Transcription
Chat with Traders, Episode One: The Biggest Secret of the Best Traders in the World
The biggest secret of the best traders in the world is that they're just like everyone else. However, they've worked hard to learn the markets and discover what works and what doesn't. But how can you hear about these journeys and get in on the strategies and tactics they use? You can do it by listening to Chat with Traders. Here's your host, Aaron Firefield.
[Music]
Hey Traders, welcome to the very first episode of Chat with Traders. I'm your host, Aaron Firefield. Man, I'm so glad to finally be launching this podcast. I originally had the idea for this around, I don't know, the halfway point of last year, and now we're a few days into 2015. But I wish I could have had this to you sooner, much sooner. But better late than never, right?
Like I mentioned, I'm Aaron, and I'll be your host from here on in. So, so to give you a rundown on who I am and why I felt the need to launch a podcast for Traders, I'll tell you a little bit about myself. So I've just turned 24 and I'm living in Brisbane City, Australia. Late 2012, I embarked on a journey of learning how to trade. It started with a little curiosity but quickly escalated into a mild obsession. I saw trading as an opportunity to create serious wealth without being tied to any one location; not to mention the small amount of startup capital required, minimal ongoing costs, and best of all, no exchange of time for money. For me, trading just ticked all the boxes.
After an early run-in with technical analysis, I could see the logic of trading patterns and trends; therefore, this was the path I moved on. I knew this was something I could learn, but I also knew to do this well it was going to take a lot of hard work and determination. Not one to shy away from a challenge, I began building my knowledge on how to read charts, in particular studying the methods of 1900s Wall Street legend William J. Gan. If that name doesn't ring a bell, Bill Gan was essentially a swing trader with a big focus on repeating ranges of price and time. During this time, I opened a $5,000 account and have been reasonably active ever since. But the truth is, I haven't seen great success—well, not yet anyway. But because I've developed this passion for trading, I haven't been discouraged by this. If anything, I'm more determined to make it work. In fact, that is partially my reason for launching this podcast. By interviewing successful, consistently profitable Traders, I aim to fast-track the learning curve, not only for myself but every other Trader facing similar challenges.
While that's the big one, there are another few reasons why I launched this weekly podcast that you should know about:
One, this platform gives me the ability to personally connect with Traders just like you. So if you would like to connect or just say hey, that would be really cool. Catch me on Twitter; my handle is @chatwiTraders, or just shoot me an email: aaron@chatwitraders.com. That's aaron@chatwitraders.com.
Two, hearing about the journey and stories from proven Traders are inspiring, insightful, and show us what is really possible.
Three, this podcast is an ongoing, free, and valuable resource that I truly hope will help you to continually learn more and grow your account.
Four, through the podcast, I hope to attract a trading mentor who can see I'm serious about, as Steve Jobs would say, making a dent in the universe.
So I think that sums it up pretty well. As you can tell, this podcast is undoubtedly targeted towards entry-level Traders, and I hope this will soon be considered as a staple for your progression. On the other hand, I also aim to entertain the veteran traders who understand the greats never stop learning because, as we know, the market moves money from the hands of the uneducated to the educated. So stick with me as I deliver in-depth interviews with the ones who have learned how to beat the market as they reveal their journey of ups and downs, top trading advice, and open our minds up to new strategies and winning tactics. And I also promise to mix it up. You'll find some guests I have on are very well known for what they do, and some will be underdogs—those who are undoubtedly killing it and have a lot of knowledge but not necessarily in the spotlight.
To make sure you never miss an interview, there are two things you can do: The first one is go to chatwitraders.com, subscribe, and enter your email. This will get you onto my mailing list, and I'll send you an email each time a new episode goes live, which will be every week around Wednesday or Thursday, depending on what side of the world you live on. Generally speaking, these interviews will range between 35 to 50 minutes. Today's is a little longer just because of the intro. But secondly, you can also subscribe to the podcast on iTunes. While you're there, please leave a five-star rating and review. That would just be incredible if you could, and it will help us to reach even more listeners. And for every episode, there will always be show notes available at chatwitraders.com. In the show notes, you will find a brief overview of important lessons and takeaways from within the interview, plus any links and resources that might have been mentioned.
Now it's important I say this, and this applies going forward too: I want to hear from you. I want you to tell me what you like about this podcast and what you don't like. If you feel there is any way this could be better, or you want the answer to a certain question, or if you think someone would make an awesome guest for the show, please tell me. Your raw feedback will help me to deliver better interviews and essentially better value to help you. I know my interviewing skills are a little rough around the edges right now, but understand I've never actually interviewed anyone before now, so it's something new for me, and it's also exciting. But I promise I'm quickly getting better with each and every one I do. However, your feedback will be genuinely valued.
Right, enough of me rambling. Let's get to the meat of this episode and the reason why we're all here, and that is to hear from today's guest. He's an active Trader, author, serial podcaster, and the founder of FTM Daily. He is Jerry Robinson. Jerry takes us through his early experiences of trading and how he got started, then leads us into how he trades and shares what works for him. We also discussed specifically the things entry-level Traders can do to improve, with the experience and success Jerry has extracted from the stock market over the years. He was the ideal guest to launch with. I found Jerry gives a lot away in this interview and was really open in the way he answered every question, so I encourage you to listen closely and absorb what you're about to hear. Again, I'm Aaron Firefield, and this is Chat with Traders. Here is today's guest, Jerry Robinson.
