Speaker A
This trader has been day trading the S&P since the day it was born. Ran a $300 million fund whose 5-year returns beat 99.7% of hedge funds on the planet. And over a dozen legends on the show told me
Titans of Tomorrow interviews trader Linda Rashki on order flow, algo behavior, trade sizing after drawdowns, and why short holding times dominate professional trading.
Key Takeaways
- Much of the visible order flow is algorithmic noise; large institutions hide their positioning, so reading footprints is limited.
- Short holding periods and infrastructure-heavy strategies dominate the most successful funds, while trend following demands large capital and tolerates deep drawdowns.
- Position sizing should be adjusted to losing streaks and regime changes, with losing streaks expected even in high-win-rate systems.
- Prices show a small predictive edge over very short horizons, which fades as the horizon lengthens.
What the video covers
- Host introduces Linda Rashki, a former floor market maker, author, and inventor of the Total Soup and Holy Grail setups, who trades in and out within hours or days.
- Linda argues that order flow reading is largely noise, since large players disguise positions across multiple accounts and firms while algorithms create most intraday volume.
- She describes a test: on a one-minute chart, volume spikes often occur at prior intraday swing highs or lows (about 80% of the time), where algorithms trigger on channel breaks.
- The discussion contrasts retail traders' short time horizons with institutional trend followers' longer horizons, noting that top quant funds like Renaissance Medallion hold positions under 24 hours.
- Linda explains that prices carry a slight short-term edge (follow-through over a few bars) but predictive confidence decays rapidly as the time horizon extends.
- On risk management, she advises discretionary traders to cut size during losing streaks, while system traders should avoid reducing size during drawdowns, and stresses that six losing trades in a row are normal even at a 90% win rate.
- Trailing stop ideas mentioned include moving averages of lows, the lower Keltner channel, and Bollinger bands.
- Linda discusses reading test-and-reject patterns, such as a price retest of a high on weak volume followed by a quick decline.
- The episode touches on AI's usefulness for streamlining trading operations rather than generating signals, and on emotional discipline and mindset.
- Linda's personal background includes building a CTA fund and a thick-skinned approach shaped by life experience.
Chapters
- 00:00Introduction and Linda Rashki's Background
- 04:30Retail vs. Professional Time Horizons
- 32:00Institutional Behavior and Hidden Positioning
- 44:40Predicting Price and Time Horizon Decay
- 55:00Trade Management and Trailing Stops
- 66:40Position Sizing and Drawdown Management
- 75:00Reading Price Action and AI in Trading
- 80:00Mindset, Discipline, and Closing Thoughts
Full Transcript — Download SRT & Markdown
Speaker A
the same thing. Linda is one of the most iconic traders of this generation. The biggest players are very, very good at disguising their movement and they're not going in and out like an elephant.
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You're not going to be able to see what the hell they're doing. They might be going through multiple accounts, multiple firms. So, you're going to tell me that as a little pee on human, we're sitting here in our chair trying to make
Speaker A
stuff out of order flow when you've got so much noise in the markets that is generated by little algorithms pinging left and right. It's a very misguided type of game to play. Introducing Linda Rashki, a market wizard, best-selling
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author, and former floor market maker. And she's the inventor of several technical setups like the total soup and holy grail strategies. And unlike the other 9 figureure traders I've sat down with who hold trades for months or years, Linda is in and out within hours
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or days just like you and me. Anytime you have a volume spike, okay, just an intraday volume spike. Go down on a one minute chart. See exactly where that volume came in. 80% of the time it's going to be on a previous intraday swing
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high or swing low. So what does that tell you? the algos are at work because there are a lot of algos out there that trigger off of a channel high or a channel low getting penetrated and then what they can do I know cuz I've done
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this all right I'll tell you all my secrets the algo can initiate if you are a discretionary trader and you are losing money you must cut back your size because something is wrong either you're not getting enough sleep
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at night or there's has been a regime change and you haven't recognized that you're making too many unforced errors and getting sloppy. Something is wrong.
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So, you need to cut back your size until you can regroup and figure out why that draw down occurred. Everybody's going to have six losers in a row. That's a given. Even with a 90% win rate, you will have six losers in a row. So, you
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have to allow for that in your sizing just to begin with. Now, when you are trading a system, the last thing you want to do is cut back your size when you're going into a draw down because that's when it's ready to spring and
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have a big win again. So, they're two opposite schools of approach there. Both have very good groundings in their math.
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In this episode, Linda reveals the exact test you can run on your own chart today that shows you exactly where the algorithms are firing, why she thinks most traders are lied to about the realities of trading order flow, and why
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the most profitable traders in history hold their trades for less than a day. These algorithms are helping us in the sense of they provide liquidity. But unless I can understand them, their behaviors, their tendencies, the footprints they leave, does it leave any
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useful information for me? I'm trying to basically understand what is it in price action that I can latch on to say this is a signal. this is useful, this is predictive, these are the things I should be looking out for.
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So there's several ways that we can overcome this problem. Okay, the first way is ladies and gents, welcome back to another episode. Linda, thank you very much for joining us today. This has been a episode I've been wanting to do since
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the inception of the show. your reputation precedes you and uh internally we have a joke that all roads seem to lead to Linda where organically like I'm not joking more than a dozen guests have organically just mentioned you should interview Linda you'll get on
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with Linda you got to you got to meet my friend Linda so here we are today making it happen we are so I want to start off with some beliefs that you have that are I want to say
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contrarian I'm aligned with you which I which which is why I'm really excited but um first of all this idea that when I speak to these big money managers and these professionals and these veterans Their approach seems to be very I want
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to say primitive technicals very as simple as just a breakout and the edge seems to be in trend following on longtime horizons and maybe by extension of sentiment positioning and macro whereas yourself you also were a money manager you're you're in the same crowd
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I want to say in fact better than most uh yet you are a proponent of shorter time horizons uh proverbly saying that the crystal ball gets foggy if if you try to look too far into the future so
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then it sounds like the average retail trader we are on the lower time frames we are intraday day trading and scalping and XY Z first of all bird's eye view why does that disparity seem to exist in the industry where the average retail
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trader is on shorter time horizons yet the average pro seems to be on longer time horizons and why have you decided to be on this side of the fence maybe it's the people you're interviewing I don't know um but you
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know there are uh some of the biggest and best funds in the world with the best performance ever renaissance Medallion Fund, they have a under 24-hour holding time, you know. I mean, um, Monroe Trout under 24-hour holding time. You know, Toby CrarAel was very
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short term. All these players are very, very short term. A lot of them keep a low profile and it doesn't necessarily behoove your audience to try to understand what they do because it's it's they're working 20,000 different strategies across every market in the
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world on very short duration time frame. And so it's really a game of infrastructure buildout. Your data engineers you have it's just a whole different style. Um, a lot of the trend followers were trend followers in the late 70s, you know, and early 80s.
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That's when they really made their big money and when Richard Dennis came on board and stuff like that. Now, trend followers have had some very miserable years. I think they've been having excellent years the last couple years. I
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follow a couple of them. A couple of them are good friends. It's not necessarily a style that was going to work for an individual unless they have an obscene amount of capital because you need to be able to cover n number of
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markets at the same time allocating enough capital because if you're doing 20 markets, three of them might make your year. You see, so it takes a lot of discipline, a strong belief.
