The Ultimate Day Trader, Pt. 1 · Lance Breitstein

Lance Breitstein shares his journey as a top proprietary day trader, discussing his early struggles, trading strategies, and mindset for success.

Key Takeaways

Success in trading requires persistence through early failures and continuous learning.
Mentorship from experienced traders can significantly accelerate skill development.
Understanding market psychology, especially capitulation and weak hands, is crucial for day trading.
A distraction-free environment can enhance focus and trading performance.
Behavioral finance principles are key to managing risk and improving trading decisions.

What the video covers

Lance Breitstein discusses his nine-year career as a discretionary short-term equity trader at proprietary firm Trillium.
He shares his early interest in trading sparked during college and his decision to pursue it professionally.
Lance started in a small satellite office in Princeton, focusing intensely on trading without distractions.
He trained under the firm's top trader, gaining valuable mentorship that shaped his trading approach.
The episode covers Lance's slow start, moments he considered quitting, and how he overcame challenges.
Lance explains his expertise in trading around market capitulations and understanding weak hands.
He emphasizes the importance of behavioral finance and psychology in trading success.
The conversation highlights Lance’s record-breaking performance in 2020 and 2021 after this interview.
Lance resigned in 2022 to pursue alternative growth and philanthropy, allowing this interview to be released.
The episode is split into parts, with future episodes planned to cover his career progression and insights.

Chapters

How did Lance Breitstein get started in professional trading?

Lance became interested in trading during college after reading about the stock market. He joined proprietary trading firm Trillium right out of college and started in a small satellite office in Princeton to train under the firm's top trader.

What trading style does Lance specialize in?

Lance specializes in discretionary short-term equity trading, focusing on intraday trades and various strategies including trading around market capitulations.

Why was this interview withheld initially and when was it released?

The interview was recorded in 2019 but withheld at the firm's request. It was released after Lance resigned from Trillium in early 2022 to pursue other opportunities.

Full Transcript — Download SRT & Markdown

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Markets, speculation, and risk. This is the Chat with Traders podcast hosted by Aaron Fifield. Ladies and gents, I get the feeling this episode is about to be a new favorite for some of you. Welcome to episode 228 featuring Lance Breitstein. Lance was a senior trader at proprietary trading firm Trillium and manager of the Chicago office, a secondary location from its headquarters in New York. He has trained, mentored, and refined dozens of top discretionary intraday traders while arguably being Trillium's best trader in the firm's history. This episode was recorded in 2019 prior to Lance going on to set the firm's all-time P&L record with landslide wins as top trader in both 2020 and 2021 after consecutive eight-figure years.

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At the beginning of this year, though, 2022, Lance resigned from Trillium so he could better focus on alternative growth opportunities and philanthropy. His resignation also means that we are now able to release this interview after having withheld it at the firm's request.

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So it's important to note that this podcast solely reflects the views of Lance and is not representative of Trillium's views. Now, before pressing record on this interview, I asked Lance how long I had him for. He told me he had blocked out about

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two and a half hours, and I laughed as I was sure that we wouldn't need that long. But sure enough, without any trouble, we went on to speak for over two hours. Therefore, I've decided to split our conversation into two parts here. This is

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of course part one, and part two will be released in the coming weeks. So please make sure you subscribe to Chat with Traders wherever you're listening now. That way, you won't miss it when it drops, and follow me on Twitter

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too for updates at Chat with Traders. You may also like to note there will be a part 3 at some point in the near future as Lance and I have already planned to do another episode to fill the gap between when we recorded this to

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now. So in this first part, you'll hear Lance speak about his slow start and early development, and one bit that I found particularly interesting was hearing about how he seriously considered giving up on trading. He also goes on to speak about trading

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around capitulations. Now, although Lance trades various strategies and plays, he's become very good at understanding this market phenomenon. There's also plenty more packed in, but we're going to get right to it. This man is an absolute weapon, and I'm certain

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this episode will motivate you to do better, clear any distractions, get in the zone, listen from beginning to end. Here is Lance Breitstein. Obviously, I know you as the trader you are today, but I know you had quite a long learning

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curve, so I'm very interested to sort of find out more about that. Just before we go into that too far, just to put some perspective around this, how long have you been trading for today? Sure, so I believe this is, I believe

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we're into my ninth year at this point. Okay, nine years, and it's all been short-term equity trading. Okay, so you never experimented with any other products or any other styles? That's just the first thing you came across?

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Yeah, maybe in college I've fooled around with options here and there. I've done some futures on my own and definitely tinkered here and there, but as far as professional career, it's been all focused on just discretionary

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short-term equity trading. Okay, and those nine years, have they been as a prop trader, or were there a couple years prior to going into prop trading where you were just trading a retail account? So all prop trading, all with

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Trillium, where I'm one of those rare people where in college, probably even maybe by my sophomore, junior year, I had never known anything about stocks, but I somehow started to read about it, and the more I

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read, the more I was like, wow, this is really what I want to do. Kind of the qualities that allow you to excel, I think I have this, and kind of the ethos of the job really lined up for

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me. And so pretty much right out of, right out of college, I worked for Trillium, and I've been there ever since, which I think becomes more and more rare these days when people tend to really hop around a

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lot with careers of all kinds. Did you have, like, going into professional trading, was that something you had intended on doing while you were at college, or did you have something else in mind, and this just sort of came up?

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I think originally going to school, I knew I wanted to do business for probably no special reason other than it sounded interesting and exciting. And maybe the beginning years, I would have been open to entrepreneurship or maybe accounting or maybe finance or maybe

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this or that. And it was some, I can't even tell you the name of the book. It was maybe it was something, The Little Book to Stock Market Investing or something like that. I picked up some book knowing pretty much nothing about the

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stock market. I'm like, whoa, this sounds kind of cool. Like, how can you take money and just compound it into more money? That seems, that seems, you know, if you're going to learn a good skill, that seems like the skill to know.

