MORE Aggressive Trading, MORE Million-Dollar Wins · John Carter

MORE Aggressive Trading, MORE Million-Dollar Wins · John Carter

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Markets speculation and risks. This is the chat with traders podcast. Hi, I'm Tessa Aaron's co-hosts of the chat with traders podcast. In case you miss the announcement about some changes in the podcast, you can hear about it in episode 238, I'm happy to introduce episode 240 of the chat with trader's podcast. And this episode, Aaron and I chat with Mr. John Carter, who you may remember was on a very popular episode of the show. Speaking

with Aaron, who was in his earlier podcast years back in 2016, this was episode 69. In that episode, we learned that John was an aggressive trader. And I would say that he's still an aggressive trader. John has been trading for about 30 years now, which I consider it to be such an accomplishment in of itself because it's tough to be able to stay in this game for that long to say the least, but John's also achieved phenomenal trading success, mostly with trading options, which we'll learn more about shortly, about some of his really big trades in 2020 and 2021. And also we'll learn about his thoughts on the current trading environment. One of the things that really appealed to me about John is that he takes a holistic approach to trading.

There's a humanistic feel to the way he talks about trading, which we don't get to hear often. So naturally we'll chat a bit about trading psychology as well. There will be articles and videos mentioned in this episode, which can be found in the show notes at chat with 240. Now, without any more delay, let's head on over to our chat with Mr. John Carter. No, John was looking back at or listening back, I should say to our first episode, before jumping on the call here, that was in 2016.

And I know that million-dollar tests that tried was a quite a big deal at the time. You know, these days, that kind of seems like it's nothing out of the ordinary for you. Well, you know, well, first of all, it's, it's cool to be back on this. And secondly, I can't believe it was that long ago when

we did our first call together, you know, time kind of flies and now, you know, 20, 20 and 2021 or incredibly remarkable trading years. And so, you know, the first Tesla million dollar trade for me that we talked about on the call, you know, that was certainly at the time, you know, kind of, you know, almost like a, this mind numbing achievement, like, oh my God, that that happened in one day. And then, you know, 2020 rolled around and, and, and in between, you know, 2014 and 2019, there was some nice trades, but it was more, you know, the markets were just different. You had to sit in trades longer and then 2020 happened. And all of a sudden, I think it was something like $7 million trades in 2020, and then, you know, like maybe four or five in 2021, including my biggest trade ever. And so it w it, it gets a little surreal. And I do think that there's a challenge. You know, one of the challenges in trading is

to, and of course w it, wasn't all easy, right? There's, there's ups and downs, but it's, you know, the challenge in trading is to not get too, you know, if you, if you go on a winning streak, a lot of times, that's where you're at your biggest danger, because it's all of a sudden, it's like, oh, you know, I've made it. And I don't, you know, I don't need to be careful anymore or, or whatever, but the reality of it is, is there are times, you know, when everything comes together in the market where a big trade like that a focus trade is available to you. And so part of it is recognizing that, but more importantly is recognizing when that is not available. So, you know, the worst thing you can do is try to make a million dollar trade. And of course that's a combination of position, size and duration, but trying to force that when, you know, the market's not ready to do that at all.

Yeah. And, and 2020 was obviously a standout year for you, I think the biggest year of your career. And that's a 30 year career by this point. How ready for that? Were you like when you, when the market started to unfold, did you feel as though my experience over the 30 years has kind of been preparing me for this? Or were there still a lot of almost doubts or unknowns or uncertainties in your mind going into that? Yeah. Okay. So that's a, that's a great question. So as I, and as I think back on it, so first of all, a lot of things happened, right? So first I, as I think back on that year in, in, in February, and this just popped up my wife and I, we did a, a two-week trip to India where we went to this place called the dotta academy. And it's basically, it's a week long crash course in the Bhagavad Gita. Okay. And it's this totally random thing that we did. It was amazing, but this was all happening when this talk of COVID was happening.

And it's like, we kinda took maths on the plane, but they weren't required. And we weren't really sure what was going on. And then of course, by the time we get back, you know, the world goes on lockdown. And so I bring this up because when this happened, we lived,

we had a place in the city in Austin, and then we have a, like a kind of a ranch outside of it. We decided that we did not want to spend lockdown down in the city. And so we packed up all of our kids and we moved out to the ranch in Wimberley, Texas, which is where I'm right now still. And so during

this time, while I'm trading, you know, we're trying to get set up. We didn't have internet. We had to get internet set up. A funny story is that while we're here, I was like, man, if we're going to be out of here, we might as well get up in the morning and see some zebras. And so we ended up getting some zebras and Willdabeast and kudu cause we're big fans of Africa. And we didn't know at that point, would we ever be able to travel there again? So while all this is going on, the markets happening right now, March, 2020 for me was not, was not scary at all. I've been through, you know, the 2000 crash, 2008. So March, 2020, it w

it didn't have any big trades that month, but made money. And, and frankly, those are the kinds of markets where I just remember spending a lot of time in 2008 in those kinds of markets. And just knowing like, okay, in this kind of market, this is a day trading market. I'm not going to make any huge bets overnight. You know, this is a get in, get out fast. And so I'd experienced that before, but the unknown was what's going to, I mean, is the world coming to an end? Right? And so psychologically, I just made a commitment to say, I am going to, and it's something that Mark Douglas says in his book, it's like, I don't, you know, you're not going to you, don't, you have no idea what's going to happen next, but you don't need to know what's going to happen next in order to make money. And not only was, I really focused on applying

