Hello my fellow option traders. Welcome to the 45th episode of The Option Genius Podcast. 45 episodes. Man. When I first started this thing I was thinking like how many episodes am I going to have, I mean how much can I talk. It seems I guess I can talk a lot.
Well in this episode we have a very very special lesson that I do want to impart and share with you. Understand this and you can save yourself a lot of money from losses in particular. And unfortunately most new traders learned this lesson the hard way. I mean they learn it after they lose a lot of money and some of them don’t ever get it including the fellow that I’m going to talk to you about. Sometimes they just don’t figure it out.
So what is the lesson? Well I’m not going to tell you. Well I will but not right now. See before I need to tell you the lesson I need to share with you a story. Because while the lesson is great you’re not going to remember it. It’s like when was the last time you read a fiction book, you probably remember the story, and if it has a lesson you remember the lesson. But if you go read a nonfiction book you might remember it, you might not. You might just gloss over so many things and so I think that in terms of entertainment wise and for helping you to remember this lesson I should tell it to you in a story. And in fact I do have a story and it’s a true story. So that makes it even more fun. Hopefully that will help you remember it because it does for me. I mean I remember movies that I’ve watched years ago, I still remember the stories.
So here we go. You see my wife has a cousin that she loves a lot and he loves her too. He’s a few years older than her and they do, him and his family they live nearby so we do see them from time to time. Now when I first got started in trading my wife helped me a lot and I would I would learn the stuff and then I would share with her what I was learning and then I would share with her the trades that I was doing. And actually now that I think about it she was helping me get better at my trading. In fact as a side note I might never have become a consistently profitable trader without her help. And that’s seriously the truth. But that is another story that we’ll get into later on. But for the sake of this story I just want to let that my wife knows the basic of options and how they work and she actually enjoys trying to predict where a stock will go. So she has a pretty good knack for chart reading, actually much better than I am. And so when we were getting started I would show her the trades that I was doing and then I would be back testing certain trades and the trades that she would put on for the back testing almost always did better than mine which was crazy.
But so my wife understands the basics of options and trading in general. That is why she got really excited when one day her cousin came up to her and told her that he had started trading in his spare time of course. Now curiously though he did not ask me for help or tell me about his trading. He didn’t do it because at this time when he came forward and told her this I was actually doing very well trading and he knew that I teach others. He knows this. He knows about Option Genius and all that. But he only told her for whatever reason. I don’t know. People have their issues. People have their reasons. I don’t know. And I didn’t really pry or ask them but they started chatting about how he determines what a stock is going to do. He started telling her what trades he was making. A couple of the trades that he has made and he was all excited about it. And basically what he was doing is called swing trading. So he wasn’t using options. He was just buying the stocks outright but that means that he would buy and sell stocks based on the charts and what he thought they were going to do. And then he would hold them for a few days.
Now he explained to her that he liked to bet against the current move. So he’s basically like a contrarian or if a stock is moving higher he would want to short the stock or if a stock was moving lower he would want to buy it thinking that the move had to end and the stock would go back in the opposite direction. Now that’s also called mean reversion. So if something is going, a stock is moving in one direction eventually it’s going to stop moving in that direction and turn around and go back down and stocks go up and down so mean reversion is real in the markets, it just depends on how much of it there is in the stocks that you’re playing.
Now my wife also totally buys into this theory. Now me I am the opposite. I do believe mean reversion is there, it is there, of course that’s how stocks work. That’s why selling options worked so well. But I have more confidence in trends. So if I see a trend, if I see a stock is moving in one direction, either it’s going up or going down or it’s going sideways, I feel that the trend will continue. There’s this notion of the path of least resistance. The trend will continue. I mean that’s there’s this this notion of the path of least resistance. Now I don’t want to make this an episode about mean reversion versus trend following, we can do that later. But to me it’s the sense where if a stock is moving in one direction there’s a good chance it’s just going to keep moving in that direction. So why would you fight that? Why would you go against that? It’s kind of like a train. You don’t get in front of a train. You let the train go by. Then you cross the street.
So my wife and I we’ve had this argument many many times especially when we were doing the testing together and the trading together we would always have this argument. “Hey, you need to sell on the other side.” “No I want to sell this side.” So we would have this argument. But now she had somebody who thought the same way as her. So that was something really exciting to her. And she was excited for him because he was excited about it and it gave him a spark. He would light up when he started talking about it. And after that first time that they talked they would call each other every week or every couple of weeks or so and he would call her to tell her about a great trade that he made. She would call him to get an update and encourage him. And this went on for a few months really.
And then one day she comes to me and she says, “I haven’t heard from him in a while.” And I was like, “Really? He hasn’t called you. You haven’t called him. How long has it been?” She’s like, “Well it’s probably been maybe a couple months.” She got busy, my wife got busy with the kids and whatnot and she forgot to call him and he didn’t call her and she just realized that he hadn’t called.
Now to me that’s like a warning flag, like beep beep beep beep, warning, warning, that something is going on, something bad is happening ’cause when somebody is crazy about something and they can’t stop talking about it and then all of a sudden they stop. All of a sudden he’s like radio silence. Especially when it’s about trading or money to me that can only mean one of a couple of things.
