Day trader talks consistency, strategy, volume • Mike Katz

chat with traders episode 156 is sponsored by name an investment association doing good things for active investment managers one example of this is the name shark tank strategy competition of 2018 it's alive biting and open for applications now enter pitch your strategy and compete for a notable prize package and I'm sure you'll make some great contacts in the process all the finer details can be found at name.org slash traders which is spelled n a a I M org slash traders entries close March 1st markets speculation and risk this is the chat with traders podcast hosted by Erin Faye field Hey ladies and gents thank you for joining me on the first episode of 2018 let's make this a good year now the feature of this episode is an interview I did with Michael Katz Michael is an active day trader and swing trader and he's also the managing partner / co-founder of a New York City prop firm seven points capital one of the things which struck me about Michael is the share amount of volume which he trades which is most impressive due to the fact that he's trading by hand without the assistance of algorithms in addition to trading big volume I asked Mike to discuss things such as these strategies and setups which he trades both momentum and scalping with access to thousands of stocks how he decides where to focus his attention each day his secrets to consistency because mike has been green every month for the past three years and possibly longer and as was starting a new year I felt it was appropriate to ask Mike what are three things that traders can do to increase their likelihood of trading success in 2018 so if you've been spinning your Wales this is for you enjoy the episode you good folks I'm Erin five filled with me is Michael Katz Christmas New Year's etc holiday was great lots of cold up here in New York so we ended up staying in for New Year's but it was nice the kids stayed up and some family came over and ended up being a blast very nice how many kids do you have I got three three kids two boys and a girl I was called to bodyguards and a girl and and they had a grown up fast man and we got this nice big snowstorm here now that nobody was really expecting and yeah I ended up staying in home today figured I'll work from home so that kind of worked out traded a little bit in the morning and now pretty much ready to go have you been uh yeah it was good I mean I guess my Christmas in year was very different it was a stinking hot here in Australia or in Brisbane particularly fat uh anyway let's uh that's why it's night on let's get stuck into this um what is your story like how did you get started in trading so I got started in trading like most people do right yeah back in late 90s I was you know in my late teens and and I kept on hearing from my friends about all these internet stocks that were going up and for a while I said I don't know what that is what the market is but it just kept on hearing over and over from all my friends that kept on making lots of money in the market and so I decided to kind of look into it and then basically I started doing some research started asking friends and I ended up opening a small account a few thousand dollars back then trading those Comstock's that you know went crazy throughout the bubble and obviously I blew up a couple of counts real earlier but you know started learning and definitely got more and more interested in in the markets and what I had to offer so I started searching for people who you know might be able to teach me what I should be looking at so I came across a firm equity trading online and it was run by by a guy called Garry Roth who was given these lessons on how to trade and so I attended and I really got hooked right away and I decided that I wouldn't betray to write that in there I've been King to ask someone who was trading actively during that calm era do you see any comparisons from the dot-com period to what we're saying currently in the space of cryptocurrencies yeah I mean it's a great question definitely a lot of parallels everything's moving with crazy volatility lots of you know unexplainable moves both in in these coins and some of the symbols that just you know these companies that all of a sudden announce that they have some something to do with crypto or they just added blockchain to their name and all the sudden the stock goes up 500% right see that every day so a lot of parallels like that as far as you know unexplainable moves where people who know what they're doing are being a little bit more careful and probably missing out on on some of these moves and then you have the average individual that you know knows a little bit less and just want to take on blind risk and you know that probably crushing agates and those are the parallels that I'm seeing and you know I get phone calls from people all the time you know asking me about about these coins and honestly crazy moves lots of big gains people are having but I'm while I do trade them I'm very skeptical and you know I'm very short-term in them do you think there are any differences though like you know obviously I asked you if you see any similarities between both of these but do you also say some some big differences the main difference I see is that in the dot-com bubble the move started on Wall Street everything started on Wall Street and then when retail got involved when mom and pops got involved you know they caught the tail end of it they had some good times but eventually they they got hurt when the crash happened right I think with the crypto world what's going on is you have a lot of retailers driving it initially whereas you don't have the Wall Street support and you don't have a lot of the big trader support and then now you know Wall Street starting to get into into the space so that's the main difference I see and I'm not sure how that plays out as far as you know is it a bubble is there you know is it gonna crash that's the only difference I see because most big firms you know they're not gonna want to put up a million bucks or ten million bucks with you know some unknown exchange somewhere and so I think that's between holding Wall Street back a little bit yeah that's an interesting point because I mean when you put it like that it's it's pretty much the