that to my trading, but I was also focused on applying that to my life because we had, you know, there's, hasn't been a pandemic since like the Spanish flu in 1918. So nobody, almost nobody that's alive had experienced a pandemic before. So, so in terms of trading, January, February, March, and April were actually all positive months, but they weren't, there was nothing great. There was a good silver trade. There was, you know, some here and there, but it was, it was great. It was a nice, nice, positive. I think my first down month was, may it wasn't a big down month, just whatever it didn't come together. But then whatever happened in June, things really came

together and I had like a million dollar trade in June and Tesla, another million dollar trade in July. And I think then it was like a three and a half million dollar trade in August, August, and then another, you know, it was just, it was one of those where it was kind of like a Forrest Gump moment where the mindset that I had brought to the markets, which was a combination of aggressiveness and just anything could happen and being willing to really get out if it's not working, it played out really well because I was willing to let winners run versus like my gosh, I don't know what's gonna happen. I got a profit, let me get out. And I was willing to sit through the uncomfortableness night after night in some of these trades where you're in these trades, you know, for a couple of days or a couple of weeks, whereas I'm not, you know, that's not always something I want to do. I mean,

there's times like in this market right now, you know, we're talking in, in July of 20, 22, I hate overnight trades in this market. You know, this is to me is just like, let me, you know, let me try to make some money during the day. And then I'm gonna go ahead and take it easy. Okay. Do you think that your zebras had anything to do with your positive performance as well? So, you know, okay. So it's a great question. And I think the benefit of the zebras and the kudu and the wildebeest and all these animals was that I, you know, and we have it just being able to go, we have a couple hundred acres and they run free. They're not like, you know, sectioned off or anything, but I loved going on hikes and just seeing if I could run into them, you know, if I could find them. And I think that was a big, important part of keeping my head clear. And I'm, I'm

a huge believer in that in, you know, in order to trade effectively, you cannot stare at the charts all day. And in fact, you know, there's this, you know, there's a, it's very common that traders make money in the morning and then able to weigh in the afternoon. And that's proven it's, it's impatience, impatience builds up as well as dispute decision fatigue throughout the day. And it's, it's kind of a pattern of why traders tend to give money back in the afternoon.

And so the idea that I wanted to go outside, I wanted to get away from the computers and spend an hour and a half or so, just hiking and looking for these magnificent creatures, I think absolutely contributed to that. That's amazing, John, during 2020, you highlighted yet some really big trades towards the end or the later half of the year. These all seem to be in Tesla. And when we spoke many years ago, that big trade was in Tesla. What is it about Tesla? What are the unique opportunities that you have found trading this particular? I was going to say stock, but you're trading the options. Yeah. It's

so it's, what's interesting is that it happened to be Tesla. There was also a couple of really good trades, like an Amazon and a few others, but, but Tesla, you know, it's not about, you know, and to be clear like Tesla in 2022, I don't like trading at all. So it's kind of like, it's, it's not so much, oh, the stock, it's the behavior of the stock, which means it's the behavior of all the collective participants in the stock. And what's fascinating about Tesla is that so many people hated the stock that it always had and continues to have a large amount of people betting against it. And what's great about that. And it's also known as kind of high short interest. And so what's great about that is it adds

to the volatility. And so when you've got a stock like that, where there's a portion of the population that's dedicated itself to its destruction, because they hate it. For whatever reason, they don't like Elan. They don't like the stock. They don't, they don't like the story. None of that stuff really matters to me is that what's great about that is that, you know, when Tesla breaks out, not only do you have people who want to buy the stock as a long play, but on top of that, you have shorts getting out at the same time. So you've got

that double whammy of buyers pushing it up and then people getting out of their shorts, pushing it up, and it just creates prolonged trends. You know, if you think of like, say the S and P 500, if you do get like, say a 20 point rally before it fizzles, that's great. You don't necessarily expect to see an 80 point rally non-stop, but with Tesla, with this combination of a high amount of short interest and people that just generally like to trade the stock, you can have these 60, 70, 80 point runs before it shows any signs of even wanting to pull back. And it's just, it's, it's a fantastic opportunity for options because a lot of times they options, they don't price in a move like that. And then from there, it's just training yourself

to sit through the uncomfortableness of, you know, oh my gosh, you know, I've got this much money. What if it goes away and, you know, just kind of trailing up a mental stop that way. Right? Well, as we are talking about big trades here, I'd love to double down on the topic, just moving on from 2020, the following year 21, you had your biggest tried to date, and that was in Google options. So I'd love to just ask you a few questions around this, or I sorta want to get as many details on this as possible first things. First, I think the obvious question to start this with is knowing in advance that this is going to be a big trade econ. You used the phrase a few moments ago, these kind of trades being available

to you. How do you know when these sort of bigger trade, bigger opportunities are actually present and available to you? So that's a situation that I think what happens is over time, you know, being in the markets for a while, you just start to recognize, and I'll see if I can clarify that for Google specifically what I recognized. So this was in, this was around March 10th, 2021. And I remember, cause I've, I've documented this trade outs. I remember a lot of the specifics about it and I pulled up a chart here so I can look at it. So the thing that stood out with Google during this time is that the market itself was selling off. Okay. So the NASDAQ was selling off. It was taking out support, but Google wasn't. So, you know,

everybody was going down, but Google was not. And Google on the daily chart was holding support. It was staying above its 21 period moving average. And you know, it was building up a squeeze, which was one of my favorite tools. And so for me that stood out here is

like, this is a unique thing because Google is very, very strong, even in, even against the backdrop of a weak market. And then when I started to watch the NASDAQ, the NASDAQ started forming kind of a head and shoulders reversal, you know, on the daily chart and some intraday charts. And so my thought was, and looking at this, it's like, wow, if, if Google was trading sideways, while the market was going down, imagine what Google will do if the market actually firms up and it's got the squeeze. And, you know, I, that whole scenario that I was kind of like to me, kind of a perfect storm where you a, you have a market setting up, but also you have a stock that's going to benefit really well from that. So that was the initial thing that I saw that attracted my attention.

