How to Swing Trade | Simple Strategies from a Pro Swing Trader

Hey everyone, welcome back to the Market Chat. My name is Richard Moglin, and joining us today is Matt Petralia, who's a veteran swing trainer with over 20 years of experience. Um, Matt, thanks so much for coming back on the show.

Great to have you.

Thanks for having me, Richard, and I'm glad you got the microphone upgrade this time. Last time we spoke, you were talking about it, so congrats, you deserve it.

I gotta match your your audio quality. Got it. Gotta do that.

Uh, well, well perfect, Matt. It's great to have you back, like I said. And in the previous interview, which will be linked down below for everybody who wants to see it, uh, we went into your background a little bit, kind of your style, recommended book. So if everybody's curious, go ahead and check that out. But uh, to kick things off this time, I'd love to just kind of jump jump right in, and you've got a presentation planned out as well. So if you want to jump right into that, that's fine, but what's kind of your overall style and and time frame as well when you're trading the markets?

Yeah, so my overall style is a swing and position trader. I focus more on swing, and I'll get into this in a minute. Um, and my time frame, you know, that I'm operating in and the trades that I expect in terms of duration, there's days to weeks, with the position trades can go into months. And I trade mainly the daily time frame. Um, I'm not a day trader, and I'm certainly not a buy-and-hold person, so I'm firmly in the middle of those those time ranges. Um, and in terms of style, I would call it momentum breakout trading mostly. Um, you know, my biggest influences, maybe if I call that individual people will be like Mark Minervini, um, you know, and um, in terms of other things, maybe Ivan Ivanhoff, in terms of the way he he looks at range contraction, that was a big impact on me, and Brian Shannon, um, more so kind of like his market axioms than anything else, you know, like he's got so many really quality ones, um, and and his multiple time frame uh methodology. So those three are big for me, and then, you know, each one of those guys had multiple people influencing them. It's like this just big tree of influences that go back and forth down the line, you know, as time goes by.

And uh, are you only trading stocks or and but you do venture into options as well, but are you mostly focusing on the growth area, value area? What's kind of your sweet spot?

Um, you know, I focus on what's in what's um strong at the moment, right? So I wouldn't I wouldn't turn down trading the oil names that are strong right now at all, just because I'm going to say I'm a growth investor because that's that's not the case. So I focus on strength, so whatever happens to be strong at that moment, I'm happy to trade. Um, frequently though, obviously in bull markets, you're gonna in the beginning of the phase get tech and growth, and that's the way it usually works. At the end phase, which, you know, you could arguably say we're at now, where you get the cyclical names, the value names, and um, you know, it becomes harder to trade breakout trades towards the end of a bear end of a bull market if that's where we are. But um, whatever's showing relative strength, I'm happy to I'm happy to participate in.

Perfect. And before we jump into your presentation, um, is there anything you think viewers should know about you, your style, your past, um, to give everything like a little bit of context before we jump in with the presentation?

To say that I'm completely self-taught, and I'm, you know, I am not somebody with some sort of pedigree. Um, I've made tons of mistakes, tons of them. Um, so I the reason I say that is because it's trying to be encouraging, right? Because I've made a million and one mistakes, came from an entirely different career, entirely different background. I have actually master's degrees in totally different fields. Um, and you you can do this, you know, if you set your mind to it. It's more about discipline than it is about um learning some sort of um secret formulas, that's for sure. And I think, you know, initially a lot of people think there's some secret code you have to crack, and nothing can be further from the truth. So I try to just tout my kind of self-taught, you know, hard knocks, made tons of mistakes. If I can do it, you can do it. That's the kind of message I just try to get out there.

Yeah, you're saying there's no secret indicator that will let you get a winning trade every single time.

I'm going to announce it right now: there's no secret indicator.

Yeah, definitely not.

Perfect. Yeah, well, awesome. Let's jump right into the presentation because you've got some really cool stuff planned. Uh, so let's get to it.

All right, perfect. So I just put together a PowerPoint. I don't want to uh, you know, go through everything, yeah, and be monotone with the presentation, but putting together some things I was actually inspired by Shaheed's presentation, and he did, you know, a really good job putting together um PowerPoint and talking through what what his strategy is and things like that. So I wanted to this time around, I wanted to go a little more in depth. So I wanted to start with my style, which again I say is a mix up of a lot of people's styles. I think you get influenced by by lots of different people, but I focus mainly on the kind of Mark Minervini style of breakout trading. Um, and I would start off with by saying, you know, I'm a discretionary trader, and I don't want to start off too basic, but I think a lot of people don't even realize they're making that decision initially. I think there's a lot of people that don't realize there is an entire world of system trading out there that is a huge world, right? And it you don't see much of it on Twitter, if at all, honestly. I haven't I haven't seen many people talking about their system trading. Um, but you know, you when you start off trading and you're making the decisions, you are a discretionary trader, and you've made that choice. So I just try to get that out there that that is what I'm doing. There's a lot of system traders that consider discretionary trading to be, you know, basically gambling, you know. So there's a lot of different viewpoints, and you could get into a whole separate topic on that alone and whether even system trading is fully discretionary. Um, that's for another day. But you know, to start off, I'm fully discretionary. Um, every decision I make is my own. There's no there's no signal, automated signal, signal I'm waiting for. Um, and I use mainly classical chart patterns, um, you know, not nothing esoteric, um, a lot of the classical chart patterns and candlestick patterns that we see here what I focus on, and I focus mainly on range contraction. So that's that's kind of the heart of it. Um, I want to find I want to find setups where range has really constricted and contracted that will lead to range expansion, and I want to enter on those contractions. So like I said before, I'm swinging position trader. I focus actually primarily on swings, but I do position trade. It's over the years I've tried just about everything and really found this to be kind of the sweet spot for me because it's a mix of being able to hold on to a move and and watch a move progress without feeling the the kind of day trading stress where it's almost I I felt at times when I've tried it years and years ago, it's almost like a video game, and um, there's a lot of stress when you're trying to day trade. I know a lot of people do things differently, but I definitely like the intermediate term where you can see a trade progress, um, set up and progress through through days to weeks, and position trading is is, you know, it's a notch I think of it as a notch back from the blind hold crowd who just say I'm going to invest in this company because I believe in it. Um, position trading, I don't feel that way with, I mean, maybe some people do, but we'll get into it. It's a different thing in terms of fundamentals for position trading, but I really look at position trading as, you know, one notch above swing trading where you're gonna you're gonna commit a little bit more, and you're gonna deal with the down down swings, and you're gonna you're gonna stomach those drawdowns a little more, but that's where my strength is. It leans more towards swing, and I do position in longer-term accounts. Um, so you definitely jump in and ask me questions. I have a tendency to ramble, so go for it.

Yeah. Um, first of all, Matt, on on those first few points, I love if you could define what a range contraction is because newer traders might not quite be familiar with what we're looking for in terms of that that volatility contraction of the right-hand side of a base.

Sure, absolutely. So today we'll talk about today's market where we saw we saw a gap down two and a half percent, and the Qs uh closed out the day up three point four percent. So we had a humongous range on the Qs alone. So you get you're left with this enormous candle. So that intraday range was five six percent on the Qs. That's a huge intraday range. Day traders love that. Day traders want to see a big candle that because they're trading that intraday move. So that for them that's fantastic. For me, that's the exact opposite of what I want to see. I want to see a tight candle, you know, a much tighter daily range. Um, so what I would be looking for in the next few days, for example, is let's see if we can get a pause in this volatility and get a get a tight inside day on some of these indices and some of the leading names. That's range contraction. So you go from huge range to a much tighter range. That's what I want to take advantage of because eventually that range tightening will you're always going through cycles. So the range tightening will eventually lead to range expansion again, and that's what I want to catch.

Perfect. Um, so major theme: looking for relative strength. I I want to look in the for the sector strength, industry strength, and individual name basically in that order. Most of the success I'm going to get is through being in the right sector, in the right industry, at the right time. So I'm not gonna try to find individual names that are shining if the sector is lagging. Um, I wanna find sector strength, dig down in the industry, and then the individual name in that order. So I'm constantly going through sector charts to find out what's what's working, what's not working, dig into the industries that are working, then find the individual individual names that are really shining in that sector and industry. So very much relative strength hunting on a regular basis. And of course, themes, themes like EVs, solar, you know, clean energy in general, there's always a theme that's taking place that you can ride. So over time you see all these different themes emerge, and you can again find relative strength in those themes. For a long time it was the semiconductors; they were just roaring and kind of felt like they were the only things working in the market. But if you can latch onto themes like that, um, playing in the right playground, um, is where you can find success in my opinion. But if you're if you're trying to find relative strength in a lagging industry or a lagging sector, that's generally going to work against you, and that name is likely going to fail if it's if it's setting up for a breakout. Um, so just in summary, it's I've I really feel like it's momentum training, relative strength trading, um, nothing new here. I'm not recreating the wheel, but I just have, you know, my take on it and what works for me, which is what I think everybody needs to do is find what works for them and what works for their personality because many people have don't have a personality for day trading, many people don't have a personality for, you know, buy and hold, etc., and you have to find what works for you. So I'm always looking for breakouts and continuation patterns, and in this market, you know, sort of none of these are working right now, but that's the reality of it, and I'll talk about, you know, what you do when when what your bread and butter is is not working. But I look for base breakouts, which I think we're all familiar with, um, continuation patterns, typical flags, pennants, triangles, etc. So if you if you don't get that initial base breakout, usually really strong names will set up in those type of smaller uh consolidation patterns, and you can you can enter in on those in entries that are subsequent to the initial breakout. Descending wedges are kind of like the only real pullback play I I take, um, and I can go into that a little bit. It's mainly doesn't even necessarily have to be a wedge. I really think of it more as downtrend line compressions, so where you have you'll have downtrend lines in this um bull move, um, because you're always going to get a pullback when you're when you're going through a bull move. Nothing goes up in a straight line; nothing goes down in a straight line. So on those downturn trend line compressions, I call them, I'm looking for tightening range contraction that's still below that downtrend line, and then when it expands it goes above the downtrend line, and that's where I like like to enter. And then PEAD plays, some people call them peg plays, post earnings gap, PEAD just stands for post earnings announcement drift, and I just like calling it that; that's the way I learned it. But also the drift part is really what what you're playing, so that's why I think of it that way, and I can get into that, but it's when a name makes a huge move on usually enormous volume on an earnings report, one way or the other, it can be bullish or bearish, um, that name tends to move in the direction of that gap for days, weeks, months afterwards. So you can enter on a consolidation looking for that that drift, which is the D part of the equation. So those are the four main things I play. In a bull market, I will definitely short on breakdowns, and I think I mentioned in the last video I don't get aggressive on shorts. I don't think I've ever been to the point where I'm like all in on shorts or anything like that; that's just not something that I do because in my experience, um, during the bear market or or even a 10 percent correction or even your basic five percent correction, um, you're going to have an increase in volatility, and that increase in volatility is exactly what I don't want, long or short. So you have these huge like, look what happened today, two two and a half percent down. If you were short, if you didn't take profits immediately, you were you were underwater, you know, by the end of the day. So um, when the volatility volatility is really high when you're looking at short plays, um, that's when it's really hard for me, at least, um, to get really aggressive because there's there's just a lot of opportunity for reversals to happen, um, and there's just much more range um expansion and volatility at play, and that's not what I want to get into. But I will look for bear flags. There was a great bear flag on IWM that I played, um, and there were, you know, you want to look for support breaks as well, the same just the inverse of looking for um breakouts, obviously, you just flip the chart upside down, so it's the same idea. And then if you get a flag that goes into um descending uh moving averages, that's that's an ideal kind of setup. But again, I just I do it really quickly on the short side; it's not something I I will swing for days or weeks. I'll do it real quick, you know, like two or three days maybe at the most. So that's that's generally how I look at shorts. I know there's a lot of people who get really aggressive with shorts, but I am not one of those people. I mean, here's I just want to talk about, you know, what, you know, focusing on your strengths. So mean reversion trades like today, you know, two percent down open, um, playing a mean reversion play, I know lots of people do that; that is not my strength. I'm definitely looking for momentum and breakout plays and continuation plays. So mean reversion trades where you're trying to catch, you know, the the downswing moving right up to the upswing in in the intraday moment, in the intraday candle, that's not what I'm trying to do. So you want to know your strengths. So it's I think it's very easy, especially for people that are newer, if you look at a day like today, you know, and you see all the noise that's on Twitter, people talking about the bottoms in, this is the bottom, and you know, we can we can talk about bottom calling as well later on, but um, it's easy to get sucked into something that's not your strength, um, and I try to really make sure I don't let that happen because that's something I've I've had happen, um, in the beginning particularly, and I try really not to focus on it now. I think I I think I had one tweet recently that said, if you spent your whole life trying to be a professional baseball player and you made it into professional baseball, but suddenly you find yourself in the midst of football season, do you go work on your tackling or do you wait until you can play baseball again and excel at what you do? And that's that's the kind of way I try to look at it. So mean reversion trades are not my thing, so I try to stay away from it. Other people, that's other people's playground, and my focus is always on risk management. I consider that to be my job is managing risk. I don't consider trading necessarily to be my job. I honestly think of it as focusing on risk, um, and some of the ways I do that are outlined here. So I have personally, over the years, I have about a 50 percent batting average. So given that, it's statistically probable that I will have a 10 lost, a 10 consecutive loss run. Um, I don't have the exact number, but it's not it's not unusual; that will definitely happen even in a decent market. Um, so you never want to let something that's statistically probable take you out of the game. So I always want to track what I call total open risk. So let's say I have um 10 trades that are on right now; it's conceivable that those will all stop out. So I need to know where that leaves me if all of them stop out. So I make sure I know exactly what the total risk is that I have on and make sure that it's palatable for me. It's um six percent. I never want to lose more than six percent if I'm stopped out entirely, and I think I mentioned that in our last video, and it's somewhat random. I mean, there's no there's no formula I arrived at that; it's just after having traded for years and years and years. I certainly don't want to have 10 I don't have a 10 loss on any given day that takes me out, um, and I feel like if I clamp down too much more on that, I'm really choking out some trades. So six percent is sort of where I where I landed on that, um, and it's it's more for me. I may have ten open positions to get stopped out all at once rather than have 10 consecutive losses because that's that's pretty unusual. It is statistically possible, but it's fairly unusual because I will not let myself keep trading that long. Um, so I'm more worried about having losses that hit, you know, pretty in rapid succession, um, and it's a constant process of reducing total open risk for me. So what I do is I'll enter positions, and then almost immediately I'm looking to see when can I take off that risk, when can I make that risk reduced, right? So instead of I'll make the decision to add more risk when the setup is there, but once I'm in the trade, I'm always looking to to get out of that risk and make it make the trade, you know, become something that is a free ride basically once you get to the breakeven stop, you're set to go. So I'm always looking at reducing total open risk; I'm always keeping track of my total open risk, so I know exactly where it is, um, and you will have those days where, you know, the market flushes down; it takes you out of everything. So instead of focusing on how much you can gain, which I know a lot of people do, I constantly try to focus on reducing risk, so that that's where my focus is, and I and you know, if you focus on the downside and protecting the downside, the upside will take care of itself if you're trading according to your plan because you will catch those big moves, um, but if you're not paying attention to the downside, the downside will sneak up on you and and really put a put a hurt on your your account.