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Almost every trend follower out there and the systems themselves have had 40% drawdowns at one period and I don't think your average individual would want to sit through that. So getting into the I want today's conversation to uncover truths in the
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markets. Naturally we can get into trade models and techniques but also understanding the why of why do things work. I want to understand why does first of all does past price help us predict future price? I think that's one
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truth I'd like to uncover. Well it depends on how far out you want to predict. There is a positive expectation. If I am just predicting one or two bars I can get a positive expectation. All right. So with that
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sense uh yes you know is it the first bar low to high after three bars high to low? I don't care if you're looking at five minute charts or daily charts there is a slight edge in looking for a bit of
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follow through. Okay but it you know predicting is an evil word. What is a better word? Um, predicting implies to me looking out for a either certain target, okay, or a certain duration. And the longer that you are in the market, there's more
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variables that can get introduced into this system. It's not a closed system. So you don't know if there's going to be a tsunami or a nuclear blast or you know a new invention or a new you know drug
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discovery or you know all these different things. It's a hard time horizon to uh have a good confidence factor in simply to say that the degree of certainty decays upon greater time horizons because so eloquent you say it so much better
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than just to summarize it. So I'm I'm a proponent of this. Okay. But I also want to understand why is it the way I've rationalized it and I may be wrong is when a large player gets in, they create some sort of market impact
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which creates certain waves in the markets that I can temporarily ride. I saw these waves that might last a day, might last a couple of days. And if I'm to then predict if that's going to create a whole trend for the next 6
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months, I don't know. Feels like a flip of a coin. Uh so therefore, I feel like the advantage for a retail trader is on the shorter time horizons. If I can correctly read where the greater players are uh placing orders in the markets,
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would that be an appropriate way to view things? No, I don't want I think it's very difficult to know who is doing what and play this guessing game. You can't do that. Um Perry Kaufman's thesis is that there are so many different players in
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the markets now on different time horizons and sizes and billiondoll funds and you know the financial pools owned you know in private wealth funds and and you know and then the short-term algorithmic trading and the retail and the commercials. It's like I don't want
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to play a guessing game of who's doing what. And that's exactly what I am doing because the guys that are the biggest players are very very good at dis disguising their um movement and they're not going in and out like an elephant.
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You know, they're always tweaking and adjusting and doing all these little things. What do you mean disguising their position?
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You're not going to be able to see what the hell they're doing. They might be going through multiple accounts, multiple firms, multiple uh, you know, all sorts of ways. If you think you can read that, you're crazy. You know,
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certainly we can read a volume spike and so forth, but um, let me just give you an example. If you have Fidelity, a an a mutual fund, right? And they have a very large position in a particular stock,
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and this is just a really boring mutual fund, okay? It can take them two weeks just to get that position reduced by 50%.
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They don't have the flexibility to go in and out like a retail trader might. You see? So yeah, they're dinosaurs and and with regards to that, you as an individual should perceive that as an edge to your favor in that you can take
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advantage of liquidity where they cannot. By liquidity, you mean the ability to be nimble and enter and exits very quickly.
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Hey, if I want to bang out a 20 lot at the market, I'm not going to get slippage.
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Certainly can't do that in some markets. If I wanted to bang out 10,000, it ain't going to happen these days.
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Makes sense. You're you're you're mentioning here that the institution will break up their order and try to disguise it. And I I've come to learn about dark pools where another guest said that whatever makes it to the order
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flow is exhaust fumes. Majority is inequities off off the books. It seems like every year in the retail space, in the online retail space, everybody's hunting for the new holy grail. And therefore that creates fads and buzzwords and also scapegoats to say
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he's the villain and this is what works. And it seems to be this year it's all about order flow where uh all the old strategies are obsolete and everybody should learn about order flow because that's where the real edge is. And then
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I watched a video of yours where you got into this idea of you want to as a trader eliminate redundancies. And that was interesting for me because I think a lot of retail traders they feel like adding to the plate adds certainty add
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confidence because I'm not just saying EMA it's EMA plus trend plus pattern plus Ichiboku plus D. So then you feel comfortable and reassured that you've got 10 modes, not just one. Why is your pursuit in eliminating things as opposed
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to adding? Well, there's several things. I'll tell you a funny little story. I used to be friends with Richard Arms. Uh he was the one that invented the tren. Okay, he's passed sadly. Uh Dick is what we called
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him. And Dick uh used to say, "If you have two watches, you'll never know what time it is. If you have one watch, you'll always know what time it is.
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because they're never going to agree. And so what happens is if you can reduce stuff down just to essential indicators that help provide you that pattern recognition support, uh, you know, you might be able to have a little bit of glimmer, you know,
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beyond looking at too many squiggly lines. And if you think about it, moving averages, oscillators, a lot of these quote technical indicators, they're based off the first and second derivative of price. Okay? Price is always going to be one step ahead. And
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no matter how you slice or dice it, so maybe an oscillator will smooth out some of the noise in a bar chart, it'll never test out in a system. You cannot create a system with a positive edge that's
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going to have a first or second derivative of price. So, you know, it's fun to play around with for sure, but if you're trying to come up with an a model that has a statistically significant edge, you'll do much better using ATR
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functions or, you know, uh percentage functions, things along those lines. For the last two years, a proud sponsor of the show is a topranked leading prop firm, Alpha Capital. And for the years that I've been working with them and the
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Speaker A
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Speaker A
And with that being said, let's get back to the episode. I completely understand that these indicators, they are lagging.
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So how can they help you predict something because they're already behind price or a derivative of price? the the argument that I would imagine an orderflow trader would say is orderflow is not something that is um lagging in
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the same way. In fact, it could be leading or predictive because it's giving me context to price to say price has come to a demand area. It's coming to a discount into a low. We could expect buyers to come in. But how do we
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know if they're here? I can read it on the tape and see yes, there's a aggressive buyers stepping in. This should naturally be a sense of cause and effect. Aggressive buyers step in into a right area. Price should go up. Doesn't
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feel lagging or doesn't feel like a derivative. Am I mistaken? Wouldn't you just see the same thing on a bar chart? I mean, seriously, if buyers are coming in, you should start to see the price lift, right?
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Sure. They there for you. I'm simplifying it for you because I don't really think that we're able to process this stuff on a cognitive level and then make a decision all the while, you know, with our other where are we going to risk to manage
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these trades and so forth. It's um I don't know. I just think that there's better ways that we could uh process information. Perhaps look at a higher time frame. You know, areas on the chart where uh would be logical swing highs
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and swing lows, things along those lines. And the other problem with order flow is it's so dependent on time of day functions. So, you're always going to have a surge in volume off the opening.
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You'll have a surge in volume off Asia opening, a surge in volume off Europe opening. You'll have a complete dry up in volume if they're waiting for an economic news report or a release. You are going to have a surge of volume
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going into the close. So, how are you going to normalize all these time of day functions for your order flow is basically a fancy way of looking at volume or splitting it up, right? And u would you say that certain times of day
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or time functions as you're saying because it it's volatile throughout the day is there better skews of saying these times of day have better expectancy and these types where there's drying up liquidity is less worthwhile to be trading. Have
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you found any correlation between time of day of execution and outcome? Sure. Absolutely. If you're going to do any type of breakout pattern, you know, or the range expansion stuff, you want to be doing that off of a session
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opening. That's going to be your ideal. Now, it doesn't mean that you can't see things at other times of day. And there's little subtleties such as days of the week have their own little nuances. Oh, yeah.
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What have you noticed on a let's say a daily Oh, days of the week cycle in terms of liquidity.
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Oh, just for example, Monday tends to be much lighter volume than Tuesday and Wednesday, that type of stuff. You know, um there's seasonality to volume. uh certain months have much heavier volume.
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You know, around the uh beginning and end of a quarter, you'll get increases in volume for obvious reasons. So, and it all depends on the market, too. You know, if you're trading the grains, you know, you've got rollover, you've got
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crop reports, you have seasonality with a harvest. So, they all have their own little subtle nuances.
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I guess volume alone maybe isn't so useful because it could cancel out in the sense of I think of it like a tugof-war. You have two teams pulling on a rope. If there's five people on both sides or 20 people on both sides, yes,
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there was more volume, but they also do cancel each other out. I guess we are looking for lopsided where there's way more buyers than sellers. Is there anything in the days of the week or seasonality or even time of day that
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would help me perceive strength as opposed to just a rising tide of volume? Well, it would show up in the uh persistency of the trend in the bar chart. Even if it's a five-minute chart and you start seeing three consecutive
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bars to the upside. Well, hello. You don't need to tell me that there's an imbalance there. You know, uh, another thing that you might your your listeners might find interesting experiment just to make a point on a different level is
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anytime you have a volume spike, okay, just an intraday volume spike. Sometimes gold will do this or crude oil or even uh you know the bonds are a currency in particular the index futures and copper.
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Go down on a five minute chart and then go down on a one minute chart. See exactly where that volume came in. 80% of the time it's going to be on a previous little intraday swing high or swing low. Okay. So what does that tell
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you? That's tells you that the algos are at work because there are a lot of algos out there that trigger off of a channel high or a channel low getting penetrated. Okay? So, you'll see these surges in this volume
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coming in just from an algorithm execution. Boom. Right at that, you know, swing high. It's so blatant and obvious. And then what they can do, I know cuz I've done this. All right, I'll tell you all my secrets, you know, but
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I'm not a billionaire from this stuff. But the algo can initiate and the price can go tick tick tick tick tick tick, right? Like you do off reports. Very dangerous time to be getting reactive.