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And the more I read, I just became a vacuum where it just got me more and more interested and more and more passionate that what the career offered was something I was interested in. And so probably even

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by my junior and senior year, I was very, very gung-ho like, this is what I want, this is what I'm gonna go for. Okay, well maybe we should talk about your first 12 months once you recruited out of college

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and you started at the firm. What did that look like? Sure, so, and I think this is interesting enough even how I started, the way I started is we had a little satellite office in Princeton, New Jersey, and the main office, the main trading

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floor, to this day, is in New York City. We've got over 100 traders on that floor. I'd imagine it's one of the largest prop trading floors [Music] out there just because the industry is pretty small at this point.

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And our top trader at the time, who had been top trader for probably 10 years, he had kids and he was tired of the city life, so he opened this little satellite office. And fresh out of school, almost everybody

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wants to work in New York City. They want the Big Apple, they want the excitement, they want Wall Street. And so our top trader is out in Princeton, and he was willing to take on and train two guys that year.

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And to me, in my mind, the opportunity to train under the best trader at the firm and the most winningest, I mean, to this day, from even 10 years later, so knowing the industry, he still might be one of the

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most winningest day traders I've ever met, probably by even a long shot still. And so for me to know that that opportunity existed, it was no questions asked, I want to apply to work in that office. I want

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to work under this guy. I don't care about this, the city, I don't care about the social life. All I want to do is give myself the best shot at this job. And incredibly, to me, not that many people

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had applied. Everybody wanted to be in Manhattan. And so from the very start, I had that one-track mindset where it was, I don't care about that stuff, I don't care about the glamour of Wall Street. I

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just care about making it. And so I started at this small, it was just, it was almost like a cupboard of an office, the exact opposite of what you think of as this huge glamorous trading floor. It was just me,

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another guy that started with me, and our boss training us. And essentially, I was living in Princeton, New Jersey. I knew nobody down there. It's not much of, it's not much of a party town. Like, yes,

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they have the college, but if you're a young professional, you're just alone out there. It's a lot of families, and most people probably would have been driven nuts by it, but for me, that was even, even more perfect

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because that just meant I had no distractions. I wasn't distracted by going out drinking on the weekends. I wasn't distracted by the appeal of trying new restaurants and bars and all sorts of things for

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they have the college but it's if you're a young professional it's you're just alone out there it's a lot of families and most people probably would have been driven nuts by it but for me that was even even more perfect

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because that just meant i had no distractions i wasn't distracted by going out drinking on the weekends i wasn't distracted by the appeal of trying new restaurants and bars and all sorts of things for me it was just that one track

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obsession of like let me sacrifice and do everything i can for these these first couple years just to try and make it over that learning curve how helpful was that obviously everyone as soon as they hear that you were able

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to train under this guy who still considered to this day to be um just an incredible day trader maybe one of the best who you've you've ever met how much were you able to take on from that and how helpful was that

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exercise that's something i think a lot think about a lot is what would i have been like under a different trainer and the truth is you you never know um and and really what i attribute certainly what i attribute

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to him really comes down to two things first of all at least at our firm you get really close mentorship with that that trainer set up so he was the person essentially sharing his system with me why he did what he did and he was

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largely essentially just a technical traitor pure technical analysis and the level of attention and detail that he put into the job because he he learned from scratch he had he learned within the firm but he had no mentor like like like he was himself to

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me so much that he was trading through and his system was developed through his own hard work and i i remember even he would just have notebooks upon notebooks upon notebooks of printed out charts and these charts would be

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dissected to the smallest detail what what the first part you know he would number all the bars and he would write up the details and the implications of of all these nuances and so at the least i have him to thank for

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a lot of the the basics of of my lens because today i do all sorts of trading but it's all from the lens of technical analysis as well and all my trades are structured that way and i view that as essentially

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the the psychology of what what the market is saying about a stock and so that was beneficial in that i was learning from a big time michael jordan i was just learning his system and seeing it firsthand but then

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i think also maybe even more important because the reality is within within trillium everybody has has edge and tons of other trainers have edge but what was very unique was i was essentially sitting next to one of the largest day traders you know

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that that in the industry and you could see the traits that made him so great and even simple basic things like if you were if you were up two thousand dollars you weren't up two thousand you were just up to if you had

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50 000 shares you weren't it wasn't 50 000 it was just 50. you know we were thinking in thousands you know he would he would really make sure to train the mind without those limiting beliefs he had the mindset if if somebody else can do

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it why can't you why why can't you get this this size why can't you be the whale on the market and and even all those i think probably by the time i started training under him he must have been

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maybe maybe 10 10 years in or so himself i guess about where i am now and he still just had that that respect for the market that passion and and was still trying to just say to himself okay what can i do better what

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can i what can i do with with down time and when it's slow how can i how can i better things and that most just seeing a freedom of limiting beliefs and seeing the person next to you get size and

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being able to see somebody make as much money as he did and just say hey why can't i be like that that is almost the most valuable aspect i think to a lot of training and and the the benefit of having

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that mentorship type training do you put it down to like this experience um and working under this trader is that where because i know you as a person today uh you're very focused on improvement growth mindset getting better and better each day

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did you have that mentality to some degree before uh mentoring under this trader or is he largely responsible for for pushing that on to you i think i always had that mindset to some degree i was always and

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and especially as i've been doing this for a while i i definitely like trading in stocks but i think my ultimate passion might actually be just self-improvement and kind of optimizing and refining the system that is your own life

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and right now really all you know i spend so much free time just constantly reading the latest books the latest literature it's kind of been like my lifelong obsession so i would say it it always was there but he definitely