Perfect. Um, and in terms of position size, I actually I just used this simple Excel um position size calculator that I that I built a billion years ago, um, and I I base my size um from the distance between my entry and my stop. So I don't I don't enter a trade and say, you know, every trade I enter I have a six percent stop. I don't do it that way. I base it on trading ranges. So I maybe may have a stop below the low of that day or the previous day's low or some reasonable technical level, and then I will measure out, you know, um, the distance there and apply that to the risk level I want to take. So I I separate my trades into tiers of of basis points. So I'll take 25 basis points is when I'm, you know, dipping my toe in the water, 50 basis points pretty average, 100 plus, you know, is is when I'm trying to get aggressive. So I'm I'll I'll uh take the amount of shares or contracts um that equates to that level of risk accordingly, and a simple position trade calculator does that for me. Um, and I'll size smaller after losses, larger when gaining traction, progressive exposure, again Mark Minuvini 101, and definitely works for me. So if I have three, four, five losses in a row, or I have a day where all my open positions get get stopped out, I will definitely, you know, take a break first of all, and then when I do get back into the market, I'll maybe put on a 25 basis point trade, so I'm risking a quarter of a percent of my account, so it's a small trade just to get your feet back in the water, um, get your confidence back, see if you're gaining traction, etc. And in the opposite direction, if things are really cruising and you've got, you know, you're you're really getting some traction in your open positions, then you can think about starting to put in those 100 basis points or up to two two percent trades. That's the highest I'll ever go is two percent, uh, but everybody's different. And the main rule I think for me, and I've done this, you know, for I think 20 years probably, um, I didn't I didn't things didn't work out very well when I wasn't using this rule, but I always know where my exit is, and I set a stop when I enter. I usually trade with pretty tight stops, but I will never ever never ever enter a trade without having a stop set immediately, um, and that's just an absolute key.

Yeah, and that before we go on, um, progressive exposure, ex- sorry, progressive exposure might be a new concept for some traders watching this, so could you talk about maybe how to implement it a little bit more for from a very beginner standpoint, uh, coming out of a correction because currently obviously we're a correct market, we're in a downtrend, so can you talk about maybe the basis of progressive exposure and how to scale up once kind of the market proves itself and you're getting that positive feedback?

Yeah, I mean, I really base it all on my account, so it's less it's less what's going on, and it's certainly less what's going on in the indices. Um, I will pay attention to what's going on with individual names because I think that's what you really want to pay attention to, but I'm really reacting to my account. So if I'm following my strategy and it's simply not working,

It means to me it's time to reduce my exposure. Right? So the idea is that you're you're trading less when your trading is at its worst, and Mark Minervini says this all the time, and you're trading at your best when you're trading your best. So you get you get progressively larger as you're finding more traction, progressively larger in size, and progressively smaller in size, even down to just not trading at all, um, when you're not finding traction and and just the markets giving you obvious negative feedback. So the idea is that, um, you know, you don't just go, you don't just have one single trade size the entire time. I guess is the main point here. You'd want to get to somebody who's new, you know, what just say, I'm gonna everything I do is gonna be, you know, one percent of my account, because um, you just won't be taking advantage of the actual momentum that's going in your favor or against you, uh, to read the market. Um, and it's much better to be getting uh your position size much larger when things are going well than it is to suddenly revenge trade and say increase your position size, um, when things aren't going well, which is a knee-jerk reaction, especially in the very beginning. So I hope that you know that kind of gives the idea.

Yeah, absolutely, especially on the downside. I think it's really important that uh when you get stopped out of a bunch of things, as you mentioned, all in one day, that's feedback that maybe the market is going through a little bit of a character change and your style might go out of favor soon, and you should, you know, take that feedback into account and position size accordingly. And if you keep trying trades and they keep not working, scale back, scale back, scale back until you're barely exposed, and that's how you keep your equity curve, you know, as close to those all-time highs as possible, which is kind of the name of the game.

Definitely. And I think as you gain experience, that progressive exposure really should be based on your account, because if you're if you're confident in what your system is and what your setups are, then you know it's not because you're making stupid mistakes or you're you know you're doing you're doing things that are completely undisciplined; it's because your setups are simply not working, period. Right? So and you want to listen to that, and I think your own account is the best; it's the best voice to listen to, honestly. Um, so I always say, you know, I don't care what the indices are doing; um, if I'm not gaining traction, that's that's all I need to know, because I shouldn't be in it because I'm not going to change my style just because the indices are going somewhere without me. Um, so I think that as you gain experience, the the real indicator is your own account, right?

Um, okay, I think there's one more of these my style slides, and then we'll we'll move on. Um, so in terms of selling, I sell into strength. I definitely, you know, I I want to take money off the table as the trade is moving in my direction, take partials on the way up, and that helps with psychology as well, because for me, I'm not the kind of person that can hold a full position through every every drawdown and all of that. I mean, I need to be taking I need to be taking partials off so that I can potentially hold on for a bigger move. Um, and my first partial is usually around one times risk or one and a half times risk, and again that's based on where my stop was. So I want to have, you know, the equal the equal gain to where my stop was is is one times risk; you're you're you're in parity there, or I'll take one off even when it's above one times risk, and I'm always looking for asymmetrical trades. I feel like, you know, that's that's the mantra. I want one to three risk reward setups ideally, and of course you don't know what the reward is gonna be, but you base it on, you know, either a Fibonacci level or a chart or chart pattern progression or projection, excuse me, or you know a uh a level that you can see that is clear resistance. You know, you're basing it off of that, so you have you have an idea at least, but you don't know; you do always know what your risk is, so you have to be 100 on with that. Um, and I over the years I've just learned to cut losses mercilessly, because there's just there's there's just no no way that for me I could ever be profitable unless I did that. Um, and never ever never ever I could have filled up three of these slides with that: cancel stops. That is one that I, you know, believe in wholeheartedly. People ask me things like, what about when there's a gap down, will you take it out? And no, my answer is no. I will never cancel stops. If if if the name is trading below my stop at the open, I'm out. I don't care if it rebounds. For every single chart I could show you where, you know, the name hit my stop and bounced up, I could show you 20 more where um if I had canceled my stop, that name went 30, 40 percent lower, um, and I'd have been stuck in an avalanche. So I only moved stops up, not down. I'll never ever move them down, and I'll usually raise them to break even once the trade hits one times risk or more. Um, I'll be even quicker, honestly, in fast markets like 2021. I was even quicker than that. So this this sort of applies to 2020, but in a market like 2021 where breakouts weren't working well, there were tons of reversals, you know, I'd be even more aggressive to move up to break even and just take what I get.

Um, and in general, I think, and this goes back to Brian Shannon's teaching—he's so good at this—you want time frames to align as much as possible. I focus on one time frame for decisions; for me, that's the daily chart, but you want you want signals to align, like if you have a weekly pivot and a daily pivot and an hourly pivot, you know your odds are you're much better. Um, for me also, this is this is a little different; I don't think I talked about this last time. I know there's a lot of people that enter um a swing trade on like a daily oh like a day trading time frame, like a five-minute chart. Um, for me, if I enter on a chart on that time frame, I'm expecting to be taken out on that time frame too. So for me psychologically, if I enter on a five-minute chart, I may be out of that trade in 15 minutes, you know. So that's that's not really that's not the way I'm entering a trade. I know some people do it that way, but I really like to enter based on daily um pivot points, because then that way I feel like maybe I'll be taken out the same day; maybe I won't, but I think the odds are more in my favor if I'm if I'm playing on the time frame that my signal is on. Um, so if I'm entering on that time frame, I expect to be taken out on that time frame, is is how I think of it. Like if I'm entering on a weekly chart, maybe I won't get taken out for two weeks; who knows? I don't do that, but if you're entering on a five-minute chart, you know, you mix you may be taking out in 15 minutes, and that's just not the way I like to operate. I will I will kind of fine-tune on the shorter time frames, but I won't base an entry on on what a five-minute chart's doing.