Hey Jerry, thanks for making time to come on the show. It's really great to have you here.
Yeah, it's great to be here, Aaron. Thanks for the invite.
No, you're welcome. So now we came to hear how you got started and uh the reasons behind it. So tell us a little bit about about how you got into trading and what was it that appealed to you.
I was really young. Um, I was in my very early 20s, uh, whenever I first got started trading, and I was working at a my very first corporate job. I had a friend who was a Trader. I mean, he was a, you know, a Trader. I mean, I I think he was brand new at it, but he was doing really well. He had kind of developed a system where he was using uh moving average crossovers, or he was using uh I think he was also doing price over moving average crossovers, and and uh he was really happy. And of course, this was the late late 90s. I mean, mid—it was like 1997. So you could throw a dart and make money, you know, in the stock market. Um, and so I really got excited when I saw him making money at trading, and I thought, gosh, if this guy can do it, I know I can. So I started uh studying a little bit about trading, read some books on it, uh got really excited about trading, and then I jumped right in. And as I mentioned, we were right here at the end of the 1990s, so stocks were going crazy; there's a dot-com bubble. And so I started making really good money, and uh, you know, I thought I I kind of developed an Adonis complex. I didn't think I could lose money, and uh, you know, I had some moments where I did lose money, and when I did, it really hurt. It wised me up, and I think you you really aren't a Trader until you've had a really bad loss, you know. You've got to be a—and I don't suggest that everybody go out and lose money, but what I mean is is it's almost your tuition on Wall Street. You're going to have to lose money—money. And you know what? I still lose money to this day, uh, 17 years later, Aaron. Uh, I think most people, certainly at least in the blogosphere and when you go out and you look at some of the different trading services and whatnot, they tend to play that down. They they play it down. They really talk about how much money you can really make in trading, but they fail sometimes to mention to you that part of making that money is losing money. And so uh, you know, losing money was a real big important step I think for me. Um, I got started like like I said back in the mid-1990s, and um, I haven't ever looked back. I mean, there's been probably periods in that 17 years where I haven't traded as regularly uh as I do now or did at some points, but uh, yeah, I absolutely love trading. I think it's one—I think it is probably the best business in the world.
No, I like that great answer. So when you got started, how did you—what were sort of your first steps? Did you immediately open a trading account and just dive right into it, or did you start paper trading? Did you build your—
No, yeah, I recommend people start paper trading. I didn't. I just jumped right in, both feet, with a Scottrade account. I didn't have much money though. I only had I think like $700 when I opened my account. And so, you know, I had very little money to get started, uh, lost half of it, you know, pretty early on, but uh, but then started making money. And yeah, so I started with Scottrade. I I still like Scottrade. I still have an account there. Um, I use mainly today—there's a couple of different brokers that I really like. Interactive Brokers is a really good one. It's nice and cheap. I mean, if price is really your big thing, Interactive Brokers is a pretty cool place. Um, E*Trade—E*Trade is really expensive, but you know, it offers you, Aaron, it offers you access to so many different international markets that you can't normally get access to through most platforms. So if international trading is important to you, then E*Trade, you know, offers a really cool thing like that. Uh, but yeah, I got started with Scottrade, just had 700 bucks, and uh, you know, it's amazing uh what you learn over the years and how you can turn a small little measly amount like $700 into, you know, parlay it into a fortune. And I mean, I think that's what many people think of when they think of trading. They they know that it's a level playing field; anybody can succeed uh if they apply themselves, and you don't have to have a ton of money to do it. Uh, you just have to have a little bit of money and a lot of drive and a little bit of knowledge.
Yeah, well said. So um, what would you say with some of your, you know, your your main early setbacks or failures? Like what sort of things did you find yourself struggling with in your in your early days?
Uh, well, I tell you what happened uh initially to me was I would start—when I first started trading, I I mentioned I didn't paper trade, so I would just go ahead and trade a stock and not really knowing what to expect. And the first thing that I—first lesson I learned really hard was not to listen to other people's ideas. Now I don't mean informed Traders. I'm talking about the average person at work or a co-worker or, you know, an uncle at the Thanksgiving dinner, you know. I mean, you just want to avoid taking those kinds of stock picks from people. Also stuff on TV. I mean, you listen to some of the stuff on TV and you hear different things, you know. I I think it's really important for people to have a system, and most people don't, and that's why I think most Traders don't succeed is that they don't really have a set of rules or parameters that they stick to. And that's one of the hard lessons I learned early on, Aaron, was that you just gota—you've got to have a system. You just can't take stock picks from people. Now uh, if if your system generates the stock picks, well then that's a whole different story. I mean, that's what we've created, you know. We've created a system that I've been using now for a long time, and it generates uh stock picks based upon those parameters, based upon those rules. And if you have a system like that, that's one thing, but if you just got an uncle, you know, like I said, sitting at the dinner room at the dinner table telling you why you should buy this one stock, you know, you've got to do more due diligence than that. Absolutely. You gotta be—gotta be careful who you listen to. Oh, so so important. And that that was one of the hard lessons I learned. And then and then just to go on, Aaron, another lesson was after I lost money in the markets, you know, during that time I noticed that I had a hard time pulling the trigger. Um, so I would—at first I was gung-ho. I just jumped in, both feet, you know, put my money in, started going real crazy, made some money, lost some money. But after I had a good loss one time—was I think it was like 19—late 1997, early '98, had a pretty big loss, and I I failed to put my stop-loss order in where I wanted it; didn't fully understand how they worked. Uh, it it gapped down, and my stop-loss didn't even, you know, matter at that point uh because it was a stop-limit order—long story—it it ended up really hurting me. And after that, I had a real hard time just jumping back in like I did. And that was good in some respects because it caused me to think about things before I jumped in, but it also kind of paralyzed me. And uh, that's one thing you can't have as a Trader. You can't uh second-guess yourself. You've got to have a system, and you've got to work that system, and you can't be afraid, you know. And so I think overcoming the fear of actually putting that money into the market and just trusting my gut, trusting my system, trusting what I was doing, you know, that took a little bit of time. I know there's people who've been trading for some time who still have that problem, you know. They have a hard time pulling the trigger because they're fearful that they may lose money, and you've got to overcome that.