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applied a lot of it to the to the realm of the stock market and and just knowing like the way he would he would systemize different things where if if you were to take different plays he would really systemize what does

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one extreme look like so when is the most just just very basic systemizations for example obviously like liquidity is way better than illiquidity as far as trading goes and if if you're trying to get size in something you know a large market cap more liquid

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stock is obviously going to be more safe than a lower market cap illiquid stock and the same way of using these extremes to really apply to to different trades and different chart patterns um he definitely had dissected a lot of

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that um pretty well so it was really seeing taking that interest and i guess seeing how it can get applied so well to to stocks and just trading in general and i guess the question i was trying to

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ask you before but i um couldn't really get it out properly is those first 12 months or however long it was were you were you profitable fairly quickly because you had access to this particular trader like his trading ability did that rub off on

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you ah so that's yeah that's a good question so i was one of the slowest learners in my class i was not i did not have a profitable month for my whole first year of trading um not even close i don't think and

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incredibly enough despite having access to this learning environment um for for various reasons i was i was a slow learner i think and i think naturally i'm much more of a thinker and more reflective i'm not good at quick decision making which is

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essentially the opposite of of day trading and certainly the stuff i do now and i think it just took me so long to really refine and also learning under him was also in a way just just drinking out of a fire hose where here was some

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guy that was doing so many strategies and processing so many factors and so many nuances that in order to build up profitable edge at those strategies and incorporate all that it just took a lot of time and what was interesting along that that

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path was and i'm sure much of this was to his frustration but i was i intellectually understood everything the psychology of what he was teaching me made sense the technical analysis of it all made sense but actually executing in real time

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it just it was just the endless struggle for me and where i think i took things from a learning perspective to the next level and where i think my kind of uniqueness is is whereas he had systemized trading i kind of

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became an expert in almost like meta learning and how to go about learning and i really took his system and broke down hey what's the most effective way for me to learn all this and once i started systemizing the learning process and

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thinking about okay what's the easiest money out there not necessarily the biggest not necessarily the the best money but what's the easiest layup what's the most replicable pattern what's the most replicable play that i've seen a couple times where can

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i really build my chops on something very very easy and once i started systemizing how to go about learning and improving that's when i really really took off and things got pretty parabolic for me pretty quickly okay and how far into your trading

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career do you think that was so let me think so i i probably so i was negative every single month for the first year i then had a couple positive months over the next six months but then going

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into that second year milestone so around the 24 month mark that's where things started to pick up and i hit my 100k milestone so in our firm the 100k milestone which is net p l is when they really kind of say hey

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you're you know you're no longer a rookie you're all grown up in our eyes you're you're now a man little boy became a man and uh so it took me two years for that now here's the crazy part if it took me

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200 sorry two years to hit that 100k within within probably two or three months after that i hit my 200k and even i think by the end of that calendar year i was i was probably putting up 100k months um where it really just did

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scale so quickly for me because i i almost equate it to to the poker table where if you have the fundamentals down and if you've kind of gained edge and you're doing things well with that edge adding size and scaling

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can actually be one of the easiest and fastest parts as long as you kind of stay consistent with with strategy and and so for me it was it was one of those things where once i built that confidence and got that

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positive feedback loop you know i just i just took off from there and and i never stopped working and i never looked back would you contribute some of that that rapid growth and p l to your own confidence as well

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like as soon as you hit that 100k it was almost like uh or maybe not as soon as you hit 100k like on that day but as things started to build up you feel like you became more confident in your own

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trading ability was that did that play a factor in it or not so much oh 100 and i think a lot of people always ask was there some magic moment or was there some turning point and some people do have that moment but it

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wasn't for me i think for me it was each day when you try and improve each day and be that little bit better you make some small changes so maybe on one day you avoid that little loss you would

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have taken and maybe that that next day you're like oh i recognize this you know last time i made 100 bucks in this now i'm going to try to make 200 or 300. and it's that the aggregation of all those small

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little changes you make over time that eventually lead to hey rather than having a negative 100 day i made 300 today and that positive feedback then compounds where then you say to yourself hey like i remember this this pattern

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and this setup i made 200 bucks last time like this was great this was killer you know what like i'm feeling ballsy today i'm gonna make i'm gonna try to size it and really try to make 300 bucks

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once you get that confidence it and i mean i've i've i think it's true to almost any domain that when you build through small wins it it really does snowball and then the beauty of sitting next to my trainer

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was you might be getting 200 shares then the next time you get 400 but then once you start doing it consistently and doing it well you're looking at the guy right next to you and when you're when you're

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puffing your chest out because you have 500 shares the guy next to you is one of the biggest traders on the street and he is 50 000 shares and you say to yourself like [ __ ] like i've got so much room to go like i

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should have really had a thousand and that really just catapulted things so much quicker when you're sitting next to something like that and and you just see the the depth and how how far you can take things um to the extreme

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and and you know again at that you know even with online poker if you start winning it at the at the one dollar two dollar table going to the 510 then the 1020 and the 5100 you can you can really do that

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ramp so quickly especially in trading because the the players don't really get any better you're playing against the same players but you're just adding more size so it's almost easier than in poker to uh to ramp that up

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you know accounting for a slippage and whatnot that's the only factor now i feel like we might be getting a little bit away from this but i just want to go back a step because when uh we had spoken prior to

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this conversation we're having right now you had mentioned to me that there was a point where you had considered quitting and giving up on becoming a trader um can you tell us about that moment yeah that was yeah i definitely skirted

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over that and so essentially for me um back then at our firm the salary was a measly 26 grand which is uh you know barely enough to keep the roof over your head i had student loans i didn't really

