 Welcome back to the trade hacker mindset. In this episode, we are going to talk about the number one reason why traders fail. Trading the markets can be difficult to master and seemingly just out of reach. Professional traders have a secret. Trading requires total mental and emotional control. It requires the trade hacker mindset. All right, so let's jump into our discussion of the number one reason why traders fail. Now, I'm going to say this topic up front, but please don't turn the podcast off. You're going to roll your eyes and think, oh my God, I've heard this a million times. This has nothing to do with me. But please follow through and listen because this is very helpful. And hopefully I could put a little bit of different spin on it and relate it to the mindset of trading to help you become a better trader. So the number one reason that traders fail is position size. There's no question about it. It's not the strategy. It's not the service they follow. It's not the indicator that they don't know about. It's none of those things. The number one reason that traders fail is because they trade too large. And here's the thing. If you trade too large, and there's two different ways that you can think about this from a position size standpoint. If you trade too large for your account size and if you trade too large for your risk tolerance. Now the account size is simple. And it depends on the strategy. It depends on the type of trading that you're doing. It depends on the amount of leverage that you might be using. But when we are trading options, which are naturally leveraged financial instruments, you don't want to be using all of your capital. And so we always talk about when you're trading options, only trade up to 5% of your account value on any one position. And trade less than 50% of your overall account. So you've got 50% in a cash reserve and you're trading small size so that you overall only 5% per position, max, and 50% in your capital. Now when I say that, invariably, what a new trader will do is they automatically think, okay, I need to be trading 5%. And that's not what I said. Listen to what I'm saying. When I said this, you can trade up to 5%, okay? There's many times in trades that we take where I'm putting on positions with a half a percent or 1% or 2% of my account size. So it doesn't automatically mean you load up and do 5% every time. I'm saying that is the max that you should be trading per position size, okay? And then the same thing with account value, no more than 50%. There's nothing wrong with trading 20 or 25 or 30% of your account value. You don't have to ramp it up to always be at that 50%. That is a max. That is a limit. So make sure that you are using those as a parameter. And here's the thing, even if you're a complete idiot, and I mean that in a very affectionate way, if you're a brand new trader, if you stick to those account size parameters, I don't care what strategy you're trading. I don't care if your strategy is terrible. I don't care if you don't know what you're doing. The risk of you blowing out your account or suffering a loss so big that it sends you into a tailspin is going to be very, very difficult to do. You're going to have a very hard time ever suffering a loss too large to handle or risk blowing out your account if you follow those risk parameters. But let's think about it from a more important aspect, and that is from what it does to your mental psyche if you trade too large and you take a big loss. Okay, this is how it affects your mindset. One, you start to doubt the strategy or if you're using a specific indicator or following a specific guru or a newsletter or service or trade alerts or whatever it is, if you suffer a loss that's too big, all of a sudden you're going to start doubting that strategy or doubting that methodology or doubting that system or doubting that indicator or whatever it is that you use. You're going to start to blame it on external factors like the market did it to you or maybe you're trading a specific symbol like Google and now you're going to say things like, well, I'm never going to trade Google again because that's the one that I had that big loss in. It's not Google's fault. It's the fact that you got too large of a position size either for your risk tolerance or for your account size and the absolute worst thing that's going to happen when you take a loss that big is you're going to start questioning whether you can be a successful trader. You're going to say things whether it's out loud or consciously or subconsciously you're going to start saying things to yourself like, I just don't know if I have what it takes. I just don't know if I can make this trading thing work. I don't know if I will ever be a successful trader and when those kind of thoughts start to creep into your mind, you're dead. You've lost. You might as well stop trading because that is the type of mentality that can send you in to a tailspin and start creating even larger losses and bigger losses. Now you're trying to revenge trade and get it back and all different things start to happen. So you've got to keep those types of thoughts out of your head and to do that it starts with position size. Now everyone's position size is going to be different. We all have a different account size. We all have a different risk tolerance. Now if you don't know what I mean when I say risk tolerance, here's what I mean is what amount of P&L swings can you handle without your palms getting sweaty, without you clenching up, without you making decisions that are not appropriate? Whereas if you had a smaller size on, you wouldn't have made the same decisions. When I say risk tolerance, that's exactly what I mean is what kind of P&L swings are you comfortable with? And when I say comfortable, that means that you're not going to have a lot of emotion tied up in that trade. When we have emotions tied up in our trades, we make decisions that are out of the character of what we should be doing based on the methodology or strategy or whatever it is that we're trading. So let me give you an example. Every morning in our trade hacker community, right before we do our live stream where we're day trading live in front of our members, every morning before the market opens, I post in the chat, I post what my position size is for that day. Now this doesn't change. It's not like it changes every day, but I have a range. And so for my day trading