exact opposite to how it was with the dot-com stocks right yeah absolutely I mean I remember when I was trading back then I would come in and towards the end of it you know in the trading firm I'd have all kinds of people sitting next to me people that were traders for a long time and then all of a sudden you know the cab driver and and you know the moms and the pops just sitting next to me and putting up capital and trading back then and it was while there were some crazy moves a lot of you know a lot of volatility and good trading but you know that was the end of it when when that happened so I'm also trying to draw these parallels in Bitcoin and then coins in general and there are some parallels but the differences right now I think are still there the key will be to see if there is value added with the cryptocurrencies and I'm just really on the lookout I'm trading the dime but I'm always in the back of my head thinking okay you know that could be a big crash right around the corner yeah I mean I think that's that's probably a healthy mindset is to be a little bit skeptical government cracks down or the SEC says these are not you know you can't trade these these or confuse these securities so it won't take a lot to get a big move but at the same time you know you can't miss out you gotta be involved that's it yeah yeah I mean it is very bizarre times like we had a few people around our place for New Year's Eve and yeah I was getting asked questions about Bitcoin and mostly Bitcoin actually some of the other Kryptos but it was just like people who have no interest in it and these aren't these are more like sort of you know my girlfriend's friends partners and all that who sort of have a little bit of an idea on what I do and yeah it's uh it was kind of bizarre to be having those conversations with people like that but anyway what it is so she said that you blew up a couple of counts early on was that during the dot-com era like we still trying to go long as the stocks brawl crashing or what what led to you blowing up those few accounts in the early days yeah exactly so on the way up things were easy everybody's making money it wasn't a matter of if you were making money it was just how much risk are you were gonna put on and how much money what are you going to make on the long side right it was just play of well what am I gonna buy tonight so it gaps up overnight and money was easy but then the market crashed there was a huge bush to the downside and you know beginning trader I didn't know what I was doing and risk management was obviously very poor I ended up writing things down as they went lower and adding to losing positions and you know the one the bastard in common is just a matter of getting margined outing and reloading and the same thing happening again so the the the key was obviously Nightside to minimize the losses but back then you know I was definitely not thinking that way okay so walk us through maybe the few years which followed on from then like what happened between kind of where we're at now in terms of your career and what happened yet between then and now we've started seven points capital sure so I feel like I'm very fortunate to have been in that position when after go up a couple of accounts we had the technology at that trading firm where you know back then everybody was placing orders through their phone calls and calling the brokers and paying crazy and commissions and you know the specialist and the market makers were always screwing them on their orders so when we had the technology and we used to go to their desktop and say hey I can offer you a trading platform I can cut your Commission in half and basically give you an edge I decided I came I'm gonna become a broker and start pitching some of these hedge funds and institutions this trading platforms that were fairly new back then and that bought me probably a few years worth of a window where I was still involved in the market I've still doing very well as a broker and allowed me to get a screen time and continue to learn what works and what doesn't work in the market and you know I'm still losing money as a trader early on but it allowed meeting to continue to learn and the screen time I think was key so at what point did seven points capital start to kick off like how did that come about so when we were executing customer orders working orders we started to develop in a very good of the microstructure in the equity space understanding what's involved in you know executing orders specifically large orders and we started dealing with these floor brokers that on the New York Stock Exchange and one of them gave us an idea of how to trade the certain edge that they had on the floor back then the NYC gave him an edge called parity so that they won't go out of business due to electronic trading and we started trading that way and we realized hey there's something here there's clearly an edge and we took that and I said all right I'm gonna start focusing on this start applying some of the skills I've learned over the years as a trader and started trading and very quickly saw good results and it then was just a matter of okay let's go out and go from just me and one of the guys doing it to bringing on one more person and grow from one to two and when that worked out really well we went from two to four and so on and so forth and kept on growing that way and before you know it you know seven points capital we decided we're no longer gonna be executing customer business because the Commission's were getting very seedy and we were just doing very well on the trading side and the partners well back then I mentioned Gary Roth who has since passed away a couple years ago who was a fantastic individual and Mike man GRE and myself we were running seven points and Michael and Jerry are brilliant guy who's really good at running companies running personalities and dealing with individuals as basically was pushing us to say let's go let's start trading more and focus less on the Commission side and before you know it we turned into a trading firm would you mind just explaining what is parity trading on already familiar with that so parity trading the advantage was that if you have a thick quote in in a low price stock let's say back then Citibank was really active there used to be a