Episode 249: You Can’t Do This – Part 3

by robbooker on April 28, 2014

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In Episode 249, your host Rob Booker wraps up his three-part “You Can’t Do This” series. I think we all suspected there was going to be some kind of twist to these past couple of episodes, and it turns out — we were right. Rob talks about the prevalence of naysayers and the remarkable success rate of traders. Rob spends some time during this episode responding to blogger James Altucher, who has some dismal thoughts about the prospects of trading. Be sure to listen!

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{ 8 comments… read them below or add one }

Scott April 28, 2014 at 2:43 pm

First off love the show it beats all the other boring podcasts that just say buy or sell or we are all horrible without there help. I have been trading for the last year with a very small account and have been successful trading stocks and am learning the forex market. I have a question about any type of trade you are in, if i am a swing trader and whether it be stocks or currencies i don’t care but if it surpasses the time allotment for your trade plan do you get rid of it even if the security has not hit a stop loss or gone into profit, basically you entered the trade and it did nothing, what are thoughts on this? Yes and try to make your show more boring so that i do not have to spend my time listening to all the shows from the past and wondering what the next show will be about???? (Sea Monkeys)

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Warren, a Trader House Contestant April 28, 2014 at 7:02 pm

This is walk into the Light-Rob

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Brian April 29, 2014 at 10:54 am

I never heard of Mr. Altucher before, but I thought it wise to read his post before commenting on his views on daytrading. I thought it was a great post. I definitely did not agree with everything he said. In fact, there was a lot I didn’t agree with, but then again, that was one of the themes of his post, nobody knows, and you can’t woodenly agree with anybody, even a professional.

1. Saving: His comments regarding forgetting about saving and focusing on making more money are just another chicken vs. egg argument. Yes, multiple steams of passive income are important, and demand your focus if you are ever going to get them, but you can never make more money than your wife can spend. You HAVE to control your spending. It’s the easiest and most guaranteed way of possessing money. Each dollar you don’t spend represents a guaranteed 100% return on “investment.” That kind of money isn’t available anywhere else in your life, regardless of your skills as a trader. Jesse Livermore couldn’t produce a guaranteed 100% return trading, but you can by keeping your wallet in your pocket.

2. Daytrading is a Guaranteed Way to Lose: Mr. Altucher makes some great points, however he’s wrong. In fact, most traders look at trading the same way, and that’s why they lose too. Your goal isn’t to make money daytrading, it’s to just make money. Making money is the only measuring stick of success in this business. The best way to learn how to trade is to study day trading. For example, you can read a thousand books written by the icons of investing, you know, the people with pearly white smiles, and not read one friggin word about probability, position sizing, and money management. You HAVE to study daytrading to ensure you learn the business, but that doesn’t mean you have to daytrade. That assumption, that you will be successful and make a fortune day trading, defies the odds. Let’s examine the winner’s circle and see why.

3. The Winners Circle: The barriers to entry into the winner’s circle are extremely low on longer time frames. In fact, mom and pop types and complete idiots often do quite well there, hence the adage, “Any fool can make money in a bull market.” The educated and capable do even better on these time frames. On the opposite end of the spectrum, it’s not so easy to win. On very short time frames, there are otherwise intelligent, educated, patient, and hardworking traders pitching their monitors through office windows. Daytrading isn’t impossible, it’s just a very competitive environment guaranteed to give you quick results. ALL of the mom and pop, and all the idiots, are weeded out immediately, and most of the smart, educated, and hardworking people too. The important point for the purposes of this discussion is there’s a grey area between these two extremes. Trading grows increasingly more difficult as you shorten your time frames, AND EASIER AS YOU LENGTHEN THEM. Rob himself observed this fact when he noted how much better he was doing in his forex trading lately. The problem with traders is they think they have to daytrade. Why, oh why do we do this to ourselves? Maybe you wanted to be a wide receiver in high school, but you have junk in the trunk and can’t clock an sub 8 second 40. In football, you instinctively know you’re a lineman, but only in trading do we keep pounding our heads against the wall to become daytraders. All you HAVE to do is to STUDY daytrading. That enables you to go out and make money on whatever time frame works for you. For most people, that’s not going to be on a daytrading time frame. There are tens of thousands of winners along the spectrum from short term scalpers to long term position traders. Do you want to be rich or do you want to be a daytrader? Take the easy money.

4. Trading for a Living Isn’t Possible: Both true and false. For you it might be false, but the odds are againt it. First, even if you have the talent, unless you live in your mother’s basement, your personal financial needs will be a constant drain on a small account. On the other hand, if you have some other source of income, you eventually WILL be able to live off of your trading account, because you will be able to leave those profits alone and compound the account until it’s big enough to suffer your withdrawals for personal needs. It’s a catch 22 situation, you can’t trade position sizes exceeding 1-2% of your account size without increasing risk, but you won’t survive making them bigger just to satisfy your monthly financial needs. Tough luck, so solly Charley. You can make it your plan to take hundreds of trades everyday and live off of a small account, a plan which only a fraction of a percent of traders succeed at, or aim a little lower and get rich slow. Play the numbers. Most traders fail. The remaining winners mostly DON’T come from day trading. And even among the small fraction of winners that daytrade, most got rich slow. Therefore, a logical person who wanted to get rich would do the one thing with the highest probability for success, find a nice time frame they can handle and get rich slow.

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Brian April 29, 2014 at 11:00 am

4. Trading for a Living Isn’t Possible: Both true and false. For you it might be TRUE, but the odds are againt it.

Sorry, typo (why can’t we edit these posts?)

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Zombie Trader Ben April 29, 2014 at 11:07 am

Thanks Rob! I needed that. Bring it, market. I’m going to kick your a**!

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Brian April 29, 2014 at 12:45 pm

This is on point in our discussion about Jason Illtouchher’s lament about how active trading is bad and buying and holding is good. Personally, I never liked buy and hold. Any idiot can make money in a bull market. Then those idiots strut around like they know something. Making money buying and holding is like surviving a plane crash, finding a valise of cash in the wreckage, and then patting yourself on the back because “crashing planes is an intelligent method to make money.”

I don’t call tops, that’s the beauty of being an active trader, you don’t have to. However, when the NY Times publishes an article entitled “The Illogic of Active Trading,” an article amounting to a warning about the dangers of taking control of your own account, I’m not above screaming “DISTRIBUTION” in a burning market. I guess the Times doesn’t want the bagholders scattering everywhere just when it’s time to step up and hold the bag.

http://www.nytimes.com/2014/04/28/your-money/stocks-and-bonds/the-illogic-of-active-trading.html?_r=1

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Quin April 29, 2014 at 1:53 pm

Hi,

I happen to like a lot of what James Altucher blogs about. But in this instance he has lost credibility! If you are not aware, he currently has a partnership with Stansberry and Associates Research (they publish financial news letters) whereby he hosts a podcast. Now of course it would be a conflict of interest to come out in favour of day-trading as this research firm does not promote day trading.

Although he may actually believe day trading is throwing money away, the fact that that he has this partnership makes that particular post suspect.

Just saying

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erijk May 29, 2014 at 1:25 am

A better person does not make a better trader

Scottsdale AZ

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