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But let's assume it's not that. It's just a structural point. And then if it starts going tick tick tick, if it's gone tick tick tick down by a certain function, boom, the al goes flat. Okay?
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Because it doesn't want to get caught in a noise spike. It can do this faster than you can blink an eye. So, you're going to tell me that as a little pee on human, we're sitting here in our trail, you know, chair
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trying to make stuff out of order flow when you've got so much noise in the markets that is generated by little algorithms pinging left and right for strategies that last anywhere from 5 seconds to 5 hours. I think it's a very
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misguided type of game to play. I guess I should begin with, we spoke about it off camera, but we are up against the brightest minds that are better capitalized, that have better infrastructure and now it's nancond execution and you even mentioned to me
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how an alpha can decay in a day. So when you have this shape-shifting beast that is the market and your counterparts is people that are way better than you. I guess we should begin with saying can a retail trader even survive in this
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market because you also tell you also say that the market is not zero sum, it's negative sum considering the costs.
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So in such an environment, should we even be considering to participate? Be grateful for these other algorithms out there because that provides liquidity. Okay? If we didn't have all that going on and you don't even have the pits anymore nowadays, be grateful
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because it provides volume and this is what we need. Um, and it it does create another style of trading called opportunistic trading. Hear that? That's for a tornado.
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Oh, wow. Okay. Yeah. Okay. All kinds of bells and whistles in this town. No, opportunistic trading is waiting until one side is pulled offside, if you will. Now you're sitting in capital cash and then that gives you the chance to go in and take
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advantage of it. So, it's just a different type of game. So it's and and it's not like you're trading against the brightest minds. The brightest minds have programmed their exocomputers and protocomputers and all the algorithms to run 20,000 strategies in the background
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and you do this all day long. You're going to have a positive expectation each day. So really the geniuses in my opinion aren't necessarily sitting behind the screens getting burned out day after day.
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I guess I guess a necessity would be these algorithms are helping us in the sense of they provide liquidity but unless I can understand them their behaviors their tendencies the footprints they leave uh does it leave any useful information for me? I'm
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trying to basically understand what is it in price action that I can latch on to say this is a signal. This is useful.
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This is predictive. These are the things I should be looking out for. 99% of the time, and this is just my opinion. If you guys can show me million-doll statements year after year after year, more power to you. I'm only
Speaker A
speaking from my frame of of view. Okay? So, and there might be tools that I don't necessarily agree with that somebody's using. Wonderful. You know, that's fine. There's not the best thing about this business is there's not a
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right or a wrong way. There's not a correct way, okay? There's just whatever works for you that you've got a profitable bottom line at the end of the year. Okay? That's all it comes down to really. Risk management, if you think
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about it, if you eliminated your biggest loser year after year, I bet you'd be three times more profitable. You see, so we can get so caught up in the little minutia and it's very difficult these days to detect signal from noise. Okay,
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this is not a new theme. Um, so there's several ways that we can overcome this problem. Okay, the first way is if you are on too tight of a time frame, you're going to mostly be up in the
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noise. Okay. So, you know, look at a one minute stock chart. Tell me you can make sense of that. You know, uh, you know, well, of course, we can find two or three data points during the day where there's a
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little continuation pattern. No doubt about that, but you have to be careful about getting down into the weeds a little bit too much. And so for me, that feeling of trying to dissect the order flow and who's doing what and this and
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that. The idea of this game is get the main idea right. Get the main idea right. Is it a low to high day? Are we going higher or is it a high to low day? Once you can get that main idea right, that's
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90% of the game. Let me ask you a question. In all the years that prop firms have existed, well, how many times has a firm given traders the opportunity to trade without any rules? Well, let me present to you a
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Speaker A
talking no daily loss rule, no risk limits per trade, and no restrictions on the type of strategy you are trading. No prop firm has ever done this. I've never personally seen a model anything close to this. And you pick how you get there.
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payout. And with 41.4% of payouts being paid under 10 minutes, the average payout time being 12 minutes, you can be sure that you're not going through a interview process, and all of these hurdles that prop firms make you jump
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through if they finally pay you. So, if that is interesting to you, click the link in the description or use code TOT to claim your account today. It seems to me you're inferring here that most traders are hyperfocused on entry types,
Speaker A
h how to get in, whereas you're more focusing on probability of direction for the day. That's where you would begin.
Speaker A
I would I start there for sure, but you want to be mindful on your what they call initial trade location. you know, your initial trade location is then going to adjust your risk. Um, and I'm like everybody else. I love to play with
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little, you know, tricks and can I put out a uh can I quantify something where I have an agent that can work a particular pattern for me? Why not? It's we can do that nowadays. We couldn't do that three years ago. Okay? And it's
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still in its rough stages and it might depend on the quality of your data, but it's just a game. So part of that game is of course your initial trade location. However, your game's going to be worthless if you don't have money
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management algorithms, you know, and that's really where, in my opinion, the real money is made.
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And the real money is made in understanding the outliers and understanding the aberrations. Okay?
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because this is the unique information instead of just our everyday job blow hourly charts and stuff like that. The aberrations could be huge gaps, huge huge in insane volume, huge bars, you know, uh a change in relationships beyond a historical norm. for example,
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when the bond yields, the 30-year yields dropped below 5% and they hadn't ever been there for like years or you know the changes in the yield curve there.
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These types of changes in historical relationships, you know, are aberrations. They're hard to model because the frequency of occurrence is so much lower. But that's where the gold is buried. And this is what every trader wants to wait for. And
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so in the meantime, we do these little scalping games or, you know, two to three day swing trades or whatever you want to do. Play the game. Don't lose money. And then when you get that opening, what's really important is that
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you manage it by trailing a stop, staying with the trade, even doing some campaign trading where you're adding to it or trading in the direction of that initial position. This takes a long time to understand, you see. And uh I had a
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friend who taught me a really good phrase. Fortunately, he unfortunately he passed uh many years ago. But the name of the game for him was about dollars per time unit. Okay? Meaning um and he traded a volatility breakout type of
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system. So we want to get into the market where we can make the most dollars in the least amount of time. You see, it's I'm not I'm not a genius. if I get in and I'm holding holding and then
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all of a sudden there's a big bull move and it carries me along with it, you know, but there are certain uh data points, structural points and we can quantify them where we can get in and trail a stop. Now, most trade
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management, you really can trail a stop no more than 15% of the time on pure technical trading. In other words, let's say that you have three exit strategies that you can choose from. One, play for a small target. Small target might be
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half of an ATR. You know, average true range on the time frame that you're trading, even if it's a daily chart.
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Play for a large target, maybe three ATRs or even a certain standard deviation function. Uh, three trail a stop. Okay. And this is and and then we can do things like time stops as well.
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Hold for a duration of n number of bars or days. And now effectively what you're doing is you're building out an actuarial table. Do you understand that concept? An actuarial table is what insurance companies do to look at your
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life expectancy and it's all fuzzy variables and probabilities and and so forth. So you're you're essentially building out an actuarial table with this type of thinking. But what I wanted to say is maybe 15% of the time your
Speaker A
optimal exit strategy will be a trailing stop. Interesting. If well you define ATR as this is normal behavior and the average trade is not going to be abnormal outcomes or we can't index or uh factor for abnormal outcomes. It seems to be waiting for the
Speaker A
breakout and abnormal trend in your direction and per you got the great entry and you don't know when it's going to run to. Uh therefore I'm going to trail the stop that's going to be on fewer occurrences. Would we not I was
Speaker A
assuming you were going to tell me that uh majority of the time you want to take it at ATR or a standard deviation cuz that's more common.
Speaker A
Okay. So average true range meaning if I have five minute bars and they're all like on average you know that would be one average true range. you know, if your daily S&P uh range is 50 handles, okay? And you can get an average for the
Speaker A
last 10 days, your average true range. And that's how we're going to measure our unit. Now, it doesn't have to be a breakout. Some of the most lucrative spots to trail a stop, which are fairly easy to quantify, could be springs and
Speaker A
traps, right? You know, the false breakout to the downside. You've done the Vspike. you've flushed all the longs out and it creates a vacuum on the other side. Okay, that's a very common uh pattern by which we can trail a stop.