Yeah, I think there are some really, really good points uh you make, and I'd like to sort of dive into those a little deeper um in a little bit, but um, I mean, you're obviously doing quite well with your trading now, but before you got to that stage, was there ever a point in your journey when everything just clicked and you just sort of knew that you were going to make a success um trading, where you knew you were on the right track and doing something really well?
Yeah, I think so. I mean, I I think, you know, it took a long time uh to really develop and hone down a system. I use techn—uh, analysis predominantly uh to find my entry point. I use fundamental analysis to usually sort out the stocks that I'll actually put my money into, but then I use the technical analysis to filter them down and figure out, okay, which one is the right one to enter right now, right? Because you may have a universe of great stocks, but but knowing when to buy them is the key when you're a Trader. So I use technical analysis to do that, and technical analysis uh at first was intimidating to me because I didn't like math. I never was a math, you know, fan. And as I st—I looked at charts, I just had kind of a fascination with them, began to study them. And yeah, there was a moment, Aaron, where it clicked where I was—I still do this to this day—when I first got started, I would print out charts of the stocks that I wanted to trade and the stocks that I did trade, and I would go back and I would just literally draw on them. I would draw trend lines on them. I would try to find, you know, here's where I bought, here's where I sold, and then I would try to figure out what happened on the chart that I lost money or what happened on the chart that caused me to make money. And I think after doing that for about a year, um, I really began to feel confident. The other thing that I did was I really began to focus upon—as my account balance grew—I mean, this is hard to do when you have a small account balance, because when you're just starting out like me, whenever you have just like $700 and that's all you've got, you have to hit a home run on every stock, so you have to take these wild, you know, um uh risks in order to make money, otherwise you're just kind of spinning your wheels paying trading costs. So I think when you don't have very much money, uh, you know, you're more prone to take a lot of risks. But as my account balance grew, I began to focus instead on uh more blue-chip stocks, stocks that I could buy, Aaron, and then go to bed and not worry about waking up the next morning and finding out that they went bankrupt, you know. So I started focusing on those stocks mainly, and then what I did was I really began to focus in on just a handful. That way I would know when something was different about the chart. So I I boiled it down—there for a long time, all I was trading was three stocks: I was trading BP, uh, oil company; I was trading uh Altria, uh, ticker symbol MO; and then there was another stock, I think it was—no, it was at the time it was TV Guide. I don't think they're—they don't—they're not around anymore in that same form, but it was TV Guide or something like that. Well, anyway, I just traded those stocks, and I looked at their charts every single day, and I would notice that if they opened up in the morning that they would, you know, that the stock would do some something, and if it opened down in the morning, there was a 60 or 70% chance he would do this later in the day. And so I just came to know those stocks real well. I knew their charts, I knew their behavior, I knew their volume levels, I knew when volume was unusual, so I could take advantage of that. And that's really when I started to really get my stride. And I think that all Traders go through a process like that where you first start out and you're willing to trade anything that moves, anything that'll go up, just let me trade it. But after a while, you realize that that's kind of a losing game in the end. You've really got to develop a niche, or you've—you've got to develop a uh a strategy, or we talked about earlier, a system that works. And for some people, that's just honing in on a handful of stocks or maybe a certain industry. I have a friend who just trades cloud-based internet companies; that's all he wants to do, and he and he knows those companies, and he knows which ones are the best, and he likes to trade those. I have another friend who only trades energy, and not even energy stocks, just oil and natural gas; that's all he trades, and he knows those markets very well, so you know, he can make money at it, but he but he can't really trade some other stocks. I mean, he knows how to trade, but he probably wouldn't be as much of a success had he tried to just trade stocks. He focuses upon one or two things and does it really well. And that's the beauty of trading: You don't have to be a master of all of these different stocks and know everything; you you really just focus on a handful of stocks or maybe an industry or a sector and just really become good at it. And anybody can do it.