When you use the phrase squeezed there, I think most probably going to think short squeeze, but I think you're actually referring to one of the indicators that you use, is that correct? Yes. So the TTM squeeze or the simpler trading squeeze, it's a tool that's available like on think or swim and stuff like that. But what, so here's the components of it. It's not, you know, it's not a secret sauce, it just measures volatility. So what it measures is when the Bollinger bands contract to the point where they're trading inside of the Keltner channels. So bones, your bands and measures two standard deviations, the Keltner

channels measures one and a half ATR, which is average true range. And what I want to see, or what are the times when the Bollinger bands contract to the point where they're trading inside of the Keltner channels. And what that means is that this market has gotten so quiet and it had been building up so much energy that it literally has to release that energy. And so that's what, so when I look for something like that, it's specifically like, wow, this thing is winding up, you know, it's coiled and ready to go. And that's what the signal is. You know, how you described when the NASDAQ was going down and Google was just not going down it's sideways. And that was kind of a trigger for you. Do you use that same kind

of trigger for a lot of your other trades too? Yes. So no. So, so what I like to look at is I always look at the indexes first. So typically it's the SNPs and the NASDAQ. And so I liked to look at those and in general, like a lot of trades I like to do, or just on the indexes, because there's, there's plenty to do on the indexes.

So what I like to look for then is that if the indexes are doing one thing, is there a stock that's ignoring that? Is there a stock that's swimming against it? And to me, you know, if I'm going to, if I'm going to trade a stock, it needs to be outperforming the indexes. Otherwise, why not just trade the indexes? So, you know, on days when the market's down, I will go and look and see what stocks are up with that day. And then, you know, or same thing, if there's, you know, the stock market's going up, are there some, are there some stocks that are getting hammered? And it's just the idea of, are there some stocks out there that have, you know, kind of a unique story? You know, there's one right now that, that I like is there's like United healthcare. So United health care, which isn't a stock I ever traded before this year, but in, in this current market where it's been volatile and there's these huge down moves, the stock just kind of keeps grinding higher. And so if I'm going to go long something, I want to go long, you know, that stock. So I certainly think it's, you know, to me, the

index is there just like this big river and you can trade the river. But then when I liked it, I liked to look for stocks that are, you know, I don't know necessarily the right analogy, but it's like, you know, either they're surfing the river very well or they're on the banks and they're completely ignoring it. But a lot of times I've found that there's some interesting opportunities there Just quickly. John, you said the raisin for this Google trade was in a nutshell, it

was holding up while the market was selling off. Was there anything else to the trade? Like, was there a stronger catalyst at PLI? Like, was there some kind of news or story around the stock that gave you this sort of conviction to really push it on this, tried to know that this was a big tried moment becoming available to you or was it purely just more of a technical kind of thing? Well, there was one other piece of information there and I knew, and I knew that earnings were going to come out in about four weeks from, from that. And what I found in a situation like this is that, you know, and this is just my theory, but my theory on stuff like this is that for the there's funds out there that are really smart, they're, they've hired all these analysts and they're calling the channel partners. They're doing things that us as retail traders, you know, can't do. And I'm looking at this

going like, okay, the market's been crashing, Google's at earning earnings in four weeks and Google's acting like the market's not crashing. Google is looks, it's a textbook long set up against the backdrop of a weak market and there's earnings in four weeks. And so when I see something like that, yeah, it's just kinda like, okay, some, you know, maybe nobody knew anything, but when I say something like that, it's obviously there's somebody buying the stock and by somebody, I mean, funds. And so, so when I see all that and you know, first of course the chart by itself looked great in terms of a technical setup that I like the fact that it was holding up when all the other Darlene's were falling apart with the, with the index. That was a plus. And then there were earnings in four weeks because sometimes you do kind of get this nice momentum into earnings, not through earnings, but into earnings. And so those three things all kind of came together on this Classic bothered

Rima Sylvan years. Well, I dunno, Never hold through the news. Okay, cool. I'm glad I asked that question. I guess the next obvious thing is how did you size, like you realized that this was a big tried becoming available to you potentially. How do you size

for that and how do you begin to put on your position? And also as you're trading options, it would make sense to ask you how do you actually structure that position tow, For sure. So I am a fan of scaling in for this kind of stuff. And when I, when I say big size, so let's, and say it's a a hundred thousand dollar account. I'll, I'll look to allocate up to 25 to 30% of that account into this one trading idea. So obviously there's a lot of risks in that, right? Cause if it doesn't work, then your account is going to take a blow. So you've got to kind of, so I try to structure the options in a way to mitigate that. Now, no matter

how I structure the options, if Google releases, you know, there's some bad news and it's down a hundred points, then you know, it's going to be painful. But initially I'll start off with say a 5% position. And what I do initially is called debit spreads. So typically I'll buy something like say, you know it with a stock like Google, because the options are so expensive. I tend to go out of the money. So I might buy like a slightly out of the money call. It's called a Delta 40 and then sell like a Delta 20 call. And I remember these were a hundred dollars wide, so a hundred dollars wide call debit spreads. And I put it on and I don't remember this because literally the day I put it on

