Every trader has a specific range for pain tolerance.
In my years of being a mentor, the average range and threshold for traders is around 7% of their total portfolio.
For example, if a trader has a total of 1M in his portfolio, he'd be able to psychologically withstand a 70k loss in a day and still be able to act with the right judgment.
Oh, I gotta cut this pain in the ass? Alright.
*order filled*
Of course, the trader will still feel pain and frustration but he'll manage to cut his losses and move on quickly.
However, there are many instances during a trader's life that he'll find himself in volatile situations. BSC, PHA, AR, APL suddenly breaks support and waterfalls quickly. Because of this, I got several consultations done - a few from my team who manages our company funds in ZFTCapital and some who are in our community in TradingRepublic.
All had the same reaction :
Ang bilis, hindi ako naka-react!
But here are the most common factors:
1. They over-allocated.
Prior to this crash, making money in these stocks had been easy. Winning makes you confident. Confidence unchecked can lead to Greed. Greed leads to the disrespect of risk management.
2. They had 2 or more of these names at that time and no automated stop was set.
This is a classic case of trying to catch two or more rabbits at the same time. You won't catch any - especially if you're hunting in bad market conditions where there's a high chance that the trade goes against you. If you are trading with multiple accounts and do the same trades, you've signed a deathwish. Save yourself from the stress and just consolidate your funds into 1 or 2.
It's ok to chase when you're riding the trend. But if you are counter-trend trading, that's a different story. Focus is key.
And lastly,
3. They went beyond their pain threshold.
Going beyond your pain threshold adds the "in" in sanity. Once you cross your limit and if you aren't prepared for this scenario and if it is your first time, you'll most probably FREEZE. It isn't because you don't know what to do, oh you know that you need to cut, it's just that your psych isn't ready for this shit. It wouldn't have been a problem if the drop was slow because it would have given the trader more time and emotional energy to react. But these things are never slow.
You have probably noticed ZFTs posting port snapshots all the time, and if you've been following a lot of them, pansin mo rin siguro na halos pare-pareho kami ng tinitrade. Minsan same AEP, pero madalas iba-iba. And contrary to popular belief, we don't group trade - we even discourage it. And the reason for this is that I want everyone to be independent and self-sustaining. If I built a culture of stock tips and "sharing-of-blessings" the people around me will eventually become my dependents. If I die, chances are they'd die too - or they would eventually gravitate to another entity that would feed their lazy asses.
As of Friday, June 28, 2019 Longest stock held : GSMI 18 days.
"ZS"
"AOTS"
"CH Setup"
"Alpha Setup"
"Power Horse"
"Powershot"
The list goes on.
So what's the secret sauce here?
Absolutely nothing! All these setups are FOUNDATIONAL, meaning these are fundamental principles of the tools we use namely Moving Averages, Darvas, Fibonacci, and RSI. We just combined and refined them together to form powerful combos.
Now I understand a lot of people want to know these setups - and would even pay a hefty amount just to know our top setups. But the sad reality is, trading isn't a plug and play game or software. It doesn't mean that if you know the setup, the specific parameters, the time of optimal execution, etc., then you'll be able to master the setup.
This is the reason why I don't disclose any of my advanced setups without letting people know the proper foundations, risk management, and mindset of the system I use. Because without the foundations, it's like giving a pair of nunchucks (which btw, can deal a pretty decent amount of damage) to an amateur. - yep. word placement play intended. So beware of gurus selling Setups.
Here's a visual representation of what I'm talking about.
Take Bill for example: trying out a setup he recently bought and studied overnight, and immediately committing on a live trade the next day.
So don't be like Bill.
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"Cup and Handle"
"Head and Shoulders"
"Golden Cross"
"Bullish Bat"
Traders of old would also name their high probability setups before so it could be easily recognized, and I'm pretty sure a sizable amount of trial and error and tons of money was sacrificed in order to create the study. And for sure not everyone agreed to those silly names back then - which we now consider timeless patterns.
