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51-ICT Mentorship Core Content - Month 5 - Money Management

Last modified by Drunk Monkey on 2022-09-17 07:51
1 00:00:16,949 --> 00:00:26,699 ICT: Welcome back, folks, this is lesson five of January 2017, ICT mentorship, going to be discussing money management and higher time frame analysis.
2 00:00:32,009 --> 00:00:42,809 Okay, we're going to be talking about a broad brush perspective on this view of trading. In other words long term analysis. We're going to assume for a moment
3 00:00:42,809 --> 00:00:56,879 that everyone that's learning the concepts for January is contemplating the medium of long term trading, or position trading. Now, that may not be your cup
4 00:00:56,879 --> 00:01:07,949 of tea that may not be the discipline on trading that you are going to adopt as your career. But I would advise you to at least work in this timeframe, a little
5 00:01:07,949 --> 00:01:18,899 while, at least try to work it at least for a year. And the reason why I say that is because some of you may not be contemplating managed funds. In other
6 00:01:18,899 --> 00:01:29,789 words, managing other people's money or working for a firm, maybe working for a prop firm. And while you may not have a large equity base to start with, it's
7 00:01:29,789 --> 00:01:40,739 not important now. But what is important is growing your understanding over a long period of time, then when I've been getting experience in the marketplace,
8 00:01:41,339 --> 00:01:48,989 there's no better experience than actually applying the things that you've practiced in a demo account with positive results. And then segwaying into a
9 00:01:49,379 --> 00:01:58,499 live setting where you're using live funds, it's not important that you have a big account, because what you're focusing on is the control over drawdown,
10 00:01:58,799 --> 00:02:10,769 keeping it manageable, keeping it tolerable. What's a tolerable level of drawdown? I say I'd say about 15% annually is a realistic objective. Most folks
11 00:02:10,769 --> 00:02:24,779 would, would start to cringe over 25% or so. But if you can control your drawdown to around 15%, as a maximum, that's absolutely amazing. But 20, it's
12 00:02:24,779 --> 00:02:40,349 probably okay, and if he can still maintain a positive outcome for the annual return. But thinking about managed funds, I want you to think about the
13 00:02:40,649 --> 00:02:50,639 possibility that while you may be thinking about only managing your own individual assets and moving your your wealth forward, independently apart from
14 00:02:50,669 --> 00:02:59,159 using anybody else's money. For some of you, that may not be the case, maybe you came into this mentorship with every expectation of learning to do that very
15 00:02:59,159 --> 00:03:10,559 thing. We will it starts here, you have to have a realistic expectation coming in. And knowing that you don't need a whole lot of money. If you didn't show a
16 00:03:10,559 --> 00:03:24,479 consistent equity curve, that's improving very little drawdown very, very infrequent, erratic or slow periods in your trading. That is very good for for
17 00:03:24,479 --> 00:03:34,469 investors when they see things like that. And it doesn't have to be high rates of return. But having a steady increase of over a calendar year, that really
18 00:03:34,469 --> 00:03:42,209 attracts investors, there's you have no idea how much money is sitting out there, just waiting for people to say, hey, look, you know, I'll take that money
19 00:03:42,389 --> 00:03:54,629 and control it for you and turn a profit. Now, you also don't need to use the entire equity base that you start with many times $10,000 trading account, and
20 00:03:54,629 --> 00:04:07,019 they assume that they have to maximize every possible dollar in that account to get a respectable rate of return. And I don't teach that I actually have a very
21 00:04:07,019 --> 00:04:08,099 conservative approach.