the next day, Google was down 50 points. Now it sounds like a lot, but with Google that's, you know, that's, that's nothing that's, that was its normal range. Of course this was before it split just recently. And it came down to a support area. And so I added another 5% and in this case I added another call, debit spread, and then also sold some put credit spreads just to kind of help kind of finance that. And then over the next week I was holding onto it and it was just going sideways. So at this point I had about a 10% position and I was down on it and I was about to pack up my family and leave to Mexico for spring break. And so I had to figure out, you know,

what to do For dramatic pause. Well, that's, I mean, I don't know I've got in my notes here. Like, why did you put this trade on knowing you were going on holidays? I mean, it just seems like such a big risk. So my general strategy is when I'm on vacation, especially with my family is to not have any trades on and it'd be totally flat. Exactly. Yeah. And I follow that very religiously. And this, you know, I always say within trading,

like if you've been trading for less than five years, you gotta have a set of rules and you never break them once you've traded longer than five years, you still want to set a rules, but you've seen enough that, you know, when to break the rules and that's obviously you can be precarious, but this was a situation where I was like this, the confidence I have in this trade is very high and it's rare that an opportunity like this presents itself, and I need to at least keep a position on while I'm at spring break and maybe in a perfect world women's spring break, this trade will explode and hit my target. And what a fantastic spring break that'll be ha Yeah. Could either make or break your holiday. Yeah. And, and, and by the end, during spring break, it was horrible.

It was, it traded down, it traded down, I think every day, a little bit. It just, it was just so the irony is spring break happened and I came back, I lost money on it. I was still holding it. And, and of course on the option. So I'm doing options that are like 30 and 40 days, 30 or 40 days out. So it wasn't like, you know, I was doing an option that expired in five days. So that'll be in, said I came back from spring break. In retrospect. I sh if I would've stayed flat, I could have come back and just added, done the same trade and got better prices. So, but that's,

you know, you never know, right? Yeah. So I came back, I still love the trade. And so that's when I continued legging in. And so I bought some in the money calls, bought some more call, debit, spreads, sold some more put credit spreads. And I built up about a 25. I think I got to about a 28% position over the following week that I was back from spring break.

And it continued to do absolutely nothing. It was so frustrating. Like it actually, from the first moment I got into it on March 10th, I was underwater on this trade until March 30th. Do you mind just explaining what is a call debit spread and a put credit spread. So most of the time, so the basic options thing is, okay. I think Google is going to

go up. I'm going to buy a call. And then if Google goes up enough, I'm going to make money on the call. So of course the thing with options, what happens is there's a lot of premium in

it. So it's kind of like when you buy an option, it's like when you buy a new car and when you buy a new car, the moment you drive off the lot it's got, it starts to appreciating. It's the same thing when you buy an option. So the reason you do a call debit spread is you're buying this call. That's going to be losing value every day as the premium erodes. But then you sell a call, you know, that's like way above where you think the stock's going to go, assuming that that call is going to go to zero and that helps to offset. And, and the reason I was able to hold onto these trades for this long is that even though I was down, it wasn't horrible because the spreads were structured in a way that, you know, they were kind of kind of neutral. So yes, I was losing money like almost every

day on this trade, but it wasn't a lot. The theta, the way I structured the options was that I could afford to sit through essentially what was back and forth for three and a half weeks. Okay. Were there any important factors during this trial, which Connor confirmed you are right as it started to play out? Like, were there any, cause I know you kind of got into this trade really before it, it broke out. If you will, like once it did start to work, what were some of the signs

which you saw, which kind of confirmed to you that it was working obviously, other than prices going up. So, yeah. And so as I was, so during this three and a half weeks where it was trading sideways, you know, the first thing I always just say like, okay, is the setup still valid? And it was, yes, there was no time. It was a setup, not valid. It was just really annoying that it wasn't doing anything. And I was, you know, and I've been trading long enough to know that just because I really like the set up in no way, shape or form. Does that mean it's going to work? I was just like, man, is this thing really going to break down? When I knew I was in good shape was, I think was March 30th. I'd have to probably double check the date. But there was a day when the stock had a really

solid rally on volume and it took out all the resistance of the prior three and a half weeks and closed at its highs. And I was like, bam, all right, the show is going to happen. And the next four days, it rallied every day. And there was one day where it rallied like a hundred points. It basically went from like almost 2000 to, I think, $2,300, you know, over the course of five days. Yeah, no us, That's amazing something I noticed when you were on vacation and Google was going down and you're losing money.