Hindi ito contest na paramihan ng alam na trading tools. So if you want to be a master in this field of trading, don't fall for the "setup" because that will only limit you to the setup's parameters. Study instead, the very foundations of the tools you use. Go deep in your understanding of a few.
Poker and trading have a lot of similarities. It's a game of probabilities, risk management, trading psychology, and endurance. I was never able to fully appreciate the game until recently.
That lead me to download the game and spend hours playing. The stale market didn't help as well. What else should you do if your setups don't show but to distract yourself elsewhere?
The week after, I got invited to one of Kaizen's regular meetups. And guess what? There was a poker session and I got a chance to play with one of Asia's poker champions, Javi/Taylor. The game was totally different from the app. I could see people's reactions, my emotions were heightened, and there was a lot of chatter, similar to market noise.
If I were to describe the whole experience to you, it felt like I got back to being a level one trader. It was exciting! And I loved it.
I lost 200PHP that day. But I learned a lot.
Taylor was generous enough to share to us his learnings from a 2k USD seminar he attended, conducted by one poker legend. I won't go into the details but I'll share a few that have similarities to trading.
There are Three Levels in playing Poker
1. Playing the probabilities of the Cards dealt with you.
2. Anticipating and Playing your opponent's Cards.
3. And lastly, Deception.
If you are dealt a good hand, raise. In trading, that's called averaging up. If the odds are in your favor and you're winning, add to your position. Otherwise, you're wasting an opportunity.
If you are dealt with a bad hand, cut your losses and wait for a better hand. If you raise without a potential win when the flop appears, in trading, that's called averaging down. But that's the stupidest thing you can do unless you're a level 3 poker player who's crazy enough to try and pull a bluff.
I tried to play in situations where I had to divide my attention between playing and getting things done. It did not end well. It's the same as trading if your attention is divided when you plan and finally execute, chances are, it won't go towards your favor.
I mentioned that poker is waiting and an endurance game. Because just like trading you WAIT for your setups. Sitting out of the market is a skill everyone should develop. How many times have you experienced forcing trades and ending up losing because you were bored? How many of those ended up a huge mess because you kept raising until you were fully committed? Don't ever Bluff with the Market - that shit doesn't work here.
If your setups don't appear, simply
DO
NOT
TRADE.
"We play our risks and probabilities well in poker when we're dealt a good hand, pero sa trading, we mess it all up dahil bored. It doesn't make sense!"
Scraffy (top 5 of 2017 Investacup) explained to us.
"So whenever I have the itchy fingers, I go to metro-walk and spend a thousand on Poker. Better to lose the money there and satisfy my itch than lose millions in the markets."
After learning these things, I was able to grow the virtual account by x20 with lesser time and effort. But I understand that consistent success isn't overnight and I have a long way to go when it comes to poker. I'm simply amazed by the law of averages at work. If you want to reduce your learning curve, if you want to learn how to win, Spend time with winners, STFU and listen - literally Spend if you have to.
Don't be average. Throw your sense of pride and entitlement. Stop the blame game. Stop complaining and playing the victim. Nobody owes you anything. Don't wait for opportunities to come to you.
CREATE YOUR REALITY
Take responsibility and Deal with it.
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The week after, It was my turn to host the show. A tradecation with fellow ZFTs, friends from Kaizen and Caylum. The experience was unique than our usual sessions since the learning was peer to peer, from a different cultural standpoint.
It made me realize there's a DNA to winners. A lot of us grew up thinking that winning is a one-time thing. You win when you graduate. You win when you get first place. You win when you become the boss of your company. You win when you're the only one left standing. This is bullshit.
Winning is not a one-time thing. It is a continuous process. And for you to become a winner in whatever you do, you must develop the right habits and the right beliefs. If you won a competition by bending rules and cheating, you lost to yourself - don't live a fairytale and fool yourself.