Speaker A
So, it really depends on just the overall structural uh Yeah, when when you said trail, I assumed there was some sort of moving average and you're just creeping it up. But here, it sounds like it's steps. The next time you see a flush and a vacuum,
Speaker A
you just jump into that level and then the next one. Is that how you're doing this?
Speaker A
So, trailing stops, there's a zillion ways to trail a stop, and it's not like there's one optimal way. For example, a parabolic is a trailing stop. You could have a moving average that's the lowest low of the last 10 days. Make an a
Speaker A
moving average of those lows and that could function as a trail stop. Um the lower end of a Kelner channel or a Ballinger band if you wanted could be a trail stop. Uh I think the one of the
Speaker A
more popular and effective and consistent ones is the one that Wells Wilder put out uh in the public domain 40 years ago with his book that's volatility stop and reverse. So we can take two and a half average true ranges
Speaker A
and add it to the lowest low or whatever metric you want to use. There's, you know, a zillion ways to skin a cat with this stuff. that would be a viable way to trail a stop. So, I mean, you know,
Speaker A
we spent probably two years modeling every trail stop we could ever think of. And I know what you're talking about, the chandelier stop where it ratches it up. And guess what? One quarter this method would be optimal. Another quarter
Speaker A
this would be optimal. And I had a guy, he worked for me for 10 years, and all he did was modeling and statistic, all of our our research and statistical stuff. and he turns to me one day and he
Speaker A
goes, "You know, Linda, on the best trades, it doesn't matter what technique you're using. They're all going to keep you in." I'm like, "Okay, point made." Yes, point made.
Speaker A
I have a lot of traders that tell me the opposite, which is no one went broke taking a profit. When it goes in your direction, uh, take a profit. Even here, you're saying dollars per time, which means the initial momentum is I
Speaker A
understood it. So, when it starts to slow down or flatten, yes, it could continue, but momentum is slow down.
Speaker A
Therefore, your your dollars per time is slowing down. There's many reasons that people just trim it or partial along the way. Why have you found that trailing it and see what happens is a better approach top down than um trimming along
Speaker A
the way or having hard outs? Now, now mind you, I said only 15% of the time is it optimal to trail.
Speaker A
Ah, okay. Okay. Everybody would like to trail a stop and think they're going to capture stuff all the time. No, the majority of the time, especially with intraday or discretionary trading, the majority of the time, play for a small target or a
Speaker A
big target if the move is just starting or perhaps scale out. Um, you know, Perry Kaufman put out a wonderful uh math behind the the way to scale, which is let's say I had five pieces. This is Perry's work. I I I cite him as my, you
Speaker A
know, hero. Um, so when you're scaling, and let's say I'm scaling out in five pieces, you would want to scale the first three pieces fairly close together. Boom, boom, boom. Because the odds of duration now drop off. You can
Speaker A
here's the fourth piece and then boom, here's the fifth piece. What what a lot of people call runners, you know. So uh what I also think about and I don't know if this would be your line of thinking
Speaker A
also is if somebody is on the intraday and they are looking at the 15minut time frame or 5minut time frame naturally you will have a tighter stop and the idea of like oh just turn a intraday trade into
Speaker A
a long-term hold and get a 1 to 50 riskreward. I know that's unrealistic but I also do wonder the riskreward of holding a position because out of all the traders I've spoke to I think the minority would be in some sort of
Speaker A
trailing fashion. majority would be put it at break even and then have your targets or even a lot of people don't use a stop or a break even which I find fascinating but what I think about is let's say it's going from 1:1 to 1:2 to
Speaker A
1 to 3 if I allow a 1 to4 to go back to break even I'm giving up unrealized 4R to maybe gain another R which is negative riskreward so then I also start to think is there an inflection point of
Speaker A
continuing to hold the trade becomes inefficient even though sometimes it does and therefore as a function of riskreward we should exit not targets or betrayal.
Speaker A
Oh, I don't know. I'm blonde. That's too confusing for all me. Seriously, I can't do all that RR and all that kind of stuff. No, you know what? In general, I I I'll be flat out truthful.
Speaker A
I'm usually all in, all out. Okay. It's really rare that I scale, okay? Um I do put positions on. When I'm putting positions on, I'm just holding till I'm all out. Okay? cuz it in my mind, even though I'm not doing
Speaker A
the pure math on this stuff, if there was a reason to take off part of it, then there would be a reason to take off the whole thing. In other words, the technicals have done so. Uh, and and what you'll see is people who
Speaker A
scale out, they scale out on the winners, but when they're getting hit with a stop or a loss, you're getting clipped on the whole thing. That does not make sense to me, you know? So, I'm usually all in, all out. That's my
Speaker A
trade. It's like on to the next shuffle. So, I understood from a lot of my research that you were an intraday technical trader. But the way you phrased it now was that's cute. That's fun. I do that here and there, but I'm
Speaker A
waiting for these dislocations, these big opportunities, and that makes my P&L for the year, which then for me was like, okay, that's great that that those are the big opportunities, but they're infrequent. So, I guess you can't make a
Speaker A
living out of expecting those things. um in an average year, especially on your fund because you had larger size, would your profit of the year be skewed heavily towards those outlier opportunities or was it kind of a 50/50
Speaker A
balance to to have a reason to preserve this one? It was really interesting because, you know, we had the the stats on each market, which was our best market for the year, and I kind of divvied things up into three profit centers. So, profit
Speaker A
center one was my S&P day trading. I mean, that was my baby. I know I can always go in and make a living S&P day trading. I started trading the S&Ps the very first day they were listed.
Speaker A
Wow. I called down to the floor and that was from the Pacific Coast Stock Exchange, placed an order. I think uh what was the price? I don't know, maybe was it like 285 or something like that. I don't even
Speaker A
remember. And you know, they traded in uh a larger unit size then. I mean, even though it was the big S&P, but I think they were in in dimes or nickels. They were in nickels back then. And uh I
Speaker A
think I took 80 cents which was a huge trade you know but it it was a very easy trade for me to make because I was so ingrained with the time of day from being a floor trader in
Speaker A
the equity options which is an arbitrage business per se but you could see the crowd behavior the way that they would come in and pay up way too much off the opening. So you still see that today with stocks, that opening bulge where
Speaker A
everybody wants to chase and all of a sudden the move's over after the first 25 minutes, right? And then in the old days it would be um just before 12 noon, that's when the specialists, you know, would go to lunch
Speaker A
or all the floor traders would go to lunch. You get your counter trend reaction because the specialists had to get their inventory back from selling in the morning. You see? So there were these tendencies that were based on
Speaker A
behuman behavior which would continue to repeat themselves. And if it was a long day, well, all the boys up in Boston, the Fidelity crew who were out there eating clam chowder, they'd come back and it would be like 2:00 and okay,
Speaker A
let's get the party going again. All right. So now we've got a few more different types of days. But was very ingrained into me these time of day functionalities. And we had um because the stocks were denominated in eighths,
Speaker A
you could use the ticks because if half the stocks were on an uptick, you know, from perhaps a buy program and then just onethird of them dropped back down to a down tick. That would be good for about
Speaker A
three points in the index, which was huge back then. Okay, there's this phenomena of being able to use the ticks, the eb and flow like a tide. Now, you can't do that anymore because everything's in fractions. Damn it. You
Speaker A
know, you you you find the key and they change the lock, right? So, um but I'm digressing. Profit center one was the shortterm scalping. For me, that was one to three trades a day. Okay? So, it's not like you're going in and out and in
Speaker A
and out and in and out. If you look at a chart of the S&Ps, there's probably on balance two to three swings that last 60 to 90 minutes in duration. You just want to capture one or two of those. That's
Speaker A
all that I was trying to do. That's scalping to me. It's making a day trade.
Speaker A
And then profit center 2 was the in one day out the next. You know, the volatility breakout stuff or more importantly for my style of trading that tailor trading technique rhythm. If we just had two days high to low, okay, the
Speaker A
sellers have exhausted themselves. It's time for a low to high day. So that concept of what is the trend for the day?