Makes sense. And I think that, you know, the general idea is here: I'm following money money flows. You know, I think that everybody, you know, that is a retail trader kind of has to realize that's what they're doing, because none of us are moving the market, um, and the chart reveals that as relative strength is how I believe that works. Um, so you're, you know, price is not going up without without some money flowing into it, right? So once you see that relative strength, you know, you know the decisions have been made by bigger players, and I just want to tag along and get aggressive when gaining traction. So that's that's one thing I have to do. I'm I'm super defensive and focused on risk, but you also have to have that switch to where you can get aggressive, because otherwise you'll you'll be successful, and you'll be um consistent, but you will never really get kind of the performance that beats the averages, and and you know you can have those really big years, like in 2020. I got really aggressive in 2020. You know, a lot of people did, but you have to have that switch to get really aggressive. Um, that has to be there; it can't just be all defense.

Am I let me know if I'm just babbling on and on and on.

No, this is this is fantastic; this is great. Okay. Um, and I, you know, mentioning the advantages of being a retail trader—that's what we are—so I mean, you want to maximize those strengths, take advantage of what you are. So like the ability that we have that funds don't have is we can move in and out quickly; you can change your mind quickly; you can change your risk quickly. So take advantage of that is what I think, right? So that's one of the reasons why I like the swing trading time frame. You can't have an 8 billion dollar fund and be a swing trader. I mean, you could with a tiny portion of that, but you can't sit there with that kind of money and be a swing trader; you have to establish a position over weeks, sometimes, you know. So the advantage we have is something that I think we should really take take advantage of, which is you can piggyback on the big moves; um, you can be in and out; um, you can change your mind. You know, I can go from I'm all cash right now; I could be full long, you know, in one day. You know, like huge funds can't do that, you know. So those are those are things that I think we we have to take use to our advantage, and that's one of the reasons I focus on that those time frames is swing and position trading. And I think it's important to understand what the goal is of your trade. I mean, the you know the the word goal is broad, but is your is your goal a swing trade? Is it a position trade? What is it? Like you have to understand that immediately. You definitely don't go in; if you go into a trade not knowing what time frame you're operating on, that that's going to lead to all sorts of of problems in your account. So for instance, not every situation like is a let your winners run situation, which you hear so frequently, and I've heard so many beginning traders say, but I need to let my winners run, but I need to let my winners run. Um, and what they do is end up, you know, going on a round trip on a trade or or letting a winner turn into a loss because they've heard so many times, let your winners run, and you have to know what the goal is, so and you have to know what the market is; that your market environment is your trading. So 2021 was not a let your winners run market for the most part; winners did not run. So right, so like if you were if you just sat there thinking that over and over, I gotta let my winners run, you're just gonna get constantly stopped out of breakeven or worse. Um, so you have to know what the goal is and adjust accordingly.

Um, and finally on this this slide, I would say complexity is a killer for me. Um, you know, everybody operates differently, and I think I'll say like the caveat to every word I'm saying is everybody's different; I'm just sharing what works for me. Um, but there's no secret formula; there's no some sort of initiation right where finally you get it, you understand the market; that just simply doesn't exist. Um, and I think complexity, that the real danger in it is that it just hinders your decision making, and you get to a point where you can't you're not confident in your decision. So I think the simpler is the better. So as long as you have a simple risk management plan and a simple trading plan in general, um, the better off you are. The more complicated it becomes, I think the more smoke comes out of your ears; the more you start second-guessing yourself; you lose confidence, etc. So for me, simpler the better, and I started off with like the most complexity I could pile on, you know, 20 years ago; that's what I was doing. I thought, hey, you know, the the advent of the the computer speed that's going on here and all these indicators that nobody else was able to see, there's got to be some secret formula here. Um, and I went completely in the wrong direction, like headlong in the wrong direction, and it took me a long time to pull back and realize simplicity is the key for me.

Yeah, and uh, no, I completely agree. I think uh sometimes I look back on my what my charts look like in 2018, 2019, when I'm first starting, and I I I've uh I've delved into coding a little bit; I love tweaking, making indicators, but you can go the completely wrong way and and have analysis paralysis—so many signals that you want to keep things as simple as possible. And and really I think every trader goes from that, oh, I want to add the MACD, the this contraction pattern, but as you go, I think the less indicators on your chart, the more clearly you can actually see the price action, which at the end of the day is really really matters. And almost all those indicators are built on price action.

Exactly. It's interesting; I just finished the CMT program, and what that did, even though you had to study every different type of indicator that there is, is it just really hammered that home to me um that you know simpler is better, and a lot of those indicators and stuff can be really built into system trading, like I mentioned at the very beginning, and can be very useful; it's just that you can't sit there with 10 of them um and hope to make any sense of it or find any meaningful signal coming from them. You can definitely pick one or two that make some sense and help you out and confirm price, but at the end of the day, price is the whole deal, and that's that's that's like the, you know, the main mantra I got from Brian Shannon for the past I don't know 15 years. Um, he's the only price pays guy, and it is like 100% truth. Um, so that, you know, leads me to the next slide, which is technicals versus fundamentals, and I think this is, you know, I think a lot of people have such negative connotations with both, you know, and and I think that, you know, people go into shock if you say I don't pay any attention to fundamentals, or people go into shock if you say I don't, you know, I don't pay much attention to the technicals. And you know, in my mind, you need to you need to you need to at least understand both, but there's one I would never trade without, and that's technicals. Um, I I would never ever ever enter a trade without looking at a chart, period. So for me, that always outweighs the fundamentals, but I'll get into how I look at fundamentals. So my favorite quote from William O'Neil, out of all of his quotes honestly, is is this one: There are no good stocks unless they go up in price. And you know, I'm not putting words in his mouth, but to me that says I don't care about the all of the other stuff I said in my book; if the if the price the stock is not going up, forget it, right? And that's just to me; that's a fundamental truth and a fundamental, you know, such a moment of wisdom um from from somebody who's got tons of experience, and that's the same thing Brian Shannon says with only price pays; it's the same idea. Unless the stock is going up in price, I don't care about your EPS and your your sales growth; it doesn't matter, right? Like it simply doesn't matter. Are we here to are we here to discuss the intellectual, you know, end of fundamental analysis, or are we here to actually profit on stocks, right? And that's the bottom line. So simplicity again is where I personally find success, and price action is that simplicity; price action is everything; that's where you're you're making your transactions.

I think you had you did an interview with Mark Minervini; um, you did a couple really good interviews with Mark Minervini, but there was one where he said something like, I just don't care; it doesn't matter what happens outside of my buy point and my sell point, right? It just simply doesn't matter; like the only thing that matters is what happens in between my buy point and my sell point, and that's price action; like all of it doesn't matter. Are you did you did you buy at the exact bottom? There's no asterisk for that, right? There's there's no you don't get bonus points; um, it's all it's all the price action that happens within your trade. So you you're you're trying to basically—I've thought about this—you know, the the act of the act of implementing um an entry and a stop on on a trade is are your main touch points, um, and that's how you you're basically implementing any of your logic onto the market; otherwise, the market makes no sense, right? So you're you're imposing your logic um onto a trade by setting your pr your entry and your stop, um, and that I do that based on price action, nothing else. I'm not gonna sit there and send an entry and a stop based on fundamentals. So that's what I talk about when when I think of it as being paramount.

Um, and like I was saying, there's no asterisk in your account if you bought on low volume or if or if the company's sales are decreasing or if you're if there's an overbought RSI; none of that shows up; it's you know the trade is the trade, and it's based on price. Um, and I personally—this is again like the way I was talking about—we want to maximize our strengths as retail traders; you have to; I also want to know and acknowledge what my weaknesses are as a retail trader, and one of those weaknesses is I will never ever have the research power of large funds, period. You know, with teams of people split up into following separate companies um and doing much more than just that, right? That's not my strengths; I will never compete on that playground, period. So my goal is to follow price action and ride the bigger moves and the themes and, you know, the money that has that research pouring money into the the uh the stocks that they that meet their criteria on a fundamental basis; I'm happy to play along with that on price action, but I'm I'm not the one that's going to have that research power. And honestly, you know, this may rub people the wrong way, but I would argue that most retail traders who dig into fundamentals are really not digging deep enough to truly compete with with the strength of of the hedge funds and the and the the larger funds that really are digging into the fundamentals. So I consider what I do to be sort of skimming fundamentals, which is, you know, like I want to know if a company's healthy; I want to know if I'm purely taking a technical trade, because then I know, and I'll do that, but I'll know it's a quick swing; this is not something I'm going to hang my hat in, you know. So I want to know at the very beginning, and this is this goes back to me saying what is your goal? If I'm taking a purely technical setup where I'm looking for a 10% bump because it's just a technical setup, but it's it's in a company that is, you know, heavily in debt, you know, not not not a major player, not something that is super healthy, I know I'm just taking a technical setup, and I'll do that; it's not my preference, but I'll definitely do that.

Um, and you need stronger fundamentals if your goal is to take a position trade, because there's no way there's no way you can have the conviction for a trade that's gonna last months through several drawdowns if you have just no idea.

Right. But then again, I guess the caveat to that is how much do you actually know? And I want to be honest with myself about how much do I actually know? So I'm not going to sit here and pretend that I've dug into, you know, the management team; that I've dug into the margins, and I've dug into the margins of each one of their competitors, and I've dug into, you know, all of the the digging that you have to do. I'm not going to pretend like I'm doing that, because honestly, if I even try to do that, I'd probably never trade, because it's an extremely time-consuming thing. Um, and and I'm not going to say that every retail trader is not qualified to do that, but certainly the vast majority are not sitting there pouring over every conference call and building out models in Excel. Most traders are not doing that, and that's what I think you need to do to really consider yourself somebody who knows the fundamentals. So I kind of say to myself, all right, I don't know the fundamentals in the in the strongest sense of the word, but I make sure I know, you know, what the company's all about. I certainly want to know, you know, especially if I'm taking a position trade; I I will look into the CAN SLIM type things; you know, I'll definitely look at earnings per earnings per share and sales and see if they're going the right direction, um, and dig into what the company does; what are the what are the competitors; just the general—I call it skimming the fundamentals—because there's just no way I feel like there's no way for me to truly say I know all the fundamentals about this company, right? So I use it to gauge what I want out of a trade: like do I do I want a technical setup, or do I think this thing really has legs to go? So that's how I use the fundamentals, but I think that the bottom line is I would absolutely take a trade um where fundamentals are not part of the equation, where fundamentals are not strong in the company; I would definitely take a trade based on strong technicals, but I would never take a trade where fundamentals are strong and the technicals are weak. I would never do that, because then you're just arguing with price, and you will lose every single argument you have with price, and it doesn't matter if you believe in the company; it doesn't matter if five years from now that company is going to be wildly successful; if your time frame is a few weeks to two months, all of that is meaningless, right? So that's where it just goes back to William O'Neil's uh quote; you know, he writes this book um, you know, after years and years and years of studying, um, but at the at the end of the day, there are no good stocks unless they're going up in price. And I think Mark Minervini says a similar thing; he's he basically I think he said um he expects every trade to go against him, yeah, you know, and then he'll only get aggressive once it starts going in his favor. So it's like the only good stock out there is if it's going up, um, and and nothing else matters other than the price action. So that's how I look at it, and I think a lot of people really kind of look down on you if you say I'm not digging entirely into the fundamentals; this isn't; I'm not going to hold this for 10 years, and you know it doesn't matter to me if this company is gonna is what this company's gonna do in five or ten years.