So either the person got really busy in something else. Maybe the person got caught up at work or they had an issue or family problem, something happened that messed up their routine and so they got away from the trading or whatever it is. Which in most cases is not really likely because if you’re so excited about it you’re still going to find a way to do it.
But the other way, the other possibility is that the person actually did very poorly and they lost a boatload of money and is embarrassed about what happened and so they stopped talking about it. Now I know because that has happened to me and it has happened to people with the stock market throughout time. I still remember in the dot com bubble. I was younger then but I remember people in the community, people at work, people everywhere, they’d be talking, “Oh yeah I bought AOL and it went up” and, “Oh I bought this one and it went up.” And the people that were very heavy into the stock market.
I remember there’s one gentleman in particular. Every time he would see my dad he would start talking about the stock market and how much money he was making and he would encourage every single person that he talked to, “Hey you got to get into the stock market. You got to get in the stock market.” We just had the same thing with Bitcoin if you remember. Every party you would go to, every single gathering there would be somebody talking about Bitcoin. Somebody talking, “Oh Bitcoin is great. I’m making so much money, I’m making so much money, I’m making so much money.” Then all of a sudden it stops. And there’s a big loss. And then you don’t hear about that anymore. After the dot com bubble that gentleman never talked about the stock market again. He didn’t really talk to anybody. After the Bitcoin crash that we had people stopped talking about Bitcoin. “Hey what happened to your Bitcoin?” “Oh yeah yeah, I sold it.” “Oh yeah. It’ll go back up again.” That’s the end of the conversation.
So that’s basically what happens. It’s really two things. You either get busy or you have a loss and you’re too embarrassed to talk about it. Now I didn’t know which one it was in this situation. And I explained this to my wife and she’s like, “Hmm, I guess maybe I won’t bring it up if that’s the case.” And I’m like, “Yeah that’s probably the best thing.” Because in this case he never really told us how much. We didn’t really approach the subject but after a few get togethers it kind of started coming out that something happened. And in the beginning he denied it. He denied that there was anything wrong. But eventually we found out that it was a lot of money. I mean enough to cause him and the family a lot of stress, to cause marital tension and actually a change in their lifestyle. So I mean it was pretty dramatic, pretty bad.
So basically his wife put an end to his trading which is probably for the better. But, there’s a big but here. And if this ever happened to you, if you’ve ever been into trading and you’ve lost money you know that it’s not as simple as, “OK I’ll stop.” This is trading. Once you get bitten by the bug man you cannot stop. Even if you lose a ton of money you’ve got to give it another go. It’s addictive. You’ve got to give it another. You can’t just take that from market and just take that loss and be done with it. No you’ve got to get that back. I don’t know, maybe it’s testosterone. I don’t know what it is. It’s your machismo, whatever the problem is. But we as traders we got to go get that money back.
So recently they came over for another get together and I just needed to go to the store to pick up something, we didn’t have it at the house. So I went to the store, picked up something and his son came with me to give me company. So that was cool. And as we’re talking he mentions that his dad has just quit his job. Now this conversation is probably two or three years after the whole trading debacle. So he tells me that his dad just quit his job and I’m like, “What?”. I was shocked. Like what is going on. “What do you mean he quit his job? Why did he quit his job? Did he get another job?” “No he didn’t get another job. He actually wants to trade full time.” And I was like, “Oh so he goes from working full time to quitting to trading full time. So was he trading part time before this?” He goes, “Oh no he wasn’t trading part time but he just felt he had to do it.”
It’s like uh oh. You can see where this is going. So I’m like, “OK that’s cool. I hope he does well. If he needs anything, you can tell him . Are you helping him?” Because his son had learned a little bit about trading. I’m like, “You helping him? You doing it with him? If he needs anything, let me know.” He goes, “Oh well yeah. No he already quit.” I’m like, “What do you mean he quit? He quit the job?” “No no no. He quit trading.” I’m like, “Wait, you just told me he quit his job.” “Yeah. He quit his job last week and then he traded for a week and now he’s looking for another job because he quit trading.” I was like what, this makes no sense at all. What is going on in his brain? I mean what did he do? He lost so much money in a week. What was his plan? Just what the heck.
And that’s the problem. He didn’t have a plan. He just decided one day to quit his job and started trading again. Whatever he felt like. No plan, no system, nothing. And the kid tells me that now he’s really beating himself up and mom is really pissed at him. Of course she’s pissed at him. She told him to stop the trading. Somehow, I mean he must have told her that he’s quitting his job or maybe he didn’t. I don’t know what’s going on in their household. But you have a guy who lost a lot of money. His wife told him no more trading. All of a sudden he quits his job. And they needed both incomes. So he quits his job, goes full time trading, loses I don’t know how much money, if he lost. I don’t know what he did or maybe he realized he couldn’t do it, don’t know what he’s doing. And now he’s looking for another job again. But I was like, “Man he had such an awesome job, he’s not going to be able to find such a good job again.” Like, “Yeah but he was getting tired of it and he wanted to try something new.” Okay. That’s fine.