22 00:04:09,510 --> 00:04:21,210 When I'm trading, my view is is I don't want to allocate every possible dollar to the marketplace. What I do is I limit my allocation to only 30% of my total
23 00:04:21,210 --> 00:04:31,140 equity. That may be shocking to some of you, but it's the truth. So let's say for instance, I have $100,000 trading account. Or let's say you have a
24 00:04:31,260 --> 00:04:43,200 hypothetical $100,000 trading account. That means I'm going to be using $30,000 to meet whatever margin requirements or trade parameters that I use for that
25 00:04:43,200 --> 00:04:53,100 trading. In other words, if I'm going to be doing a percentage basis of my equity, and let's just say for instance, that I'm going to be using the standard
26 00:04:53,100 --> 00:05:03,420 in the industry you have 2% that means I'm going to using 2% of 30,000 not 2% of 100,000 Awesome. And the reason why that's done is because I'm never going to
27 00:05:03,420 --> 00:05:16,500 have to worry about margin calls, I'm never going to be over leveraged, I'm never going to have wild dips in my equity. But I can still manage to carve out
28 00:05:16,530 --> 00:05:25,830 a very nice equity curve, even just using 30% of my equity. Investors like to see that they'd like to see that you're not 100% exposed, they'd like to see
29 00:05:25,830 --> 00:05:36,540 that, you know, having a good reserve of cash in the account. That way, you always have opportunities that you can still take that if they're really too
30 00:05:36,540 --> 00:05:44,580 good to pass on, you have never extended yourself too much, and spread yourself too thin. So that we always have an opportunity to take something that may
31 00:05:44,580 --> 00:05:54,300 otherwise not have been on your radar screen, something comes up in the charts, something comes up as an opportunity, you always have equity at your disposal to
32 00:05:54,450 --> 00:06:06,270 to take advantage of that, that move. So what you're doing, again, is you're determining your maximum risk exposure, and a percentage basis on 30% of your
33 00:06:06,270 --> 00:06:19,290 equity. So you're really, really, really drawn down in terms of risk, you're not maximizing the risk for maximum return, you're looking for a very low end risk
34 00:06:19,290 --> 00:06:32,040 exposure, with the expectation that you're going to have consistently pulling in percents of return that are respectable over a calendar year. Again, you your
35 00:06:32,040 --> 00:06:46,410 data, ideally, set 1% as the most risk per trade, that means 1% of 30% of your total equity base, okay, so you have $10,000 in your account, and you're going
36 00:06:46,410 --> 00:06:57,690 to be using 30% of your account, that means your account, trading is going to be based on $3,000, not $10,000 overleveraged, not looking for the maximum return,
37 00:06:58,050 --> 00:07:10,290 you're looking at only using $3,000. For your trading account, to be meeting those margin requirements for your trades. 1% of that is going to be $30. So 30
38 00:07:10,290 --> 00:07:21,120 hours is your total maximum risk portrayed. And I already know what some of you're thinking, Michael, I can't get rich doing this. And that's right, you're
39 00:07:21,120 --> 00:07:28,950 not gonna get rich, right now, you're not gonna get rich tomorrow or next month. But you're not thinking like that right? Now, I want you to consider I'm not
40 00:07:28,950 --> 00:07:37,710 trying to force you into managed funds. But I'm trying to broaden your perspectives, okay, on a lot of things, and allow yourself the opportunity to
41 00:07:37,710 --> 00:07:48,240 even just think about the possibility. And again, I personally know from experience, it's not fun to manage other people's money. For me, it's very
42 00:07:48,240 --> 00:07:57,120 stressful. But for some of you, it may be exactly what you'll need to get over that hump. And you can make a lot of money managing other people's money rather
43 00:07:57,120 --> 00:08:04,020 quickly. And then you can take that money and seed your own investing. And then you can do your own speculation how you'd like to do it. If you want to take a
44 00:08:04,020 --> 00:08:13,950 little bit more risk on Not that you should. But you can do that, in that medium where you get other people's money to pay you fill your account up with funds,
45 00:08:13,980 --> 00:08:20,700 not out of your own pocket, when you can independently trade apart from other people's money. And then then you can close shot on trading other people's money
46 00:08:20,700 --> 00:08:33,360 and this focus primarily on yourself and be targeting three to one reward to risk or higher setups. Now, again, some of you are, again, totally completely
47 00:08:33,360 --> 00:08:41,310 turned off to actually trading on the higher timeframes. But for some of you, this is going to be perfectly designed for you it's going to be your cup of tea,
48 00:08:41,310 --> 00:08:50,700 if you will, there's still three to one setups that are offered on these higher timeframe, charts, and that's what you're gonna be focusing on. Now having low
49 00:08:50,700 --> 00:08:59,940 risk, high reward permits very, very low accuracy. You don't have to be accurate all the time. But you do have to be patient on this timeframe.
50 00:09:02,520 --> 00:09:12,930 And the other benefit is low risk allows equity for more setups, tournaments, you're going to see more possible trade setups by not having all your money in
51 00:09:12,930 --> 00:09:13,560 one trade.