First of all, absolutely nobody has any idea; they may pretend like they do, but absolutely nobody has any idea. But I think a lot of people look down on it because they sort of think it as sort of intellectually lowbrow, to be honest, you know, like you're just trading totally on technicals; that's that's, you know, I don't know; it seems like a lowbrow thing to do, do you know what I mean? And like um I've had to work really hard to try to to try to just acknowledge that price is my guide.

Um, because when I first started, I really tried to over-intellectualize. I had the, you know, had the instinct to, to need to know why something is happening. And, and at the end of the day, the market is a price, is a price action market, so that's that's what I pay attention to now.

Yeah, I I also love that O'Neil quote. I think, uh, like you said, Minervinia said similar things, Livermore said similar things, you know, 100 years ago. Um, Darvas said a very similar, it has a very similar quote. So all these great traders realize that at the end of the day, you know, price and price movement, it is how you get paid.

At the end of the day, exactly. That's right. I mean, you can see the people on Twitter that that are not there yet, or they just refuse, you know, because you'll you'll say like, "Oh, I just, you know, sold out of this position," or whatever, and they'll be like, you know, "But this company is is on fire," or or like, uh, you know, you'll talk about a short idea, and then they'll just be furious with you, right? Because like, "How could this possibly be going lower? That's such a strong company. You know, have you seen the sales?" And, and my response is always, "You will lose every single argument you have with price, period." Like, I, you know, it doesn't matter what your thesis is, doesn't matter how much you love this company, what is price doing?

Yeah. And, uh, I think, um, I don't know if what video or or maybe it was in the master class, uh, but Oliver said, pointed put a really great way, is it it doesn't matter how good the the company is doing or it's gonna do, because the trade is over at that point when it becomes technically broken for your time frame. That the trade is over. Uh, that's that's all that we really care about. So I thought that I think that's a really good way to phrase it as well.

Yeah, I mean, look at all the people, hopefully there aren't that many that are been stuck in these these names that are down 70 to 80 percent this year. You know, and if you focused on price action, you'd have been out a long time ago. Um, so it just saves you so much grief to focus on price action, and you keep your opinions somewhere tucked away, because price action is the only thing that's going to protect you. Um, and so I mean, it's just I think I think once you beat your head up against the against the wall, everybody sort of comes to that conclusion, because it's really hard not to.

All right, so I put in one thing here about options, because I think that, um, you know, it's a it's a it's a weighted topic, that's for sure. And if you, again on Twitter, you know, you'll see it, it amazes me that some people's entry into the market now is day trading options. And I mean, it just it boggles my mind. Are you picking up all these beeps, by the way? It's not too loud, don't don't worry about it. Yeah, I apologize. Um, but it amazes me that people are, um, you know, that's their entry into the market, right? And and you know, a lot of it is because they're they have underfunded accounts, and I get that, we've all been there, um, and they're looking to make really quick gains, right? And they see the seduction of the quick moves and options. Um, but options are so so risky, and you have to treat them you have to treat them with respect, otherwise you blow up an account. There's no quicker way to blow up an account, maybe futures, very similar, but you know, there's there's basically no quicker way to blow up an account with options. Whenever I hear whenever I used to hear some of my friends say like, "I lost XYZ," I'm like, "You were trading options, weren't you?" Like, "Yeah, I definitely was." So, um, you have to you have to treat them with respect, as my point, but they are a tool in the toolbox. So I look at options completely differently than the way that people are day trading look at them. And I definitely started off, you know, when I was first exposed exposed options, you know, the hand grenade, you know, take the pin out and stand there. That definitely happened to me. Um, so you get seduced by the leverage, but I learned over time how I want to trade options. So I just treat them like any other trading tool. It's not some mystery, you know, magical tool that's going to make you rich in five seconds, like many people think it I think it is is the case for me. My stop is always zero, because options can go to zero, and they can go to zero quickly. Even ones that are dated out fairly far can get pretty close to zero pretty quickly. So I use my stop as zero. I know a lot of people out there put stops and options, and and you know, more power to them, and I know people are successful with it. For me, it simply doesn't work, because it's so volatile, um, and the premiums just bump around all over the place. I mean, they're they're so volatile intraday that it that I will get stopped out more than it's worth if I don't have my stops at zero. And the reason my stops are at zero and I like it that way is because I use options to define risk, so nothing can go below zero, right? So I know exactly my worst-case scenario. There could be, you know, if I was in calls today and the market gapped down 2.5 percent and I had options, they couldn't go below zero, right? But you could have been you could have had names gap down below your stop if you were long. I mean, I don't know why you'd have been long going today, but that's just the example I'm using.

Um, so there's a couple scenarios in which I use options, because it's not something that that's my go-to or you know, my standard at all. I definitely trade shares more likely more often than options, but there are scenarios where I will go to options and they make sense to me. One is shorting, particularly individual names, um, because again, going back to that whole theory of volatility, when I'm shorting something, it's in a volatile market, right? So you we could be in a market like we're in right now, maybe tomorrow things open up three percent higher, right? How does a really volatile name open up? Maybe it gaps up five percent. You know, what if you're short and something gaps up that much? So I don't want to actually short the traditional way of, you know, shorting shares. I'd rather buy puts. Also, if the market continues to go in your direction at that point, which would be lower, which is the direction of your trade, volatility usually ramps up, so let's put puts actually benefit from that. So that's something I do instead of I just do not like to short traditionally. I like to short using puts, because it defines my risk. 100 percent can't lose any sleep over huge gaps, gap ups, and you know, in bear markets, in in even in 10, 15 corrections, some of the counter-trend rallies can just be absolutely vicious. So I have no interest in getting getting run over by that. So that's a that's a situation where I will definitely use options as a tool. I'm also trading an extremely volatile chart, something like XLE recently, um, gaps everywhere, so I'd almost rather I'd rather buy options than that if I'm gonna do something like that, um, because it it while the volatility is still there, I just can define my risk, um, and and at a really volatile chart, you're bringing gap risk into the equation, and I just don't like I don't like excessive gap risk, because it's something that you cannot account for.

Um, and I also use it to add leverage to low beta stocks. So when people are, you know, complaining about, you know, the only thing working right now is Goldman Sachs or Bank of America, you know, "How am I going to get it? How's that going to produce any alpha for me?" One way to do that is to trade options, um, so if you see a nice setup on on a low beta stock, you can you can definitely guess that, um, by trading options. So that's something I will look into, you know, when we're in an environment where cyclicals or, you know, something that's not sexy is running, you know, that's a way to do that. Um, and I will do it also when stops on common would make it too tight for me, so that I'm over-allocating. So if I have a really really tight stop, I don't like to over-allocate the percentage of my account in one trade. And if the tighter your stop gets, the more the more actual capital allocation you're putting into the trade. So if that happens, something this happens to me on Apple a lot, like I want to get really tight, but it'll eat up like 70 of my account or something like that, and I just don't want to do that on one trade, unless I'm deciding, all right, I'm going 70 in, uh, but that's that's an opportunity where I would approach with options as well. And and usually one of the benefits of that is in a name like Apple, it's the most liquid options account in the world, right? The most liquid option change in the world, so, um, it's kind of like a just a corollary that works out nicely. When I'm getting too tight on a name, it's usually in one of those mega-cap names where my stop would be really tight, and they happen to have really really really high volume option chains, which makes which makes sense.

And then the final time I'll do this is just straight leverage when I want to be super aggressive, which doesn't happen very frequently. Uh, definitely happened in 2020, um, when things were just break every breakout was breaking out, every breakout was, you know, the night before you could enter and and know that and basically feel confident that the next day that breakout was going to gap up. Um, I think actually in the last interview we did, I showed you a Square chart where I did just that. Um, I entered like the night before, the next day gapped up above the pivot, and I mean, that's where I was using options. I used a lot of options plays in 2020, and you know, definitely had success with it, but you know, I knew that that's why I was doing it, um, and it's not something I did in 2021, pulled back a lot in 2021, um, but you know, if we talk about 2022, I've hardly done anything, period, never mind options. But there's, you know, when you want to get aggressive, I will do that. And and to be honest with you, I'd rather do that that says it here, I'd rather do that over margin, honestly, because that's like the conservative part of me coming in. Um, so it sounds counterintuitive that I'd rather be in options than margin, but I don't want borrowed money. I don't like I don't want that, to be honest with you. Like I know people have a lot of success with that, but that's that that to me is not the risk I want. Um, I'd much rather have my 100 percent defined risk with where my strike is, where my stop is at zero on options and leverage it that way. Um, so those are those are the situations where I'll use options, and again, it's just it's it's definitely a different way of looking at it than than the the accounts with 110,000 followers, you know, with like Options Monster in their in their name somehow, you know, like the big options accounts. This is definitely a different way of looking at it. So I just use it as a tool in the toolbox versus the tool in the toolbox, but it's definitely something I use.

Yeah, I was going to ask, we probably covered it in the last interview, but is there a book that you would recommend about learning how to use options in a similar way that you've ended up, you know, learning how to use this tool? Um, honestly, I haven't seen a book that lays it out this way, but I think probably everything else I've covered you could find in a book, but this is just like my personal experience, and there's nothing there's nothing unusual here. This is these are just the situations in which I want to use options, um, and it's scaling it back from people that are just straight up options traders that that's their main vehicle. These are the scenarios I've never seen. I I haven't read a book where like somebody says, "These are the scenarios I'm gonna use it in," which probably one exists, but I haven't read it. This is just through my experience where I've said, "This works for me, and this actually makes sense for me," because my goal is about is about defining risk more than, you know, trying to make a killing every five seconds, um, which is what I think the new options traders are trying to do. Um, but you you can again have to leverage scenario when the market's in firing on all cylinders, and but that is for me also the better choice between options and margin. Options for me is a better choice if I want leverage, but there I mean, there's a million and one options books out there. Ivan Ivanhoff, again, he's got some really good ebooks, and he definitely talks about swing trading and position trading options that are really good. He talks about like the delta he's looking for, so I recommend all that, um, in terms of how you would trade all this, but I've never I like this is just completely, uh, specif like specific to my personality, you know, like other people may be much more aggressive. Um, I just like the combination of the leverage and the the absolute, you know, concise defining of risk is what I like, um, and I use it only in certain circumstances.

And I think I already know the answer, but would you recommend, uh, people learn how to trade stock shares first before try their head at options to, uh, either, you know, take advantage of these scenarios or, um, you know, add a little bit of leverage to their positions? So yeah, I mean, I think definitely my knee-jerk response is you should absolutely learn how to trade stocks first, and I think the reason is clear, right? Because if you can figure out how stocks behave or figure out the price action cycles in stocks, then that's going to help you immensely in figuring out how to trade options, because options are just such a different beast. Um, so I think it absolutely makes sense to like enter the fray trading shares. That being said, you know, if you went about the reverse way, I think there's something there's something to be gained there as well, because then you can you can kind of scale back and understand like, "Here's what leverage does to you," and and "Here's what I need to avoid," you know, and there's there's some learning involved there. So I can't I can't say one there's one definite way to do it, right? But I and I, you know, I'll go back to guitars, because I love guitars, right? So, um, a lot of people learn on an acoustic first, and this is by like a very stretched analogy, but a lot of people learn on an acoustic first, because it's just simply harder, it's physically harder, um, to, you know, the pressure on the strings is just a different beast, and you get your fingers built up to that strength. So it's taking on the harder thing first, so maybe there's something to be said for taking on the thing that is much more volatile first before you move into like the smoother price action. But I think, you know, my intellectual brain is telling me that you should absolutely get a feel for price action and movement in general shares before you delve into into options. And certainly the way I'm using it here, like like, um, you know, straight leverage, you know, I wouldn't be able to do that at all if I didn't have any I have um experience trading just shares, um, and the price action cycles that shares go through. Um, so yeah, until actually, you should start off with shares. I just don't I just I'm always worried to say like you did something wrong or this is the only right way to do it, right? Um, because everybody's everybody's different, everybody's journey is different, and I certainly, you know, did not have a clean roadmap. Perfect. Okay, let's see what's next.