Speaker A
That's why I said that should be your departure point. Is there a trend for the day? Are we trading outside of that first hour range? Trend for the day.
Speaker A
That's your friend. So that was our profit center number two. And you always hold profitable trades for another day or two. If uh if they're not profitable, they become day trades, right? And then profit center number three was if we had
Speaker A
one of those daily weekly setups where perhaps the weeklies are correcting back down and then the dailies show a buy divergence at the end of that technical swing.
Speaker A
best riskreward in the book. You can do that on any time frame. Look for the correction back on the higher time frame. Look for the little complex loss of momentum on the lower time frame.
Speaker A
It's not going to work 100% of the time, but it's going to give you excellent riskreward.
Speaker A
And then profit center 4 was sort of the like, damn it, I just feel like buying oats at this time of year because they always go up at this time of year. Let's put on a position in oats. you know,
Speaker A
those those stories in my trading sardines book. And um so what I found is that looking back over a couple years worth of data, if I divided it up into quarterly performance, one profit center might perform best one
Speaker A
quarter, one quarter it might be my S&P scalping, the next quarter it might be the second profit center. So it just added a real, excuse me, a really nice diversification there. and I never knew what was going to unfold, you know.
Speaker A
Very interesting. I can also from a top down I can imagine if the market is trending something will work better compared to consolidating. I guess scalping would be in a tighter range.
Speaker A
Trending would be the in day positions. I'm also curious do you have greater degree of certainty or conviction or size up on certain positions or certain styles of trading these profit centers or are they all equally allocated equal
Speaker A
risk and you just see how which which one is it? Is it this quarter? Is it this turn or this turn? How how do you manage these types of systems?
Speaker A
So, that's an excellent question because it is a problem when people start varying their bet size. I don't believe in that. I want an even bet size because I don't know where the winners are going to be. I don't know where the losers are
Speaker A
going to be. And this the minute I start monkeying around with that, it's going to be Murphy's law. So I calculate out my unit size at the beginning of each quarter. I do it based on the average dollar range. Okay? So for example, I
Speaker A
can take the average true range in corn, multiply it by the tick size, and say, "Oh, corn has an average daily range of $500." All right. Now, maybe the S&Ps have an average daily range of $5,000.
Speaker A
Not necessarily these days, but you know, well, that tells me I can trade 10 times as many corn contracts as one S&P.
Speaker A
So, I try to make it all a very even bet size. So, I redo that at the end at the beginning of every quarter. And then, okay, I can do two units if I want. And each unit will be like one unit per
Speaker A
$100,000. Okay. So, this is like when I was managing money. If we took in another couple million dollars, I can increase my unit size by another 30 cars. You know, that type of uh thing.
Speaker A
So, when I used to trade, I had somebody else doing all my execution for me. And sometimes when I used to call down to the floor, I'm the worst at executing.
Speaker A
You do not want me pulling that trigger. I make so many mistakes. I don't know why. I buy when I should sell. I click I've bought the Swiss Frank when it was supposed to be the S&Ps, you know, it's
Speaker A
just not me. So, um I always had an assistant who could execute for me and then I can just say buy one unit of silver, buy one unit of XYZ, sell, you know, that type of thing. And uh I'm
Speaker A
never thinking about the numbers. I'm never thinking about the dollars. It's just like this is the spot on the game board. Put on a unit. This is the spot to take it off.
Speaker A
I can see the reason why you put someone to execute in place for you just to avoid clumsiness or whatever the case may be. But I feel like you could also unpack a huge advantage which is a lot
Speaker A
of traders feel the urge if it goes into draw down to start messing with it go chasing it or just messing around with it. But if you kind of delegated that it removes all I suppose psychological remnants of price moving in your favor
Speaker A
against your favor. how quickly it's moving. Have you found it's also uh relieved you psychologically as well?
Speaker A
Um, you know, when I first when when I first left the trading floor and now I'm upstairs, okay, upstairs, as they say, in the office of my FCM and then when I set up an office for my house, we didn't
Speaker A
have electronic trading platforms. Everything was pick up the phone, make a call to the pit, I had direct lines to each of those brokers and give them the trade.
Speaker A
So, I never started off with the little electronic things. Now, I don't even know how to type. Okay, I have to look at the keyboard to type. And thank God there's spellch check. And this is ironic because I was a pianist for, you
Speaker A
know, God knows my life. You'd think I'd be very good at this stuff. I just I don't I limit, you know, what I process.
Speaker A
I know what I'm good at. I know my niche. I know I'm good at being in the flow and eating and breathing it. and I can just say, "Hey, let's get out." You know, that type of thing. Um,
Speaker A
I I've had a lot of traders, so I'm I'm with you. I'm I've been standardized risk my whole career, which is just a decade now. And a lot of traders have questioned me said, "Hey, if you do you
Speaker A
have high conviction setups, do you have win setups that have a better win rate?
Speaker A
Maybe they're less frequent, but you know, if you have a plus setup that has a 60 or 70% win rate, why trade that equally to another setup that maybe has a 30% win rate?" Uh, me saying in high
Speaker A
conviction plays, I should size up because I can yield more out of it. and they always question me and I'm not sure I I just don't have the answer.
Speaker A
When you say high conviction that to me implies a bias, a cognitive bias. Is it a leaning rate model?
Speaker A
I'm I'm leaning into the win rate as opposed to I know you mean that it can be a confirmation bias of sort. Uh but if I have a 30% win rate model and a 70% win rate model, why trade them both with
Speaker A
the same position size? curious of of why you've considered standardized sizing versus dynamic or people have told me, you know, lo in the losing period, you should size down because you're you're you're taking a toll mentally. And I've always thought, well,
Speaker A
it just means it's going to take me longer to get out the hole. So, I've always been standardized and it seems you have been also. But I'm sure along the way people have told you, hey, you should switch it up or try these things.
Speaker A
But you've you've stayed for a minute. Well, first of all, nobody's ever told me anything.
Speaker A
I learned everything my uh self the hard way. But th this is this is the way that works. Okay. If you are a discretionary trader and you are in a draw down and you are losing money, you must cut back
Speaker A
your size because something is wrong. Okay? Either you're not getting enough sleep at night or there's been a regime change and you haven't recognized that or you're you're making too many unforced errors and getting sloppy.
Speaker A
something is wrong when you start to go into a prolonged draw down as a discretionary trader. Maybe you should stop trading that market. So you need to cut back your size until you can regroup and figure out why that draw down
Speaker A
occurred. I mean everybody's going to have six losers in a row. That's a given. Okay? Even with a 90% win rate, you will have six losers in a row. So you have to allow for that in your sizing just to begin with. That's with a
Speaker A
systematic, too. Okay? Now, when you are trading a system, the last thing you want to do is cut back your size when you're going into a draw down because that's about ready when it's ready to spring and have a big win again. So,
Speaker A
they're two opposite schools of approach there. And both have very good groundings in their in their math for for a discretionary trader. How can I correctly allocate? The mistake is I'm not adhering to the plan. I'm not sleeping enough. Maybe I'm having
Speaker A
marriage issues and this is the reason for the the bad performance versus even in a winning period you have losing draw down periods and this is just factored in as part of the plan. I need to keep rolling the dice and it's going to be
Speaker A
okay. How do I know when to allocate it towards performance and I need to size down versus no, this is the time it's about to become profitable. Stay with it.
Speaker A
When it starts really bothering you like damn it, how did I lose so much money?
Speaker A
Damn it. you know how often in a in a year or whatever time frequency have you found yourself having to do this?
Speaker A
Everybody's different and everybody has a different wealth profile. In other words, there's a lot of people that might keep $100,000 in their trading account, but they've got a net worth of 20 million. Okay, it's not going to stress them to have a 20% draw down.
Speaker A
Then you could have somebody that has, you know, $100,000 in their account and not a whole lot of money cash liquid, you know, and they owe mortgages and stuff like that. It's going to stress them out a lot. So,
Speaker A
I do not like this. Oh, I made 20% on my account, these types of things because it's really not a realistic picture of, you know, and it's just really referring to the amount of leverage that a person is choosing. So, I would say my advice
Speaker A
would be if it really starts bothering you, okay? It shouldn't. You don't want to be in a business that's so stressful.