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have other sources of money to help fund my living and i think after a certain amount of time you start to ask yourself like hey like i really love this job but i'm putting all this effort into it and i'm

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not really seeing the light at the end of the tunnel and and you start to have that doubt and start to question yourself and ask can i do this do i have what it takes and it gets a little bit scary because

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you don't know if you're going to make it out the other side and that's especially with retail traders i think that's what can be so dangerous and so tough is how much time and money do you invest into

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into your passion and the reality is life has an opportunity cost i turned down a job at a bulge bracket a top bulge bracket bank sales and trading i would have been in new york city earning you know six figures a year right out of

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school like life life would have been great and there i was just alone in princeton just just blood sweat and tears putting every hour of every day and and just every breath and thought into trading and after a year

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when you're at the back of the class and you're saying to yourself man like me maybe like my heart's in the right place but i just don't have what it takes and i think i think it's a rational real

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conversation you know you got to be a you got to be a nut job at some point to just not question things when when you don't see any results and when you put i've never worked like that before and i've

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never i've never struggled like i did school came easy to me any struggles in school if i just studied a bit i'd i'd ace all the exams and if i whatever the case may be i had never really

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hit a brick wall like that where i was just towards the back of the class at something and so sure enough i was reaching out to my contacts and and i was interviewing at other places i think i interviewed

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like d.e shaw and some some other firm i don't i don't remember and and thank god those places didn't give me a job you know thank god i botched the interview somewhere um because that would have been the

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worst mistake of my life had i left and so many people do ask like when do you give up and i think the big differentiator with with myself was even though i was not making p l i i intellectually understood things and

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i was still making progress i was just making progress at a slow pace and as one of my favorite books atomic habits would say it's like that boiling pot of water you might be applying all this energy and all this heat and that

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water is heating up but it's only until it really reaches that breaking point where it starts to boil and you can't really see that underneath the surface so i think sometimes you just need to go by the fact of

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is is this what i love and do i at least see enough progress and set very small discrete goals and it was one of those things where as i was interviewing in in the spring of that that next year

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i had i was speaking to some of the other guys in my group um some of my other friends i was like what do you what do you think and a couple guys were like trust me just stick with it i can

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tell you get it i can tell you get it it's going to be a big mistake if you leave like maybe just set some some time stops hey maybe i'm gonna if i don't do x by the second year i'm gonna be out

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or if i don't have a couple positive months by two years in i'm gonna be out and so i think somewhere i i started to i was in i was definitely on the ledge where i was interviewing and i was setting that

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stopper it's like hey if two years in i don't have some positive months and some glimmers i i as it's much as much as it will break my heart i gotta go and sure enough in that spring while i

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was interviewing um there was this there is this technical pattern that that my boss just loves it's it's kind of like it was just essentially an exhaustion gap and he's super nuanced about which ones he gets involved in and this was one of

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those like just once a year twice a year plays where the pattern was so perfect and pretty much it was something i had seen a couple times and i just i just piggybacked with with my boss and and i

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understood the pattern i saw the pattern and that was the first time where i really executed for size and i think a normal day for me a good day a good day was probably one grand and i think i maybe put up like 11 grand

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that day and i just said holy [ __ ] like i can do this like i really can do this even if this only happens a couple times a year i can add size to this and i can

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replicate and do this and that if there was any turning moment for me i guess it was that trade where it was good enough and it was slow enough that i could process and i could connect the dots and i just knew like

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this this is a really good setup and i just put the size behind it and i just knew like lance you might not have that much time left like this might be one of the best things you see in in your limited months left

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and if you love this like now is the time to just just swing hard and and that really did buy me a lot of breathing room for sure do you think if those two years had come and you hadn't

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uh put up a few positive months as you mentioned that you would have left yeah i think i would have had to because i love trading but you can also scratch that itch at other jobs and i think

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there was a very real fear where you you have retail traders or other traders or all sorts of people and or even entrepreneurs because i was also interested in entrepreneurship where you see people with massive opportunity costs sinking

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in their their time and money and you need to stop much like any trade a trade is a decision of of risk and reward and it's a very dynamic calculation right the the risk is always changing your opportunity cost is always changing that

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that potential reward but most importantly the probability of success is always changing and so when i started that job my probability of success you know it's it's it's it's biased every single person when we start with the class of 25 people every single one

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of them knows the odds of success and every single one of them thinks by definition of them being there they're going to be the one that succeeds but mathematically it's it's impossible and so i was one of those people too that said

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oh look yeah i know everyone fails but i'm different i'm gonna work harder i'm gonna be more competitive i'm gonna i'm i'm as smart as anybody and it was one of those things where over time when you have zero positive months

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that your internally assessed probability of success has got to be going down and i think i was definitely getting close to that point where hey my probability of success is so low that i don't think the risk outweighs the rewards and like

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there is there was a huge social cost um in that you know i was just sacrificing all my time and energy i wasn't having fun outside of work i wasn't making friends i wasn't living in a city i had student loan debt you know i had

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my family definitely needed money and and needed help um so i was yeah i was probably as close to pulling the trigger as as you could have been and um yeah it's it's just honestly a miracle that things panned

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out well enough to to go from from where i was to where i am now yeah luck call it luck hard work the mixture of the above but yeah it was things worked out well for how they did

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it's very interesting to hear about this because it's it's something we don't really talk about much actually and i'm just thinking back to previous episodes and i can't even really think about when we've talked about you know when is it the right decision

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to give up on trading because often you know we think about throwing in the towers often like you know accepting failure accepting defeat walking away so it's interesting to hear how how you dealt with these thoughts and how you managed it

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yeah and i think it's a huge issue that whether it's entrepreneurship or trading you just have such major selection bias by definition anybody on your podcast is one of the point one percent that has succeeded at one of the most competitive