52 00:09:18,960 --> 00:09:29,790 Okay, expectations. I mean, you want to be focusing on a handsome annual percent return now what is this? What's an annual return? That's respectable? I think
53 00:09:29,940 --> 00:09:42,300 it's 18% to 25% a year, which is like an industry standard for managed funds. If you could do that every single year. I can promise you, you will never have a
54 00:09:42,300 --> 00:09:51,810 shortage of people that will want to hand you money and manage their money for them. Now, as we get deeper into this mentorship, I'll actually tell you how you
55 00:09:51,810 --> 00:10:03,480 can well up other people's money and reach out to other people through different mediums and build big This relationships with folks that would want to do that
56 00:10:03,480 --> 00:10:13,860 type of thing. Again, it's something that you're had to make the decision on your own. But using higher timeframe analysis like this, I want you to go
57 00:10:13,860 --> 00:10:24,210 forward from this point on and contemplate taking long term trades. Once we complete January's content, I want you to think about operating at least for the
58 00:10:24,210 --> 00:10:32,220 remainder of this mentorship for next eight months or so you want to be you want to be focused on doing that very thing, looking for hard timeframe trades and
59 00:10:32,220 --> 00:10:41,790 letting them pan out. Don't try to get in there and take a little bit out of the marketplace and then move to the sidelines real quick. And remember, when you're
60 00:10:41,820 --> 00:10:52,230 managing money, with higher timeframe, trades, years very little in terms of frequency with higher timeframe setups, so long term setups formed very
61 00:10:52,230 --> 00:11:01,590 infrequently annually. So it's not a whole lot of trades throughout the year, on the higher timeframe charts. And when you're trading this higher timeframe,
62 00:11:01,890 --> 00:11:10,230 you're going to have to learn to allow short term drawdowns in profits. That means that while you're in these long term trades, and they pan out, because
63 00:11:10,230 --> 00:11:17,040 many times you're going to see that there's going to be retracements, that you're gonna have to whether you're gonna have to sit through several days,
64 00:11:17,040 --> 00:11:25,650 maybe a week or two, where the market has actually given back some of your open profits. Okay, they're not realized profits until you close the trade. So by
65 00:11:25,680 --> 00:11:35,790 allowing that mindset early on saying that, okay, I know that there's going to be some give and take in these trades. Sometimes, over a period of time when you
66 00:11:35,790 --> 00:11:45,870 start trading larger, this give and take can be rather large it can be, you know, emotionally charging, seeing 10s of 1000s of dollars coming in and out of
67 00:11:45,870 --> 00:11:53,280 your account over the course of several weeks. If you're not used to that actually makes, it makes it hard for you to think about being objective about
68 00:11:53,280 --> 00:12:01,380 the trade. So the reason why I also talk about only using 30% of your equity, getting back to that clinic, some of you probably snickered and said, There's no
69 00:12:01,380 --> 00:12:11,730 way I'd be doing that. But by having your account only allocating 30% towards long term trades, that gives you equity in margin to trade short term trades. So
70 00:12:11,730 --> 00:12:23,130 that way, while we cannot in the US trade, like a hedge or in other words, we can't hedge our trades. We can trade markets that are closely correlated or
71 00:12:23,130 --> 00:12:32,430 inversely correlated with the long term positions that we are holding. And I'll give you an example. For instance, if we're looking at the dollar, Japanese yen,
72 00:12:33,360 --> 00:12:44,970 if you were trading this pair and say you happen to be short DOLLAR YEN. If your short position long term starts to have and you can anticipate these types of
73 00:12:44,970 --> 00:12:54,030 things. When it starts to have a retracement against your short position, you're going to give back some of that open profit or paper profit before you realize
74 00:12:54,030 --> 00:12:57,300 it and close it and move that profit into your account.
75 00:12:58,559 --> 00:13:09,299 That give and take on your p&l is going to be bothersome from some of you most of you, in fact. So the way you can counteract that is if you're going to be a
76 00:13:09,299 --> 00:13:20,009 long term trader or position trader. If you're short on DOLLAR YEN, if there's an opportunity for seeing a bounce in your short position on DOLLAR YEN, you can
77 00:13:20,009 --> 00:13:32,129 actually go in and trade the Euro dollar inverse related pair and you would do the opposite. Whatever you're seeing retraced in the dollar yen, you would trade
78 00:13:32,129 --> 00:13:41,909 the opposite and euro dollar. So if you're getting retracement higher on a short position on DOLLAR YEN, you can actually go short Euro dollar or maybe British
79 00:13:41,909 --> 00:13:52,829 Pound dollar and capitalize some more money in the marketplace. While your long term position is in somewhat of a drawdown, and you're giving back some profits.