million shares on the bid and with parity trading used to be able to buy on the bid through the floor brokers and get a good early fill and collect a small rebate and just constantly make a market and that's as close as you're gonna get to a zero risk trade right where if I'm able to buy on the bed when there's quite a bit on the bid then I can either scratch when I see that the stocks going down and hit the bid and breakeven or I can make money if it goes up so I'd essentially gave you like priority in the key position exactly and the market was so dislocated and still is to this day that basically any flow that went to the New York Stock Exchange we used to be able to trade with while other market centers were just waiting there to get the fill that seems like a pretty big advantage to have I would think so I would think so it definitely is a big advantage but since then it started diminishing because the NYC kept on losing or the flow as more and more people wanted to go electronic and all these other exchanges and dark pools popped up less and less would go to the NYC so they started losing that edge there okay now so how is your edge evolved today like can you describe to us what sort of strategies you and also your firm are trading nowadays sure so we took that and we were able to expand it and develop some market making strategies with similar concepts in mind and in addition we trade quite a bit of momentum strategy so those are the two umbrellas that they will fall underneath I probably trade about 15 different setups on a given day and for example on the momentum side we're trading setups where I'm looking at joint trend and look for certain patterns where we've seen these patterns before and we have rules developed around these patterns now how to trade them and we'll look to join trend and capitalize and move once it's already enforce the market making side it's you know mean reversion types of strategies having the ability to execute on different dark pools exchanges market makers and not have to pay a commission which is the structure at seven points capital gives us the huge edge to be able to trade very heavy and scale size whenever we see fit what do you mean by not Pike Commission how'd he get around that so that's part of the the difference at seven points of capital I'd say at seven points capital when we started out we started out as an executing firm and the trading was kind of a sight thing and that grew into a pretty big business but the model initially was let's bring in traders let's back them let's not charging Commission's because you know we don't pay a commission as a firm so it's our capital no commissions no training fees and things like that and it's just a matter of if the trader makes money then different as well but you as a firm used to have face and you still don't have commissions as a firm so we have a very tiny clearing fee which we pay our clearing firm but we don't even pass that to the traders and you know as far as different exchanges and different trading venues they could have either rebates or fees which gets passed through yeah right would you mind talking a little bit more about how you're using dark pools you mentioned it just briefly before let's go into that a little more like what what advantage do you have by having access to dark pools and how do you use them the advantage that we have using dark pools I'd say well first of all we connect to more start pause after all right so whether it's the big banks or executing medium-sized brokerage firms that ones are executing large order flow we connect to them and we're when we see the order flow and the tape printing a certain way what we could do is we tried throughout feelers and and see where these prints are taking place and a lot of times we're able to interact with large block buyer's or seller's and and that gives us good liquidity so if I'm in a situation where I know I've seen this pattern before let's take for example something that's trending up and it's now dipping into supports pulling back into support and I want to be able to get involved on the wrong side join the trend at a very specific spot add support I want to be able to put on as much size as possible because that's a very low risk of trade if I keep my stop close right so the dark fools are able to give us this advantage where we can get in and interact with some of the bigger traders and bypass them today as some of the hfts but is there not more volume traded on the actual like lit exchanges I would say these days yes there's decent amount on the lit exchanges a lot of it gets internalized by the market makers the large ones like the Citadel's of the world and a decent amount also goes through the dark pools as well okay so how come you're able to put on larger positions by going through a dark pool than you would go into a little exchange because it could be that on the other side the counterparty that I'm trading with saying I don't want to trade with anything less than 50,000 shares so they have a minimum quantity on their order and most HF T's you know they're buying selling 100 shares all day long they're not going to interact with that most retail is not going to interact with that so the institutions want to be able to trade with Laura players to get the order flow down without too much information leakage okay and having access to these dark pools that's one of the advantages or presume of off track with the prop firm right yes I would think so having access to multiple trading venues is definitely an edge that we have other advantages of trading at a prop firm I would say is depending on the Commission structure maybe a commission edge getting good locates is is definitely a big edge being able to to bar a stock that might not be available through your typical each trade and and retail type of brokerage firms that's the other edge I'd say is just being around good traders that when I share ideas want to wanna go over their day together with with the guy next to them and see what they did well and and what they did poorly and what they want to improve on I would say those are the main advantages to trading it a better option now I'd like to go into a bit more here a bit more about your actual marketing strategies because if I understand right you guys actually do very little