Mindset. This is, you know, this is something I definitely I try to tweet about a lot and try to talk about, and and I think after, you know, honestly after a couple years of trading, it's kind of all about mindset in reality, maybe even less than a couple years, it becomes all about mindset. And I think there's a lot of things, especially new traders, um, they do themselves a lot of disservice, um, in the way that they view the market, and and it's not through their own fault, it's through a lot of the the media they're they're taking in. Um, but the market, one thing I definitely try to, you know, impress on people is the market is not an ATM. I think so many people think, all right, I'm gonna I'm gonna roll out of bed today, and I'm just gonna hit a few buttons, and I'm gonna extract my money, you know? And people think of it that way, they use the word extract, and that that can be a good word, but I think a lot of people think of it as, "Here's this cash machine, and I'm just going to pull out what I feel like I need that day," or you know, "I'm going to set a target for every day, I'm going to pull money out of the market." And in my experience, it just absolutely doesn't work that way, because that goes against waiting for your setup, being disciplined, you know, waiting for your style to be the style that's working, goes goes back again to that baseball, football analogy I threw out there, which is a stretched one also. And I think that, you know, thinking that the market is an ATM machine really leads to style drift. So for instance, now with these super wide range bars and the hyper volatility, everybody thinks they should be a day trader, you know, like, "Forget it, forget holding something overnight, I should I should just be a day trader, because that's what everybody's doing," and that can just be deadly. And patience is a virtue, not a character flaw. I think some people look at it as a character flaw if you're if you're the one, you know, a day like today, Twitter's filled with people talking about, you know, "That's the bottom, that's the bottom, I got in here, it's up ten percent," you know? And if I get on there and say, "I've done nothing," you know, I'll definitely get responses from people that are like, "What are you doing?" Well, like, "You got to jump in at some point." And it's like, "No, I'm following exactly my plan," and for me, patience is part of that plan, absolutely. It's not a flaw, it's actually a virtue, and it's taken me a really long time to realize that. So I think that's something that people, successful traders really realize that. So Sunrise Trader on there, which I, you know, I I've known him for a long time, he's he's a pro at patience. In fact, the guy just disappears when things aren't going well, he's just he's just not there, like he's out with his koi fish or whatever he's doing, but he's not there, and and like that's a big tell in certain ways, like he just knows this isn't this isn't for me, I'm out of here, um, and he's just a real pro that way, um, and I think that's a real critical uh trait to have. And so I like to say, you know, I'm I I practice reality-based trading, um, and what the heck does that mean? It means you have to have realistic expectations that this is not a get-rich-quick scheme. Um, if you don't align your expectations with reality, you're in for a lot of problems. And I think you need to treat your trading business like a business instead of a casino. So if you treat your account like your your DraftKings account, that's all it's ever going to be. Um, this has to be treated like a business, it has to be based in reality. People that expect, you know, their account to go up a thousand percent every year, it's not reality, right? It's just just not right. So you're putting unrealistic expectations on yourself. This is not a get-rich-quick scheme, this is a really hard endeavor, um, for all of the, you know, what I was talking about before of trying not to intellectualize it, that doesn't mean it's easy. You can you can have a plan that's easy, but this mindset part of it is extremely difficult, and the discipline part of it is extremely difficult, and this is the part that never you never end you never end your learning in that part. You you can learn setups until you're blue in the face, and you can do deep dives and setups and find nuances and things like that, but the battle, you know, the ongoing battle for people that are doing this for years and years and years is the mindset and the discipline, and that's what makes it hard.

So I think efficiency also is something people don't really talk about, efficiency as much, at least I don't see people talking about efficiency, and what and what I mean by efficiency is, you know, are you in a really tough market exerting tons of time, blowing through your confidence and and churning your your account? I mean, that is that's not working efficiently. So I I'd much rather, you know, suggest to people that you need to you need to really pay attention to how efficiently you're working, and there are markets, again, Mark Minervini, so many good quotes from him where he says, you know, "Hard dollar, hard penny markets and easy dollar markets," you know? And that to me that's it's an efficiency, you know, scenario, like, "How do you want to work your ass off and drain your confidence and just be completely mentally fatigued during a really hard environment to make a nominal amount of gains, you know? Or do you want to wait where if things are actually working and the probabilities are in your favor and your style is working and you can make much much larger games with a much lower outlay of confidence and time and confidence and capital?" So to me, it's thinking about working efficiently. And one way to think about that is you're not getting paid by the hour in this job, and a lot of people come from jobs where they've got a salary, um, you're not getting paid for your time, you're just not. You can walk away, no, you know, nobody's gonna care. You could sit there for 12 hours and stare at the screen and lose money. You're not getting paid for your time, you're getting paid to work efficiently. So that's definitely something I think you want to focus on.

Um, and losses are the cost of doing business. I'll try to get I'll try to speed this up a little bit, because I feel like I'm going for, no, 15 hours. It's great stuff, it's crazy. Um, but losses are the cost of doing business, um, one of the few things within your control, which I mentioned before, and you'd rather control the downside than the upside. That's always a major mindset focus. And over-training is quicksand. So in line with the efficiency thing, if you're in a market where you're just you're you're you're trading so frequently, um, because you feel there's a pressure to trade constantly, or you're seeing on social media all the rocket ship emojis or you know, somebody's trading when you've decided not to, and you get that FOMO, um, you know, the bottom line is when you when your setups aren't there, don't trade, because over-trading, forcing trades, they inevitably lead to loss. When you don't see a trade in a chart, but you're flipping through so many of them just trying to manufacture one visually that's not there, you're gonna you're gonna have a loss. Um, and I think Ryan Pierpont, Pierpont, your last um your interview with him, that was the thing that stuck with me most, what he said, like, "If your setups aren't there, you've got nothing, like period, you've got nothing." And I think he tweeted that too, and I like that, just absolutely resonates with me, and and I definitely agree with that. If you don't have a setup, you've got nothing, you're just you're just trading random noise. Um, so you know, when you when you're in this this mode where you're over-trading, you got to get out of it as quick as possible, clamp down. And that's something that I've I've really put a lot of emphasis on in the past few years is clamping down as hard as I can on myself. And the confidence gas tank is part of that, you got to protect it.

Got to make sure it's full. You don't want to, you know, you know, you don't want to deplete your confidence and then just be stuck at a point where you don't have the the willpower to execute when the time is right. Um, and I always focus on what over why. So what is a stock doing versus why is it doing that? And then that goes back to the technical versus fundamental. You know, often you may not ever know why, and who cares why, honestly? Um, you need to know what's happening with the stock. What is it doing? What's the characteristics of it? What is price telling you? Um, and the same, same thought as preparation over prediction; it's much better to spend your time preparing for scenario and and have some triggers—if x equals y, then I'll do this—um, versus predicting.

So right now we're in one of those phases where there's a whole lot of prediction, tons of prediction. The more volatile the market gets, the choppier it gets, the sloppier it gets. Almost all Twitter turns into a prediction factory, um, and everybody's just got it, got an idea of what's gonna happen next, what's gonna happen in the next month, you know, where the bottom is. That's all a waste of time in my opinion; it's like a complete waste of time, um, and it's really basically, I think it's based on egos, um, and people just trying to say, "I called that," or, you know, "Remember when I said this," you know, and and and their their own compulsion to be right. But being prepared is way better than being right. Um, and then going back to progressive exposure, what helps me mentally—so the mindset part of progressive exposure that I think is important—um, is that it helps me with with my mental balance. So I'll never get too, I'll never get too, you know, greedy or too afraid in a big position because I'll only have that big position when things are working, and I'll peel off that position so that I will then be able to ride the rest of it if it goes higher versus constantly, you know, having the smoke come out of my ears thinking that I've got to sell everything. So I think the progressive exposure is a huge part of mindset; it's not just a tactic, I think it's a mindset tactic. Um, and then just be aware of social media. I personally took a 10-year break from Twitter. I got on in 2008, took a huge break, um, and just traded myself. And there's there's a lot to be said for anybody out there that just feels overwhelmed—just turn it off for a little bit and trade, and that's how you're going to train yourself to make your own decisions. You should not be, you should not be checking Twitter to decide what you're going to do in a trade; that's for sure.

There's a lot of platitudes out there; I'm guilty of it too. I mean, we all like have our moments where like, "Do this, don't do that," um, but you you can't let all of that get in, all of those inputs confuse your decision-making process. You have to have a solid process to begin with. Yeah, Matt, I I like all these, and I 100% agree that this is a really important part of trading. I just, I just recently read *The Mental Game of Trading* by Jared Tendler. I thought that was a great kind of um overview of a system to to keep in touch with your mindset, your mental game, your confidence, preserving that. And I love your quote, "Preparation is greater than prediction." I think that's that's super true, and also focus on the what over the why. Um, I always kind of chuckle when I see those articles that's like, "This is why Upstart was up 12 today because people bought more," you know, "there's more buy impression," you know, "the market was up, that that's why." Um, and it really comes back to, you know, the what is what matters; the price action is what matters, not necessarily the why. And um, I was rereading Darvas yesterday, and there's a story about him trading uh Bruce, and he ends up basically um benefiting from a like hostile takeover of a stock um just by analyzing the price action and seeing huge volume coming in, and it didn't matter that he didn't need to know that inside information; all he had to do was read the price and volume action. And you know, the why doesn't matter; it's whether, like you said, uh, did you enter here and exit here, and did you make money in between? That's what matters. Exactly. That Mark Minervini said that, not me. I thought that was a great quote that he had in one of your interviews, because that that is what it is. Um, and you know, the preparation—if you just think about it again in terms of efficiency—yeah, are you being efficient making predictions, because what does that get anybody? What does that do for anyone other than give you a bias, which actually hurts your trading in my opinion? But if you prepare, if you spend your time preparing, that's a much better use of your time, and then you will be actually ready to trade once price tells you what it's going to do. Um, so that that that's how I look at it, and I try not to waste time predicting because I think I I think I—I'm sorry for these beeps; it's ridiculous—I think I put a tweet out there often saying that like, "I don't predict; I don't even care what I think is gonna happen," and I've spent a lot of time trying not to care what I think is gonna happen because I have to disassociate myself from that because everybody's got an opinion, or like, you know, and sometimes gut instincts are good, um, but to sit there and really get yourself worked up about a prediction, or you know, "this may happen in the next week or two weeks or three weeks," it does nothing but give you a bias which hurts your training; it takes away your time from preparation. And for me, I'd rather not care; I I just don't care. I'm gonna let the market tell me what's gonna happen as opposed to me, you know, trying to have a playbook out there. You now, you you can sit to prepare for the different scenarios of course, um, but saying, "This is what's gonna happen," is ridiculous, and like you said, the headlines are ridiculous, and they're they're constant. So narrative follows price, sentiment follows price, it all follows price; you may as well follow price, the narrative. That's—I haven't looked at the headlines for today, but they've got to be pretty hysterical, um, because what are they attributing that massive reversal to? But they'll be something that they attribute it to, right? I haven't looked at what it is, but price is the, price is the leader; everything else is following. Yeah, and I think it, "Beware of social media," is a really important point. I think it can be an amazing resource, and I met so many great traders, and and you're able to read their thoughts is really beneficial, but it can also be a huge noise and and distraction. Uh, so I'd recommend uh, first, you know, tune it out as much as possible, curate your list as you mentioned, and also, you know, don't just walk, don't watch it during the first hour of the train day or the entire training day; just watch after the close where you can really focus on learning. Um, and if if you are a trader where you're waiting for somebody to tweet to take an action, you have not done the proper due diligence and set up a system where you can manage risk. You know, that's not that's not a repeatable system that's going to, you know, do you well in the long run. You have to have your own process; you should be able to trade in a vacuum in your room with just, you know, reading price and volume on on a chart. Uh, you should not be relying on anybody else. You want to build towards that independence.