80 00:13:53,429 --> 00:14:04,259 You can actually hedge that by trading other pairs that are inversely related. So that's one way you can beat the North American hedging rule. But you just
81 00:14:04,259 --> 00:14:14,609 have to understand simple inter market analysis which we just covered in previous lesson. So having an understanding that they're going to be a give and
82 00:14:14,609 --> 00:14:25,319 take, you're going to have to have that in the forefront of your mind saying okay, either I'm going to trade shorter term swing trades or short term trades
83 00:14:25,649 --> 00:14:37,679 to allow myself to compensate for the drawdown in open profits on my long term trades. And then when that retracement takes shape and comes to completion, when
84 00:14:37,679 --> 00:14:46,679 your long term trade and then it starts to resume your back end and you've made more money once you get back to that old equity high and your long term
85 00:14:46,679 --> 00:14:58,799 position. So you're able to continuously make more money and also cover those drawdown periods on open profits on your long term trades. Now stop loss orders
86 00:14:58,799 --> 00:15:07,559 are not a measure of a bill Let me know. Obviously you most of us in this mentorship are predominantly male. And males have a tendency to like to pull out
87 00:15:07,559 --> 00:15:17,339 the measuring stick and see how they measure up against the next guy or how they measure up against you. stop loss orders for whatever reason has over the ages,
88 00:15:17,489 --> 00:15:28,709 okay of technical analysis, it's become a way of knowing how good you are. And if you can trade with a 10 pip stop loss you must be elite that doesn't belong
89 00:15:28,739 --> 00:15:39,569 in any way shape or form in long term trading. Long term trading it's not it's you don't limit your your trade idea or opportunity. Based on a set number of
90 00:15:39,569 --> 00:15:49,409 pips, like intraday trading I like to have about 35 Maximum that's about to Safe, safe number for me 30 pips is a general rule of thumb, but about 35 pips
91 00:15:49,409 --> 00:16:00,359 is about the number one go to number for me, because generally, if it's 100 Pip daily range average ADR, not that that everyone is or that it maintains 100 Pip
92 00:16:00,389 --> 00:16:11,699 average, but a third of that would be 33%. So I rounded to 35 pips, and that gives me a real good round number to go for. But you can use what I've always
93 00:16:11,699 --> 00:16:20,999 said before about 30 pips. But on long term trades 30 pips isn't, isn't going to do it sometimes, especially if you're only trading off up and keying off of the
94 00:16:20,999 --> 00:16:29,459 daily timeframe. So if your daily chart is your executable timeframe, which is what you'd be using, if you're trading with a monthly and weekly chart, and you
95 00:16:29,459 --> 00:16:36,509 can't use intraday charting, because of your business or your, your home life doesn't permit you to be up or in front of the charts or you just have a job. I
96 00:16:36,509 --> 00:16:44,429 mean, this is face it, some of you in here, they have jobs. And there's nothing wrong with that I came from a world where I had to go to work too. But you have
97 00:16:44,429 --> 00:16:53,099 to understand that your stops are going to have to be proportionate to the timeframe you're trading in. Which leads us to the next point here. You know,
98 00:16:53,099 --> 00:17:01,409 when you're trading a trade that has a setup that requires a 200 pips stop loss on it, that means you're risking 200 pips. For somebody that's mind boggling.
99 00:17:01,409 --> 00:17:10,349 There's no way that you're going to permit yourself to risk 200 pips of price moving against you, because you're so used to and ingrained in looking at those
100 00:17:10,349 --> 00:17:18,869 lower timeframes. But just because it's a 200 pips stop loss on a setup on a daily timeframe. assume for a moment that you're aiming for a 600 Pip win,
101 00:17:19,619 --> 00:17:29,549 that's still a three to one reward to risk ratio, there's nothing wrong with that you're still getting the same way you would, you know, to be in line with a
102 00:17:29,579 --> 00:17:37,979 very low objective in terms of win rate, you can still do very well with that gearing. And obviously, that's the minimum. So you want to be looking for higher
103 00:17:38,339 --> 00:17:42,059 levels of reward to risk ratios on these higher timeframe charts.