So that's something you would suggest to sort of pretty much every entry-level Trader is just to pick a few stocks and get to know them really well before sort of branching out and sort of putting their hands into a whole lot of—
Yeah, but but you know, I don't think that's realistic. I think most people need to kind of have that wild experience at first where they kind of just get out there and they just, you know, kind of—I don't think it's natural to start that way. I think they should kind of have their normal, you know, natural entry into trading, but I think over time, if they've been doing it for a little bit of time, I think that's the wise thing to do. It's—now it's pull back. Now let's take some of that knowledge that we've learned, and let's begin to apply it to specific stocks or specific sectors. And you know what? Be like Warren Buffett and focus on what you know. I mean, if I was working—in fact, I was working at TV Guide um whenever uh I was trading that TV Guide stock, so I knew the company. I knew—I began to watch it, and it began to break into a channel where it would bounce back and forth in a channel, so it would go from like—I can't remember—$48 down to 42, and then as soon as it hit 42 on the chart, it would always go back up to 48. And then as soon as it hit 48, it was like a ceiling; it would come back down to 42. And I can't remember—it was like two years where I just played that back and forth, and then it broke one time, then it went down below 42, and then I had to figure out what to do. So, you know, but that's the kind of stuff that you do when you're focusing upon just a handful of stocks, and uh, you begin to notice patterns like that, and that's where the money is.
Yeah, that's great. So um, typically speaking, before you enter a trade, um, what are you looking for? I mean, are there certain patterns or signals? What are the sort of things that get you excited about um a trade to to get into it?
That's a good question. Uh, well, when it comes to day trading, and I don't do much of that anymore, Aaron—we were talking about that earlier—and I just—I don't do a whole lot of trading uh daily or day trading, I guess intraday trading; it's just too stressful. I've done it in the past. I can—you can make money doing it, but you can make a lot more money—a lot more money if you position trade. Uh, position trading is different from day trading in the fact that day trading you're trying to exploit a minuscule part of an existing trend. I mean, you're just literally scalping profits out of it. Yeah, you can make money, but but uh, for the person who doesn't have a huge balance—account balance—they need a a bigger return in order for the money to make sense or the return to make sense. So position trading is where you identify a stock that is poised to begin an uptrend and you take a position beforehand. Now it's really difficult to do; it's hard to find bottoms, but that's speculative type of trading. Uh, and then of course there's swing trading. Swing trading just simply takes advantage of a position or of an existing trend but for a longer period of time than a day trader does. So I I consider myself a swing trader and a position trader. Uh, I'll give you an example like right now—this is probably, of course—
This, uh, this show will be dated, uh, uh, by the time many, many people are watching it or listening to it. So this isn't really a great example, but I'll just give you an example now. Is that one particular commodity that I'm bullish on right now is corn. Corn has been beaten down so hard on the charts, and by looking at it, I've decided to to take a position in corn for a for about a period of about 12 to 18 months. So that's a position trade. It's it's basically a trade where I say, okay, all of the geopolitical forces and all of the economic forces have driven this uh price down, and I believe that it's oversold, and so I'm going to step in and I'm going to place a trade and I'm going to buy it, and I'm going to believe that over the course of the next 12 to 18 months it's going to be much higher than now. That is not a swing trade; that's a position trade. A swing trade would be uh something where I see an existing Trend; it's going up, and you know a stock is just going up, and I just hop on and ride the train higher. Uh, so a swing Trader sees the train moving and hops on; the position Trader uh sees this the train in the in the station still, and he gets on before it even starts moving. Um, he stands to make the most amount of money if he's right, but swing trading uh is can be just as lucrative if you know to do it properly.
Yes, you mentioned um position trading sort of range between 12 to 18 months; sort of that's the sort of the time you're holding it for. How long would you say you're you're holding a typical sort of swing trade for, just on average? You know, usually uh, I mean, I'd I would say my typical swing trade is anywhere from one week to five weeks, somewhere in there. Uh, usually five, six weeks is about the limit, but you know the truth of the matter is is that lately we've been in this market that just knows no bounds; it just keeps going higher and higher and higher. And so in a case like that, you don't want to cut your loss or you don't want to cut your gains short; you want to let them run. You know that old saying, you know, let your winners run and cut your losses short. Um, so in this environment, yes, typically I'll only hold for five or six weeks, but if the trend is still moving in my direction, I'll just stay in it, and I'll just continue to raise my stop loss. I always trade with with a stop loss; learn that early. You know, don't trade without a stop loss. And so I'll raise my stop loss or use a trailing stop loss, but I'll let the stock continue to go higher. And a lot of those swing trades, by the way, got stopped out in this recent market pullback, and that's okay, you know, because then then it's just time to take more positions. Exactly. Now that that's well said, so um you mentioned earlier um how you sort of these days you're using technical analysis to sort of time your entry uh into a trade and fundamentals sort of give you the reasons for entering that. Could you just sort of share a little bit more on sort of, I mean, I know it's quite a broad topic, but um what fundamentals sort of influence your decision?
Oh yeah, well, you you got to focus on earnings. Uh, earnings drive prices. I mean, it literally is what drives prices in the stock market. So earnings per share, earnings per share growth, growth and earnings per share; that's huge. Uh, so seeing a company that is consistently growing earnings on a quarterly basis, every single quarter, that's what you want to see. Look, uh, you know, you're in Australia; I'm in I'm in the United States. You know, in my country, there's probably 55 to well, if you add in all the penny stocks, there's there's thousands, but there's you know, on just the average US Stock Market, there's about five to 6,000 stocks that are traded every single day, just the regular stock exchanges. And if you look at those stocks, uh, many people are willing to trade any of them. I'm real real picky about what I want to trade, and I think I always encourage uh traders to be very picky. And the way that you do that is you look for strong earnings, right? Not every company has strong earnings, so you want to look for companies that have strong earnings growth, and you also want to look for companies that have strong Revenue growth and profit growth, but also return on equity uh is one of the big factors that I look for. Uh, I learned that from Warren Buffett, not personally, but through a book, and uh uh Warren Buffett uh, you know, talks about the importance of return on Equity. Also one of my biggest uh influences was uh William O'Neal, uh, who started the paper Investors Business Daily. He's written the book How to Make Money in Stocks. One of his primary criteria for a good growth stock is a return on equity above uh 15 to 25%, somewhere in there. So I like to screen stocks out for return on Equity around 25% if possible. Uh, I like to look for earnings per share that's uh earnings that are accelerating, profit that's accelerating; those are the main things that I look for, Aaron.