You could've just closed out of the position, but you didn't. Right. I think I read somewhere where you mentioned that you had the confidence to stay with it because nothing was wrong with the setup. And I think that's a key thing too, because that's where a lot of traders may lose the confidence. And, you know, with that kind of,

you know, that with the stock going down that much would have probably closed out out of fear. And I was just, you know, trying to understand what was going through your head. Yeah. Yeah. So, so first of all, you know, when you're losing money like that every day, you're certainly second guessing yourself. You know, it's just like, gosh, you know, you know, is this, but there, but there's two things with this that I, and I've learned over time is I it's like, I call it the true false statement. And if the reasons

you got into the trade are still true, there's no reason to get out because when it works, you don't know when it's going to work. And there's certainly been times when I've had a perfectly good setup, you know, I was like, oh gosh, it's not working the last week. It's, you know, it's, oh, I'm down money, you know, away, away, away. And so I get out and then the next day it takes off. And then

when it takes off psychologically, it's actually hard to get back in because you're like, well, I was in at this price and now I feel like I'm chasing. And so you can end up missing it. So the first thing was, is like a, is the tray is the reason I got into this trade still valid. Yes or no. And the answer was unequivocally. Yes. So there was know nothing had broken down, you know, it just wasn't taking off and it was coming to the bottom of its range. And then, and then the second part of it was going

like, okay, if I knowing how strong the setup is with everything we've talked about, if I cut bait and then the stock does in fact turn into this huge move that has the potential to do, I would be doing myself a service by so coming into my own fears. And there's this thing about the idea of being, being comfortable with being uncomfortable, but, but also focusing on the facts, you, if you're, if, if the trade is breaking down, then yeah. If you're staying in it, that's a whole different, psychological reason. You know, that's like, oh, I'm afraid, you know, I'm afraid to take a law that's and that kind of stuff. But if the reason you got in the trade is still valid and you know,

you're within the, you know, the risk parameters that you set up, then there's absolutely no reason to get out of the trade. Maybe, you know, if you're nervous, you could say like buy some puts on the cues in this case, just like, well, if the market really tanks, at least that way I'll have a hedge, but it really comes down to that. And, you know, if, if the reason you got in nothing's changed, then you just gotta be patient and sit on the horse, you know, and, and let it do its thing. And that takes practice. Absolutely. And I'm first

to say that it's, you know, it's funny and trading, it's not learning a setup is not hard learning the, manage your internal dialogue and your emotions while you're in a trade is hard. So just coming to wards, the end of this trade, let's talk about the exit. What triggered to you that this is the end I'm getting out, I'm going flat locking in my profit. Yeah. So, so one, so one nice thing about when you're,

so we were talking about call debit spreads earlier. So I remember the way I structured these. It was something like, you know, I bought the $2,150 a call, and then I sold the $2,250 a call. So on a lot of those, you know, they were a hundred

dollars wide. So, so Google went from about 2000 to about 2,300 over the course of five or six trading days across, you know, all these positions that I had. So there's a couple of things is first when it kind of blew through the upper end of my call, debit spreads. At that point, there's not really a lot left. So, you know, your, your potential for additional profit at that time, you know, I basically, I basically kept my profit. I mean, the trade would have been bigger. Had I not done call debit spreads,

but on the other hand, I don't think I would have been able to hold onto the trades because if I would just, if I was just sitting on straight calls, I would have incurred more losses. So, you know, it's, it's kind of six of one, half a dozen or the other, but, but the other part of this is that in terms of a target, I'm a big fan of average true range. And so on a daily chart, I'll just put on a 21 period, exponential moving average, and anytime a stock moves three ATR. So in visually on your chart, you know, you just put on a Keltner channel, change the input to three, you know, three ATR. It's very rare that a stock is going to blow through three ATR. So if you can go from the 21 EMA to three ATR, 90% of the time, that's all you're going to get. Anyway, it's just from there, the odds of it starting to

pull back are really high. So, so the combination of things happen, one, it got into that three ATR level two, it kind of blew through that upper options. You know, the upper options that I sold. And, you know, at that point, I think, you know, I had gone from being down, you know, very high six figures to, you know, that on that particular day it was the day I started exiting was up just is like $5.1 million. I mean, it happened so fast and which is what I love about, you know, options like

that. And, and so what I did is I started selling out the long calls first. Okay. Because those are the ones that were at the most risk of suddenly Google decided to pull back. So get rid of those. And then I gave a little bit more time on the call, debit spreads. I think like later that day I closed those out and then the put credit spreads that I sold. And, you know, again, for people that are,

that aren't familiar with options, so I would sell, put credit spreads, like say I would sell the $2,000 put on Google and then buy, you know, like the $1,900 put. And that's a spread with the, the bet being that that's going to go to zero. And since I sold it, that means I collect the money. So those weren't big trades because put credit spreads,

you don't get a lot for, but what they did is they helped to offset premium decay, like on the long calls. So I just let those expire because they, you know, they had another week of life left, but it all happened very, very quickly. And, and I do remember, you know, I think doing like a workout that day, and I just had my iPad right in front of me the whole time. Like, I am not risking it or saying, you know, you know, you know, reversing, right. It's just like, that's, it's on a trade

like that. So it was a, it was a, yeah, it was a really, it was a crazy trade. It was amazing. And, and, and I, and I took it about three to three or four trading days off after that, just to kind of, you know, come back to come back down to earth. That's

probably a smart move. Were you out before the earnings announcement? Absolutely. Yeah. So I never hold through earnings. Yeah. I never, it's just, it's such a, you know, it's such a crap shoot. I'll if I do an earnings

trade, it's more based on, you know, the implied volatility, essentially getting crushed, which is a whole different trade, but I hope I've never found a consistent way to make money holding through earnings. And so I just, I stopped doing that years and years and years ago. Gotcha. Or for anyone listening, John has done a really good breakdown of this trade, even further in a video, which is on YouTube. So I'll pop a link to that in the notes, Given that, you know, most of your traits set setups are using options. John, do you think it's a myth that trading options is riskier than

trading stocks? Okay. So I don't actually don't think it's a myth. I think that it's easier to trade stocks if you're doing directions. So if so, let's just use the spiders as an example, as P Y. And if you're trading and it comes down to support and you buy a hundred shares, you know, at, you know, 390, and it goes up to 393, then you know, you made 300 bucks, you could do on that same move, do the wrong option, play and lose money. You know, it's like, oh, I'm going to buy this out of the money, call it expires today. And it just, the spiders don't move enough to impact that call. And

you actually ended up losing money. So I don't think it's a myth at all. I think tracking stocks is absolutely easier than trading options, but there's a point at which you learn enough about options, where it's hard to go back to stocks because there's so much flexibility in options in terms of being able to, you know, I think one of my, one of the best bets in options trading is making bets where something's not going to go.