104 00:17:45,000 --> 00:17:52,110 Again, another thing you want to think about when you're managing your money, trading with these higher timeframes is resist the impulse to move your stop
105 00:17:52,110 --> 00:18:02,520 loss to break even or even reducing the risk on a lot higher timeframe long term position trading, you're going to have to suppress that desire to reduce risk
106 00:18:02,520 --> 00:18:11,760 right away. Position trading requires a great deal of patience. And unfortunately, there's no way of forming that for most of you, you either have
107 00:18:11,760 --> 00:18:21,270 it, or you grind it out, and you develop it over a long period of time. It just doesn't happen overnight. So if you don't have a whole lot of time to develop
108 00:18:21,300 --> 00:18:30,390 patience, position trading is probably not going to be for you. Okay, and that's one of those things you just gonna have to live with. If you need to be in front
109 00:18:30,390 --> 00:18:38,220 of the market a little bit more, and you're trading on the lower timeframes, then obviously, we can move our stop loss sooner to breakeven and lock in profit
110 00:18:38,250 --> 00:18:46,290 on these lower timeframes, higher timeframe. Just forget that all together, because you want to be waiting for the market to really be moving a significant
111 00:18:46,410 --> 00:18:57,390 measure of pips before you even consider moving that stop loss from the initial point at which you enter the trade. You're gonna have to learn to exit at
112 00:18:57,390 --> 00:19:09,150 logical targets and look to reenter at a later time. We can take positions off at logical areas of resistance when we were in a long term trend. And instead of
113 00:19:09,150 --> 00:19:18,180 sitting through a measure of drawdown on our p&l, what we will be doing is actually exiting the position or maybe some of the position, and we'll talk
114 00:19:18,210 --> 00:19:25,470 about this when we go into trade management. We're actually going to specifics. This teaching here is just to get your mind thinking about some of the things
115 00:19:25,470 --> 00:19:33,480 that's going to play you as a long term position trader. But, you know, if you're looking at long term trading, you're bullish on for instance, the dollar
116 00:19:33,480 --> 00:19:42,810 yen and you get to a level where you would reasonably in with high probability, expect some resistance or some retracement you may take some of your position
117 00:19:42,810 --> 00:19:50,580 off, you may take half your position off, you may take three quarters your position off a third of your position off, you know one quarter of your position
118 00:19:50,580 --> 00:20:01,590 off and allow that to be in your account as a profit and then once it retraces back to a level where it would be logically time to see Another move higher and
119 00:20:01,590 --> 00:20:11,520 your long term trade, then you can add back that position for maybe a little bit more than what you profited. When you can't, you took off a quarter, maybe
120 00:20:11,520 --> 00:20:21,030 you'll put back on. Third, maybe you'll put back on a little bit more than a quarter. Okay, all right, we'll just put back that original quarter, you took
121 00:20:21,030 --> 00:20:30,600 off for some partial profits, and then you can add it back and you can get a larger position built on and see that next leg price higher, where you would
122 00:20:30,600 --> 00:20:36,210 make more money than you would have if you just would have kept the original gearing and entry point at the point of entry.
