 Welcome back to the Trade Hacker Mindset. In this episode, I want to talk about how we don't trade. 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 this topic of how we don't trade. And what do I mean by that? I want to talk about some things, some factors in the marketplace, in the environment, in life that we do not use. We do not factor in to our trading. And so what do I mean by that? You know, one of the things that we always say at navigation trading is that we trade based on statistics and probabilities, not hype, not emotion, not the latest trend, not tweets from our president, not tweets from Elon Musk. You know, we trade based on statistics and probabilities. I had a member in the community the other day make a post and we were going back and forth and I'm not saying anything negative about what this individual is saying. But the conversation went something like, hey, you know, it would be really nice if when you post your alerts, you would post more commentary around the reason that you took the trade. And he listed all these things like potential political impact and economic reports, seasonal factors, political landscape, trade wars, pandemic, FDA approvals. And my answer was, we don't factor any of that into our trades. And after that, he didn't really respond. So either he was kind of dumbfounded or, you know, I think a lot of times, you know, in this industry, there's so much garbage spewed at you from the financial media, whether it's CNBC or Money Magazine or Bloomberg or whatever it is. I mean, there's so much where all these other trading gurus out there who are just spewing garbage where they're talking about all these factors that they're looking at to make trades. And with the way that we trade with our methodology, it's strictly based on statistics and probabilities. The only thing that we use to factor to get in or out of a trade is in our core income portfolio, we look at implied volatility, right? Implied volatility and we look at price action. When we're day trading, we look at two things. We look at price action and we look at volume, which helps us with the velocity of a move. That's it. Okay. We don't look at anything else. We don't look at news. We don't look at the pandemic. We don't look at the fundamentals of a company. We don't look at, we don't use technical analysis. We don't use indicators. We use some different like previous day in our day trading. We use the previous days, high, low, open, close. We use, you know, some pivot points, which is just kind of the average prices, but we use them differently. I think than a lot of people. We use them just more as a reference, not necessarily as a indicator of here's where you get in, here's where you get out kind of a scenario. And the reason is, is because all of that stuff is already built in to the price. Okay. If they're talking about it on CNBC, if you are reading about it in the Wall Street Journal, guess who else knows about it? Everybody. I mean everybody. Every trader in the world knows about it, right? So there's no edge to thinking that you know more information. Now, of course, if you're the CEO of a publicly traded company, you have a little bit more inside information, but that's why you can't trade specific ways because it's illegal. It's called insider trading. If you are not an insider, then everything that you know, everything that everyone knows is reflected in the current price of that stock or the current price of that investment. And we call that the efficient market theory, right? That everything known is already priced in. Now, does that mean you can't make an assumption? Does that mean you can't take a, have an opinion about what you think might happen based on certain factors? No, of course not. You, you can, you can absolutely do that as long as you're being strategic with the way that you position it. As long as you're also factoring in implied volatility and putting the probabilities on your side and, and, and all the things that we teach and using the strategies that we talk about in our courses. So I don't want to, I'm trying not to tell you conflicting information because it's okay to have an assumption. It's okay to have a directional assumption based on certain things, but I'm saying we don't use these facts. You know, it doesn't matter. The probabilities are still going to play out whether you use your news or your indicators or whatever else it is. They're not going to give you any more edge than the actual strategy that you're using. Now, I just, I just mentioned, okay, if you're an insider, if you're a CEO of a, of a publicly traded company, then you have insider information. And so technically you should be able to capitalize on that if you were, if it was legal to trade. But I will also tell you this, and this is, this is something that I had multiple over the years. I've had multiple conversations with insiders. And here's what's interesting is even the insiders who have the inside information don't always necessarily know what the stock is going to do. In fact, I would argue that they have just as good of a shot as any retail trader who doesn't have that inside information. And here's why I say that. Here's, here's one example. Okay. So one example is I