Speaker A
So, if it starts to be stressful, everybody feels if they take a day or two off that they're going to miss everything and lose their groove. But here's what's going to happen. When you are putting yourself under stress,
Speaker A
you're going to start doing the dumbest, stupidest things unconsciously because your your mind is trying to tell you, "Dude, chill out. What are you doing? You've destroyed your cortisol system. You've destroyed everything, you know, and you'll make such a dumb
Speaker A
mistake that it you have to take some days off." I've always found that interesting when I've spoken to certain psychologists on the show. They're like the old part of your brain which is responsible for flight fight and flight. It will
Speaker A
override your logic center in in a certain period where you are driven towards risk and it and when you do calm down and rejog your memory of what just happened you will look and think that was stupid but in the moment it makes so
Speaker A
much sense because the old part of your brain just just hijacking you. Um curious here the the mindset of a trader the correct mindset because we've off camera spoke about flow state subconscious competence. There's also these people that have a lot of rituals
Speaker A
behind their trading, a pre-market ritual, and uh maybe meditation and journaling. And some people say that's that's fluff, that's a waste of time.
Speaker A
Other people swear by it. And I've had traders that say they'll meditate an hour a day every single day. I'm like, it's a lot of time. So, I'm curious to know your mindset and routines around your trading plan.
Speaker A
Yeah. You know, every individual is different, too. And so, for your audience, there's no right or wrong.
Speaker A
It's what works for you. I've never meditated a day in my life. Okay, I'll just tell you that flat out. Uh but um I'm a fairly mindful type of person and you know breathe and stuff. Um my main ritual is
Speaker A
usually the night before when I do my homework and I just write out my game plan which I can do in half an hour and do all that. Um, and I was so fortunate, you know, when I was um
Speaker A
really building up my wealth and became a CTA and had a fund. I was really blessed because I had a business manager. All the phone calls went to her. All the bills went to her. She got the stuff to the the taxes to the, you
Speaker A
know, accountant. I never even knew how much I was making or down on the year, anything like that. I went for like nine years not knowing my own net worth, you know, and that was just I just liked
Speaker A
playing the game. That's it. I just liked playing the game. And um now not everybody is so fortunate that they have that situation. I certainly don't have that situation now. You know, it's me and I handle everything.
Speaker A
But you have to learn to um eliminate all the distractions I think is very important. Keep your phone in the kitchen, you know, keep uh the dogs outside if they're going to bother you.
Speaker A
A lot of people have young children at home, you know, set aside a special time to be with them. But then when your office, when you're in the office, close the doors. So, I come in in the morning.
Speaker A
I mean, I usually get up, walk the dogs, feed the dogs, you know, make my husband coffee, the that type of stuff, and then I'll sit down in my seat and I'll start, you know, looking at the overnight
Speaker A
action, where are the gaps, making a few notes in my plan, and uh just let the day roll from there. I I try to walk in the morning just for like 10 minutes.
Speaker A
And like I'm so grateful I live down here in Florida. I'm always like, "Thank you, God. Thank you, God." You know, just trying to say uh some prayers.
Speaker A
These sound like general good practices. I'm also curious on uh everyone has their, as you're saying, their own temperament, their own personality just to share myself. I don't like being wrong on the day. So, I found myself taking one loser to 10 very quickly cuz
Speaker A
I just fighting the day. So, then I put rules in place like I two losses and then I'm out for the day. I've also found myself very irritable in a position. So, I don't like holding things for weeks because there's just
Speaker A
one split second of a misjudgment and I I ruin it kind of thing. So, I've realized my temperament and I've tried to build systems around it as safeguards. But, I've always wondered would my temperament evolve? Could could I even change it? Could I could I
Speaker A
improve it as opposed to having to put guard rails I could make myself better in that way? Have you found your temperaments when you started out your career to have been even present now and guardrails is the best approach or are
Speaker A
these things I should work on? You know, that's an interesting question because as we mature, you know, and age, um, it I I used to be very short if I was interrupted. You know, if I'm sitting there and I'm concentrating and
Speaker A
I'm just deep in my groove and somebody walked into the room and asked me a question, I'm like, ah, you know, shut up. You know, that type of thing. But in general, I'm a very um downregulated person. I'm very chill. It's hard for me
Speaker A
to be like too happy, too sad, too anxious. I don't get really angry or mad or else I've just internalized it. I uh I I'm a game player, you know. I'm like, you won't know what my cards are, and
Speaker A
I'm not about to show you. Never. Never. You know, and uh my mom used to say, she used to always accuse me of being aloof, you know. I'm aloof because I'm not really interacting. And uh yes, I've I've
Speaker A
weird weird tangent, let's say, but people that go through a lot of trauma or people that go through a lot of hardship do also become uh apathetic, I think is the word. Kind of just neutral down the middle. And I guess in the
Speaker A
markets, that's that's amazing. Like you're you're not too invested into a position. You're not too burdened by a loss. So I guess that's where you would want to be. But I guess in the outside life, that's that's a problem, I guess.
Speaker A
Um, is it have you found this to be some sort of sort of advantage in the markets or is this something you've trained or is this just a personality style you've had?
Speaker A
I I think it's just who I am. I think that uh, you know, I've always loved playing games and, you know, game theory and all that. My mind is like I do math and uh, notes better. I don't do good
Speaker A
with words. I mean, which is kind of sad. My mom was an English teacher and I always flunked my vocabulary tests. you know, it's like words, words, you know, that gets me anxious, you know, but um and I I had a lot of knocks, you know,
Speaker A
when I was younger. So, I think that life's experience builds you up a very thick skin. I just have a very thick skin. Now, that's something I have had to be aware of because um my husband's Greek and as they say,
Speaker A
Greeks wear their emotions on their sleeves, right? So, now we have Mr. emotional Greek stallion here and Miss Blonde ice queen.
Speaker A
Yes, I can imagine. And you know it's like any relationship you have to just be mindful and you know as we age recognize things and then make an improvement to reach out to other people. The exact reason I mentioned
Speaker A
that was this has been my experience to in my marriage where I guess it's been helpful in in in the markets to be let's say stoic but in outside life it does become consideration let's say this is all building up to towards this word
Speaker A
intuition you're talking about experience weathering storms and um yeah market IQ and all these things build some sort of subconscious wiring that maybe you can't put your finger on upon it and you could call that intuition and because you are a discretionary trader
Speaker A
it means you will deploy your intuition whereas a quantity meditative person would say, "How do I differentiate greed, anger, fear, revenge as intuition?" And it's just a bad idea.
Speaker A
I'm asking as my six sense. I'm curious to know how can you turn intuition into some sort of science? Should I trust it?
Speaker A
When can I know to trust my intuition? Because I haven't in my whole career.
Speaker A
I've tried not to at least um and I might be missing something. I've never made a trade off of intuition. Okay? I don't I don't do that. um I will make a trade based off of a a signal which could be a pattern a
Speaker A
a you know some condition like that. Okay. I also want to get into this idea of flow state. Now athletes get into flow state. You would even tell me even when you're reading a book you're so immersed you're in flow state. So immersion I
Speaker A
think that's that's a good word. Uh intuition I'm undecided to be honest. Flow state I I find it a bit fickle. I I don't really understand what it is. Can you help me understand how a trader can enter this state of flow and how we
Speaker A
could better them? I would be willing to bet that every single one of your viewers has experienced a flow state at one point in one area in their life. Perhaps it came through sports. Perhaps you're just jogging and it feels effortless and
Speaker A
easy. Um, I was reading the book by Steven Cutotler, K O T L E R, and he said that every time he goes skiing, he enters into a flow state where it's just easy. Um, 5 hours could pass and it only
Speaker A
feels like it's one hour. It's effortless. Um, another parallel term that you could use is single-mindedness.
Speaker A
Okay. So for example when I used to practice the piano I was very single-minded just focusing on the piano the notes and you know once it becomes easier and you've worked through the technicals then it's like you could just close your
Speaker A
eyes and play not quite like Stevie Wonder you know and that is for sure a wonderful flow state. So, tennis, golf, and trading when you're just absorbed into the screens and you feel like you can eat and breathe with the swings on.