Okay, that's great. So people who are just sort of um or traders who are just sort of new to the market and that sort of thing, what's the easiest way where they can access that sort of information? H yeah, there's some really great sites for free. Um, yarts.com, why, just just the letter Y; it's an unbelievable uh site uh for free. They've really been kind of locking a a lot of it down lately, but yarts.com, you can go there, and you can graphically see uh every Stock's PE ratio, their revenue growth, their uh earnings growth, the return on Equity; you can just chart it all out, and it's all free, and you can set up a free account there. Um, another great site to check out um for good fundamental growth stocks is zach.com. zach.com uh they actually assign a proprietary ranking to every stock, uh one being strong buy and five being strong sell; it's a scale, and I look for number one, number two stocks at Zachs. So when I when I look at a stock and I'll screen it, I'll typically, you know, find a stock that meets my fundamental parameters, and then I'll check and what's Zach's saying about it and and what kind of ranking does it have in Investor's Business Daily. You can find investors' Business Daily online at in investors.com, and I look at those uh free tools, and I just try to find out, you know, what's the overall analyst sentiment on this stock, uh how's the earnings growth on this stock, uh what are people saying about it? And so I look for that. Uh, those are really great sites: whitecharts.com, zach.com, that's Z-bac.com, and investors.com; those are all some great resources.
Okay, good one. We um we'll put a put links to those in the show notes um below this episode um and we'll definitely check those out. Um, now just moving back a little bit to when you were talking about trading plans earlier, I sort of want to dive into that a little bit more. So I mean, I know a lot of Traders, especially the more experienced ones, also talk about trading plans. So what does a trading plan mean to you, and what should entry-level Traders do to create one?
That's a really good question. Whenever I was younger, uh my grandfather, who uh served in the War uh the Great War, the the World War II, uh told me that it was important when you walk into a room to know the exit, and I always used to think he was paranoid, but it's a very true statement. You got to know the exit when you walk into some place, you know, and I that applies to trading especially. Uh, most people don't realize that you make money when you buy, not when you sell. That is a that is a point that is so important I think for Traders to understand. You have to buy right in order to succeed at trading. It's when you buy, when you place that order, that is the moment where you're making money, because if you buy wrong, you'll know it quickly; if you buy right, you you'll also know it quickly. And so it's important, I think, to know your exit. What's your exit strategy? Never walk into a stock and not know what your exit strategy is. You a good exit strategy has a dollar amount. So in other words, if I buy a stock at $30, typically my own personal trading philosophy is that I don't want to lose more than, you know, 8 to 10% on a stock at any time, under any circumstances. I'm just not willing to; there's very very few instances where I will; the few instances where I'll take a larger stoploss than 8 to 10% is when I make a pretty big speculative move, say on a little Penny Stock, and I'm only throwing a small amount of capital into it. Okay, maybe I lose the whole thing; maybe I'm wrong, but for the majority of my trades, I don't want to lose more than 8 to 10%, and I I stick that in my stop-loss order immediately after I place the trade. So I think having a system uh is part of your trading plan, you know, a I'm going to buy the stock; am I going to buy it on a market order or am I going to buy it on a limit order? Or and then you decide that uh and then once you get in, you place that immediate stop-loss order, and then you decide to yourself, uh, how much do I expect to get out of this? Uh, profit potential is an important part of the equation. Whenever you are uh placing trades, you should know approximately what you expect to earn from the stock before you buy the stock. You have to know that, because if you don't know that, then you don't know if you're making the best decision, because uh part of the reason why we trade is we trade for profit. And if I have four or five different stocks to choose from, I want to choose the one that has the greatest risk-reward ratio, and so I'm looking for the stock that has the best profit potential for the least amount of risk. Uh, so you have to know all that before you jump in. If you're just again, if you're just jumping in because you heard it on TV or because you read it in the paper, that's not a good reason, and you may be buying the right stock, but you may be buying it at the wrong time. So the trading plan really is all about making sure that you have a systematized approach to your trading, and you don't uh buy the wrong stock at the wrong time or the even the right stock at the wrong time.
Yeah, I I think he made some really good points there, Jerry. Um, that's awesome. So I mean, we might have already covered this a little bit, but um we do often see entry-level Traders slipping up, and what would you say to them? I mean, I know you deal with quite a lot of entry-level Traders through your your training and that sort of thing. So I mean, what sort of issues do they face that come up quite regularly um that you say?