Because How we win matters.
Have you ever heard of the phrase "trust the process?"
If you follow this, then good for you! But good means average. And being average is not enough. If you want to be great at anything, you shouldn't just trust the process.
There was once a young man who was appointed to rule over a great nation. A nation surrounded by many enemies and has had a countless history of bloody civil wars. The king before him was a great ruler and had many times delivered this great nation into order.
Burdened by the responsibility that rests upon his shoulders, the young man thought to himself: "Who am I but a child?"
Then one night, the Creator of the universe appears to him in a dream and says: "Ask of anything and it shall be given to you."
The young man requests: "Wisdom to rule and the ability to discern good from evil."
The Creator was pleased.
“Since you have asked for this and not for long life or wealth for yourself, nor have asked for the death of your enemies but for discernment in administering justice, I will do what you have asked. I will give you a wise and discerning heart, so that there will never have been anyone like you, nor will there ever be. Moreover, I will give you what you have not asked for—both wealth and honor—so that in your lifetime you will have no equal among kings."
Born in 848 BCE, Solomon dies at age 52 in 796 BCE, ruling as King for 40 years -- the best years in all of Israel's history. He is known as chacham mi'kol ha'adam, "wisest of all the men."
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All traders are kings. And if we allow it, the market lets us have a taste of the sweetness of riches, fame or power. These three are by no means evil - for they are mere enablers and magnifiers of their users. The problem lies when we see and pursue these three elements as the end result, rather than see them as the by-product of our character.
How many times have we heard of and from people who earned hundreds of thousands or even millions and in a few months or years, never heard of again? The flow of money in the stock market is never consistent. An absolute result of a trade setup is an illusion. What can be consistent is our process -The rules we set and follow.
The stock market will tempt you in as many ways as it can. But as traders, we should fall in love with the process. Not the profits.
*Ahem!* Is this person familiar to you?
If you wish to put a person's character to the test, give him Riches, Fame, or Power. A smart man will choose the greatest of them all.
Disclaimer : The post you are about to read is my personal opinion and may not necessarily represent the truth of others. This is my truth and you are free to disagree with me.
3. What is the difference between cutting losses and executing trail stops? How and when do you set these?
In a nutshell, trail stops are there to preserve your gains while cut points are there to protect your capital.
By now, you've probably noticed how I do things in tranches. Because executing your buys and sells in tranches lessens your impact on price swings.
When cutting, I make sure I have two cut points: the first cut point is within the 2-3% range where I lighten up positions, and yes tax and commissions are included in this computation. The 2nd is my maximum cut point of -5% which means that if my position reaches or falls below this level, I cut ALL my positions regardless of the time of day - this rule applies to ALL my trade setups.
"Ayaw nyo hintayin yung closing sir? Baka tumaas pa! Why not sell on the bounce?"
What if it doesn't? Always expect the worst case scenario.
"Pwede ba sa 20ma ilagay yung cut point?" Never confuse a trail stop for a cut loss point. Here's an example of what can possibly happen if you do.
-5% vs -18%
When my cut levels are hit, I make sure that by the end of the day, I have no positions left. Why? Because whenever you violate your rules, it damages your trading psyche. Imagine if you held on to the loss for the night or drag it on for days and months. You'd have a hard time consoling and convincing yourself if what you did was right. And trust me, this is going to mercilessly torment you. "Should you have cut? Would it go higher? Maybe if I break my rules just this one time..."
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As for trailing stops, I usually have two sets. One for moving averages and another for Darvas - this is for me to maximize the potentials of both worlds. Assuming that my average entry price (AEP) is already far away from the current price, only then will I set my MA trail stop. I usually do this when my positions are at least 10% distance from my designated MA stop. For example:
Having an AEP equal to your MA stop is impractical. If you do this, I won't be surprised if you say "Pera na, naging bato pa!"