123 00:20:41,220 --> 00:20:55,050 And finally, long term is not get rich quick, but get rich, steady. So before you go into the next series of teachings, and where we actually go into a little
124 00:20:55,050 --> 00:21:07,050 bit more detail about what it is you're actually doing with long term position trading, just know that you are not going to see velocity for your money trading
125 00:21:07,050 --> 00:21:14,010 these higher timeframes is just isn't there. Now velocity is how fast you put your money at work, and it makes a profit for you and you get it right back
126 00:21:14,010 --> 00:21:22,770 right away. That's velocity. That's why I like day trading, because I can compound my money very quickly. Some of you cannot do that. And don't feel that
127 00:21:22,770 --> 00:21:30,270 you can't be profitable, because you can't do that discipline on trading. So therefore, you can't be profitable. That's not true. You can make very, very
128 00:21:30,270 --> 00:21:41,250 handsome returns on just long term position trading, but it has to fit your psyche, it has to fit your inner trader, that person inside of you that makes
129 00:21:41,250 --> 00:21:53,550 who you are, as a trader, it has to fit that that criteria of the inner person, because if it's at odds with your thinking process, you can't No matter how you
130 00:21:53,550 --> 00:22:00,780 slice it, it's going to be at odds with you, you're not going to be able to sit through the trades, you're going to force things, because you're impatiently
131 00:22:00,780 --> 00:22:09,450 waiting for something to come to fruition. And it's just going to be a problem. So the money management aspect will become harder for you. If you can't get
132 00:22:09,450 --> 00:22:19,200 yourself in alignment. But everyone a union mentorships should be trying to apply long term position trading to some degree for the remaining portion of
133 00:22:19,200 --> 00:22:27,360 this mentorship. And you'll see how you don't really need a whole lot of skill in terms of entry technique, okay, the entry technique you're actually going to
134 00:22:27,360 --> 00:22:37,830 learn is rarely simplistic. And some of you will practically probably start using it a lot more frequent than I do if I was long term position trading. But
135 00:22:37,830 --> 00:22:49,950 for long term position trading this it's the style of entry that I use. And when we get into all the entry techniques and concepts you'll learn there. But before
136 00:22:49,950 --> 00:22:58,710 we get into trade entry and stop loss orders, and you know, how much money should I risk and all that business, you have to have some broad brush ideas
137 00:22:58,710 --> 00:23:09,180 about money management. And that was the core point of this teaching, because I want you to have the mindset going into it with yes, you're managing money. No,
138 00:23:09,180 --> 00:23:17,520 it's not going to be a whole lot of trades, it's not going to allow you to parlay that account quickly in it's pretty common sense. But some of you, you're
139 00:23:17,520 --> 00:23:30,810 so new, and you're naive to the fact that these timeframes require a great deal of time. And by having that submission to time, it will allow you to number one,
140 00:23:31,050 --> 00:23:42,330 improve your overall analysis, because what you see on these higher timeframes, that's what directs the lower timeframe to move as they do. But your objective,
141 00:23:42,420 --> 00:23:53,370 if you're going to be a managed fund trader, and you're going to be trading other people's money, OPM, as they call it, other people's money that that
142 00:23:53,370 --> 00:24:03,810 career is very lucrative, especially if you are consistent with your rate of return. And if you can consistently pull 20% or 25%, every single year, and
143 00:24:03,810 --> 00:24:11,790 you're only doing a handful of trades. Now think about this. A we've already mentioned that there's very little trades going on, on this higher timeframe. So
144 00:24:11,790 --> 00:24:19,530 if you have every three months, there's a there's a potential trade that could theoretically form every three months. It doesn't work like that, though, folks.
145 00:24:20,040 --> 00:24:30,630 I look personally for two. And if I'm lucky, three good position trade setups a year. That means over the course of January to the end of December, you're
146 00:24:30,630 --> 00:24:41,310 probably gonna see two very, very simple, easy to find long term trade setups. Maybe if you're lucky, and you're really dialed in, and the markets really
147 00:24:41,310 --> 00:24:53,190 working well and it's very symmetrical. You may see a third setup for the year. Generally, rarely have I seen for setups in a full January to December where
148 00:24:53,190 --> 00:25:01,710 I've actually been able to participate in so unless you get up to the degree where you're able to see that With an eye and that's the goal here also, you
149 00:25:01,710 --> 00:25:14,940 want to be better than ICT. And also the market profile for that calendar year is just so conducive for a four move setup where you have every three months or
150 00:25:14,940 --> 00:25:24,420 so you have a quarterly shift. That would be, you know, that that'd be great for you, but just know going in the expectation should be, it's not going to most
151 00:25:24,420 --> 00:25:31,080 likely be there for you. Okay, so we're focusing primarily on two really good setups a year, and really milking those positions.