automation there I would have thought that makes it very difficult to run market making types of strategies in US equity markets so the market your strategies are gonna work on very specific types of symbols we're not going to do a whole lot of that in some very high fly names like in the video and apples of the world those symbols I'd rather join trend and try to capitalize on a move take a lot smaller size and capitalize on potentially big move that unfolding right on the market making side it's probably you know lower price name doing a lot of volume might have like a 20 30 50 cent range on the day and you can go endurance and trade sighs I know that you have a liquidity I could easily buy whatever I want to buy and sell whatever I want to sell without really moving the market too much so what would be an example of some stocks which you would which you would consider a market making strategy I mean these days you have a lot of these names like the AMD's of the world or anything that's you know between 5 and 20 bucks and doing at least 10 million shares a day that's going to be a good candidate for that and so what would be your timeframe on those trades so on those particular trades the timeframe is probably I'd say minutes to an hour whereas some of the other trades we trade you know power to a few days hmm so so what would define it as a market making strategy that you like you're obviously posting liquidity I guess market making strategy is just what we kind of call it internally but it's if you want to just call it scalping where you're in and out decent-size sometimes adding the quiddity sometimes taking liquidity and trying to capture a piece of arrange right and you set your trading also consist of a lot of momentum trading as well if you had to kind of break it down what percentage would you say you know of your own P&L comes from these strategies which classifies market making strategies compared to momentum like where is the bulk of your P&L coming from if you ask me that question a few years ago would be a lot more on the market making side and the scalping side and less on the momentum but I'd say today myself and the firm as a whole a whole lot more is being traded on the momentum pattern recognition technical analysis and short-term catalysts that's where most of our profits come from these days we still do a decent amount of scalping and market making but less and less just so much opportunity out there and some of these low cap names that are moving you know five hundred or thousand percent in very short periods of time or a large cap name like you know like an apple or like an Intel that you know has a catalyst these are fresh piece of news that we can trade for two three days and move on to the next one right okay now one of the things which which really stuck out to me when I was doing a bit of preparation for this this interview is the amount of volume that you are trading yourself you know I think you can correct me if I'm wrong here but I think about on average you're doing about 50 million shares per month which seems like an awful lot how were you able to trade you know on average about 50 million shares per month as a click trader so I think a lot of it has to do with edge reading order flow having confidence in what I'm doing and and the the actual method of how we trade you know hotkeys and having direct market access connections to all these different places allows us to to really sizing when we see opportunity and take advantage of it so yeah it's a lot of shares and you know that's kind of the goal of every trader you know you want to keep growing and pushing it as much as possible until you kind of see it that you know you've reached the max of what you can accomplish so how are you able to get so much size on though well a lot of it is not going to be at just one price right so it's a lot of scale again and scaling out at different prices accumulating shares and and scaling got it yeah okay we'll talk to us a little bit about that like how are you scaling in how you're scaling out like adding reducing size like how do you how do you think about that sort of thing it's kind of tough so the way I approach trading is let's say I mentioned before we have 15 different setups right each one of those setups is gonna have its own rules of how I first look forward to set up how I'm going to put the trade on whether I'm gonna scale in grid on one shot where my stuff goes how much I'm gonna put on how much I'm gonna put on in a very high conviction situation so each one of those setups will have its own rules that have written down on paper in my Evernote and you know every day I will measure my my performance not just on the P&L but also on whether or not I was able to follow my rules and I think that's a big differentiator right there I don't know if this is too much but would you mind sharing one of those setups sure so let's see a set up that I personally like to trade and those who have seen our YouTube videos at the end of the day I go off where this was quite a bit these like a descending triangle in a low cap trash name right so when the low cap stock goes up you know a few hundred percent and finally starts to stall out and puts a lower high and showing that style on the back side I'm looking for a certain pattern and that would be a descending triangle meaning that it's had a dip and the next time it came back up and made a lower high and when it had the next dip it's starting to look like a triangle right and on that scenario I know that on I have three ways I'm going to enter that setup one is within the triangle the other one is when it breaks and then the third one is if if it comes back to retest a breakout level so each one of those will have a rule and say okay when I get in here I'm gonna risk X dollars and then my stop goes above that high and so very specific very methodical and every day when I see these setups I will take a screenshot send it to my Evernote and that way it stays fresh in my mind and my confidence grows whenever I do that right if I've seen setup a thousand times and you know I know what the win rates gonna be I know what to expect I know what it's gonna look like when it's about to fail and I know where I need to really size it in and then take advantage of a good opportunity now something like