Speaker A
So, I guess there's two terms I'm mixing. Number one is like a tennis player. He's just really good at a backhand, but he doesn't exactly know why. It's not like he's studied it and the arm position, and it's not a
Speaker A
science. He's just done so many repetitions, it's become automatic, and then this feedback loop of I did this and it worked. I'm going to keep doing that. that I would maybe say is like a subconscious competence. Uh but I wonder
Speaker A
if that applies this flow state or subconscious competence. I can do that when I'm driving, when I'm walking. I'm not thinking about my posture and the steps and the terrain in front of me. I just I just walk. But when it when it
Speaker A
requires critical thinking, when it's like decision- making of weighing up the pros and cons, which the markets is, can you enter subconscious competence, flow states, and this like um automatic way of being, or will you always have to
Speaker A
come into a state of thinking and consciousness and being totally aware of everything, you know? I mean, when I do my best trading, I am not thinking. I'm like, okay, it went up. It just test rejected that price. I can tell you the thought
Speaker A
process. I can tell you exactly what's happening. We just went up and tested that previous high and came down so quickly. That's a test reject. There was no volume up there. That was the top and you're going to start ratcheting down
Speaker A
the other side. But I've seen this so many times I'm not verbally processing it. Okay. I think a lot of traders can make the mistake of saying a gut feeling, a six sense, some magical power is my intuition. And and here it seems
Speaker A
like you are quantifying it. It is pattern recognition. It's just something that you haven't put to paper, right?
Speaker A
Whereas I'm also curious on there is certain thing as form. Like if I'm playing basketball, I've got five in a row. I might there's probably a better chance of me getting this into the sixth one because well, I don't know. It's
Speaker A
just I'm on a roll, let's say. Can that flow? That would be flow. Sure. It feels easy, you know, that fast. It's just free from outcome. There was a quote that Stephven Cutotler used and I think it was Michael Jordan and he said that
Speaker A
when he's in that feeling of flow and he's going for his windmill dunk or whatever the hell he did, you know, he said that hoop is like the size of a hula hoop.
Speaker A
That's what it felt like to him just open and waiting for him. It's very interesting.
Speaker A
Yeah. Do you think that uh comes with time or or can even a a newer trader harness this sense of flow?
Speaker A
I think it just comes from your passion in doing this and being able to eliminate the other distractions that cause anxiety. You can't experience a flow state when you are also feeling anxious. It's going to make you tense.
Speaker A
Um, so you have to be able to let go of the anxiety and feel relaxed. And I am not an expert in this area by any means, but there is so much information that people can Google on the internet. And I
Speaker A
even believe that uh I think it was Steven Cutotler even gave some exercises that you could do if you wanted to try and get into the flow state. So um Oh, interesting.
Speaker A
Resource. I can imagine anybody can get into a flow state when they're on a roll. It's going easy. They're five winners deep.
Speaker A
But can you access this mindset when you're losing, when you're in draw down, because I suppose that's when it's most useful.
Speaker A
I think that if you're good at the flow, it's playing the game. And it doesn't matter if you just won or if you just lost. Okay? It's like when I'm playing cards, and I love playing cards, if it's
Speaker A
Jin Rummy or bridge or back, you know, any of those games, right? It's the process of playing. It's it's you know I'm not a chess player by any means but it's still being in the game and it doesn't matter if you just won or just
Speaker A
lose. Now if you've let yourself get sloppy and out of control and that draw down starting to become bothersome you're not in a flow state there. But you know it's like counting cards and it's just like same thing when a a a
Speaker A
great lesson for people to do. They don't have to trade this way, but they might want to do it on paper for a little bit. Come up with a volatility breakout system. There's a zillion versions out there. Do it on paper,
Speaker A
okay? Because the nice thing about a volatility breakout system, and you're not going to get rich trading one, I promise that, is that the entry is well defined, the exit's well defined, the stop is well defined. You know, you
Speaker A
could even enter and exit end of day. How simple is that? If your stop isn't hit, very simple. And now do that on paper with five different markets. Each market should give about two trades per week. And just write it down. Write it
Speaker A
down. Write it down. And it's like flipping the cards over. Is it red? Flipping the cards over. Is it black?
Speaker A
Here was a winner. Here was a loser. Here was a winner. Here was a loser. And you totally desensitize yourself to the wins and the losses. It's like, no, you're just playing the game and staying in the process.
Speaker A
I I I watched a video on this exact topic and it was the aha moment for me was like, you know, when you play a song, are you just trying to get to the end of it or is it the enjoyment of
Speaker A
listening to it? Well, marriage is the goal to just like get to the end of it or it's the process of it. Maybe at times it might feel out of the way, but the idea being that I guess when you're
Speaker A
playing for the love of the game and trading I guess is a hard path and it's only in if you find a passion and an enjoyment and and the stimulation of trying to solve it if that's a calling
Speaker A
for you is probably where you will naturally thrive because you're not trying to aim for the the goalpost or the end finish line. It's in the process. Very interesting. I want to explore now um this idea that I I wanted
Speaker A
to get into sooner but I like this uh topic that we just covered the price action signature of price flushing levels uh goes and then creates a vacuum void and then you're trading in the opposite direction uh especially on a
Speaker A
day trading or a scalping perspective. I I see this happen constantly. The the thing is there's a lot of pivot points or these inflection points where it could happen. But the hard part is to know what is a breakout and it's going
Speaker A
to continue versus it's a flush and it's going to reverse because at that inflection point it it could go either way and I'm betting on one side. So then I've always explored okay is it what I'm taking on the left is it a high of
Speaker A
previous day high of previous week is it a daily pivot and you can have a long list of things or is it in the reaction type that I should quantify and say this is giving me certainty when I'm in that
Speaker A
moment of price has broken out and I'm looking to sell cuz I'm thinking it's a flush when another person is thinking it's a momentum it's a breakout how can I make sure I'm on the right side of the
Speaker A
fence what if you can't what if there is no such thing as certainty or at least have the odds in my favor Manage it. Manage the loss or manage the outcomes.
Speaker A
Well, you want to manage it. That's for sure. You should know when you enter, how much room are you going to give that and what is it going to look like where it starts to fail.
Speaker A
I like how you always stop me when I speak in absolutes, which you mentioned.
Speaker A
I Yes. I just want to get into frameworks around price is doing this. Uh these are the correct things I should be doing to not know, but at least have things in my favor to know I should be
Speaker A
selling in this area. And no, it's not a bullish breakout. you know, it's um you can print off charts at the end of the day and circle where you're getting in and out. And then with the benefit of hindsight, you
Speaker A
can look, was it in the middle of the day at lunchtime when nobody's around?
Speaker A
Was there a news event? Was there a catalyst for it? Um you know, what do the good ones look like? If it is a good one, how much should it back up against me if my entry is correct? So you can
Speaker A
start doing that type of modeling in terms of how much excursion it'll do on either side of your entry price and then you can come up with a statistical measurement of it should not go beyond this point if it's going to be a good
Speaker A
trade. What did you mean by excursion is like the amount of displacement. Yeah. How much is it going to go on either side of your entry price? You know.
Speaker A
Okay. Yeah. So you're you're not necessarily looking at technical things on the chart to place your entry and stop or profit targets. It's more these data sets around ATRs.
Speaker A
No, not at all. If you're looking for breakouts, breakouts usually imply that you are pulling out of either a a previous trading range or consolidation or high volume node. if it's in the middle of the chart. You can have a
Speaker A
breakout that's a channel breakout which is taking out the highest high of the last n number bars. But you can equally have a breakout if let's say you've done an ABC type of thing down and you have a
Speaker A
little pattern at the bottom of that swing. You could have a break out to the upside where you're getting impulse up and that's still got a long ways to run.
Speaker A
So break out per se doesn't necessarily mean going above the highest high or the lowest low. I mean one of the popular patterns is a breakout from a little three bar coil there just three daily bars which is powerful because you have
Speaker A
a built up a little bit of an equilibrium point where everybody's in agreement. There's price bar overlap.
Speaker A
And so once you start to pull out of one of those areas, one side is going to be on the wrong side or else you're going to want to pull new monies in. So it sort of depends on the configuration
Speaker A
that you are breaking out from. I've spoken to a variety of guests on the show and a unanimous common denominator between all of them is the emphasis they put on data and actually knowing the inner workings and the insight of your
Speaker A
edge and your performance. That's why I'm proud to bring a partner of the show, Trade Zella. The number one journaling, back testing, and all-in-one insights experience created by traders for traders. What Tradesella really gives you is deep insights about your
Speaker A
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Speaker A
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Speaker A
the best discount using the link in the description or code toot for titans of tomorrow.