It's like, wow, I really don't think the stock's going to go to here. So that's when you can like, you know, sell a spread. I would say starting off, I would absolutely trade stocks first because the way I look at options, I, and I don't really look at a lot of the Greeks, you know, there's the, all the gamma and all that kind of stuff. And, and I understand it and I get it, but I was trained directionally. So I trade them directionally. So, you know, if I'm looking,

if I think something's going to go up, I'm going to do an option strategy that would benefit from the stock going up versus, you know, looking at all the, all the Greeks and trying to, you know, establish some type of trade that would, you know, okay, if gamma expands here, I'm going to make some money. All that stuff is good and I'm not, I'm not knocking it because I know traders who study, they, they religiously do that and they, and they make a good living doing it. It's just that my background was directional. So I utilize options as a way to enhance directional movement in the stock. Could you have had the same performance trading, Google trade, the Google trade that you did with just purely trading stocks, could, do you think you would have had similar a similar performance outcome or different? Okay, so it's a good question.

I would have caught the same trade and I would have made maybe a hundred thousand dollars. So that, that would be the difference just because of the leverage. So, so Google's a two, a $2,000 stock, right? So let's say I buy, you know, whatever a thousand shares. Okay. A thousand shares. That's a two point, that's a $2 million position.

And the stock goes from 2000 to 2000, 250. And so I make $250,000. So the only, so, so it's the same move. It's just that with options, you're just able to get more bang for your buck. So I could trade, you know, so where, as I was trading say, so instead of trading the equivalent of a thousand shares of Google, you know, with the options, I was trading the equivalent of like 20,000 shares of Google.

And so when it really goes, it's, you know, you really get to see that impact. Yeah. I mean, options. It's, it's amazing. It's obviously really, and there's just a lot of moving parts and so many strategies, you know, to someone who's not familiar, it could be really daunting at first to learn it. But

I think for those who, you know, don't understand options trading yet, I mean, I would highly recommend learning about it at least in order to, I think, trade options, you should learn how to trade stocks first. Yeah, I think so too. And here's the thing with options. If there's a secret options, is that any book you read on options is going to over-complicate them way too much. And I get it because there's a lot of people out there that are very smart, that trade options in ways that I never would. And so that doesn't mean that what they're doing is it's just not my style. Right. And so double diagonals, you know, 15 wing butterflies. I mean, I'm kind of making

up some names in that case, but there's a lot of complicated things that if you want to go down that path, you can, but if you start off trading stocks and then you just want to utilize some option strategies that mimic stocks, there's only three, three things you need to learn. So in an up move, it's like, okay, I want to buy a call. So typically for me, I want to buy an in the money call. I want to give it, you know, like 30 days, at least two expirations, you don't get killed on data decay and, or you could do a call debit spread, or you could sell a put credit spread and that's it. And then for a down move it's okay. I can buy a, put, I can buy a, put debit spread, and I can sell a call credit spread. And that's

it. And once you just learn that, the nice thing is, is almost every other complicated option strategy is just a combination of those anyway. So I like to keep it pretty simple. That's all, honestly, that's all I typically I do. It's very rare that I do other types of options, strategies, but it's, it's worth it to learn like, okay, what's it like to buy a call? What's it like to do a call debit, spread and sell? I'll put credit spread. Great. You're you're good. Once you got those down, you're you're good to go. Yeah. And another thing, you mentioned two jobs, or one of the jobs as a trader is to pay attention to your equity curve, an upward sloping equity curve, starting from the lower left and going to the upper. Right. And also to, to kill a trade when it's not working,

it sounds so simple, but so hard to do, You know, it's hard to do when your unconscious takes over. So, and I've, I've looked at this a lot and I've looked, it's just the idea of like, you know, looking back at times when it's like, why was this hard to get out of and there, and this is, this could be a much longer discussion. So I'm going to keep it, I'll keep it as short as possible, but there is something in us that takes over, like literally when we get in uncomfortable situations and this carries over from childhood. So in childhood we learned,

we all had different childhoods. You know, some are, some are a lot tougher than others, but as a child, we have to learn how to navigate, you know, and a lot of times in, in childhood, the survival skills that we learn to navigate childhood and be safe and grow up, they do not serve us at all as an adult. And, and so when we get uncomfortable as an adult, what happens is that these same essentially programs at this point that got us through childhood, they literally take over. And so anytime if we're in a situation like a trade and we're freezing and we're not following our plan, that's what's happening and it's, and the way to avoid that, and the way around it is to get present, you know, close your eyes, do like a five minute meditation where you're just counting, you know, just something to kind of dissolve all that. And then just get back to being objective and like, okay, this trade is not working. And yeah, it's, it sucks that I'm taking a loss here. And, and, you know, I feel all

these bad feelings about it, but the moment you take that loss, you feel a thousand percent better because now you're back to neutral. One of my mentors is telling you, drill this into me. And he's like, okay, John, what's the difference between a, you know, a thousand dollar loss on paper versus a thousand dollars real loss. And I said, well, if the thousand dollar losses on paper, you have a chance to get it back. And he just, he screamed at me. He was like,

