lystn

Hey everyone, Kirk here again and welcome back to the daily call. Today, we are going to be answering the question, “How many option trades do we have to place to see profits?” This is a huge topic that we get a lot of questions on and a hot topic for me because I think that people totally misunderstand what they are doing when they get into this business. I say business. I actually just said it without even thinking about saying business. But most people actually get into options trading like they're getting into business, but they treat it like a hobby. They treat it like a hobby because they don't have the right expectations heading into it. I’ve often related options trading in the sense of opening up a restaurant. If you’re going to open up a restaurant business, you expect that you’re going to be in business for a couple of years. You wouldn't go through the hassle and the process and the capital investment to open up a restaurant just to close it down after two months. But yet, magically, people still do this in options trading. They get into it, they think they want to do this, but they don't actually have the right expectations heading into it, they don't have the longevity that's needed to see success. Here's what happens in options trading. We have what's called the law of large numbers which is just a very simple law that basically just says that the more times that you execute an occurrence or a trade basically, that it will start to gravitate more and more towards the expected outcome, meaning that if you're targeting 70% chance of success trades, the more and more and more you trade, the higher the chance that you’re going to see that 70% become present. Now, the downside to this is that you have the most amount of variance in the first 100 trades or so. When you first start trading options, you could have… I tell people this all the time, but they still don't believe me. If you start trading options… I say, “Okay. Target 70% chance of success winners.” Well, your first 10 trades could be total losers. It doesn't mean that the probabilities are wrong. It doesn’t mean that your trades were bad. It doesn’t mean you had bad entries or anything actually happened bad. It just means that the occurrences that just happened happen to be losing trades. Again, it still means if you keep trading, you should see 70% chance of success. Now, you could also have your first 10 trades be winners. Now, you think you’ve reached the Holy Grail, you've uncovered something that nobody else has seen before in their entire life and so, now, you have this false-positive or false-negative (however you define it) expectation of the future. But the reality is that your first 10 trades or your first even 100 trades, you're not making enough trades to really see the probabilities solidify and firm. It’s like curing of metal or curing of stone. It takes a long time for them to really solidify. If you are flipping a coin, you could flip a coin 10 times on heads. It doesn’t mean the coin is broken. It just means you got to flip the coin a lot to see 50/50 heads and tails. So, to get back to our question about how many trades do you need to make to see profits, you could see profits very early, but I think that at least at 100 trades, you should now start to breakeven or be more than breakeven for sure at that point with a 70% target. If you’re targeting 70% chance of success trades, after 100 trades, you honestly still could be in the ballpark of 50% winners or 90% winners. It’s that wide of a disparity and variance. And so, what that means is that some of you might come to me after 100 trades and making 90% winners and you’re like, “This thing is the greatest thing since sliced bread. You’re amazing.” Other people come to me after making 100 trades and they’re still 50/50 or maybe just above 50/50 and they’re like, “Kirk. You’re a scam artist. You're totally scamming people out of this. This doesn't work.” But you just haven’t made enough trades yet. You just actually haven't let the probabilities solidify. After say 200 to 300 trades, now your variance is cut down dramatically, you might be within about a 10% variance of where you need to be. Now, after a couple of hundred trades which at this point, should take you at least a year, so you should be at least a year in now to start really starting to see this thing solidify or at least starting to really grow some income legs for you, now you’re starting to see trades, all of your trades between 60% and 80% winners. And after let's say 500 or 600, even up to like 1000 trades, now you're starting to really narrow down on this probability and win rate and you're starting to see something very, very close within like 2% or 3% of what you should expect as far as probability. The key here for today’s show is just realizing that it is a long-term game to play this business and to be in this business and you have to have the right mindset coming into it. It is 100% true that every single day that you stay alive in this business that you continue to trade, you just end up becoming more and more successful, just like solidifies itself day after day after day. You start working towards this target of probability of success and win rates and etcetera and it just becomes more and more solid every single day that you stay alive. Now, the question becomes, “How do you stay alive?” Well, you keep your position size down. You keep your allocations down, so that if you do have a run of bad trades, it doesn't blow you up. That's what happened to a lot of people in February this year. A lot of people out there… We got a lot of influx in February when the market had this mini-crash because people that had been used to take in lots and lots of profits finally saw the other side of the coin, finally saw a huge string of losers and they were way over-allocated. They didn't have enough capital left over. They had position sizes that were too big that actually ended up blowing up people's accounts against the better judgment of what I've been saying and the better advice of what I’ve been saying for years. That's what I think is really important here, is just realizing that you have to stay involved in the game. You have to want to be in this game for a long time because if you are in this business, it will just continue to solidify itself over time. To finalize it and wrap it up, how many trades do you need to make? I think after at least a year of trading, you should now start to be at least like over the 50% for sure threshold. You could definitely be higher than that. But over 50/50 winners, I’m just saying what the expectations are. And then at least two years in, you should be really, really solidifying and honing in your skills and your profits I think should be really, really solid at that point. Hopefully this helps out. As always, if you have any questions or comments, let me know. Until next time, happy trading!