that are you taking this trade every time you see a setup which fits that criteria or are you kind of selective about which ones you actually execute on so if if it meets my criteria and it's setting up as that particular set up I have to take it if I don't take it then I'm just adding a lot more variation to the results and you know that's just going to cause frustration so I'm gonna try to take that set up every time I see it now do I do it every time there are times where you know you're a little bit more gun-shy maybe because you're not running as well or might jump the gun where that set up hasn't really fully presented itself yet and you know it's been used going a little bit earlier but if I see it I'm going to take it and then at the end of the day I'm gonna measure how I did to go into early or did I completely miss the trade and why I understood this episode of chat with traders is supported by Health IQ a life insurance agency doing their part to improve the health of the world hell you celebrate the health conscious through social and financial rewards using science and data health like you secure a lower rates on life insurance for those who make an effort to live healthy and exercise frequently simply because these people are low risk as we traders like stats you should note 56% of health IQ customers save between four to thirty three percent on their life insurance through exclusive savings to see if you qualify get your free quote today at health IQ comm slash chat or mention the promo code chat when you talk to a health IQ agent that is health IQ comm slash chat to get your free quote so just start just going back to the volume that you're trading I guess I still have a couple questions around that and this might take a little bit of explaining about how things work in the US equity market but how much of your P&L or how much does rebate contribute to your P&L like is that a big part of your strategy no not anymore I think it's there and it's useful to have access to that but it's not the driver these days these days the h of T's who are co-located and have fast connections as best hardware and the special order types those guys are gonna be there much earlier than than me so just training for the rebates that game is I think is done unless you're you know one of the best hft guys out there now it doesn't mean that I don't trade for rebates you know I don't try to be efficient and and maximize what I could get but up you don't specifically trace or rebase that's not a big part of what we do okay okay what sort of stocks I eat right I know you spoke about this a little bit before and that set up you gave you spoke about trash names which on which I'm sure mostly the lower cap stocks but where is most of your volume done is it done on these big blue chip names where you can really get a lot of size on or is it done in most in and low flights I'd say it's probably a third in these low priced stocks that you could do a lot of volume blue chip names you could do a lot of volume and then the other third would be these low cap stocks and how many names would you be in and out of on any given day like how many stocks you're watching I probably trade about 810 names I'm in a given day and some of those might be you know something I'm swinging for a few days or a couple of weeks or and I'm trading around a core position while others I'm just you know something with fresh news that you know short-term trading and I'm in it in and out and probably putting on five ten shows in that symbol so how it's deciding if a trade is going to be just a short-term intraday trade or something that you might swing for a couple days most of the time when I put the trade on I already know if this is something I want to swing it's setting up as a swing trade in a different timeframe for example in a 15-minute chart on a 1-minute chart and one-hour chart rather I already know that this is something that if it keeps on acting like it should I'll I'll take it home and I'd want to keep it for you know a few days a couple weeks if it keeps acting right so what might be a raisin raisin for you to swing like you say if it looks like it's you usually know when you're when you put a trade on how long you're going to hold that stock for presuming it keeps acting how you anticipate it to act or what would what's the word what would give you reason to think that this is a good trade to swing for a few days it's simple right in this business it's it's mostly but green or red and if I put on a sweet position and it's working the earlier it works the better and by the end of the day if it's green and and it's working then I'm going to keep that one and and allow my exit rules to take over you know in this business it's a lot of black it's a lot of black and white it's very easy to know when you're wrong and it's very easy to know when you're when you're right it's not like when you open a retail store you might need six months to to figure out if the business models working you know you know instantly that the trade that you put on if it's right or wrong and the best trades will start working right away mmm and these eight to ten names that you're trading you know on average most days and how are you finding these eight to ten names like out of all the stocks you can pick from in the US market how do you decide that these are a good eight names to be trading for this day yeah so when we get in early we'll start doing research first of all see on the macro picture what's going on anything any news overnight overseas that might have moved markets or could potentially move markets so do the research early as far as what's in the news any macro themes that we need to be aware of and then in the morning whatever's gapping whatever this got a piece of news catalyst that might move a stock up or down and make it gap we're interested in that and then during the day we'll use scanners that are looking for specific criteria that once it's met it spits out a symbol and says here look at this one this is a criteria we're looking for what's some of the criteria that you might put into a scanner just as an idea volume volatility range on the day will float mainly those are fresh news now these I keep saying eight stocks but give or take these names that you're trading each day is it often the