no, there's no damn difference if it's not working, get out, because you think that, you know, there's a chance I can come back to even, but you could actually just go into a new opportunity where you could actually make that same money instead of hanging on to all the psychological baggage of trying to get back to even, and it really hit me. And it's just kind of like the, you know, the way a market maker is trained is that small losses are good, you know, and if you're in a trade and you're losing money, you're wrong and just take it and there's no emotion around it. It's your job as retail traders, we learn to analyze stuff. And so if something's not working, we start to question, well, geez, is our analysis wrong? You know, versus like, you know, this is a probabilities game. So it there's a lot to unpack there, but that's the short answer is that we, you know, we do want to be mindful and to the extent that we can be present and mindful and not kind of let our survival strategies from childhood, essentially take over our body, you know, that's how we, when we get triggered and stuff like that, that's kinda how we react. It helps a lot. And it's a lot to be aware of during

the day, but it's, you know, it's real. And I think it's, it's probably causes more problems in trading than anything else. Yeah. I love your, your holistic approach to trading. I think that it's something that, you know, we, as traders probably don't spend as much time focusing on. I mean, it's been said that trading successes, 80% of 80% psychology, do you believe that? That's true. And, and if so, why does it seem like, why does it seem that in the trading world there's not the same amount of time and devotion to focus more in this area, you know, to help the mindset for trading? Yeah, it's, it's a really interesting thing because in the, when I started off, of course, I didn't think that at all, you know, I gotta find the right indicator. I need to find the right setup. And what I found is, as I graduated

to kind of teaching stuff, is that I could show someone the exact same setup that I'm using and they would execute on it totally differently based on their psychology. I didn't, it took me a while to kind of realize this the way around it, of course, is that if you trade a hundred percent mechanically, like you just program it, you have your computer do it, then it's not a problem anymore. Then you don't have psychological problems. But a lot of us, myself included, you know, I like to trade discretionarily for whatever reason, but it's, but the idea is once we get clear on what I simply call a high probability moment in time, meaning that, you know, say you've got a checklist, like, okay, when these three things come together, I'll go along. And when these three things come together, I'll go short. And you know,

here's my criteria for knowing that it's not working. And then here's my target criteria to the extent I'm following that. And I'm present to that. It's fine. Where are we getting in trouble? Is that one time when we see some stock racing and we get FOMO, fear of missing out and we just chase it, oh my God, there's game stop. There it goes. And at that point, then psychology does take over and, or we could be in a trade that was well planned and well thought out, but we wake up and there's this big gap against us. Like we kind of freeze. So that's where the psychology comes in, because if we did, to the extent that we are not following our plan is the extent to which our psychology is an issue. And, you know, if you wake up and you know, it's gapped against

you and it's through your stop and you spend, I mean in high, and you're wondering what to do instead of just gaining out, that's all psychology, that's a thousand percent psychology. And I think that's the, that's the part to really get our arms wrapped around is that when we've reached indecision, it's a psychological thing. And it's, it's always going to be there. But to the extent that we can be aware of it is the extent we can also overcome it. So it's kind of like, like I interpret this as how we trade is, is a reflection of, of who we are and how we approach life and how we deal with things.

Or is that too extreme? How I interpreted it? No. So, no, I love that. I would, I would add, I would add something to that. There's a quote I heard is that we don't get what we want. We get who we are, which is brutal. Right. And, but to an extent how I interpret that is a lot of times what we were getting and managing is a lot of what's happening. You know, again, we could really

dive deep into this, but it's more unconsciously. So why, you know, why does something make us mad? Why does something put us into fear? A lot of times we don't know. It's just that our body's kind of reacting to it. And 90% of the time, at least from the research I've done and the experiences I've had personally, it's all, you know, hardwired survival skills that we learned in childhood. And, you know, they think they're still helping us, but they're not, but it is a holistic approach. And, you know, there's, you have to be careful because if it's one of those things where if you go to a Tony Robbins, you know, talk and it's like, okay, visualize your future. And it will happen. Well, if just because you're in a trade and you visualize that it's

going to be a winning trade, does not in any way, shape or form mean it's going to be a winning trade. Right. And it's not in fact the worst thing you can do, but I think in trading, you want to be, it's a combination of the positive, that trading is a skill that you can learn, but have a lot of doubts that the next trade you're going to do is going to actually work out. And so then what happens is you start focusing on risk control, right. Position sizing. And yeah, it's a really fascinating thing. I do think that, I mean, to me, the market is the

best psychologist in the world. You know, are you being treated yourself today or are you being a slave to your emotions and survival skills, Thoughts, and how to approach the market for the remainder of the year Prior to this year? I was always kind of like, I used to day trade, you know, I guess in the, you know, 2004, 2005, 2006, I was primarily a day trader. And, and that was a function of, you know, just trading full time. And I just, you know, it was fun. And then, you know, I really prefer swing trading, meaning find something that you like put a position on and, and, and hold it for a couple of weeks.