So here are two alternatives that I frequently use in setting stops. The first is set just several flucs below previous closing price. So if MAC's previous closing was 19.2, then I'll set my stops at 19.1. The second is set on the nearest darvas support. Sometimes, much of your profits get eaten on this stop, but if you're banking on the possibility of a continuation since you're following the trend, you might just get more out of the trade. So carefully weigh your odds.
If you owned this port, what would you do?
In both scenarios of cutting and executing trail stops, whenever I'm loaded with volume and have a hard time selling intraday, I always sell my final tranche during the matching of prices EOD since that's where bulk of the buyers show up. If the last traded price was at 19.2, I'll sagasa sell 10-20 flucs down. As a final reminder,
Disclaimer : The post you are about to read is my personal opinion and may not necessarily represent the truth of others. I am a high risk trader that loves volatility. This is my truth and you are free to disagree with me.
1. What are your top trading tools and indicators?
In ZFT, we only use Moving Averages (MAs), Darvas Box Method, Fibonacci and the RSI (Relative Strength Index). Many might be surprised how we only have these four in our arsenal.
"So you telling me, yan lang? Wala bang secret indicator?"
"Well, Wala!"
I'm not saying other indicators aren't going to make you money. I'm saying mastery is key. A person who has an understanding and can use 10% potential of 10 different martial arts will never match up to a person who has a 100% mastery over one technique.
2. How do you buy and what time of the day is it best to buy stocks?
Whatever the setup or play, I always buy in tranches - 3 tranches to be exact : Before, During, and After breakout point. The volume for all three can be equal or different depending on your risk appetite. The tranches can be done in weeks, several days or all in one day.
This is a good risk management strategy as it can minimize potential losses in case of a fake-out. This would also maximize your time and lessen your opportunity loss when your current stock hasn't broken out yet with your initial tranche while other stocks are moving. Wouldn't it be such a shame if you were fully committed on a stock that isn't moving and suddenly a super play appears?
As for when is the best time to buy, that would depend on your risk appetite.
If you are a risk-taker, have the time, then buy during the intraday breakout and cross your fingers the trade won't explode. If the breakout happened in the morning session, expect a lot of price fluctuation and get ready to cut loss when necessary. If the breakout happened in the afternoon, there's a good chance momentum will continue until market close.
The safest to buy is during the matching or run-off at 3:15-3:20 PM since at that point, the possibility of a whipsaw is close to none. Only problem is if prices have already gone beyond your levels of comfort. If that happens, then just say NO to that trade.
I personally buy sets of my tranches between 2:30 - 3:20 PM since this is the time where prices would likely show their true intentions - whether they would like to break-out, break-down or stay boringly put. 3. What is the difference between cutting losses and executing trail stops? How and when do you set these? In a nutshell, trail stops are there to preserve your gains while cut points are there to protect your capital. If you owned this port, what would you do?
If you were given a million pesos today to trade one stock and were to choose between these two stocks and with only their charts as available data, which one would you pick?
Stock A
Stock B
Remember your answers because today, we'll talk about the two kinds of traders represented by Bob (A) and Carl (B).
Let's start!
Bob is where majority of traders belong to. He focuses on stock prices and declines, and see these events as buying opportunities. A fire sale that would give him profits in the long term.
But what exactly is long term for Bob?
No one knows exactly how long it is. It could be a year, 5 years, 10, Indefinite? who knows? For the answer to this question is very subjective. But the most common answer Bob has is this:
Time isn't much of an issue. Price is. Or more accurately, feelings are. Basta feel ni Bob magsell, then he sells. And for this example, he sees the highest price as the reward. "Pag bumili ako ngayon at BUMALIK to sa 16, makakabili na ako ng (insert bucket list item here)"
Most of the time, this is where speculation and fundamentals start to creep in and play a major role in Bob's mind. Because these two things give him the justification for his decision and the hope he needs for his long term dreams.
A year and several months pass and we check on how Bob is doing...