was talking to Tom Sosnoff who runs tasty trade. Okay. Now, whether you like Tom or, you know, who knows if, how profitable of a trader he even is the bottom line is he's, he's got a lot of experience, right? And he's been trading a long time. He traded on the floor of the CBO, the Chicago Board of Options. He obviously trades every day. He runs tasty trade. He also built Thinkorswim, which eventually went public. Thinkorswim was a public company before they got acquired by TD Ameritrade. And so he was the CEO of this publicly traded company. And one thing that he told me was, as the CEO of this publicly traded stock, he said, I was the one who gave the earnings announcements, the quarterly earnings calls. That was, I was the one who did that. And I would try to, and there's a, there's a group of them and he said, we would try to predict what the stock would do after our earnings announcements. Now keep in mind, they knew what their numbers were. They knew all the sales and revenue and I mean everything, right? They were the ones giving the report before the numbers actually became public. And he said it was, it was less than 50, 50 of the times that he was right about what the stock would do after the earnings announcement. This is the CEO. This is the guy who knows everything about the company. This is someone who's also been a trader his entire life and he didn't know what the stock was going to do and he had all the inside information. So if that doesn't paint a picture for you about what you think you know and what you think is going to happen to a stock based on what you think you know as a retail trader, then that should just prove a point right there. Here's another example. So I have an acquaintance. I wouldn't call him a friend, but I have an acquaintance who was involved in the telecom industry. Okay. And he wasn't necessarily an insider. He, he was a consultant for a tele, for a publicly traded telecom company. And I was, I was talking to him one day and he said, you know, this, this telecom company that I'm a consultant for, he said they're getting ready to announce earnings after the bell today. And I know what their revenue was. He said, I went out and I bought. Now, I don't know that this was legal or, or what his legal restrictions were around this, but he said he knew what the numbers were. And he, so he knew in his mind, he knew that it was just going to be blowout earnings that the stock was going to shoot up. And so he said, I just went out and I bought. He told me like so many thousand of out of the money call options. And first of all, as navigation traders, you all know buying calls before an earnings announcement, buying out of the money calls before an earnings announcement is probably not a good idea. And we know that because we know that implied volatility gets crushed and it would have to make a massive move way outside the expected move to, uh, to benefit from that. So this individual didn't really understand that. And I, I tried to explain to him, you know that the implied volatility is going to get crushed after the earnings announcement. He's kind of like, well, what does that have to do with anything? I bought calls. If it goes up, I'll make money. Didn't quite understand things. Bottom line was long story short is the stock went up a couple bucks, but certainly not up as much as he thought it would. And he lost thousands and thousands of dollars. I mean, it was a six figure amount. And so, you know, that's, that's another example of somebody who thought they knew what was going to happen because they actually knew the inside numbers and it still didn't do what they thought it was going to do. So, you know, these are just a couple examples of why we don't use news or why we don't use, you know, economic reports or FDA approvals. I mean, think about FDA approvals. I mean, if you are an insider of a pharmaceutical company and you know that something's about to get approved and the public doesn't know, I would say there's probably a pretty good chance that you might have, you might have an edge there. But there's still a lot of factors that could happen that you don't know about. But if you as a retail trader are betting on an FDA approval that's going to make this drug get approved, that's going to make this stock shoot up of a pharmaceutical company, well, that's just, that's just simply a bet. So, if you want to make a bet, if you want to take a small position size and be strategic around it, that's fine. But if you're using that as your core strategy, then I would, I would say you will not be successful over the long run. You might get lucky, you might hit some, but you're also going to lose on a lot. And so we're all about trying to build consistent income, not try to hit a home run every now and then. We're all about hitting singles and doubles and building consistent income using statistics and probabilities, not trying to guess on FDA approvals or economic reports. Another example, speaking of economic reports, just recently, so at the time of this recording, it is, what's the date today? Today is Friday, May 14th. Okay, so last week, last Friday, so a week ago, there's the jobs report numbers, the job numbers came out. And the expectation was that