Speaker A
I believe almost a decade ago you stopped the money management side and now you've been trading your own own capital since. I wonder what that transition's been like when managing large capital versus managing your own answerable to investors XY Z. I'm
Speaker A
curious if your trading style has evolved or frameworks, mental frameworks. Has there been any uh change in that transition?
Speaker A
It's called being retired. Okay. Okay. So, why why have you continued to then trade in general?
Speaker A
Cuz it's like the best game in the whole world. Come on. I mean, it's like I'll never stop trading. It's just like it's fun. But, uh I you know, I tried to pull myself away from it and that's when I
Speaker A
wrote that book, the Trading Sardines book, which took me like three years to write. Believe it or not, I'm a horrible writer. Every word was painfully eaked out. But um you know, and what had happened was with the fund, it started to feel like more
Speaker A
like running a business as opposed to just the pure joy of trading. So now all of a sudden, I'm I've got the auditors, I've got the accountants, I've got the attorneys writing blue sky laws, I've got like, you know, so many different
Speaker A
moving parts. you know, my IT guy, the on and on and and then my data fees, the stupid exchanges, because I had multiple feeds for multiple entities under me.
Speaker A
All of a sudden, my data feeds were like $7,000 a month. And I'm like, this is not fun anymore. You know, I'm not doing what I enjoy doing. So, I that's when I sort of packed it in. And um and yeah, I
Speaker A
don't have to trade another day in my life. But you know what? here. I got You're looking at me. I got broken ribs, torn rotator cuff, up leg from getting bucked off a horse, right? And so for the last couple weeks, I'm like,
Speaker A
"Aha, I've got so many more tools available now, you know, with uh the AI, the uh you know, regenerative learning and the deep neural net, and I can I can use this database, and I can write to the rhythmic API and da da da da da, and
Speaker A
I'm going to have some fun with this, right?" So, it's like a new game and I'm going down rabbit holes. I'm doing this like 20 hours a day and I just love it, you know, because it's a challenge.
Speaker A
Do you feel individuals leveraging AI and what it can do for us now is a bit of a time void and and maybe not focusing on the right thing or is it something actually very useful that we can use to better ourselves in the
Speaker A
markets? AI can be used in two distinct purposes for the markets. The first is it's wonderful. I don't really use it in this capacity, but it's wonderful for streamlining your process. I mean, a lot of trading operations involve grunt
Speaker A
work, okay? And the AI can do a lot of that grunt work for them. Um, and in terms of the processes, the research, the modeling, the statistics, all that sort of stuff. Um, huge savings in time, especially for coding purposes like you
Speaker A
know, Claude and uh, you know, Fable 5.1 and Opus. there's like it's amazing what they can do now even coding Python and stuff which is sort of a necessary uh integration to writing to the APIs. So um that's one way that you can harness
Speaker A
AI where it's supporting you in doing your things. Then there's the other way in using AI. It's not going to work with the LLMs, you know, those large language models. So throw chat GTP and claude and all these other ones out the window. You
Speaker A
can use parts of them for a component, but now you're stringing several different pieces together. And let's say perhaps I want to train something on a pattern, which is a different approach, you know? I mean, there's two sides to
Speaker A
the coin. You've got your neural nets, your deep neural nets, okay, where you just feed them a ton of data, a ton of data, and they're going to learn things on their own and stuff. And then you've got the regenerative learning where
Speaker A
through the repetition it's going to correct and teach itself. And there is a way to use them together, right? Are we having fun yet, boys and girls? Huh? There's a way to use them together. You have the nice clean
Speaker A
database and you know some little things. I want to um wrap up with advices.
Speaker A
number one that is you were in the S&P since the beginning and then you went through the the the phone way call your broker and you don't know when you executed until you confirmed it and then through digitalization and then the
Speaker A
internet and XY Z and now we're at a time where Jane Street nano executions and quantum supercomputers XY Z and it can feel like this time is different and now the markets might change and we're entering a time of uncertainty and
Speaker A
should I even be worried about this or is this just fear-mongering? I'm I'm I'm yeah interested in your approach or forecasting of what's likely around the corner in the near future with the rise of recent technologies.
Speaker A
You know um it's not like we're here today and two weeks ago we were here.
Speaker A
Change is such a gradual insidious morphing. So we've been changing every single year for the last 40 years. you know, the servers, the connectivity, all this stuff. I mean, if anything, I was reading this fabulous article, um, uh, written by this guy on the internet
Speaker A
explaining how we have the tools that we can do exactly what Renaissance Medallion Fund does in terms of uh, constantly coming up with new strategies, which is what you have to do if you're in that field. Okay.
Speaker A
um they spend like $50 million, you know, a month. The the data, the data engineers, it's just like so crazy. You can do it for $500 a month. We have those tools available to us. You have access to those types of pools of data,
Speaker A
you know, and API. Rhythmic's a great API, you know, so there's or if you get that good, you can write your own gateways for LA care. I love that because that's actually a very empowering response where people can
Speaker A
feel like pessimistic that AI is going to make it harder and worse whatever but in fact is democracized democraing the playing field to what was once a hidden advantage for them because of their capital and access to talent is now I can do it with a
Speaker A
couple hundred dollars of subscriptions uh which is actually yeah you're right it's very powerful last thing I want to ask is around longevity in the markets and a lot of traders have had a good year maybe a good couple of years but
Speaker A
longevity in the markets because I'm sure is another battle or mountain to climb in itself. Any thoughts or recommendations on that front stay healthy, you know, it's not just a healthy body because that's what gives us energy, you know, okay, you don't have to be
Speaker A
perfectly in your clean eating. Trust me, I I put on a few pounds the last couple months, but um you know, it's important to exercise that gets oxygen to the brain and you have to have a healthy body to have a healthy mind. And
Speaker A
so in terms of longevity and I think even more important is your energy level. Energy is like a the most precious resource there is, our energy level. And if you've noticed, people will tend to be attracted to other
Speaker A
people that have high pure energy levels. You know, nobody wants to be around a pill that's just sitting there, you know, with negative energy. So, go back and take a holistic reproach. You know, even though we've been talking
Speaker A
about a very dry topic, markets and so forth, and go back and you want to be in this business, fun. Fun is very important. you know, because it releases all the tension and stress, humor, of course, your energy level, which is
Speaker A
dependent on exercise and sleep and all those kinds of things that they preach to you. And uh then you've got all the ingredients to be in the best game for your life for the next 50 years if you
Speaker A
want, you know, and you so many good examples around us. I mean, Warren Buffett, come on. The dude's making trades in his bathtub 10 years ago, right? You know, at the crash, he's like, "Oh, I think I'll do some Bank of
Speaker A
America, you know, in his bathtub there." It's like, and he's in his, I don't know, late 80s at that time.
Speaker A
I think there's a there's a message in there that a lot of traders come to the markets because they want to better their financial situation and it becomes a very short-sighted objective. But then when I look around at the people I've
Speaker A
spoken on the show, uh, they retire but never stop. Even Larry Williams, I asked him, "Hey man, you're in your 80s. uh any plans of like slowing down? He's like, "Yeah, I've been thinking about that every year for the last 10 years
Speaker A
and I haven't." Even Perry like bless him. I think he must be mid 80s at this point.
Speaker A
And yeah, just as active as ever. And I asked him, you know, why? And he said, "Look, it keeps my mind active and sharp." And I know the moment I give up the markets, I deteriorate mentally. So it's like every everybody that's falls
Speaker A
in love with the game or gets into the game for the right reasons stays for forever because they find the beauty and fun and the the stimulation within it which I think is a a wonderful message to end upon. Linda, I want to thank you
Speaker A
very much for your time and giving us the opportunity to host you. Thank you for having me. It's uh it was fun. You're a good interviewer.
Speaker A
I'm glad to hear that was a lot of fun. Thank you.
Topics:order flowday tradingS&P 500algorithmic tradingposition sizingtrend followingrisk managementLinda Rashkihedge fundstechnical analysis