. . .
"Okay lang kahit hindi na hit yung TP ko. Long term naman ako dito at magandang companya naman tong ininvesan ko, (Insert future company plans here.) Babalik din to sa 16! Buy and forget! #ProudInvestorHere"
These are the most common lines you'll hear when traders of this type end up with a stale or a losing position and do not want to move on. Add to that their collection of quotes and wallpapers from Lolo Warren to give them encouragement and strength for the coming years.
"I am a patient trader. I will hold until thy TP come."
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Let's go to the 2nd type of trader, Carl. Now, unlike Bob, he puts a premium into trends rather than prices and feelings. For him, there is no such thing as an expensive or a cheap stock. Only trending or non-trending stocks.
Carl understands that even if prices have appreciated significantly but still follows the trend, there is still plenty of room to make money. He doesn't care about buying the stock at a cheaper price like Bob so he could feel good and feed his ego, he cares about feeding his portfolio and managing his time well.
When it comes to trading, understanding trends is as important as breathing in real life. We all know there are 3 types of trends right?
Uptrend. Downtrend. Sideways.
Trends don't change overnight. OK sometimes it does, but that rarely happens. And Carl understands this fundamental principle : That if a stock came from a long downtrend, it first has to reverse by consolidating into a sideways trend, then slowly transition into an uptrend. Obviously, this takes time - days, weeks, months, years? Who knows?
So instead of buying into sideways or downtrends and waiting for these lengthy transitions to finish, Carl instead focuses on buying a stock that has an established uptrend. He knows that if he does this, he will save a lot more time. And as the popular saying goes: The Trend is Your Friend.
And in just a few months, here's what happened...
91% in 115 days.
So what are you saying Zee?
I'm saying perspective is everything. If you want to make money the faster way in our market, buy stocks that are already trending up and making new 52-week highs rather than waste your precious time buying downtrends and waiting out the transition period.
Not saying you won't make money with Bob's method. But just saying... a moving train is faster than one that's just starting its engines for the day.
Have you ever heard one of your trading buddies, tell you off by saying "wag mo bilhin yan! illiquid!" Then you look at the board and think "okay naman ah" ------------------- This can mean either two things. Either (A) You are correct and your friend is just a dumb-ass who got the same scolding from a trader with a bigger port size. Or (B) Your dear friend is right and you haven't experienced getting trapped on an illiquid stock. To visualize this, let me tell you a story of two traders named Bravz and Andy. Andy is not your ordinary trader. Aside from being an expert in cutting his positions he is also a rich kid.
One day, he decideds to allocate 5M in one trade. He thinks to himself, "Rich kid ako eh. I can afford." So he goes on and buy 1.385k shares of MEG at 3.61. By the middle of the day he realizes that he wanted something else, something faster. So he sells all of his shares at 3.6 with ease. Commission loss doesn't bother him. Rich kid kasi eh.
He then proceeds to buy LMG because his favorite guru told him.... "30% Discount! This is syurbol backdoor! Okadah bombah!" So he buys a million shares of LMG at 5.
By the closing hour things turned sour, supports didn't hold and Andy's -5% cut levels were hit. He was in shock! Prices were diving down faster than that racer reached the next tower in Fast and Furious 7.
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He couldn't sell all his shares because there weren't enough buyers.
Prices went lower and At 4.3 he was now facing a 700k Loss. If he sold down everything before and during the market's closing, at what price would LMG reach? At this point he understood that he was trapped and that it was impossible to cut without incurring much damage.
To give you a better image of Andy's situation and to the hundreds of traders who don't know how to sell their shares due to illiquidity, observe the following GIF :
So Andy decides to just hold all his positions because it was now too late and too deep to cut. He then thinks to himself : "Anyway Syurbul Backdoor naman toh. Okadah Bombah!" Does this sound like someone you know?