case that particularly if your train a catalyst that these eight stocks or however many stocks are tightly I don't know if correlated is the right word but tightly linked like in the same sector no they don't have to be for example they could be treating Intel like yesterday had some fresh news about you know their security problems that they're gonna have at their chips so that was really active yesterday I was trading to one semiconductor name and in the level to right next to it I could be trading you know blockchain name something that just moves because they got a mention in the cryptocurrency space right and your entries on these trades what are they what are they based on I know you you've talked a little bit up a little bit about using technical analysis is that what actually determines your entry is that how you time your entries or you're you looking at the author book or is there there's something else to it for me a lot of those together so I would say it's reading the tape and order flow technical analysis good understanding of charts and volume and Fermi volume is very important and in addition to that I'd say what's moving the stock was the catalyst and then if it's something that I've seen in the past that I've kind of encountered it to behave a certain way when that catalyst comes out that also plays into it Lenya sight volume is important can you just flesh that out a little more like what do you what do you like to see in the volume two main things and I'd recommend individuals were interested about learning more about volume the book by Ana cooling filing price analysis for me that that helped quite a bit because I always knew the volume was important and I just could never really understand and put my finger on exactly what I wanted to see until I read that book and she kind of clears this up pretty well so volume with how it's displaying itself between different bars as as the bars unfold and as the chart unfolds how different volume patterns develop with different chart patterns and when I specifically like quite a bit as volume profile where the volume is displayed under a side axes and showing me not just the price but how much volume traded at different price levels okay that's interesting because is that uncommon for equity traders to be using volume profile typically when I hear about volume profile it's it's usually coming from a somebody trades futures right yeah I think it's more common in the futures world and I think we spend decent amount talking about equity trades but we do trade quite a bit of equities futures options and pretty much all the products out there but I would say that it probably did start in the futures world and the reason I like to use it as it'll it gives more context to support and resistance levels so the turning points on the chart are more important than if there's a lot of volume that traded on that at that level if that makes sense no it does it does Mike one of the things I'd like to speak with you about is there's a couple other big things I'd like to talk to you about the first pain consistency right so for the past three years I'm pretty sure you've been green every month now that's quite an achievement what's your secret to consistency great question I think consistencies is what is really gonna differentiate to thee the great traders from the ones we're just gonna get lucky here and there so what does it take to be consistent I'd say first of all you gotta have a clear and defined able edge then you gotta always minimize your bad losses and just avoid those big losses that you know take a big chunk of your account that might take some time to work back so in position which is why I kind of scale back when when I'm not running well when my trading is not doing too well I'll scale back I'll risk maybe half or a quarter of what I risk I'm on average and I'll do less when I'm not thinking clearly when I'm not performing well or I'll really scale up and put some serious eyes on and multiples of what I usually risk whenever I'm in the zone and whenever I'm thinking clearly and and the markets lining up with what I'm thinking as well so just being able to throttle the risk that I put on I think is important and then risk management is it's pretty much everything I know a lot of your guests to mention that quite a bit and you know I can't stress that enough risk management is is king right so what are some of the things you do to manage risk like obviously you mentioned a few there but can you go into that a little more like what are some of the maybe the big takeaways which you could share about some of things you do on how to manage risk sure sir so before I put any trade on I already know where I'll be getting out if it starts to go against me I think that's a big one right if you compare any retail trader to a professional trader I'd say that's probably one of the main differentiators where retail when I say retail I'd mean just you know someone who very new to the markets not necessarily you don't retail traders but you know they put trades on there they're just hoping for the best and if you ask them well what do you think is what are you gonna do if the trade doesn't go your way they never even thought about it right so I like to make sure I know where I'm getting out before I even get it and by doing that I'm able to also figure out how much to put on because I want to risk a fixed amount a fixed dollar amount on every trade right and in order to do that I first have to know where I'm gonna get out when I'm wrong so that allows me to also size my positions correctly so that I think those are doesn't really important to the stop-loss focusing on where I get out where it is the pattern fall apart is where where my stop belongs right if I'm in the pattern if I'm gonna trade because of a specific pattern then my stop needs to be outside of the pattern where if the stock or the future or whatever if it goes there then the pattern is no longer valid and so you gotta know before you put the trade on where you get it up yeah and another thing you mentioned just before was reducing size when you're not performing as well as you could be how do you this might sound like a silly question and maybe an obvious that would have an obvious answer but how do you know when you're not performing well like is