specifically, what I state is a small position size for me is anywhere from $1,000 to $3,000 of buying power. And that's how I measure it. When we're day trading based on the strategies that we trade, my allocation for one trade is between $1,000 and $3,000. That's a small position size for me. If I'm just trying to maybe just get in, just in case it takes off and I don't want to miss it, that's what I'll start with. Or if I'm trading a symbol that is still very tradeable, but not one of my favorites, not one of the most liquid, not one of the most best moving type stocks that we trade. If it's kind of what I call a second tier type of stock, that's kind of the position size that I would use. So that's a small position. For what I call just a medium sized position, that's more like $3,000 to $7,000. And if I'm trading one of my top stocks, the most liquidity, most actively traded stocks, like your Apple, Facebook, Amazon, Tesla, those kind of things, then I'm going to allocate more in that medium range. I start on the lower end, kind of that $3,000 to $7,000 range. So that's my scale. And then between $7,000 and $10,000, that's what I consider kind of a full position size. That's when I really like to set up, I'm in one of my favorite, most liquid, actively traded stocks, might get up to about $10,000. So that's the scale that I've been day trading with for quite some time. Now, a topic for a whole another episode on the podcast is going to be the mindset around scaling up your position size. But for now, I just want to focus on what that is right now. And the reason that is my position size is that because I've learned over time that the P&L swings that can happen with that size of a position fits for me. It's comfortable for me. I can handle a P&L swing with any of those position size on. If the market shut down and I couldn't get out of a position and I lost 100% of the allocation that I put on with that position size, it would not affect me. It would not take me out of the game. It would hurt. I wouldn't like it, but it would not be something that I said, I'm going to stop trading. It's not going to be something where it's going to affect me financially. I'm still going to be able to pay my bills. I'm still going to be able to do everything I need to do. And more importantly though, just on a normal market conditions where you're having some wins, having some losses, it doesn't affect me psychologically. It doesn't affect me from a standpoint of if I take a loss with that size of a position, it's just a loss. It's the normal course of doing business. And that's what you have to figure out for yourself. What P&L swings or what size loss can I take? What size, what amount of capital do I want to risk on this trade to see if I'm going to be right? And if I'm not, I'm going to take the loss and I'm going to move on. That's how you have to think about your position size. Now, if I get outside of my scale for position size, and again, I'm just relating this to the day trading as an example, I trade much bigger size in some of our core premium monthly income type trades, but for day trading specifically, if I start trading with an account position over $10,000 of capital in one position, what happens is when I get in a losing trade with more than $10,000, the P&L swings make me uncomfortable. The P&L swings make me make decisions that I wouldn't normally make had I had on a $5,000 position. And that's the important thing, and that's part of what we'll talk about in another episode of scaling your position size up, is once you get to the point where you can scale that up and still have that same emotional connection, or I should say lack of emotional connection, to that trade based on the P&L swings, that's when it's okay to scale up your position size. Because remember, when we're trading, there's no such thing as a 100% guaranteed trade, right? Every time you get in a trade, there is a chance that you will lose money. And we've talked about this in a previous episode, but we've talked about why you have to trade in probabilities, and more importantly, you have to think in probabilities. So you have to think and trade in probabilities. So for example, one of our day trading strategies, we know that it just, it only has about a 60% probability of success. I'm thinking about like a runner strategy, which is our most profitable strategy, but it's got a 60% probability of being a winner, which means 40% of those trades will be losers. Now, here's the thing about trading. We don't know the sequence of when they'll be winners and when they'll be losers. If we did know the sequence, then we would just load up on the winners and we would never trade the losers or we'd scale down our position size, right? But that doesn't exist. That's not real life. And so you have to position size in a way that you're okay, you're basically saying, okay, I'm gonna allocate this amount of money to find out if I'm right on this trade. But if I'm not, I'm going to take the loss and I'm gonna go on to the next trade. And guess what? I'm gonna go on to this next trade knowing that I'm just that much closer to the next winner because I know that over time, this strategy wins 60% of the time. If you always think like that, then what's gonna happen is, no matter how good a setup looks, no matter how good it looks, going into that support point that you know it just can't go below or that resistance point that you just know in your heart, it can't go above, or that volume looks so great or the price pattern looks so great, none of that matters. No matter how good it looks, that does not mean that you load up on your position size. Now, that doesn't mean that you can't vary your position size. I just told you of the scale that I use from a small to a full-size position. And as long as you have your scale that you're comfortable with on the P&L swings, you can vary your position size. In fact, I would encourage you to vary your position size based on the symbol you're trading, based on the setup that you see, based on the strategy you're trading, but you've got to stay within these bands. You've got to stay within the parameters. And if you haven't set those parameters for yourself and you're just kind of winging it and thinking, oh, I'm just going to do this and over here and use this much capital over here, you've got to set these parameters. And if you have to write them down, post them on your