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Now, Bravz was the same as Andy. He was also hyped by the Okada Rumors. Hindi nga lang siya rich kid. But instead of allocating all of his funds on a single play, he decided to be a good boy and only allocate 25% of his whole port on the LMG play.
Just enough to get his balls wet.
Bravz is training to be a Knight Class Trader btw, holding only a maximum of 4 stocks at a time. Where a single stock has a budget limit of 25% of his whole portfolio. So he then proceeds to put in 50k at 5. Why 5? Monkey see, monkey do! Best buddies sila ni Andy eh.
Now at the moment that his cut loss levels were hit, Bravz was able to sell his 10k shares easily because his allocation allowed him to be liquid enough for this specific play.
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Not all traders are equal in size. Liquidity is Relative. There are huge sharks with 7 to 8 figures. There are Whales in the 9 Figures. And of course, let's not forget the cute little plankton traders that are just starting out by the 4-5 figures.
So how can we know if a stock is liquid or not?
I don't know about you and what other experts would say but I would classify a stock Liquid if I am able to use 100% of my total port, to buy or sell the stock at current prices and be ABLE to close positions on the SAME DAY without single handedly creating a 3-5% swing. To further visualize this, if you had to buy 1 Million worth of shares within a minute without causing prices to fluctuate too much, between DMC and SPM, which one do you think would be able accommodate YOUR size?
Using our super powers, the common sense, we'd all agree that if we had to buy a million worth of shares, DMC is the liquid choice.
But if the stock I wanted to play was SPM and obviously it's illiquid for my size, I could always adjust my allocation so that it becomes a Liquid Trade. Instead of buying 1M worth, I'll just allocate 30k worth.
Because by the end of the day what matters is how you adapt and trade accordingly to your size.
I've sold all my ALCO shares on those two ports as my trailing stops were hit. Average sell for both accounts were near 1.35 - it's a bit tough to sell when you've got conviction volume that could influence the market Up or Down. The high for the day was at 1.67
One person was asking me why I wasn't able to maximize my gains by selling everything at the 1.5-1.6 levels. I told him... "It's not about maximizing gains. It's about maximizing your system."
Who would have known that 1.67 was the top? No one can consistently predict and trade the tops and bottoms of the market. If you were able to sell all your ALCO shares at 1.67 successfully based on your gut-feel, then good for you. But would you be able to sell at the tops on the next trade? And how about the one after that?
As human beings, our emotions will most likely be consistently inconsistent, which can lead to flawed trading decisions. But a trading system, with constant practice, can be consistent.
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You know that feeling when you have successive bad trades and you feel your confidence levels drop? It's a terrible state and sometimes you'll find yourself stuck in what we call makabawi syndrome. But you know what's equally terrible?
The Superman Effect.
This happens when you've "hit the jackpot" by winning several or few trades with conviction and you gain some sort of high - you feel like you're indestructible, that you'll be able to replicate your trophy trade on to the next one with ease. There's some sort of immense control you feel over the markets as if it would do your bidding.
You execute trades that are high risk because you feel like you can take the punches. After all, you've gained a good buffer of gains to offset potential losses.
"Okay lang malugi. YOLO. Afford ko naman."
And you know what the worst part is? When you come to a point that you've lost all your gains because of over trading and you don't realize that you're slowly transitioning into the Makabawi Syndrome.
So after selling my ALCO positions, I decided to impose a 24-hour purge and trading ban in my port to be damn sure I won't get high with my profits and go Superman! I sold all other positions and I've decided not to think of the next trade (if possible) and just relax my mind.
Always remember, don't trade when you're excited or fearful. If you're under the Makabawi Syndrome or the Superman Effect, purge until your emotions are at Zen - and you won't be able to do this if you're still holding existing stocks, following your favorite guru, or that noisy facebook group, and that useless subsrciption.
Trade when you are ready. Body, Mind and Soul.
3.X M in 4 days. Not sure how much I gained exactly too lazy to compute right now.
