lystn

Hey everyone, Kirk here again and welcome back to the daily call. On today’s daily call, I’m going to ask you the question – “Do you have kamikaze trading characteristics?” The reason I said this is because I often have called people “kamikaze traders” because I feel like they do basically like one of five things with their trading and it really is like a self-sabotage to their trading success. They basically cut themselves off of the needs, they throw themselves at the mercy of whatever they’re doing and really don't think logically through things. I want to bring these things up not to criticize, but to hopefully bring to your attention maybe some characteristics or some qualities that you might have recently felt or maybe someone who looks like you, acts like you, but is definitely not you in any way, shape or form, a friend that looks like you, acts like you, etcetera might have been doing recently. Again, bring it into the forefront of your mind. The first one I think I think, a kamikaze trading characteristics is position size, so this aggressive overbearing position size that I often see people have. I’m telling you and I tell people this all the time. It is the number one reason why people lose in options trading, is because they don't monitor their position size, they get too aggressive. Maybe it’s because they had a very successful trade early on and they made a lot of money and they get into this false positive reinforcement cycle that big position sizes and big money is profitable for them and they eventually lose. But number one for sure is position size, making sure that you’re under 5% risk per ticker symbol that you’re trading. Number two is that they have these arbitrary or very quick stop loss exits. Nothing backed by research or by back-testing data. It’s basically that if the position moves against you, I am quick to exit, quick to kill the trade, quick to get out of it. We know from our own testing and the other podcast that we’ve done that this is not a good idea, that you should actually be welcoming to trades that move against you and let them test you and challenge you because most of them will turn around and end up being profitable, that using stop losses on a consistent and religious basis is not the way to generate excess return in your portfolio. Number three is not holding trades long enough, this kamikaze technique of just basically going after a trade and then if it doesn't work out, either exiting or just removing the position and not holding the trade long enough for big profits or bigger profits. Now, we talk often about exiting trades early for profit targets, but we also know and we've talked about before in our profit matrix report which is the summation of all of our back-testing research that we’ve done to date, we know that when you generally hold trades just a little bit longer and try to squeeze more profit and premium out of them, it does work out. Now, you do this at the risk of having potentially smaller win rates, so bigger drawdowns maybe on the path, on the way to getting there. But overall, we've seen a consistent correlation between holding trades a little bit longer, maybe generally just past our traditional profit targets that we publish before and now, holding trades a little bit longer, so that we squeeze more premium out of them and eventually get higher cagiers which is what we’re after. Number three here is just not holding trades long enough, just bailing on them way too quick, not holding them for bigger profits, getting out of them too early for just really, really small profits versus holding for potentially bigger profits. Number four is they have a short trading lifespan. Kamikaze traders in my opinion are people just like kamikaze pilots back in the World War II days. They have a very short lifespan. They went up. If they didn’t hit their target, they basically crash into one of the ships or one of the destroyers, whatever. I feel like most options traders are like that too. They get up in the air, they start flying, they start getting some air under their wings, they understand trading a little bit, they get into a nice rhythm early on, but man, one thing goes wrong and then they just basically throw themselves at the mercy of the market, they start breaking rules, they start totally breaking down and not following any consistent game plan or thought process or anything. They have this very short trading lifespan. They’re in, in three months really hard, aggressive studying and learning and usually by five or six months, maybe they’re out or seven months or eight months and they’re out. They don’t have the long-term view in mind. They don’t stay around long enough. They don’t act like they’re opening up a true business. They don’t act like they’re opening up a true business which I think is something that eventually kills you. Number five here of these five characteristics for kamikaze trading is I think that people have a short-term trading view, meaning that they’re always swayed by recent news. A common theme that I see in people (and I get the emails, so I can prove this) is I’ll see people who will send me an email and say, “Oh, I’m doing this trade because I saw this news piece.” Then three days later, they’re doing the opposite trade because they saw another news piece someplace else and then three days later, they’re doing a totally opposite trade now because they’re doing something else that they saw in the news. They’re just always swayed by the recent news. They have a very short-term trading view in place versus having the view that long-term, they should play the numbers, the stats, the total drawdowns, the win rates, the cagiers, etcetera. That's why in our back-testing that we did for our toolbox and our profit matrix, we ran trades for basically like 10 years and in most cases, we ran trades for 15 years or more because we wanted you to see what the long-term prospect was for a lot of these positions. We wanted to make sure that you understood how a trade performed not just in the first six months, but how it performed after five years or six years or seven years. That's how you determine if a trade is successful. Anything can be profitable or losing in the first six months or three months, whatever. But it’s really – Where is it going to be at the end of a couple of years? That’s what’s more important. Having that long-term trading view, not being really swayed by market news I think is really important. Hopefully this has been a little bit different and hopefully again, just brings a couple of key things to the surface and maybe helps you again just re-correct the path that you’re on right now, so that you don’t crash yourself into a ship or a carrier and you don’t basically shoot your own foot here in trading. As always, hopefully you guys enjoyed this and until next time, happy trading!