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difficult industries in existence and the voices that aren't heard whether in this or in entrepreneurship are the other 999 out of a thousand people that might have you know blown their savings or might have wasted years upon years or might

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have gone into debt chasing after with their entrepreneurship dream or their trading dream and i i don't know if most people are aware of how that selection bias how real it is um it was something i definitely was

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aware of is as being somebody that just loves behavioral psychology and took the behavioral psychology classes in school and stuff i knew that like one of the most basic biases is people themselves don't think they're affected by biases

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you know if you ask somebody did you overestimate your probability of success at t equals zero everybody will be like hell no of course i'm not overestimating my chance of success like this is this is truly what i think

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and but like i said if if say 4 out of 25 might make it you have 25 people saying that they're gonna be those four um so it's it's always something to be mindful of that that our our weak feeble

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human minds just aren't good at processing and i think the other thing that's interesting is with the length of the learning curve you can tell a candidate now that i'm kind of enter you know i interview and i

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oversee and i train people you can tell a candidate so explicitly the learning curve will be 18 to 24 months you can say the learning the the failure rate will be x the learning curve will be y and no matter how many times they say oh

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yeah got it totally totally understood yeah totally i'm gonna give it two years perfect when people are in the trenches and and not having positive months and they're frustrated and they're losing and they're making the same mistake and

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you you get that jerk off lance being like come on man like that's the same mistake like we got to improve like how can we do better with this and and you're putting in that effort and you're not seeing that improvement

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that two-year learning curve seemed so intangible and so far off but when you're in the trenches at month nine or month 12 or month 13 you start banging your head against the wall and you start saying like holy [ __ ] like i

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know what i signed up for but man i didn't think it would be like this just because it is so intangible to to see what frustration can can build over that time and nobody truly grasps that they're gonna be that person struggling

Speaker A

they're gonna be even if you win and even if you make it it's gonna be a struggle trading is never easy no matter who you are it's never easy you mentioned biases there and it just made me think of this episode i did uh

Speaker A

quite a while ago i spent a couple years back and it was called you don't know how wrong you are and it was all about different biases which um our human minds and uh can be vulnerable too so if someone

Speaker A

is interested in that i'll put a link to that in the show notes yeah there's also been what's her name i think annie annie dukes is her name she was like the poker player and she wrote thinking and bets

Speaker A

right that's another really great book that that touches on on the same subject okay okay yeah i've not read that yeah that's that's a good one i mean that behavioral finance stuff is and just just behavioral psychology is

Speaker A

is so fascinating to me now lance we have a mutual friend and whenever your name comes up it's normally followed by uh the capitulation trader so i've become to know you as uh this gun trader who goes after capitulations

Speaker A

and uh does a great job of uh making money from them so i'd love to just sort of dig into this a little bit and uh find out a bit more first thing how did you come to discover

Speaker A

you had a talent for trading capitulations and also what is a capitulation just for anyone who might not be aware of the terminology sure so i would i would define capitulation just just as a real flush out or like a panic or or

Speaker A

vice versa to the upside a real euphoric you can have you can have an upside or a downside capitulation it's just anything that really flushes out one way or the other so a lot of my strategy in this came of course just

Speaker A

just from my trainer and it was something he specialized in and so what makes capitulation so so interesting is and this will get a little bit conceptual but it's very hard to necessarily know what what will trend because there's

Speaker A

essentially two things you can either go with the trend or you can go and do mean reversion in my view as far as the prop world if you're not making markets you're not doing some some some weird quant strategy if you're essentially a

Speaker A

discretionary human day trader you either need to be going with the trend and systemizing why do trends occur where do they occur how do you structure the trade how do you identify these patterns or the other option and i know this is simplifying it's not

Speaker A

just these two areas but trend following or then mean reversion when things aren't trending but are reverting back towards some form of previous equilibrium and it's very very hard to know with any asset class what might trend um you need to be very proactive to

Speaker A

identify that but a capitulation when something really panics really really flushes out you don't need to be figuring out ahead of time what's what that's going to happen so for example like if you asked me when bitcoin was sitting around 300 400

Speaker A

bucks for all those years if you asked me is this gonna trend to twenty thousand dollars twenty thousand dollars per bitcoin or whatever it did i would have had no freaking clue and i don't think anybody would have had any

Speaker A

clue and yeah people might have had a view but to tell you that they can be confident that this was going to trend to 20 000 uh they're just they're just lying and so trends are hard to identify ahead of

Speaker A

time with with high confidence but when that started to go euphoric um or even taking the dot-com bubble or or any of these bubbles or even any of these crashes a lot of the beauty of capitulation is you have a lot of

Speaker A

qualities that are all the same and so capitulation will be an extremely rapid exponential change in price over time capitulation will have huge volume and huge turnover there will be a huge recycling of of just who you know where

Speaker A

the average price is if the average price for many years in bitcoin had been 300 when all of a sudden we go so euphoric and everyday bitcoins everywhere and every single person on the street people that have never had any interest or

Speaker A

trying to figure out how to buy bitcoin all of a sudden you have the original believers that own it from 300 doing massive massive massive volume turnover at 22 000 or 20 000 or whatever it was and now all of a sudden the average

Speaker A

price of the weak hands it isn't three hundred dollars anymore or a thousand dollars or three thousand or all of a sudden you get such a massive volume turnover that the average price is 20 000 per bitcoin and it's all in weak hands

Speaker A

it's people that aren't true believers it's people like like your 74 year old you know grandmother selling her home to buy bitcoins thinking oh i'm going to become a bitcoin billionaire by the age of 76.