100%, and I didn't mean to say like social media is all bad because it's absolutely not. I mean, like your channel, the stuff that gets put out there, I mean your content on Twitter, your YouTube channel, uh, you know, there, and there's plenty of people that are legitimately offering, you know, wise uh pieces of wisdom that are out there that you're not going to find otherwise. And it's like hard-fought wisdom from real people that are really trading; I mean, they're not trying to blow a smoke screen at you. Um, so there's there's a lot of benefits, right? But you got to be really careful. And I I think it's interesting like people like Oliver Kell um and Matt Caruso, it seems like, and there's others, will tweet at the end of the day, yeah, and like that actually makes a ton of sense to me because it's like, "I'm just gonna ignore all this crap; I'm gonna focus on my training at the end of the day; I'm going to offer some thoughts," and I think those are kind of, those are the things I think you want to, you pay attention to more honestly, because the intraday noise is can just be ridiculous. Um, but I think there's, I think you know, I don't know if Oliver like did that on purpose; I don't know; I've never spoken to him, but I that just struck me as, you know, that's that's an interesting way to look at it. Um, I've done both, um, and and he kind of motivated me to like tweet less during the day, honestly, because it it's like ingesting it and throwing it out there—nothing when you're doing too much of it; neither one of them is good. Yeah. Um, so let's see a couple more. So these are quick; here's here's quicker slides so we can—this is great; this is great. I think it's like, you know, it's a fantastic overview of your thought process. Um, so no, this is awesome. Yeah, good. Um, so these are like the five things I definitely feel like you you need seat time to feel, and these are these are mindset things. Um, one is that there's always another trade, and that that you know rolls up into FOMO—people that just, people that don't have the experience think they have to jump on everything because there's simply, there's not going to be another trade like, "If I don't get on this, you know, I'm just left at the dock and like the," you know, sad face. And and there is always another trade, no matter what. But that's something that I think over time you really feel it in your bones, and it makes a huge difference because like that's part of how I'm sitting out right now, um, not just the fact that there simply isn't a trade I want to take, but there's always going to be something else coming around the corner, and I know that's coming. And my main job is protecting my capital; that is, that's something that I think takes a while to just really get ingrained in your brain. It's not about making a thousand percent gains; if that happens, that's awesome, but your real job is protecting your capital because you're going to be out of business number one, you're going to be out of confidence number two, and you're going to disengage um if you don't protect your capital, and all those things will lead to a very short trading career. And I think the goal um that anybody should have rather than a, you know, I'll say it's not a get-rich-quick scheme, but then people say, "Well, you know, when do you make more money?" And I guess what I what I say that the only way you're going to really make more money is if you have staying power, and this is a lifelong process, right? So you should think of of the market as a way for you to compound your capital over your entire life, you know? So if you have a bad year, you're not out of the game, but if you have a bad year where your account goes to zero, you're out of the game. So you want to protect your capital for a lifelong journey in the market. Um, and overtrading is quicksand; it's the exact opposite of protecting your capital; it's it, you know, the casino, the the sounds or sounds on the slot machines lure you in, and social media can play a big role in that, and overtraining is something personally I've had an issue with over the years, and I have to clamp down on that, and I've made it something like somewhat of a major priority to clamp down on that. Um, and you know, one of the things that I don't think people get is trading is messy; there are no, there, you know, you can for every setup I can put up there that worked in a textbook way, there's hundreds that didn't, you know? So trading is messy; even the best setups fail, and they fail often. So it's just not a perfect endeavor; like there's people that are sitting there, you know, waiting for every confirmation under the sun, and that's one way to behave, but like it's messy; you I could I could point to every, you know, I could find a flaw in almost every setup, you know, like volume wasn't as where it should be, this moving average where, you know, wasn't in an ideal location, but it's messy, and you just have to engage based on your system. And the battle never ends, and it's with yourself; like I was saying before, I think once you get past honestly like the initial two years maybe, um, the rest of it is all about your discipline um and your mindset, and that that's where you separate yourself from from the people that, the people that took big confidence hits, hits, and disengaged. Um, if you can if you can stay engaged and not let yourself take those huge confidence hits, um, the battle, the battle then becomes with your discipline and your mindset versus setups and and technicals and things like that, uh, but it never ends; you never you never get to a day and you're like, "I'm done; I know I know what's happening now." That certainly never happens. I mean, you see people like Mark Minervini, you know, take hits; you know, these are some of the best traders ever; they're all taking hits. And then I think you know some of the traits that are really required that I think people are not necessarily honest with themselves about, um, especially especially now, like especially now when there's so many services that are alert services and things, and I don't I don't necessarily want to go into services, but there's like, when I started on Twitter, those things didn't exist; now they do. Um, and I think it creates um a misunderstanding of what's required to be a successful trader, and and they kind of go against anything that is has anything to do with following in in general; it's like if you're a follower, you're going to have a really tough time. Learning is one thing; following somebody to learn, but following somebody in the decision-making process and subjugating your own decision-making process to that person is not going to work. So you need self-leadership; you need to be a person—if you're the kind of person who who needs to be told what to do every step of the way, that doesn't make you a bad person, but it may definitely make you have a hard time trading, right? So if you're the kind of person that requires a lot of a lot of leadership coming from somebody else, I think it's going to be tough. I mean, you need to exhibit self-leadership, self-motivation, and this is just reality, um, and I firmly believe it. Um, you definitely need discipline; that's definitely, you know, 100% required. If you're if you if you don't have any ability to self-discipline yourself, um, you're gonna you're gonna quickly run into trouble. And and the ownership is part of self-leadership; you need to take ownership of what you're doing instead of—there's the constant, "The market's rigged," you know, like, "They brought it down here; they hit my stop," you know, there's always this, yeah, right; there's always this pawning off of responsibility, and you're in the long run you're just not gonna see the clear picture of what you're doing if you're constantly pawning off responsibility. You need to take ownership of your own trading, and I think that's absolutely critical, and it goes hand-in-hand with self-reliance. A lot of these are very similar; I'm just calling them out. So you you rely on yourself to make these decisions. If you're if you need to go check a service or check Twitter or check your friend or to check anybody in order to make a decision, um, that's going to be a road to problems because you—it's fine in the beginning until you establish, you know, an understanding of a system that you're doing, but if that's your, if you're constantly relying on somebody else for your decision-making process, um, you're never gonna get there; you're you just will never get there. And I'm not trying to be harsh about it or anything like that; I just think I think this is really realistic that these are things that that successful trading requires. And I think strangely the one that you might think that doesn't belong there is creativity, but I think it's a huge one, and I think you have to have creative ways around problems, specifically if they're unique to you. So you may be a person who has a real hard time with drawdowns, you know, and you have to be creative with how you're going to deal with that in particular. You may be a person who is, you know, really really bad with overtrading, like a horrible overtrader, and you have to be creative with how are you going to solve that problem. And I think there's a lot of creativity that involves your unique personality and how you're gonna how you're gonna deal with your own um, you know, kind of uniqueness in terms of, in terms of, "How do I how do I know myself well enough to deal with this?" Is what I'm trying to get out here. "How do I know myself well enough to be to find these creative solutions?" Um, and I think that's a big part of it. There's a lot of creativity also in actual training and tactics, but I think much more of the creativity honestly for me comes with how you're dealing with yourself and how you're gonna how you're gonna find those solutions that may may really only apply to you in that in that situation. And then perseverance—you can't you can't get anywhere if you quit, obviously. I I tweet out sometimes, "I've made every mistake you can make in trading, probably; I probably have come close; I'm sure there's some I haven't," but the one I didn't make was quitting; like I'm still here talking about this. So, and anybody can do that; that's not that's not something that's impossible for anyone; anyone can persevere and keep going and keep yourself in the game, so that's key. And patience—again, without patience, you know, all of these other things fall apart. And again, it's not a character flaw in trading the way I see some people portray it; it's a character flaw like, "Why are you just sitting there? You're missing everything." It's actually part of the discipline and the and the leadership and the self-reliance and the ownership; it's all part of the same thing. So I think those are those are traits that you really really have to be honest with yourself, um, and if you if maybe if you don't have them, you can work on them, but I really don't believe somebody that doesn't have these traits can be successful. And I don't mean that to sound in any way pessimistic or saying that you can't you can't achieve it because I think anybody can achieve these things, and you can develop these things, um, but if you're sitting there looking for the opposite of these things, I think you're gonna have a hard road. Perfect. Yeah, uh, Matt, thank you so much for this presentation. I I think there's a little bit of something for everybody in there, no matter where they are on their journey, and and hopefully there's some aha moments for people watching. Um, and now I just love to kind of hop into some charts and and definitely talk about the current conditions right now because today was definitely an interesting one. We had this huge uh hammer candle, um uh, what I don't even know the actual date here; it's uh February 24th. So for people following along, we're recording this on a Thursday. Um, so let's let's hop into some charts and and take a look at what's going on. So I think you know a key chart to look at right now that goes back to a couple things I was talking about is just the Qs, um, and rather than talk about the the setups I was mentioning um in the beginning the presentation because they're just not present; I mean, I think it makes more sense to talk about what's going on in the market right now. So if you look at if you look at this chart and you look at, let's let's say we look at from here, December 20th to here, and we look at that and we look compare it to maybe this time period, you know, made it made of August—other than the obvious trend, what's the major difference here that you see on this chart? Um, I would say it's volatility, yep, and range; that's the major difference. Um, it's just it's just staring you in the face. If you look at here from December 20th, these candles are enormous; you know, the volatility in the daily range is just huge. And if you look back here from the run up from when it touched this trend line back in May, um, you know, much less range expansion, much much less volatility; uh, daily ranges were much more constrained. Um, and that this is a this is a time where I can take swing trades and find entries; this for me is nearly impossible, um, because these ranges are so huge. On a day like this, I mean, this isn't a fantastic day if you're a day trader, um, you know, and you decided, "Hey, I'm gonna I'm gonna bank on a reversal on a trend update." I'm sure somebody made a killing doing that, right? Uh, but there's plenty that also got railroaded. But for a swing training, this was this was no man's land for me. Um, and when you see these these candles like this, I'm generally staying away. And if you if you go back, you know, this is what happens; like this is what happened in the COVID crash; look at those candles. I mean, and they didn't start uh the volatility didn't start coming out of the market until, you know, much later on actually. So it's really hard to find proper entries for me in this type of volatility, so I really actually use that volatility as my main sign to just stay away. And I think it wasn't until like January 6th I started tweeting, "I'm I'm done here; I'm I'm mainly cash," um, because what happened here is I saw this move, um, and that's not a healthy move by any stretch of the imagination. In fact, in our last interview we were looking at the IWM chart, and I saw this move, um, yeah, and that is just, that is not healthy priced action. So I saw that move in SPY and combine that more importantly with the fact that um or in Qs and combine that more importantly with the fact that I just wasn't having setups for for what I need to do, right? There were no setups that I wanted to take. Um, so the combination of not having setups uh to trade for my style and seeing this volatility kept me out, and honestly it's been honestly pretty easy to stay out because this hasn't given me an opportunity to jump back in in any meaningful way. And I think that's actually it's in a way doing me a favor, and I've seen some people say sort of the same thing; this has been kind of easy to avoid. It's not easy if you're new, and it's not easy if you you know are not in a really developed system or are not confident in your system, but this has been pretty easy to avoid if you're if you're trading the way I trade, which is I'm not going to trade unless I have my setups, and I'm not going to trade this this really high volatility environment. Um, so you know those are my thoughts right now on what's going on, and I simply don't have setups to point to. What I did do was go short; um, a recent trade I did was go short here, and this was just, this was just a classic; I mean, this is just a beautiful bear flag here; came right up to this uh what became resistance level that had been in place for, you know, since March of last year, um, and then IWM is just, it's the poster child for obnoxious chop for this entire time period, and then we had the, you know, breakout that reversed. Um, so this just set itself up; this just, this bear flag is just perfect. Um, so I I played this actually with TZA, um, and

Got in as it broke down here. I took, took the final partial off today, but that's really like the only activity I'm doing right now. And I'm really sticking to, you know, my playbook of not over-trading, not taking setups that aren't there, not staring at a chart and trying to manufacture a trade setup, and just waiting. And, and you know, it comes back to the patience and the discipline. I'm just gonna wait until my setups are there again.