152 00:25:31,320 --> 00:25:38,940 And if we're lucky, we'll get a third. Okay. And you're probably doing the math on this and thinking, Okay, well, if I just did three to one, and I'm risking
153 00:25:38,940 --> 00:25:51,990 1%, the best I can make is 3% on each one. Okay, great. Yes, I agree. And if you get to, that means you're only making 6%, right? That's correct. But you're also
154 00:25:51,990 --> 00:26:03,240 only risking 1% per trade. So that means if you add a set up that's moved into profitability, now you have new equity. So the equity can be put to work as
155 00:26:03,240 --> 00:26:14,430 well, on new trade setups. And just because you missed the lowest possible buy, for a long term, long position, doesn't mean you can't get into position in that
156 00:26:14,430 --> 00:26:24,210 long term trend with a long term mindset, and still make more percent return. And we'll talk about that when we get into execution, and trade management. So
157 00:26:24,210 --> 00:26:33,720 don't think you're just going to make Well, I can only make about if there's only two a year. And the best I can make is 3% return, that means I'm going to
158 00:26:33,720 --> 00:26:44,340 make 6% for the year, that's not attractive, Michael, that's only if you're taking one setup. Now, if you take two trades, and your maximum exposure is
159 00:26:44,340 --> 00:26:54,630 going to be at 2%. And you change the rules here, then obviously that gives you a little bit more leeway. But it's not. It's not meant for you to go in trying
160 00:26:54,630 --> 00:27:07,080 to maximize how much you can earn. what your goal is, is how much can you manage in terms of drawdown, keeping it low, and still carve out a rate of return over
161 00:27:07,080 --> 00:27:16,800 the full calendar year. That's the goal. That's the homework for the rest of this mentorship, you want to have at least one long term trade, where you were
162 00:27:16,800 --> 00:27:25,260 able to execute on and hold it through a long period of time, at least three months. So if you can do that, you'll have what I believe what I personally
163 00:27:25,260 --> 00:27:33,810 believe that it takes to take put it to work where you can turn a profit over a whole calendar year. Now, if you're going to manage other people's money, okay,
164 00:27:34,230 --> 00:27:48,120 and you become better at your trading, you understand what you're doing. And you're risking 2% of 30% of the total equity. If you make 2%, your total maximum
165 00:27:48,120 --> 00:28:00,180 risk per trade. And you have several opportunities throughout the year where you can take the position, then you shouldn't short term trade or swing trade any
166 00:28:00,180 --> 00:28:09,480 drawdown periods, you can maximize that you can very easily get to that 18 to 20% rate of return on equity for the year.
167 00:28:11,550 --> 00:28:17,730 You're not going to be doing a whole lot of trades, you won't be forced to be in front of the marketplace, every single trading day, you're actually going to be
168 00:28:17,730 --> 00:28:28,920 very free with your personal time. That's the reason why large fund managers are always on vacation. They're always doing that, because they're not trading every
169 00:28:28,920 --> 00:28:37,080 single day. The idea is you want to put other people's money at work for you. But under the guise that you're doing it there, you're doing them a favor
170 00:28:37,080 --> 00:28:45,000 rather. But really, what you're doing is you're trying to do is very little as possible, because the more times you take a trade with other people's money, the
171 00:28:45,000 --> 00:28:55,920 more times you're exposing them to risk. When you expose a client to risk enough times, eventually that risk will grow teeth and bite you. Now you're going to
172 00:28:55,920 --> 00:29:03,540 feel it emotionally and psychologically and monetarily, the client is going to feel it monetarily and they're going to be mad, they're gonna be upset,
173 00:29:03,570 --> 00:29:12,090 especially if that drawdown continues for a long period of time it eats in erosion into what their equity base was, and when they allow that to you. So if
174 00:29:13,170 --> 00:29:25,980 you can keep your frequency low and focus on very high odds potential setups and keep the risk light and carve out that rate of return 18 to 20% per year, people
175 00:29:25,980 --> 00:29:37,440 will dogpile on you throwing new money at you. And as you have a management fee, all the percentage bonuses that you will establish and set up when you make your
176 00:29:37,440 --> 00:29:47,550 prospectus and you sit down with clients. All those things are in your favor. The client would be making money too, obviously as a result, but you're not
177 00:29:47,580 --> 00:29:55,770 working yourself too hard to get that that money for them. And therefore because it's going to be a large degree of money, hopefully, a pooled account where
178 00:29:55,770 --> 00:30:04,230 you're having other people pull money into it, not just you and one client. You want to work With a fund level that has abilities that bring other people's