is that after you've taken a large hit or is it anticipation that you might be due for a large hit like when you might just come in one day and you might not be in sync with markets things just aren't working out do you feel like you're out of touch at the moment and you should reduce your size before something bad happens like how do you know when you should be trading less sighs that's fantastic fantastic question because it's very easy to kind of blurred lines between you know be aggressive be confident and and stay the course versus you know pushing it too hard and and just being stubborn right so the way I know that I need to size down is usually when I'm breaking my rules so every one of my setups as I mentioned has all the rules I need to trade that set up from beginning of the trade till the end all right when I start to break my rules that's usually a sign that I'm not thinking clearly I'm not performing at my peak level and that's usually coinciding with with P&L so you know not not being there so uh I think that's a big trigger for me to size down but a lot of times you know you can't tell right away especially when you're into trade you know you might take a few losses it might take you know a few rules broken before you realize that you need to slice down you need to slow down maybe take a break take a walk take a day off and come back but I would say the rule breaking is is definitely a big one okay yeah I think that that's a good point to note yeah that's a good answer and one of the other or the the first K you mentioned or first secret to your consistency was having a clear definable edge so how do you think about an edge as a discretionary trader like to you what does it mean to have an edge because I think I've spoken about this on a previous episode but I think like someone who might be more of a quantitative algorithmic trader is going to think about edge differently to someone who is more of a discretionary trader so you know the way you say it how do you think about an edge that's definitely and that big your sword right the way I see edges anything that I can do or I have access to that most people do not or can't do I think that's an edge right so if they fire if I'm able to take losses quickly and have good risk management where that really goes against human nature and most people can't do that I consider that an edge if I'm able to execute and have access to multiple dark pools and you know read the tape and have good order flow management I should say actually order flow reading that's an edge to write I'm able to have my finger on on the pulse of the symbol the pulse of the star of the market and I'm able to kind of become one with with the symbol s really the best place I want to be right the way I can read their signs that the stocks telling me as opposed to just ignore it and bring my own opinions so being an order flow trader being a pattern trader and seeing where things don't act like they should allows me to to kind of get a feel so what's going on and a busted pattern I think is is a good way to to kind of reverse and go the other way because obviously what you were thinking is not it's not working so I think an edge is all those things it's tough to define but it's got to be something that is not readily accessible to everybody and it's largely based on your setups as well right yes yes and this setups and experience of seeing it before right I am a big big fan of journaling and all our traders you know the eternal and have to email myself and some of the other senior traders every night yeah the the the trades that they did and why he did it and would be able to follow the rules that they have to tweak their rules and I'm a big proponent of journaling it forces you to go back and review what you did and I think any time you're doing anything competitive whether it's sports or trading or poker whenever it is the idea is you got if I have a plan going in you got to try to execute your plan during the game and then at the end after the game you go back you watch the tape and you try to review what you did what you did well and what you might want to tweak for the next game so I think the journaling is huge yeah this is perhaps a question I should have asked you a little earlier but these setups that you're trading how have you come to identify those setups like where did they come from was it just purely from screen time or was it from deliberate research how have you come to identify these setups as having an edge I would say that all the time you start to develop a training method where you grabbing things from hearing and from there and you're kind of putting together your strategy your setups but you can get little nuances from different places right so I love watching you know traders on YouTube that's like you know that's that's my Netflix where I want to see what other people are doing it doesn't mean I'm gonna trade that way but I always try to learn something from someone whether it's the guy sitting next to me or the guy in YouTube and I can't say enough about how much I've learned from your podcasts I always want to try to get as much as I can from everywhere and but I still have to bring it back and make it my own and add it to my way of trading and I you know I never want to follow anybody else I never want to go to trade artists because somebody else said so it's got to be my own but I'm willing to learn from everywhere I could learn from yeah I really like that I think that's so important is to make ideas your own or like to to come up with your own ideas like you can take influence and ideas from other people but ultimately you need to make it your own like I'm often surprised by some of the emails I get you know people were asking like who's a good person to learn from it I never suggest anyone I mean yeah I feel like you've sort of got to come up with your own ideas test them it's not just like a matter of watching someone and then just replicating exactly what they do right absolutely absolutely I mean what works for me a very specific way somebody else trying to replicate the exact same same setup with the exact same rules even if they have it written down on paper in front of them it's not gonna work for them because I might have traded this set up you know a hundred times and it's evolved over time