Finding a bottom, you know, I'm babbling again, so tell me to shut up whenever. But finding a bottom is, is a fool's errand. Um, and I think it takes a while to realize that because there's so many people that are trying to find a bottom. Um, but you know, did anybody buy right here and hold until right there? You know, zero people did that, right? Yeah. And if you got in here, uh, your money's just as good, you know, that there. You don't get a bone, you don't get bonus points or like, you know, a free game if you got it at the bottom. And what's gonna happen 99 times, you're just gonna get chopped up trying to chase that. And you're gonna get chopped up here, you're going to get chopped up down here, you're going to get chopped up here. You know, anywhere where you're trying to find a bottom, you're going to end up getting chopped up if your goal is to find the bottom. Um, so my goal is to wait until my setups show up again. So if this is a bottom, I honestly don't care right now. I mean, for the sake, sake of the economy and like the market in general, sure, I prefer as opposed to going to a protracted bear market, but in terms of my trading, I don't really care if this is a bottom because all I know right now is I don't have my setups and there's nothing for me to do.

And that candle is one crazy-looking candle right there. Um, you know, who knows? That's a lot of short covering right there; there's a lot of volume that came in, but it's also a very crazy candle. There's no way for me to enter. Most of the charts look like that now. In fact, I was looking, you know, looking for what I had been seeing. Relative strength in cybersecurity had a good day today. Cybersecurity had been strong recently, so I was, I was already looking at Zscaler and uh, PNW, Pan W, and Pan W broke up through this level today. And this is a big day; I'm paying with it. It makes sense for cybersecurity to have strength today, so there's that, right? So this, this may not just be short covering; it makes sense in a world where there's, you know, active war taking place, um, and, and you know, the heightened geopolitical issues going on for cybersecurity to make a run here. So this may be real; I have no idea, but I can't enter on this candle. I need this to tighten up, you know, maybe this pulls back, has an inside day. This could have an enormous day and still be an inside day. Um, so I need range contraction in a big way here. This is not a candle I can enter on, um, for what I do.

And, and a lot of the names that were showing relative strength, you know, took these nose dives and have these big huge reversal candles. That's what you're seeing out there right now is these huge, huge range bars, and I just, I can't get in. I personally, you know, can't get in on that. I need, I need range contraction, as I was saying. So, you know, much tighter candles like we're seeing here, you know, things getting tight here on moving averages, right below a pivot; that's, that's a setup. Yeah, I, I kind of think of it as, you know, going back to my like engineering routes when you add, um, an impulse to a system and you see the response, what, what you want is after that big volatility, you want to see contraction, contraction, contraction. And from that contraction, as we know the markets comes out expansion, what's, what we've been talking about. And right now we're not out of that huge volatility, and until we see that, um, it's gonna be hard to, you know, have confidence in the setup. And I think having that confidence is really important, and having that tightness is really important because it allows you to manage risks more tightly and size something more significantly, so it actually, you know, moves the needle if it works in your favor. And exactly, you don't have that confidence and you can't manage risk tightly, you can't take large positions because if we get a gap down, you know, two percent tomorrow, something else happens, news related with Ukraine, inflation, you know, all these news events, uh, you're, you're gonna take a hit to your account that, you know, you shouldn't have because the environment wasn't quite right to size quite as much as you did. Exactly. So yeah, so I think having, having those tight setups is important because it allows you to size in a way that makes sense for the environment that's actually going to make a difference in your performance. Yep. And I mean, sizing huge in a volatile market is, is a risky index speed for disaster, right? Yeah.

But for people who may be very brand new, I'm just gonna throw up this, um, you know, risk reward tool on TradingView, which, you know, every platform basically has. So let's, let's say you enter here tomorrow, let's say you're, you're excited about this reversal candle and you're, you know, you're convinced this is going to make a quick move up and follow through. If you're trading the daily timeframe like I do, a reasonable place to put your stop is the low of the day. But I mean, that is so ridiculously far below, uh, your entry that to get a decent return, to get a three-to-one return, price has to go all the way up here. So that's just the visual, you know, for people that are new. I know people that are more experienced are like, I know all this, but this is just an example for people that are new of a poor risk-reward ratio and why you would not want to enter on a huge candle like that. Now you could say, yeah, but I would take an intraday kind of stop and I'd move my stop up here. That's fine; that's not what I do, but that would improve your risk-reward ratio if you want to take that trade. I wouldn't take that trade in this type of volatile market because more likely than not, like this, this range expansion is not going to get smaller tomorrow, um, and you're gonna, you have a high probability of getting taken out. Um, so what I would rather do is look for a day like this back here, enter right around this level, which is definitely something I would do, put your stop at the low of the day here, and then you've got real room, you know, to make, to make that trade work. So that's, that's just like the, you know, the nuts and bolts of why I look for, for range contraction and, and look for tighter days to enter, so your risk-reward proposition is, is where it should be. Um, you, if you can't set a closed stop, you've gotta, you've got a backwards risk-reward proposition, basically. Yeah, perfect.

And, um, yeah, we've talked about the volatility contraction, but I'm also curious because you kind of take a top-down approach, sector, industry group, then the stock. What are you looking for in terms of overall sectors shaping up and overall industry groups shaping up that would indicate to you that, you know, the environment's actually changing? We could have a sustainable rally that could be good for my process. Yeah, in terms of sustainable rally, that's kind of a separate, separate story because right now I would consider all this to be a counter-trend rally, and, um, I wouldn't be looking for relative strength necessarily in a counter-trend rally; I'd be looking for a relative strength on the way down, um, and I've been doing that. So, but what I do is I'll take all 11 spider sectors and chart them out. So this is, this is just the simple bare-bones way I'm looking for sector strengths, right? And, and these are, these are ugly charts right now; these are very ugly charts. Um, we did have this, this crazy day today on most of these charts here, but for the most part, these have broken long-standing downtrend lines, have taken out January lows, broken diagonal and horizontal key levels, um, and that's what these charts look like. But let's, you know, should these start getting healthier, let's say industrial is here, which is up next, should this, this broke down today, should this start getting healthier and start pushing up here, showing relative strength, and I would dig into the industrials, um, I would dig into some ETFs and just look at what's going on with industries within the industrials and look at what charts are leading that strength and start, that's where I would hone in on when I talk about finding relative strength from, you know, the sector down, the industry down to the name. Um, so that I'm, I'm always looking at these recently. It's, oh, it's, it's only really been energy that's been outperforming, um, so, and that's, that's a whole separate topic because, um, it's just such a volatile industry, um, and sector. Um, but this, this is where I, you know, been fishing lately if I'm gonna take long trades because this has been the outperforming sector, so it's as simple as that, um, and, and I go from there. But I, I chart all 11 of these on a, you know, like an ongoing basis. Like here's, um, healthcare; I'm not a big fan of head and shoulders, but that's one's just staring you right in the face, so I'm not looking for relative strength there. Um, consumer discretionary, same kind of idea; this, this huge uptrend that broke looks a little bit like, you know, that bear flag and IWM. Um, yeah, this is not what I want to see right when I want to see relative strength. So, but there are, you know, I remember very clearly in this area, this was when I was really fishing in the consumer discretionary, um, sector because this was making a clear breakout to all-time highs, and this was at the time the leading sector, so that is something I was absolutely looking forward to make, uh, plays in there. And then, you know, you just dig in. When I see a sector setting up like this, you know, maybe this is like doing my weekend homework, and I see a sector setting up like that, and I'll spend some extra time looking at, you know, what the heck's going on in that sector, what's, what's really pushing, making that move happen, what could benefit most from that move. So that's, that's going back to the beginning of the presentation, like how I operate. Yeah, it's amazing flipping in between these sectors and then looking at XLE, and you can clearly see it's been the index, you know, that the sector that's been working in this environment, just, just looking at the chart in one glance, it's above the key moving averages, acting well. Yeah. And I think, uh, let's see, there was, I'll put up an example of, um, you know, some of the things I was talking about earlier because may as well, uh, show some of the ideas. Um, this was, and this was actually an options trade. So here's, you know, a base; I would definitely call this a base. This is not the biggest base in the world, and this is not a, you know, 18-month base, but this is definitely the kind of base I'm talking about, right? So we have here, you call it cup and handle, you know, whatever you want to call it; I still call it mainly, I don't, the names really are largely meaningless to me honestly. Everybody wants to call things different things, and we've all learned the names, but to me, this is downtrend line compression, right? So here's this downtrend line; it's a near-term downtrend line, and here's the compression below it, and that's what I'm looking for. And this set up nicely on the 50-day, 20-day. Yeah, I have a 9-day right here; it set up nicely on the moving averages, decreasing volume here, you know, all the things that I want to see. So these are, this is like a nuts and bolts setup, and I actually did play this with, with options here because, like I said, for me to get really tight here on Apple, I'd have allocated, and Apple has, you know, tremendous, uh, volume and the options change, so played this for a nice move. And this is the type of thing I'm looking for. So this was a real quick swing that was definitely, that was actually a day where like the big mega-caps were running; I think Amazon was running the same time, um, but that's, that's an example of the type of bread and butter, you know, setup I'm looking for, um, and there, but there's a, it's all based on range contraction, like I said, and relative strength. So I wouldn't, like, to set up nearly as much if it was way down here below the 200-day, right? Um, so I want strength, you know, so all those names now that are below the 200-day, which are, you know, a huge amount of them, it's just not, it's not fitting my style right now, so I'm taking a back seat and I'm watching. But you know, the market can change very quickly, and we can start having setups like this again, so that's why I stay engaged. I flip through my 700 or 800 charts a day, more on the weekend, and you just want to stay engaged so that when the time comes again, you're ready to execute. Absolutely.