Unfortunately I’ve heard this story many many times. Traders being full of confidence, heading into the markets with very limited trading knowledge. Thinking that all they have to do is click a few buttons and then they’re going to make millions. Until they get hit in the face with reality. Because if you don’t have a plan, you will not succeed. If you do not have rules, you will not succeed. You cannot simply watch a YouTube video or like a one hour webinar and think you know enough to be consistently profitable. It just doesn’t work that way. You need a real trading plan that is tested in real market conditions with real money. You need a real strategy that works and not only works for just a couple people but has worked for a lot of people, has a track record. And you need proper money management to limit your losses and to provide you with stability.
So let me … please don’t go all gung ho, guns blazing, end up with a slap in the face, cause this ain’t no video game where you could just hit the reset button and start over. Once the money is gone, bye bye, it’s gone, it ain’t coming back. That’s why experience is crucial and if you do not have experience in trading you either need to get it through actual trading or paper trading or back testing or you need to pay somebody with experience to teach you the proper way to do it. Now trading education can be cheap or it can be expensive depending on how you look at it. The price is the price. How you look at it, how you think about it is what determines if it’s cheap or expensive. I mean in dollar terms it might sound expensive but over the years how much can it make you and how much money can it save you in losses. That’s what you need to really look at.
I mean if you buy a course and you learn one thing that makes you better that’s worth it. If it causes you to make one less mistake it’s worth it because every time you make that mistake in the future you would probably lose money. And so if this stops you from making that one mistake over and over and over again it’s definitely worth it over the long run. Because when it comes to trading learning on your own is probably the most expensive way to go about it because not only will you lose money you will not make as much as you could. And those missed gains, the money that you miss out on will not get compounded. We won’t have that money to make it grow and grow and grow. And so taking a class that costs you 1000 bucks can stop you from making a mistake that costs you hundreds of thousands of dollars over your lifetime. And I’ve seen this happen over and over and over again.
I mean that’s it. There you go. That is the lesson. Do not trade without a plan. Know what you’re going to trade, how you’re going to trade, what you will do when things go right and when they go wrong and how you will protect yourself from losses. I’m just gonna repeat that. Know what you’re going to trade, how you’re going to trade it, what you do when things go right, what are you going to do when things go wrong and how will you protect yourself from losses. You figure that stuff out, boom, consistently profitable.
And one more thing. Come on guys. Don’t quit in a week. What the heck is that? How do you go from, “I’m going to quit my job and be a full time trader” to, “Okay I give up in a week.” Jeez. It’s a good thing he doesn’t listen to this podcast. He would be really pissed if he heard me talking about it but he doesn’t listen to it so it’s okay. I mean your dreams are worth the effort and time it takes to do this properly. Please don’t wuss out in a week. Huh? I mean it can take whatever long it time it takes but everything you learn will make you better. Every minute that you spend to learn, every podcast episode of mine that you listen to, every course that you take, every email that you read, well not the stupid markety ones but the ones that actually have content, they will make you a better trader. The more time you spend on your trades trading, the better you’ll be. But it’s not going to happen in a week. It’s not going to happen overnight. It might take a year, two years, three years and we have other episodes where I go over how long it should take you. So if you want to know what is a good timeframe then check out our other episodes. But seriously your dreams are so so important that you just can’t give up on them.
Because what is the alternative? You’re going to live in a humdrum boring insignificant life? I don’t want that for you. Not when there’s so much out there that you could be doing, you could be enjoying your life, you could be doing whatever you want to do. You are on the right path and I’m super super excited for you, that you are on the right path. If you are listening to this you have the access to the knowledge, to the ability, to actually make all your dreams come true. To have this stuff work for you. Because it’s not that complicated. It’s just about doing the work. It’s about having the plan, going through the procedures, going through the motions, doing it over and over again, fine tuning it so that you do not make the mistakes. But if you go all gung ho and just trade whatever you can and not have a proper planning plan, not have a proper strategy. If you do it that way, the way this fellow did it, you’re going to end up in the same boat. Time’s gonna go by, your money’s gonna go away. Your wife’s gonna be pissed at you. Your kid’s are gonna be mad at you. And you’re not going to have anything to show for it.
I don’t want that for you. I want you to have everything you deserve, everything you want. And when you’re selling options and you’re trading passively you can have that. Because if you don’t have any other examples and just look at me, I am the example. I have been able to do it and I’m not some Harvard graduate Wall Street person. I learned the hard way and it took me years and years and years. It doesn’t have to take you that long because I’ve given you all the stuff, I’m giving you all the knowledge. I’m like, “Here. I do this. Do this, copy this.” And just do it. But you got to have the plan. You got to have the formula. You got to have the methodology. And then you have to have the practice and the patience to do it over and over and over again to nail it. And then once you do man, the sky is the limit. There is nothing holding you back.
All right folks. So take from this what you will. I hope the story helps. Please don’t quit in a week. Please don’t quit. Don’t quit on yourself. You have everything you need. Your dreams are worth the effort and the time it takes to do this properly. So that’s it for this episode. Don’t forget, always trade with the odds in your favor.