I I think probably um probably knowing when to sell. Knowing when to sell. I mean, when you get into a stock and it goes up, right? You buy a stock and it goes up, and you're excited, and you've got your stop loss there, and it's you know, it's up a little bit. Um, I think sometimes new Traders especially, and even, you know, those of us who've been trading for a long time, sometimes it's easy if we don't have a plan to get confused and get emotional. Uh, when the stock goes up 10%, uh we think to ourselves, oh, this is great; well, surely it's going to keep going up, and then it goes back down, and you you lose all your money, that you all all the gains that you had made. So I think it's important that you don't ever let a gain turn into a loss. You can do that through stoploss orders, but I think that's probably one of the things that discourage a lot of Traders is that they don't know when to sell; they're either um too timid or they're too greedy, and that's a really it's a hard lesson to learn; it's it's one of these things that you just have to learn through consistently doing it and using a system. Uh, so again, when I when I enter a stock, I typically have a profit potential that I have in mind, and I have my stop loss, and I know all those things right when I buy the stock, because I immediately place a stop loss order, and then I begin to watch that stock, and if it gets up, let's say that I plan on making 8% from that stock, well, when it gets up to 8%, I'm moving my stop loss up really tight, because I don't want the market to tank the next day, just all of a sudden, and my stock and all my gains that I worked so hard to get, now they're gone, right? Now it's back down to zero, and I'm I'm flush again; that's terrible. And so you want to lock in those gains, uh, and that's why you need to know your profit potential, potential. So again, if if my profit potential on the stock is 8 to 10%, I expect it to go up by that much, then I want to uh watch that stock, and when it gets up to that level, I want to choke up that stop loss and keep it real tight, that way if it does fall back, I I still make money. And um I would say for most new Traders uh that I encounter, usually figuring out when to sell is usually the hardest thing, and uh you can overcome that with the system; that's really what you have to have. You have to know what would cause me to sell; uh what would that be? What are the what are the uh sell signals? And if you don't have any of those, then you're going to lose money, you know. So you got to you got to have some sort of warning system built in that you can refer to um that can be a moving average crossover; it could be uh RSI, uh you know, some something happening in the RSI; it could be it could be a uh castic move. I mean, there's so many different things that you can look at that will give you an idea that maybe it's time to bail on this stock. You just got to have that in mind and have that upfront so you don't lose money.
Great, great. So I've heard you saying um before, and I quote, "Trading can be learned by anyone willing to put in uh the effort and the time." What is it that you believe stops the majority of Traders from making that huge success?
No system; they don't have a system. Uh, they they they are attracted by the amount of money that they can make; they're attracted by the lifestyle that trading affords. I mean, I got to admit, trading is nice; I mean, the lifestyle is very very very good uh when you're when you succeed as a Trader. Uh, you have the ability to work from anywhere in the world. I tell you this is a this is a personal story; one of the very first traders that I met, it left it left this lasting impression on me; in fact, this might be the most motivating thing that drove me to become a trader was I met a he was an older guy; oh, he was probably late 60s, and he was a Trader, and he had a yacht, and he lived on his yacht, I mean, most of the time, by like five or six months out of the year, and he had his uh family, you know, his his wife and the grandkids, and they'd all go out sailing on their yacht and stuff and doing doing things, and he would trade in the first uh few hours of the morning, and he would close his computer by the end of day and he was or by the end of the morning, and he was done, and he would just he would trade like Walmart; he would trade IBM; he had a lot of money, and he would use options and different things, and he would just make, you know, a thousand, $2,000 a day. CU he had a lot of money, and just you know, when IBM or Walmart moves 10, 20 cents, and you have a lot of money in it, you can make a lot of money. So it was very low risk, very low risk trading, and I saw what he was doing, and I thought, you've got to be kidding me; this is fantastic, ftic, you know, because I was working a schob job, and you know, just I just it was not I was not very happy, and I thought, man, I've got to make my life something like this. Well, you know, trading now with all of the internet and you know the computers and everything that we have now, you can do this from anywhere. Uh, you can do it from a yacht, you know, out in the middle of the ocean; you can do it from uh you know from a from a from your house in your pajamas. I mean, SO trading is really really sweet in that respect. Um, people see that, Aaron, and they get caught up by it; they get caught up by that, and they they forget that in order to get there, they have a they have a plan, right? They got to have a plan to get there. And so I think many times people are very excited by The Dream or by the vision of what life could be as a Trader, but they just don't build this the bridge to it, and they take the hard the, you know, set forth the hard work that's required to get there. And again, what that means is when you start losing money in a trade, uh cutting those losses, and then you're going to buy another stock, and if you start losing money again, you cut the losses. I went through a period where I lost money for about a year; it was the worst time in my trading career. I mean, I I could not make money to save my life; it was unbelie, and of course, this is before I had my system too, but still I was very frustrated, and I almost threw in the towel. And I think back at at that time, oh my gosh, what if I had done that? And that's one of the things I tell new Traders is that do not give up. If you really want this, if you really want to succeed, if you really want to have that lifestyle that you have in your mind, you cannot give up; you have to continue, and when you lose money, you've just got to lick your wounds and keep going. But if you stop trading, then it's over, you know; it's over. Uh, now I will say this: if you if you don't have a system, that's not my recommendation to you, because you're just going to keep losing money. Here's the thing to remember about Wall Street: the guys who were on Wall Street in New York City, these guys are smarter than you and me and everybody that we know put together, right? And if they're not smarter than us, they're certainly more uh slippery than us; that's a that's a CO kosher way to say it. They they are with they are; it's a very dirty game, uh trading, and so they see guys like you and me coming a mile away when we come in and we type in we we want to order, you know, 100 shares of a particular stock; they know exactly who we are, and they know how to shake us out and take our money. So that's why it's very important for the average Trader who's out there to to have a system, to not give up, to to understand that he has to have some knowledge, um that he can't do this uh without gaining some some experience and knowledge, and the you know uh Aaron, there's a lot of seminars out there, there's a lot lot of um coaching programs out there, and many of them are thousands and thousands and thousands of dollars. I've never done any of those, and I succeeded. I I'm not saying that you I'm not saying that you you uh can't make money using those; I'm I know you can, but I think when I say system, what I mean by that is that read through many different books, read through different trading books, notice what people use for trading strategies, and start using some of them and find out which one works for you. Um, really sit down and take the charts that you've traded and draw on them; print them out and draw on them; look at them; become intimately familiar with the tools of your trade and just realize that it's going to take time; it's going to take time. I unfortunately, there's been a lot of TV infomercials and websites out there that make it sound like, you know, anybody can make a million dollars overnight by trading this one little stock that you don't know about but I do, so give me money and I'll tell you which one it is; that does not it doesn't work that way; um it just doesn't work that way, unfortunately. You got to have a system if you want to do this long term, of course.