And this current market that we're in, I hate swing trading. It just, it's just, there's so many things that could, that can go wrong and I'm back, you know, back to day trading. And so I think in this current market, I really, really, really like the SPX. They have options that expire every

day now. So, you know, you can do things like sell spreads, go directional and things like that too. But I would say that the biggest difference in a market like this is that in 20, 20 and 2021, the ground was there for the potential for big trades because we had strong indexes. And within that we had strong stocks. And so it was something where it's like, yeah,

let's see if we can find the next big trade. This kind of market is let's try to make two and a half percent a week. So, you know, with a combination of, you know, option strategies and things like that. And so it means, you know, not taking a ton of risk two and a half percent a week, doesn't sound like a lot, but the end of the year, that's, you know, it's, if you don't want any money out, that's something like 300% over the course of a year. And it doesn't mean it's going to work every day, but it just, it helps you set the guidelines for risks and stuff like that. And so I would say, you know, you know, the market that we're

in is that it's a, it's a markets that's designed to be dream killers for both people on the long side and the short side, it's going to destroy both their dreams. So it is about quicker trades. You maybe Trey mate, you know, if you're going to hold a trade longer, you know, maybe overnight for a day or two, but it's just understanding that this is a, this is a market that's trying to find its own footing. You know, it's like, wow. You know is the fed going to crush the economy and is it going to destroy tech companies? And so there's a lot of back and forth. It's not this relaxed trend that we all can just

flow into. It is more of a, you know, for lack of a better term, it's a trading market, not a, not a buy and hold market. I love how you highlighted that this market environment is perhaps better suited to day trading rather than swing trading. And then you actually have the ability to have of switch between the two, I guess, you know, that's probably one of the things which has kept you in the game for so long, right? Yeah. It's well, part of this is that,

you know, in, in, in trading, like you learn everything the hard way. And so by the time I figured out this was a good day trading market, it's because geez, my swing trading is not working, so it's not, you know, it's not like one day waking up and going like, okay, today's the day we start day trading, you know, but it is paying attention and I do always pay attention. Like I like to track my trades. And if it's something like, man, you know, if everything I'm touching turns to garbage and you know, and I, and I've done this long enough just to realize like, okay, it's not necessarily me being a bad trader, but it's me trying to impose a strategy on the markets and that market is no longer there, you know, the market has changed and I just haven't recognized it. So that's the, the, you know, the easiest sign that the market has changed and is that it's like the stuff that you're doing is not working. And then it's like, oh, okay, great. What are we doing

here? And, you know, and just diving into that and having that flexibility, John, just one last question here, and then we'll, we'll close it out. But when you said before Warren out two and a half percent each week, it just reminded me of something I read in that article. You wrote a, and that was a summary of your year in 2020, which I'll absolutely link to in the show notes because it was a good and very, very thorough raid. I don't know how long it took you to write that you say that you, when you are at you, your funds, a certain portion of it, you ensure that you allocate it to tangible assets. Can you give an example of what some of those tangible assets might

be? Sure. And for me, and it's, it could be different for everyone, but it's for me. So a tangible asset as serves two purposes, one, well, maybe three purposes, but one, you know, you are essentially taking money that you made in the markets and you're putting it into something that's a little bit longer lasting. Okay. So for me, a primary example would be real estate. You know, the idea of like taking some profits,

putting in a down payment, on a rental property, you know, like we be Airbnb, some properties and things like that too, or whatever it is, but it's just, it's, it's taking the money out of the markets and, you know, just putting it into something like that. I also, you know, bullying, even though bullying, isn't really that exciting, you know, it's kind of like the new stable coin. It doesn't really move rare coins. I I've collected rare coins all my life. And so, you know, the things like that, that I think are kind of fun. So the, and the reasons for that, the other reason

for that too, is that we're all going to have draw downs. So let's say that, you know, you have an account at $10,000, you run it up to a hundred thousand dollars. It's amazing. And then you just get into it. As, you know, you don't adapt to the markets or whatever happens. And it goes all the way back down to 10, that's really disheartening. However, if during that time you were wiring money out and you were buying

real estate and gold and silver and rare coins with a portion of that. If you do have a nasty draw down, it's like, wow, at least I was able to turn some of my profits into tangible assets. And then the last part of this is that when you have a tangible asset like real estate or, you know, gold bullion or rare coins, they're hard to sell. Like you, can't on a, you know, the danger of a market is you can do, you can really get impulsive, like, oh, I've got to buy that. But if you want to say, man, I need some money and you can't right. Click

and sell your real estate. You know, it's, it's a decision you need to get a real estate agent. You need to go clean it. And the fact that you have to do all that work just to sell it often will dissuade someone from selling it. So it helps keep you, it, it just basically use, have assets that are,

you know, not necessarily easy to get rid of. And, and I think that's a really good thing for traders, just in the markets. We, we can do so much with a right click of a mouse. And by turning some of our trading games into tangible assets, it's a way to kind of save ourselves from ourselves as well. For sure. So our next episode will be titled our John Carter's guide to real estate. How,

how to, how to raise zebras, to increase the price per acreage for your neighbors. Lock it, unlock it. All right, John, we're going to let you go and enjoy the rest of your evening. Thank you very much for coming on the podcast. It was a nice to catch up with you again, and I'm sure Tessa enjoyed chatting with you. Thanks for letting us pick

your brain. Yeah. And it was great. No, thanks. Erin is going to talk to you again and Tessa. Nice. Nice to meet you and then great questions and always a good conversation. Excellent. Thank you so much. If someone wants

to find out more about you, John, where's the best place to go Twitter, et cetera. Yeah. So I'm on Twitter. I'm just at John F. Carter and our, of course our, our site is simpler trading and we've got a, you know, we've got a bunch of trading services on there. The one that I'm in is an it's called the options gold

room. And so that's where I do, you know, like the Google trade I did, I was posting that and ans

2022-08-17 16:45

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