and I've made my tweaks and throughout time my confidence has grown in it and you know I turn alit and next time I see it because I've channeled it because I've taken a screenshot and because I've reviewed what I've done the next time I see it my confidence is gonna be that much higher and I'll see it much earlier than then the guy next to me who's never being traded to set up before so that's why I think following others and doing something because others are doing is it's not gonna work because your confidence in it is gonna be very low and what's gonna happen is the first time you're gonna take a loss and everybody takes losses right the first time you're gonna take a loss you're just gonna scrap it you're gonna think I it's not it's not working it's not moving averages that have to be focused on its MACD or it's it's stochastic or it's Vaughn profile or whatever the next pot thing is right yeah yeah no I completely great I completely agree Mike just to take us out here I said a little earlier there was two big things I wanted to talk you to about one of them was being consistency that one is you know I felt this is an appropriate question given the time of the year we wrap let's say for someone who you know they know the basics about trading okay they're not a complete newbie but they've been spinning their wheels right then they haven't really been making much progress over the past year or two they feel like 2018 is gonna be the year where they that they start to succeed as a trader what would you say as some of the the the best things they could do to give them the best shot of making that happen these might be basic things but you know things which might youth feel might be fundamental for a developing trader to do that's it's a great question I wish I came across your podcast like ten years before they did earlier but I'd say the first thing has to be set rules for each setup don't leave anything for emotion and and know what you want to do before you even start right have have a business plan for each set it's it's extremely important the other thing I'd say is surround yourself with with good smart people if you're if you're a retail guy and trading from home you might be on skype you know in a group chat with other good traders if you're looking for a farm you know come you know look for a good farm that has good traders and then a good setup so surround yourself with good people that are genuinely gonna teach you and work with you and mentor you on how to trade I think that's big and be careful because you know these days you know Twitter is fantastic and YouTube all that is great but I think that some people might fall into the trap of of following some gurus that you know has a training room or has DVD just buy my DVD and you know you'll do well or just let me you know mirror my trades and things like that so you gotta be careful with that it's still gonna come back and be you're on trades you know you see all these guys on Twitter and all over some of them are you know I'm sure pretty good but for everyone that's good and and and really trading there might be you know ten that's just looking to sell you something so just be aware of that and you know it just feel feel your trades you know when I have when I have positions on and I have a couple of traders shadowing me as they're learning that feels real right and and that's the way I see it and learning from someone where you can actually see what's going on as as huge as opposed to just following someone else I think that's very important subs have rules be careful who you follow there are some really great traders out there that have done some great things you know a buddy of mine smashed a bid he started everyone musically you know a really good guy and he trades well so there are some people out there that that have a real service to offer and you know you can really benefit from it you just gotta be careful not to follow too many gurus that just gonna mix you up and before you know it one day you trade one way in the next day trading another way of course yeah and I mean I know some guys on Twitter who a very legitimate traders and have like a few hundred followers like so don't only go a follower count either because yeah there are some guys who keep a low profile but also makes them some very decent money so yeah solid advice let's wrap this up Mike if someone's to find out more about you where is the best place to go so we are I have a Twitter this year because actually in 2017 I become you know more active on Twitter so it's a michael underscore katz k8e z11 on twitter and then we have our website seven points capital comm and I think I was a bit probably the easiest ways to get in touch with us okay sounds good man well I'll make sure to include those links in the show notes yeah I think that's it so yeah let's let's end it there Mike I appreciate you doing that during the chart I'd like to say Aaron thank you for for what you do the podcasts that you've been able to put together over the years are just fantastic you're able to really tap into some some great minds and I think you're you're doing a great service for traders and I recommend it to all our traders to to follow you and to listen to every one of your podcasts because I think there's a lot of value out there thanks so much I appreciate it you've reached the end of this episode of chat with traders but rest assured there are more episodes loaded with real market insight and zero hype on the way soon so to stay updated with each great new release subscribe to the podcast on iTunes and we'd love it if you leave a rating and review we'll catch you next time uncheck with traders [Music] you [Music]

Channel: Chat With Traders

Views: 76,363

Rating: 4.8398833 out of 5

Keywords: day trading, day trading success, successful day trading, profitable day trading, scalping stocks, day trading cryptocurrency, day trading strategies, day trading bitcoin, day trading lessons, day trading tips, day trader interview, stock trading strategies, stock trading basics, how to trade stocks, how to invest in stocks, trading stocks, stock trading podcast, prop trading, high frequency trading, dark pools explained, seven points capital, how to trade penny stocks

Id: zTLBb9KqDaE

Length: 59min 14sec (3554 seconds)

Published: Mon Jan 15 2018