And one thing that I want to ask you because I always get questions about it, um, is offensive sell rules and kind of selling proactively to try to, you know, keep your confidence up, be able to play a portion if it's the right environment for a longer move. So I'd love to hear your thoughts in general about when you decide to sell a stock and also some, you know, aggressive selling techniques that you use, if you, if you use any at all. Um, so like, for instance, here, I definitely sold some on this first breakout day, right? Because it was, it was these were options, so this was definitely up 100 at that time, so that's one times risk for options for me because my stop is at zero, so my, my one R doesn't hit until I'm at 100 percent, uh, again on options. So I definitely sold some here, like per those rules that I have, um, um, and then, and then I take, I take more out as we, we move along. But if I don't take that first partial, I know for myself what I'll do is I'll end up taking the whole position off sooner than I should. Um, so for me, taking that first partial is what allows me to ride this a little bit more. Um, now in terms of being aggressive with it, like if we're in a super choppy market, I'll take, I'll take more off than, than a third or 25 at one R; I'll take more off. So 2021 was like, you know, a brutal class in doing that, um, so for half the year, I definitely did not get aggressive enough doing that, and I fully recognized that. And then as the year went on, I started getting much more aggressive and taking more off at one times risk and because that was, everything was reversing. So I think in terms of your question about do I get aggressive with it, if we're in a market like 2021 was where, you know, it seemed like every breakout was reversing, it's not the truth, but it seemed that way. You got to just take more off the table when you're, when you're in the money and, and be happy with it versus 2020. 2020 where things were just, you were losing money if you didn't let your trade run, you know, you were, you were, you were not being aggressive enough if you weren't letting your trade run. So it really has to, it really, there can't be one simple rule applicable to every market environment, um, so you have to know how you're going to tweak, how you're going to tweak your style, um, in the, in the different markets. So, and going back to Mark Minervini, which I like to do this, this time around apparently, um, in one of the interviews, I, I wasn't one of your interviews actually, it was a tweet, um, and he talked about how he handled 2021. I mean, the guy made 300 on a million-dollar account in 2021, right? So like, impressive to say the least, right? Um, but he said what he did was he was trading like an animal. I remember he tweeted that, and for me that seemed like sort of incongruous with his style, um, because his style doesn't strike me as trading like an animal. Well, what he was saying is, I adjusted to this market, and that's what it, that's what it needed for me to win this competition; that's what I needed to do, right? So, um, I think you have to adjust to the market, and that was, that was just something that came to my mind to somebody who, who really figured out quickly how to adjust to the market. I definitely didn't in 2021; um, I didn't adjust quickly enough, but, um, I think you, you adapt your rules based on the market environment. Yeah.

And, um, one way that, you know, I've seen people post and, and I think it's really helpful to keep in touch with kind of what the current market environment is is looking at your average gain over a certain period because then you can kind of get, get a sense of, you know, how long are stocks working when I, I do buy my setup. Is that something you look at at all, and, and you use that to kind of, you know, as feedback for your system to then, okay, I got to take profits a little bit more quicker, more quickly, I should take more off at 1R than I usually do because we are just in a choppier environment. Yeah, definitely, but that goes back to like the feedback of your account is the main thing, and I think that's what, that's what you want to focus on. So, um, instead of doing like a post-mortem on every single trade, I will look back, you know, on the weekends or I'll go more in depth once a month at the very least, um, and look at the ratios, and those, those key ratios will tell you a lot. So like, if my, you know, if my winning trade is, is being closed out at, you know, like 1.2 R or something like that, I know things have really changed, right? Because that's not the goal; that's not how I'm going to perform well. And you have two choices at that point: do you raise your stops even tighter so that you can, you can change that risk-reward ratio or do you just, or do you, you know, take more off at one, at a higher level, be more aggressive taking it off, um, but that, that analysis period of looking through your metrics is the, the key decision maker for me, and that, that again, it ties in with progressive exposure. You want to get bigger when, when you've got traction. Like if I see trades that start to blow out to, you know, three, four R, you know, a couple in a row, that, hey, it's time to size up, you know, and if the inverse happens, time to, to pull back. Sounds good.

And I've recently kind of been experimenting with kind of a, a new chart layout, which is much more darker theme, then I got tired of just staring at a, at a pure white screen; I was like, ah, this does hurt my eyes, uh, so I'd love to hear your thoughts on overall, like designing a chart layout, um, how did you basically get to this end result, uh, that we see on this chart? Yeah, so I, I think I told you before I was an architect in a previous life, so I'm a bit of a design dork, so I put like way more thought into this than probably the average person does, but this, this particular thing is just gradients, and it comes from StockCharts initially, which is what I used a billion years ago, had this, this background called Sunset; it basically looked like this, and I just really liked it. Like TraderStewie uses it; lots of people use it. So I basically just used this, if you're talking about just purely graphically looking at it, um, this is just easy on my eyes. But you know, in terms of, um, the effectiveness of it in terms of getting the message across from the market, right? What I, what I definitely focus on is price; I try to keep everything else kind of background. I have Bollinger Bands on here in a really light cloud because that in my brain just shows me where like the standard deviations are. I don't use it as a signal at all, but like, it just helps me understand field position. And then moving averages, I definitely value the, the input of moving averages because it's an obvious trend indicator. And the, the reality is, and I think Brian Shannon went into this too, years and years and years ago, there's so many people looking at these moving averages and so many algos on these moving averages that I think you're sort of doing yourself a disservice not to be looking at what everybody's looking at. So I definitely keep an eye on it. Like if you have a setup like this on these moving averages, you know, how many more people are gonna get fired up because this is sitting on these moving averages than if you had those off your screen. So I definitely keep those there. And volume is obviously a must. I only keep RSI on; this is like a real throwback because I really hardly ever use RSI or even look at it, but that's, it's actually the standard StockCharts configuration when you open up your account, and I've had just literally had it on my, my screens for like 20 years. But the only time I do pay attention to it is when you have a major divergence, like in this chart, you know, Apple here was making a new high here while RSI was making a new low, or not a new low, but making a lower low, um, so a lower high. So that's the only thing I use occasionally, just as like extra information, but I definitely don't use it. The only thing I use as a trading signal is price. Perfect. I don't know if that answers your question if you were talking more about aesthetics, um, but you know, I, I have actually used Optuma recently, which I recommend to anybody that, you know, I have no affiliation with them at all, but I took their CMT courses and have used the platform, and it's extremely powerful. And just talking about aesthetics, I think it's really cool; they have a dark mode that's very cool. Um, so plug for, plug for the Optuma guys; they're, they're, they're good, and that platform is really powerful. Perfect. And that definitely did answer my question.

And, um, since we've talked about kind of keeping things simple and, and focusing on the price, um, is there a mistake that, uh, you see a lot of traders making on Twitter or, you know, you, you yourself made early on in your career about keeping things simple, uh, that you think would be kind of worth sharing at this point? Maybe it's something, you know, you struggled with for a bunch of years, um, you know, in terms of adding too much complexity into your charts or into your process? I just think it's like anything in life where you have, if you have too many inputs, you're going to have a really hard time making a decision. So you may have a different view of how the market works than I do, and that's cool; I mean, everybody does; everybody can focus on something else. You may have this amazing system, you know, that's based on, on some indicator that I don't have at all, but I guess all I would say is stick to that indicator, you know, like, make your decisions based on as few inputs as you possibly can because it's just like anything else in life. If you are, if you sit there and put on the news and you're trying to make a decision based on all that information coming at you, I mean, good luck, you know, um, and you need to narrow, you need to narrow down your focus, focus so that your decision-making process is actually valid. Um, so I think the only thing I would say is just, you know, focus on one or two or three key elements at most. For me, it's price; second is volume, uh, but honestly, I don't look for volume confirmation on everything at all. I know some people it's like a religion; for me, it's definitely price, and I could show you a million.

Moves that move without volume, etc. But second for me is volume, and and you know, I definitely, I definitely am looking at the moving averages. But for my main focus, decision-making is price. So I would just say for anybody, decide what your focus is and hone in on that as opposed to splitting up your attention. Yeah, and I, I think that goes also with um, and you might have been inferring to this as well, like uh, focus on just a few select setups. Focus on just one style, because then, then you learn the nuances of what, what to look for, which of each of those setups that can be, you know, over time. If you, if you trade the same, same setup for five, ten years, you're going to be really good at noticing the little things that can make a difference in uh, it being a trade you really, you know, are focused on or, you know, it doesn't quite look right to your eye based on, you know, all those uh, test samples that you've trained your brain on. So I think that's super important. That's a really key phrase, "doesn't look right to your eye," and I think, you know, lots of people pick up on, lots of people talk about it that way.

Um, so like for instance, this setup, you know, right here, like I've stopped on this chart instantly as soon as I looked at this and I'm like, I've seen this, this is, this is the way I want to see this, right? And so I knew I wanted to execute this. Um, and that's my wheelhouse, and this is, this is what I've done for years and years and years. So this, this is when I want to participate. But for instance, let's say here, this is a hammer candle after three down days. You know, clearly makes you think there's a mean reversion play there, right? But that is not my wheelhouse. That's just not my thing. This is not my setup. I would not stop on this chart on this day and say I want to get in on this. But there's lots of people that do, but you need to find that one thing to specialize in, and and jumping from one to the other um, is the exact opposite of specializing. And I think for people that, to you know, one of the mysteries is how do you train your eyes, and I would suggest just like find some charts like this and mark them up. I know everybody does it, um, but you what you can do is also, there's, you know, lots of software programs where you can go back and kind of go through day by day as if you're, it's like training mode, you know, and training view definitely does that with the recap replay up here, um, and mark it up that way as you're going through it. You know, put the time in to sit here and go back a year and go through each of these candles as if they're happening new and mark up the chart that way. And then you'll get to a setup like this where it's, it's actually forming like this, and how are you marking it up? Like, where are you putting these lines? What are you seeing? That's how it's really happening. You don't see it in hindsight, you see it here, you know. So that's, I, I recommend honestly putting time into doing stuff like that. Um, it may seem like kind of a rote manual labor kind of thing to do, but that's how you train your eyes to, to see this stuff. Perfect.

So Matt, thank you so much for going through all those charts and walking us through your process. Um, and to end things off, I'd just like to kind of ask you, do you have any general advice for traders who have been kind of chopped up in 2022, 2021 as well? Uh, it was a more difficult year than certainly 2020. Uh, yeah, just any kind of general advice on ways that they can kind of find the right path and focus on what to improve on? Yeah, I think now is the year, if you haven't already, uh, learned patience, this is the year to really learn it, um, and really incorporate it into your plan. It's, it's not, it's not, it's not something that's optional. It's, it's an absolute necessity if you're going to have longevity. And I would, I would add to that that the patience means your time frame in the market as well. So don't think of your, your participation in the market as this year or next year or the next five years. Think of it as a lifelong participation in the market and employ patience, because that's what this year is teaching you is that you need to be patient. Um, 2020 was an anomaly, and I think a lot of traders got in that year and got really excited by it, um, but that, that, that's not the way trading works on a regular basis. And so this year and last year, teaching you patience, and I would, you know, embrace it is what I would say as opposed to uh, thinking it's a, it's a character flaw. Like I was saying before, embrace the fact that market environments are not all the same. And you're again, another, mark, minority quote, I think he just said this the other day, is that if you, if you have a style, um, and you're unable to stop training when that style is not in favor, then you don't have a style, you have an addiction, you know, and and that's just a great way to say it. Like if you, if you have a plan that you've really worked on and and built up, um, and when that's, when that plan is not working because another, you know, day trading market is taking place and your style of trading is not in favor, if you just simply can't wait, and you don't have a style, you don't have a plan, you have an addiction. So I would just say incorporate patience as part of your plan and understand that that's, that's a necessity. Perfect. Uh, Matt, thank you so much again for your time. I hope everybody who's watching this enjoyed it. If you did, please go ahead and leave a like down below and subscribe if you're new to the channel. And uh, Matt, um, I'll have the link to your Twitter down below. Is there any other place who uh, for people who to reach out to you if they want to learn more about your process or ask you any questions? I think Twitter is the perfect place to do it. So a link to that is perfect. Awesome. Well, thanks again, Matt, and thanks again for watching, and we'll see you guys in future videos. [Music]