Not that that's really well put, Jerry. Um, now you touched on a little bit there; I sort of like to dive into a little bit more, especially since you've went through that year where you you know lost money consistently, um the emotional side of trading. So how do you manage emotions, and I mean, what gives you the confidence to keep on executing trades after a losing streak? I mean, even just a few bad trades, I mean, it can be hard to sort of push the button and get back in; like, what gives you the confidence to to keep pushing on and and know that your system's working, and how do you know when it's broken?
Yeah, it's a great point. Um, I think what gives me the confidence now is not anything having to do with the stock market. I mean, I you know, from an economic standpoint, I am of the opinion and the persuasion that this Market is completely bogus; I mean, it's all all funny money that's been created here. So I'm not confident in the market itself. Um, what I am confident in are many of the companies that I will invest in. Um, for example, uh the United States of America is $18 trillion in debt; uh that's just on you know, that's the that's the big public debt. Uh, if you look at unfunded obligations, they have $127 trillion of debt; I mean, they're never going to pay it off, you know. And so in my mind, mind companies like Exxon Mobile or um you know or Chevron, these big oil companies, to me, these companies will outlive Nations like America. I mean, these companies are sitting on huge piles of cash; they don't need America uh to sell oil; they they can sell it to anybody who who breathes and who needs it. So to me, I uh I think of these companies and I see how much cash they have, and I realize that by trading these types of companies, as long as I use a system that works, uh I'm going to make money, uh because those companies will still be around, and because I use stoploss orders, uh I also know that my my losses will be limited, you know, if I do have losses. And you know, after trading 17 years, I've only been been uh really a stop loss is really only not worked for me probably; I can count on two hands, um usually from operator error, but a stop but a good stop loss, set properly, will almost always save your hide, as long as it's not some strange anomaly where the price just gaps down something severe. Um, and besides, if Walmart stock or if BP or if Exxon Mobile gaps down, guess what? It comes back. So uh in many in many ways, you don't have to lose money unless you just have to have that capital and you have to sell. So those are those are some of the things I would think of, you know, uh regarding that.
Okay, awesome. So just one other thing I'd like to touch on, and that's um tracking progress and reviewing trades. I mean, is this something you do, or maybe you did it earlier on, and um how important is this for newbie Traders, or is it a little overrated?
Well, uh, I think I think I think sometimes it's it's a little unrealistic to think that you know you're going to have
Enough time to do all of that? But I, I do think that uh, it's very important, and I still do it to this day, as I mentioned, is to always know why you lost money in a trade, uh, or always know why, more importantly perhaps, why you made money.
Um, sometimes when we make money, we'll, we'll chalk it up and just, you know, consider ourselves great and move on. But, but we, but we don't stop to really think, now how did that happen? Right? How did those stars align? How did, how did I make that money? Uh, and because when we lose money, I think we all know we need to figure out how that happened because we don't want it to happen again. But likewise, when you make money, you want to make sure you understand so you can make that happen again.
And so I would say that, uh, probably one of the smartest things that people can do, um, if they're not afraid of charts, and if you're afraid of charts, you know, trading is probably not the best thing for you, because that's really what you're trading. Um, I mean, sure you can trade on fundamentals, and sure you can just trade on some of those things, but I, I think you're really crippled, uh, especially in this market because, uh, again it's so manipulated, so you've really got to see the chart; you've got to see what you're buying, and you got to see where it's at.
Um, so I would say that, um, you know, focusing upon printing out charts, looking at them—maybe you don't have to print them out—but just really pay close attention, draw on the charts, really look at the charts and understand. And I think one of the most important things, the biggest thing that ever happened to me in trading was understanding trends. That was it. You know, all markets, and you know this Aaron, all markets go up, down, or sideways. I mean, that's really all it is. And so when stocks overall, like when the S&P 500, for example, is in an uptrend, uh, three out of four stocks are going to follow that trend. Um, if a market is trending down, three out of four stocks are going to follow that trend. So if you're trying to go long in a market that's going down, you're just, you're, you're, you're giving your money away. And if you're trying to short when the market's going up, you're just giving your money away. So you've got to, you've got to understand trends and ride the trends.