179 00:30:04,230 --> 00:30:14,670 money in, and when you do that, it builds that equity base a lot larger. So that way, if you're making a 25% rate of return on, say $10 million, now we're
180 00:30:14,670 --> 00:30:22,320 talking about something about a little bit more significant. And if you have a 2% management fee, on top of that, you're getting 2% management fee, regardless
181 00:30:22,320 --> 00:30:31,680 of what you make. And then you get a performance bonus that you would set up, all that goes into your pocket. So yes, in your mind, you're probably thinking
182 00:30:31,680 --> 00:30:40,920 I'm gonna push it to the limit, and get a better performance incentive, in terms of paying myself, but that's not what your goal should be, you should be having
183 00:30:40,950 --> 00:30:48,840 a steady Eddy approach, only aiming for that easy low hanging fruit, the clients will absolutely love you, they're going to talk about their, their, their fund
184 00:30:48,840 --> 00:30:56,850 manager you every time they go out, they're all gonna be asking, you know, who is he can you can you talk to him for me, and new funds will always find our way
185 00:30:56,850 --> 00:31:07,950 to you. So your account that you manage would continuously be growing, allowing new funds to come in. And that just by default, he's pushing your pay every
186 00:31:07,950 --> 00:31:19,920 single time this happens, your pay goes up. So it's not about how much money you have right now. It's how you can manage money right now. And going forward. And
187 00:31:19,920 --> 00:31:29,280 the goal is not to see a lot of drawdown, drawdown happens by way of a lot of action. Because no matter what, it's a numbers game, you can be good all day
188 00:31:29,280 --> 00:31:36,930 long. Okay, but you, you play the game enough, you get up the bat, enough times you're gonna strike out. When you deal with other people's money, and you're
189 00:31:36,930 --> 00:31:47,070 managing that money, you do not want to have a big long drawn out strikeout period, you don't want that they want to see consistency. And if you're
190 00:31:47,070 --> 00:31:58,560 consistently infrequent with risk exposure, but you're showing rate of return, that's handsome over the calendar year, they will love you. And love in the form
191 00:31:58,590 --> 00:32:08,970 of managed funds is money, lots of money, it comes by way of new funds, they put more money into your hands, because they've seen that you've proven yourself, a
192 00:32:08,970 --> 00:32:14,790 lot of folks will test you out and I'll put a small amount of money, okay, I'll see what you do with this. And if you show consistency and a rate of return,
193 00:32:14,790 --> 00:32:26,400 it's very sobering. And it's not over the top, you're not trying to swing for the fences, managing this money. Okay, well invite in by default, other money to
194 00:32:26,400 --> 00:32:33,210 come in by either the client you already have or clients that you have, and by their word of mouth, because they will invariably talk about what you're doing
195 00:32:33,210 --> 00:32:44,970 for them. New Money is very talkative, it dislikes to chatter. So when it talks to other potential clients, they by default will reach out to you and you will
196 00:32:45,000 --> 00:32:53,280 see your your fund management, business grow. And that just puts more money in your pocket. And again, nothing changes just because there's more money coming
197 00:32:53,280 --> 00:33:01,380 in, and you're managing, you don't want to change the idea of what you do about your trading, you're not trying to impress anyone, you've already made the
198 00:33:01,380 --> 00:33:09,720 impression that this is the rate of return you're aiming for. There's no guarantee you're gonna get it. But are they gonna be mad if he made 16%? No way,
199 00:33:10,020 --> 00:33:19,170 they're not going to complain about that. If they made 16% on their money. And they had very little period of drawdown where they didn't have any real exposure
200 00:33:19,170 --> 00:33:29,640 to risk. But they had 16% rate of return 16% Return on $10 million, it's respectable. You can't find that rate of return anywhere in the marketplace
201 00:33:29,640 --> 00:33:37,920 right now. They don't get it in CDs, they don't get it in equities, not getting it in, you know, money markets or anything like that. So what they're doing is,
202 00:33:38,220 --> 00:33:45,240 they're allowing you to work for them by managing that money. Well, in their eyes, you're working really hard.
203 00:33:46,260 --> 00:33:54,210 And when you're managing money, you don't want to be working hard. You want to be working smart. And smart means you're not doing a whole lot of work to make
204 00:33:54,210 --> 00:34:03,120 that money. You only want to put it at risk when it's very favorable. And you'll see when we get into the execution stage and the management stage of long term
205 00:34:03,120 --> 00:34:09,570 trading. You'll see that it takes very little to do very well on these hard timeframes. Until next time, I wish you good luck and good trading