Speaker A

and so while it's hard to pred no but and it's just a fact nobody could have predicted that that was going to occur with certainty but when it does occur you can identify those qualities and be reactive you know i didn't need to

Speaker A

predict that bitcoin would would go euphoric but i can then spot those qualities as it's happening um so that's what i think the beauty of of capitulation is is whether it's the dot-com bubble or a panic in an individual stock or a sector

Speaker A

you can be reactive and go to where the puck is you know i don't need to i don't need to know what the trend will be or or what the asset class or what the ticker or what the sector is going to

Speaker A

trend or panic and then flush out but when it does you can move there and that is why i think especially having our tech like technical analysis lens it makes us so effective because we can apply our system and our lens of viewing

Speaker A

price action and price over time and apply it to virtually anything so if there is a chart of bitcoin or there's a chart of oil or there's a chart for xyz widget company or apple or gold or silver

Speaker A

if those capitulate and have a huge volume flush out i can jump to that and trade it in the same way in the same system because the technical analysis is simply just the way of showing that psychology and and price over time is

Speaker A

such just a very powerful um it's just such a very powerful measure you know if if you spend weeks or months with investors or day traders paying one price for this then with no fundamental change all of a sudden

Speaker A

they're paying a grossly different price yeah it's probably worth paying some attention to and i think what made me so good at it was especially now bringing this all in back to stock specifics is again going back to a lot of the

Speaker A

nuances and and i guess not really probably hiding anything too secret but like or at least exposing anything too secret but obviously the more boring something is the more appealing that is yeah bitcoin nobody really knows what the price of a

Speaker A

bitcoin should be um it's it's it's essentially a social construct i can't tell you what what the intrinsic value is but for example if something like let's move into something like oil oil at least has an intrinsic use so yeah the market might

Speaker A

disagree on the price of oil but at the end of the day there's still a physical purpose for oil where refiners need to buy it and there are end products that will eventually tie that in some way to the intrinsic price

Speaker A

and so when you move too far away from that price and then go too quickly the more boring the more the less the volatility of an instrument normally is the more you can kind of say with confidence hey like this move is a

Speaker A

little bit crazy you know imagine or take that even to to some of the the volatility in in in 30-year treasuries this year and even maybe it was in march or april or something like you know that was

Speaker A

definitely a very capitulatory-esque move to the upside uh where everybody all of a sudden was was afraid of deflation and slowing economy and everybody all of a sudden was buying bonds and a bond is something where you can calculate the value it's much more

Speaker A

intrinsic you know at the end of those 30 years you're going to be getting your your 100 principle back your thousand dollar principle and so really systemizing those nuances and being able to say like okay something more boring that's panicking is better

Speaker A

or being able to say like hey apple is a much more safe panic than this stage one biotech that nobody knows anything about if apple say at two hundred dollars per share were to go to a hundred dollars per

Speaker A

share i'd imagine uncle buffett would be uh sitting there on the bid so if i buy it a hundred bucks he'd be willing to buy at 120 130 140 150. and that can't be said for that sketchy illiquid stage one biotech and so that

Speaker A

thinking and that systemization of taking those extremes is is a lot of how we kind of build any of our plays or any of our strategies um by using just that systemization of all those nuances and that can

Speaker A

even be applied to what is the best stock chart you know what is the best intraday chart look like what is the best daily chart look like what is the best capitulation on the level two box look like

Speaker A

um so all those factors are ways you can start to really systemize these plays so these few examples which you've referred to here from it's it sounds as though most of these are on like sort of zooming out looking at the overall

Speaker A

bigger picture of where this this stock or this uh product is traded uh maybe on a daily or even a weekly chart these things might be identifiable um but the the capitulation trades which you're going after are these mostly happening on an

Speaker A

intraday time frame yes so that's the also the beauty of technical analysis is essentially every all the concepts apply across all time frames in my personal opinion and so the same way that apple most likely will be less volatile over the course of a year

Speaker A

it should also be less volatile on a monthly chart or a daily chart or an intraday chart and so what we do is we'll apply all these concepts at the intraday level i guess you may have already kind of gone over

Speaker A

this but just so we're clear and and maybe on an intraday basis how do you differentiate a sell down versus a capitulation like what do you need to see to separate the two sure and so i probably won't want to go into

Speaker A

too much detail but i think certainly like the more signs of just pure just pure panic the better right because essentially when you're doing mean reversion or when when you're buying into any panic um you're essentially assuming hey people

Speaker A

are scared and that emotion or that maybe people are forced to liquidate or me maybe people are panicking or maybe stops are going off all these factors can contribute to the severity of a panic and obviously something if apple goes

Speaker A

from 200 to 199 over the course of a day that's not much of a panic but if apple goes from say three hundred dollars to two hundred ninety five dollars or two ninety dollars in the course of five minutes or six minutes

Speaker A

and a trillion dollar company essentially loses four percent it's it's it's enterprise value in a few minutes that's more what we're talking about and the question is then when you get how can you start to find indicators and measures and systemize

Speaker A

and structure how you judge the severity of that move and then of course you not only need to identify like whoa this is capitulatory like this is a huge flush out you know whether it's volume or price over time

Speaker A

um regardless of all those variables you still need to know how to structure it safely in your system because if you might if you buy apple at 290 thinking oh my god apple just moved three percent you know uncle buffett come bail me out

Speaker A

baby and all of a sudden next minute later apple's at 280 you might be the one capitulating next because it's so far past your stop so i think the question is how do you identify these traits and these qualities that

Speaker A

signal to you an inefficient price and a panic and emotion and whatnot but then also how do you structure that within a system that works for you obviously i don't want to pry too much i understand you're already sharing a lot with us i

Speaker A

guess one of the the interesting things about these types of plays is that what you're really doing is you're standing up in front of a lot of aggressive selling and having the confidence to buy something i mean where does that confidence come