Um, and I think understanding how trends operate, being able to draw a simple trend line on a chart—all of those things, you know, they seem simple, but a lot of traders I've met don't know how to do that. So I think those are some really important things: print out those charts, find out why your trade didn't work by looking at the chart, try to find similarities in your losses and similarities in your gains, and try to learn from them.
Yeah, very well said, um, great advice there. So, um, Jerry, that's sort of bringing us towards the end of the interview, and again, thanks so much for, for coming on the show and sharing so many incredible insights. Um, so let's go to the closing bell, and um, we'll hit you with a, a round of questions we asked all our guests. So, um, the first one would be: what's the best piece of advice you've ever received? Got you thinking, wow, yeah.
Uh, best piece of advice I've ever received, uh, let's see, well, um, probably to, well, you know, I would say, uh, would be to, to follow the money. Uh, you know, if you want to know the truth about anything, you've just got to follow the money. You know, don't pay attention to what people say; do pay attention to what people do. And, uh, when it comes to, uh, stocks, it's the same thing. You know, if you want to know what's really happening in a stock, you know, pay attention to what the insiders are doing, pay attention to what the institutions are doing; follow the money, and you'll find out what's really happening. Awesome.
What is the number one trading resource you couldn't live without? I would have to say, um, couldn't live without, uh, probably an outside resource that I, that I haven't created for my own self. An outside resource would be, uh, probably Investor's Business Daily. I read that religiously every day. It's a really good newspaper, and they, they keep track of the what they call the IBD 50, the Investors Business Daily 50, and there's 50 different stocks in there that are the hottest, fastest-growing growth stocks, and it's just like a, it's a great list of stocks to start your trading watch list from. So I start my morning with IBD; I like it; I've been reading it for a long time; it's a great paper. Great.
Name one book you believe is, is a must-read for any trader just starting out. Um, I would say, uh, How to Make Money in Stocks by Will O'Neil. I think I mentioned that earlier, but How to Make Money in Stocks by Will, William J. O'Neil. He puts a ton, a ton of, of charts, historical charts throughout his book and shows you how to tell a good chart from a bad chart. And I think being able to understand how to, when you can look at a chart and just look at it for 5 seconds and know several things about the company, you're in a very good place. And I think that's where, uh, I think that's where that book can take you. You can read that book and learn how to read charts, and that, to me, was the big difference that allowed me to make more money was understanding how to read charts. Okay, sure.
Knowing everything you do now, what would you have done differently come day one? Um, I would have, uh, I would have been, um, more, probably, let me see, let me think here; this is a, that's a really good question, Aaron. Gosh, if I could go back and do something different, I would have certainly, um, been more, uh, wise in trying to seek out counsel and trying to seek out a mentor. I, I really just kind of ran out and did it on my own. Uh, I, I was fortunate in the fact that it turned out well, but a lot of people don't; most people are casualties. So I would have, I would have searched out somebody who could have helped me. I would have, uh, turned to somebody, and, and, uh, the people I did know who were trading, they were kind of new like me, so they really didn't have anything to offer me. Um, so I would say finding a mentor, uh, getting a coach, something like that, that's, that's probably what I would have done differently if I could go back. Great advice, Jerry. All right, so that's, um, brings us towards the end of the interview. So do you want to share with the listeners a little bit about, um, your new, uh, Trigger Trading System and, um, also share with us where we can, um, find out more about your services and, uh, connect with you?
Sure, yeah, absolutely. We, we started a brand new, uh, trading system, uh, in May of this year, earlier May 2014, and, uh, it's called Trigger Trade Pro, and they can find it at, at triggertradepro.com. They can go to your website and find the link there, um, but, uh, the, the, the, the system, in essence, provides a set of technical indicators that we have, fangled, uh, and we have created our own system using proprietary indicators, and when all of the indicators indicate buy, we buy, and then when all of the indicators indicate a sell, we sell. And it has worked out very well for me, uh, over the years, and I was finally—I'm not a software developer; I had to find people who knew what they were doing, and I had to figure out—it was a big laborious process—but we finally got it out there now, and we have, uh, you know, subscribers all over the country here in America, seven countries around the world now, and we, we put out daily trading ideas every single night. We have a nightly trading report that lists usually about 100 to 150 stocks that we're watching for that next day that you can analyze that night before, and, uh, and all of these stocks are stocks that are triggering within our system; they're getting ready to trigger. So, um, that is at triggertradepro.com to find out about that. We also have a free trading podcast at triggertradreport.com. They can just go there and download the free podcast; we just do a, a, a teaching podcast there for brand new traders. Great. And, um, you've got, uh, you're on Twitter as well? Yeah, yeah, yeah. twitter.com/FMdaily is our, is our Twitter handle. Okay, great. All right, thanks again, Jerry, and, um, we look forward to catching up with you soon. It was a great, great honor; I really appreciate it, Aaron. Thanks a lot. Thanks a lot, Jerry. You've come to the end of this episode of Chat with Traders, but don't worry; more great episodes are on the way. To stay updated with each great new episode, be sure to subscribe to the podast, podcast in iTunes, and we'd love it if you leave us a rating and review. We'll see you next time on Chat with Traders. [Music] [Music] no