computer so that they're there every time you're trading to help you stay on track with that, then you've got to do it. You've got to set your environment up. You've got to set your mental framework up to make sure that you succeed because otherwise, if you vary from that, if you vary from position size, position size is the number one reason traders fail. Remember that. So if you're not taking this seriously, then you really probably don't have a chance of becoming a successful trader. You see, if you're thinking in probabilities, if you're understanding that, hey, in this example, only 60% of these trades will be winners, which means 40% of these trades will be losers, then that means even if you see the best setup in the world, even if you see the perfect setup, you're gonna know that anything can happen in the market. And it should also make you focus on the risk and not just the upside. No matter how good it looks, if you're just focusing on the profit, then why wouldn't you load the boat on this position? Because it's gonna be a winner. If you have that mentality, that's when you're gonna get yourself in trouble. You've got to focus on risk first and if you focus on the risk, if you think in probabilities, if you focus on protecting your downside, that upside profit is gonna come. I don't remember exactly when it was for me. I don't remember the exact point, but I do know it was, I've said this before that my first 10 years trading were incredibly inconsistent. I mean, I could make a bunch of money, but then I'd lose it. And it'd just be kind of a roller. If you looked at my P&L graph, it looked like a roller coaster, right? And so it was such an epiphany to me when I realized that the way to win at this trading game was all about position size. Because up to that point, and I'm talking probably for that, during that 10 years, like I didn't, position size wasn't on my radar. It was like, okay, if I think a trade's gonna work, I'm pushing the chips in, right? And I wasn't very smart. But what was interesting is when I had that epiphany that, wow, really the key to this game is actually just the position size. Like if I keep my position size in check, I'm going to learn all the nuances. I'm gonna figure all the things out. The probabilities are actually gonna play out over time. Once I realized that, it was almost like, God, you are an idiot. How did you not figure this out so much sooner? Because it's such a simple thing. And that's why I'm sure a lot of you guys rolled your eyes at the beginning of this podcast when I said the number one reason traders fail and I talked about position size, is you're just like, oh, I've heard this before. But it's so true. And if you can really ingrain that and understand that the key to your trading success is your position size, then you'll start to realize how much of a numbers game and a probabilities game that trading really is. We always say that we trade based on statistics and probabilities, but the only way that you can actually see those probabilities play out over time is to keep your position size small. The only way that you're gonna knock yourself out of the game and you're not gonna allow the probabilities to play out is because you trade it too big. And if you think about just a simple example of flipping a coin, if you flip a coin 10 times, you might only get one head and nine tails, right? I mean, it's not necessarily high probability that that would happen, but it could certainly happen and it wouldn't be a huge shock to you if you flipped a coin 10 times and nine of the 10 were tails and only one was heads. Well, guess what? If you are trading, if you're wagering, if you're betting, call it whatever you want. If you're betting on heads and only one out of nine happens, guess what? That's not a good P&L, right? That's not a good value proposition. But if you flip a coin a thousand times, then the probabilities are, it's gonna be pretty close to 500 heads and 500 tails, okay? And that's just the reality of the probabilities. Now we trade, our strategies are much higher than a 50-50 coin flip, but you have to be able to withstand strings of losses and the only way to do that is to trade small. So remember, and this part of this depends on the strategy you're trading, but if you can just stick to the rules, trade less than 5% of your account value on any one position, trade less than 50% of your account value for all your positions, then it's gonna be really difficult for you to fail. You know, maybe you're not gonna be profitable right away because you're still honing your skills, you're still becoming a better trader, you're still getting in and out at different times, maybe you're still making bad decisions because you're honing your mindset and you're honing your trading skills, but you're not gonna run the risk of blowing out your account or suffering a loss that's gonna mentally put you out of the game if you stick to those parameters. I absolutely love hearing the success stories of our members and I equally hate hearing when our members suffer sizable losses that puts them out of the game, whether that's financially or mentally. Being able to book consistent profits is one of the most empowering things that you can have. I know this is kind of a cliche thing to say, but it literally is you taking control of your finances, taking control of your financial future because now you know that if you just follow the plan, keep your position size in check, have a strategy that has an edge over time that you're not gonna have to depend on anyone or anything for your finances. And if you've never experienced that, it's one of the most empowering things that you can ever have in life. And part of the whole basis for us starting navigation trading is because I've experienced that and I want you to experience that, I want everyone to experience that feeling, and it all starts with position size. So I hope that you can get to that point. I want you to have that empowering feeling of being able to take control of your retirement or your finances or your income or whatever it is and take control of that and it all starts with position size. I hope this was helpful. If you guys have any questions, you can always hit me up in the community. We have a community of like-minded traders. It's free to join. Just go to community.navigationtrading.com. I look forward to seeing you on the inside and we'll see you in the next episode.