Speaker A

from how are you able to to step up what's the point where you are willing to get involved sure so that's actually a great question and that also times into when do you know you're wrong and when do you know you need to get out and so

Speaker A

probably one of probably my trainer's biggest weakness was there were also times where he didn't leave flexibility to be wrong you know where sometimes when you're the whale you don't have you know if you're the whale and you're

Speaker A

wrong then you're about to get run over and that's when risk management needs to come into play and so that i think implicit in that question is almost where the edge comes from because most of the amateurs in these moves most

Speaker A

of these people are panicking and it is scary and that effectively is the emotional edge that emotional fortitude to say no this is crazy this is a little bit nuts that is exactly where the edge comes from so

Speaker A

with enough training and enough experience when you've gone through these and i can't stress enough the importance of repetition and so much of what i do to get better at anything is get the reps in and process everything

Speaker A

you know because you can prepare for almost anything in life yeah any given situation will have different nuances it will be a different ticker a different intraday a different daily chart a different box so it will always be

Speaker A

differences but it will always rhyme as well and there will always be analogies you can make and by seeing enough reps you start to have the training and override your emotions when you're six months into the the job or a year

Speaker A

into the job when you when you buy into that panic you have that that knot in your stomach and your p l is going down and even then it's only you're only down 100 bucks down 200 bucks it's nothing back then

Speaker A

and you feel it in your stomach and you say holy [ __ ] like what did i do i'm you know i'm i'm wrong what's going on and with enough training though you build that confidence where you know when you

Speaker A

feel that in your stomach you start when you feel that knot in your stomach you start licking your lips because you know hey if i'm the whale in this and if i feel that knot and i'm scared to death guess

Speaker A

what that average fund manager that average jump on the street they are [ __ ] their pants right now and that's going to be really really good for me and so i think implicit in that scariness is the opportunity that can make you so

Speaker A

so confident the bigger and more severe the panic or the euphoria whether it's dot-com bubble or bitcoin or whatever you want to call it if you have the experience to back your action and you know this is actually crazy and this is

Speaker A

irrational that's how you have that confidence and that's how you and obviously you start small but over time you can use those indicators and even emotional indicators unlike a computer and a computer can't feel fear and sometimes feeling that fear is a

Speaker A

huge advantage because when when when you know yourself as a professional with especially as you build more experience and more reps than than other people on the street you know that hey like i'm i'm happy experience i enjoy this

Speaker A

feeling i enjoy this panic because i know uh that's what's giving me this edge because everyone else is if i'm scared they're more scared so i'm i'm gonna i'm gonna like this a lot in the end um of course that also always needs to

Speaker A

overlap with with the proper risk management but getting those reps in and understanding even just understanding conceptually that buying into that panic that that essentially is your edge gives you the confidence to know like this isn't supposed to feel good this

Speaker A

isn't supposed to feel right and by the nature of the job that's almost what makes you the professional is you know that hey this doesn't feel comfortable for anybody but i'm the pro and i'm going to uh perform in in this situation as a

Speaker A

result does that kind of like address that yeah 100 absolutely that was a brilliant answer do you feel as though this is would you consider this to be a high-risk trade considering some of the other opportunities that a reasonably

Speaker A

professional day trader may go after standing up in front of capitulations is that would that say would you categorize that as a high risk type of trade because i presume often in situations like this liquidity especially like bids behind you if you

Speaker A

um if there's a capitulation to the downside uh often thin out um which extends these capitulations and the the rapidness of these moves you're stepping in buying a lot of size you know if if you don't time this right

Speaker A

and you're getting in it at the wrong point and you have to bail on that position that's just going to extend this move even further to the downside i know that plays in with the risk management and that type of thing but

Speaker A

yeah do you consider this to be a high risk type of play so i'm going to answer that with a great quote from from my trainer sometimes it is safest to be risky and i think that is a very very powerful

Speaker A

saying if something is so so so scary that nobody wants to step in front of it i would argue that stepping in front of it is one of the safest things you can ever do potentially i mean take for example i'm not that i

Speaker A

was trading during the height of the panic but there's times and we'll see this in the market today there can be times when there's a very boring security and maybe even it's a it's a debts you know preferred debt type security with

Speaker A

with even a calculable value or maybe it's a closed in fund a closed end fund with a set net asset value where in theory they could liquidate themselves get that asset value and distribute it to the shareholders some of these things might panic and so

Speaker A

i would turn that question back to you and let's say let's say the price of the not the price but the intrinsic value of of of a stock is ten dollars the intrinsic value not the price and that stock goes from ten dollars

Speaker A

to nine then so your reward is a dollar now let's take the extreme and say it goes to five dollars you know oh my god is this going bankrupt but the intrinsic value people are just panicking intrinsic value is

Speaker A

still ten dollars at five dollars your reward is actually a whopping 100 you can make five dollars while risking also five dollars if it goes to zero but now let's say this and this is all just hypothetical of course but let's say

Speaker A

this is a rip your face off panic holy crap i bought it at five oh my god it's still going down i must be wrong maybe this thing is going to zero after all so all of a sudden you can now buy this

Speaker A

same security at one dollar a lot of people will define buying it one dollar as extremely risky because it's so volatile the stock price went from 10 to nine to five now we're at one oh my god it's so volatile it's so risky oh no oh

Speaker A

no but actually buying it one dollar is the safest investment you could ever make your potential reward is now nine dollars you can make nine hundred percent return and your risk is only one dollar so at at the peak of that panic when

Speaker A

things are truly capitulating risk is actually the least your reward is highest at peak panic and your risk of there being an incremental seller at peak panic is so low and the probability of at least some type of

Speaker A

bounce approaches nearly a hundred percent eventually and so volatility is actually maximized but i would argue that risk is actually minimized and it's actually the safest thing you can do if if that kind of makes sense and i think that's almost

