one percent brings me back a little over ninety eight percent, so 03:45.760 --> 03:50.500 I'm back over ninety nine slightly and so on, you know, when you get. 03:52.990 --> 03:59.020 When you get that that type of reaction, you know, your equity curve is going to look like this is 03:59.020 --> 04:01.390 a very steady you can you can function. 04:02.290 --> 04:07.980 The problem that a lot of traders get is they worry too much about the destination and not the journey. 04:09.220 --> 04:14.920 So what they'll do is they'll risk five percent and in the same portfolio, a little one hundred dollar 04:14.920 --> 04:21.580 portfolio, you lose that five percent and then you're down to ninety five dollars. 04:21.610 --> 04:23.540 OK, well, it's not the end of the world, right? 04:24.430 --> 04:27.330 So you gain five percent after that? 04:27.340 --> 04:31.960 Well, you're no longer talking about five dollars. 04:31.960 --> 04:32.650 It's less. 04:32.650 --> 04:34.760 You're actually at ninety nine and some change. 04:35.260 --> 04:37.800 So that's the paradox here. 04:37.810 --> 04:44.650 You lose five percent now it takes about six percent roughly to get that back to break. 04:44.650 --> 04:51.070 Even so, it becomes even more difficult because remember, the trade is going to work out one way or 04:51.070 --> 04:56.020 the other and the market doesn't care that you need six percent this time instead of five. 04:56.380 --> 05:02.800 And the reality is a five percent move might be rather difficult to get in whatever market condition 05:02.800 --> 05:03.070 is. 05:03.070 --> 05:04.410 What if it's only three percent? 05:04.420 --> 05:07.510 Well, you're kind of on your way back, but you haven't made it. 05:08.320 --> 05:11.480 And three percent after five percent losses roughly halfway. 05:11.500 --> 05:13.840 So, again, you have that issue. 05:15.050 --> 05:20.690 I mean, the reality is that you need to stay in the market, your number one job is to make sure that 05:20.690 --> 05:21.320 you keep. 05:22.540 --> 05:28.330 Your capital, in your trading account, you must protect your capital, and the easiest way to do that 05:28.330 --> 05:31.390 is to simply risk something that you're comfortable with. 05:31.810 --> 05:36.100 And being comfortable is the next point that I would cover. 05:36.700 --> 05:40.420 You should be comfortable enough that you can short this candlestick here. 05:40.420 --> 05:45.970 For example, you put your stop loss above it and you can just let the market do whatever it's going 05:45.970 --> 05:46.420 to do. 05:46.510 --> 05:50.500 Say you have a target down here and you see it did work. 05:51.100 --> 05:52.990 You know, it was middle of the next day. 05:52.990 --> 05:54.640 But let's just say that was your target. 05:56.630 --> 06:03.080 Well, there's no reason to get out of the trade until the stop loss is hit and you have to be comfortable 06:03.080 --> 06:08.390 enough that you can walk away, quite frankly, you don't have to sit at the computer white knuckling 06:08.390 --> 06:09.140 the whole time. 06:09.860 --> 06:14.540 Well, let's look at it, you know, a little bit more common, sharp maybe for a day trader. 06:15.050 --> 06:20.600 You get extremely bearish candle there that you decide to short and you recognize that there's probably 06:20.600 --> 06:21.340 going to be support there. 06:21.350 --> 06:26.030 So you just try to pick up, say, 50 Cent, you put your stock up on top of that candle, because if 06:26.030 --> 06:29.540 we break above there, that would negate that signal and you hit it. 06:29.570 --> 06:33.080 But are you going to sit here and white knuckle it for 30 minutes? 06:34.350 --> 06:39.060 Or are you just going to let the market do what it's going to do because it did move up a little bit 06:39.060 --> 06:39.720 against you? 06:39.960 --> 06:42.480 Are you going to freak out the first couple of ticks you get against you? 06:42.510 --> 06:43.140 Oh, my God. 06:43.770 --> 06:44.910 You know, I'm going to lose money. 06:46.520 --> 06:51.530 This is why and this is another thing that helps with the risk management, this is why you will hear 06:51.530 --> 06:56.690 me more than once through the course, talk about what's the longer term trend trade with the longer 06:56.690 --> 06:57.260 term trend. 06:57.290 --> 07:01.550 Yes, I realize and I don't even know what the longer term trend is on this chart. 07:01.560 --> 07:02.720 Let's pull up the weekly. 07:04.370 --> 07:09.290 OK, well, it's been a lot of down trending here recently, so it makes sense that you would be more 07:09.290 --> 07:12.740 of a seller, but you are approaching support during this time. 07:13.190 --> 07:17.890 There would be, you know, frequent pullbacks during the day. 07:17.990 --> 07:23.780 But, you know, it's not that you can't get that money, but quite frankly, it's just easier to go 07:23.990 --> 07:24.950 with the trend. 07:25.400 --> 07:31.000 And that will more often than not, make the markets a little bit more forgiving of your trading. 07:31.640 --> 07:34.640 There is a huge list of things that could be going through. 07:35.210 --> 07:40.400 But suffice to say position sizing, comfort, you have to be psychologically comfortable. 07:40.670 --> 07:43.810 You have to realize that this is a marathon, not a sprint. 07:44.210 --> 07:48.350 So one loss of a percent, is it going to end your trading career? 07:48.650 --> 07:52.520 You don't need to get it back right that second, because if I told you. 07:53.760 --> 07:56.520 Hey, at the end of the year, you're going to be up 33 percent. 07:58.790 --> 08:05.210 And you knew that was the outcome, then why would you sweat a one percent loss and that's something 08:05.210 --> 08:06.380 that you're going to see a lot of. 08:06.380 --> 08:10.040 You're going to have a lot of days, you know, days where you have three or four losses in a row, 08:11.210 --> 08:15.050 you know, where you're just on the wrong side of the market and for whatever reason, can't get a handle 08:15.050 --> 08:15.300 on it. 08:15.590 --> 08:17.390 Those are the days you get up and walk away. 08:17.390 --> 08:18.350 You just cool off. 08:19.040 --> 08:23.540 You give yourself some time away from the screen and then you realize, you know, you can approach 08:23.540 --> 08:28.220 the market maybe later in the day or better yet, the next day when things have calmed down. 08:31.790 --> 08:37.430 Anybody can read a chart, but it's what you do with the trade once it's in play that truly matters 08:37.430 --> 08:44.450 and position sizing, I would be willing to say that psychology is probably 85 percent of trading quite 08:44.450 --> 08:44.960 easily. 08:45.310 --> 08:49.520 Now, you need to have the tools to read the charts and understand where the market may or may not go. 08:49.530 --> 08:55.970 But you have to understand also that and truly understand this and accept that just because it looks 08:55.970 --> 09:00.650 like it's going to struggle to get above 238 on this chart doesn't mean that it can't. 09:01.480 --> 09:03.250 So keep that in mind as well. 09:03.370 --> 09:08.850 Take a breath, relax, you're in it for the long haul, you're going to learn to enjoy the process. 09:08.860 --> 09:13.390 I promise you, if you spend enough time doing this, there's a lot of highs and lows. 09:13.750 --> 09:15.100 But at the end of the day. 09:16.020 --> 09:20.490 It's a smooth equity curve that will calm your nerves.