Speaker A

one of the ultimate paradoxes of some of this stuff and i think that's why some of the true value investors like a howard marks or a warren buffett the most famous wealth compounders of our of our time really

Speaker A

i think that's why they're so great is because yeah they're on a different time frame they're not an intraday trader they're they're obviously long-term value investors but they recognize that at peak panics when everyone's scared and things are most volatile

Speaker A

it's true that volatility is is peak but that's when they want to buy that's the safest time you know it's not safe to buy things that are just sitting at elevated levels it's not safe to buy in 2007 it's not safe to buy

Speaker A

in 2008 it's safe to buy at the peak of the you know fall 2008 when when things are going for pennies on a dollar and you have secured debt trading for pennies on a dollar and you have stuff not even

Speaker A

related to the financial sector trading for pennies on a dollar so everything's capitulating but that's the safest opportunity to buy anything of the last uh you know two decades essentially if if that really gets to the heart of it i

Speaker A

think just in your example then you spoke about intrinsic value of a stock i mean where does that intrinsic value actually come from sure so let's even bring that back to day trading world because i guess that's what what we really care about yeah and

Speaker A

intrinsic value we'll never know as a day trader i'm the last person ever from being an analyst i don't care much about any fundamental analysis whatsoever i'll try to know the basics but i'm only an inch deep on

Speaker A

a mile wide and it's not so important to know the intrinsic value because nobody really knows the intrinsic value of much of anything but in day trading world what there can be or in any trading world is there can be

Speaker A

equilibrium and consolidation and acceptance of price and so let's take the market for corvettes if if all of a sudden you know corvettes trade for fifty thousand dollars fifty thousand dollars and for the last seven days corvettes have sold for fifty thousand dollars and

Speaker A

we have a ten thousand data points you can graph that on a chart and essentially you have an equilibrium so if all of a sudden i'm able to buy a corvette with nothing wrong with it and all of a sudden

Speaker A

there's no fundamental news about the corvette i'm buying then if i can get it for forty five thousand dollars or forty three thousand dollars that's it that's at a discount and i wanna do that and i don't know the true

Speaker A

intrinsic value but i do know where the market's agreed upon for a long while and the same way where warren buffett himself can't give you a value of apple but if apple's traded at three hundred dollars for for the

Speaker A

last five hours or five days or five months then all of a sudden two minutes later i can buy apple at 295. guess what i'm buying apple at a percent and a half discount all things being held equal and we have a very

Speaker A

clear equilibrium so that's the type of thing that will interest me okay gotcha gotcha lance i think a good question to ask you uh around these trades just to before we move on to something else would be what have you intentionally done to get

Speaker A

better at these trades obviously these trades i'm sure make up a big percentage of your p l at the end of the year and it's something that you've really tried to develop and and improve on what are the things you've intentionally done

Speaker A

to get there sure and i think this kind of goes back to my obsession with with with meta learning the just the art of how can i go about efficiently getting better and i think a lot of what the literature tells us is you

Speaker A

really want to have deliberate practice deliberate reflection and systematically go about each part of the job building reps so if there's the example i always give my trainees is there's going to be the person that you know if you take two traders one

Speaker A

trader sits in the seat during market hours and say that during the course of the week they put in 50 hours you can have another trader that puts in 50 hours but it's not just about the hours right it's about the quality of

Speaker A

those who's the person that's just sitting brainless typing up tickers all day you know looking at charts but not really doing any deep reflection that's going to be way way way different from the trader spending those same hours but

Speaker A

is going to the right stock selection and is studying those stocks in depth and writing them up in depth and those couple great plays a day you need to really systemize those and maybe you need to re-watch uh tape or maybe you need to

Speaker A

systemize the pros of the trade systemize the cons of the trade find analogies to what else what other trades it reminds you of it's going to be such a different different learning factor when you're the person doing all those factors and

Speaker A

incorporating all those different types of learning versus the person that's just the body in the chair so i think with anything the best example is if you were to take two people trying to learn basketball and have and they've done this this

Speaker A

these studies before and you'd have them take 10 free throw shots the person that takes 10 shots and doesn't reflect he doesn't really get that much better that quickly but if you have somebody take 10 shots and after

Speaker A

each shot he writes down how he missed oh i went left or oh i was a little bit short i went right um the person that writes down where they're shot missed and then tries to make corrective action with the next

Speaker A

shot the rate of learning is is just exponentially higher and so those same concepts i try to apply to to learning the trades and even with my trainees i try to make their their learning as optimal as possible

Speaker A

which really comes down to studying the best opportunities the easiest opportunities making it as realistic for them to practice them again and again and again if it's a slow week for example you might only get maybe three or four

Speaker A

good plays to study but if you build a database of great plays that have occurred in the past you you don't need to be limited limited to those three or four plays per week you can re-study and even visualize and

Speaker A

re-mentally and mentally rehearse trading 40 or 50 plays and you're effectively getting 10 times the reps per week as somebody else so i'm one of those people where with my trainees it's not about just your time at the

Speaker A

seat time in the seat counts but we want to be as productive as possible making getting the most reps on the most important plays and and that's something that i think is applicable to really any area of of proficiency that you're

Speaker A

trying to to develop maybe we can go into this a little more because the basketball analogy was interesting but i think in markets you've reached the end of this episode of chat with traders but rest assured there are more episodes loaded with real

Speaker A

market insight and zero hype on the way soon so to stay updated with each great new release subscribe to the podcast and itunes and we'd love it if you leave a rating and review we'll catch you next time on chat with traders

Speaker A

[Music]

Topics:day tradingproprietary tradingLance BreitsteinTrilliumdiscretionary tradingintraday tradingmarket psychologytrading mentorshipcapitulationbehavioral finance

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