there was going to be a million new jobs created over that period. And the number came out at like 200,000, so well under expectations. And of course, we're, you know, we're coming out of this pandemic, we're coming out of this huge unemployment rate and it's getting better. But you know, there's this, there's this expectation from the analysts, the average expectation was that there's going to be a million jobs created. Well, the numbers announced and it was 200,000. So 800,000, it was the biggest miss in a jobs expectation report that I can recall. And so what do you think happened to the market when that when that number came out? Well, the expectation, if I knew those numbers ahead of time, my expectation would have been that the market would tank, right, that the market overall would go down. But that's not what happened. What happened was the exact opposite. The market ripped higher, the S&P ripped higher, the Nasdaq ripped higher, the Dow, the Russell, they all just absolutely exploded to the upside. And so if you're if you're trading and you think you have the inside information of that it's going to be a lower than expected jobs report in there, the analysts are way overestimating and you go into it selling future short buy inputs and all this stuff. And you're just going to get you're just going to get crushed in a situation like that. So again, there's nothing wrong with taking assumption. There's nothing wrong with taking a small position if it's a small position in your overall core portfolio. But that's not a strategy. That's not a strategy is not trying to guess what a stocks or what the market is going to do based on an economic report. You know, the other thing that that was brought up as a comment was seasonal factors. There's a lot of people who sell systems around seasonal factors or there used to be at least. I can't remember the guy's name, but he was a big seller of a system around seasonal factors. I can't remember what his name was now. This is 20 years ago, but seasonal factors. So it's like, OK, if if seasonality is really a thing, then why wouldn't everybody just jump in at the right time on that market? So let's say like oil, for example, you know, there used to be this notion. Well, during the summer, people travel more. So therefore, the price of gasoline would go up. Therefore, the price of oil would go up. So why? So why not just buy oil? Why not just buy gasoline futures in May and write it up all summer and then sell them in September? Why? Because it doesn't work. There is no seasonality, you know, or, you know, with soybeans and wheat and grains. I mean, weather changes constantly, even if these meteorologists can think they can predict the weather, you're not going to have an edge in in making wagers on soybeans, corn and wheat. You know, I know one of the largest corn farmers in the state of Missouri and they trade futures and options on corn primarily to hedge their own crops and they do some speculation too because they, you know, they are ingrained in that market and they've done pretty well. But they, you know, there's some years that they get crushed and there's some years they do good. So even, you know, even somebody who's just in that business, in that market every single day they live, breathe and eat corn. That's all they do. It's still very difficult. There's no, there's no seasonality. There's no edge. I've had lengthy conversations with this individual about the seasonality aspect of trying to speculate on the price of corn based on this and it just doesn't exist. And so I'm not, I'm not saying all this from a perspective of, oh, I think I know, you know, I know this better than you and I'm not trying to say this in a condescending way is if I know this and if you think that way you're stupid, I'm not saying that in any way at all. But what I'm saying is if it's known, if you know about it, it's already priced in. Okay. And if you can have that mindset when you're trading, it's going to make you a better trader because then you can still take these assumptions, you can still take these directional assumptions on these trades, but it's going to allow you to understand that you need to keep it as a small position size in the, in your overall portfolio instead of thinking that you can actually make a strategy that you're going to consistently win using that. Okay. So hopefully that makes sense. One more example, I mean, think about the pandemic that we just all went through, right? In March, so it was a little over a year ago in March of 2020, the market got slammed, markets down, you know, 30, 40 percent and unemployment spiked. I don't know what you were thinking, but when I tried to pull out my crystal ball at that time and I looked at all the unemployment numbers and really what I was looking at is, okay, how does this economic impact compare to 2008? Because 2008 in the financial crisis, that was the most recent, you know, massive sell-off, market crash, whatever you want to call it that we've seen. And, you know, obviously, and that was bad, right? Unemployment was high, the world was coming to an end, our financial markets were melting down, and it was a little dicey, our housing market was in dire straits and all kinds of stuff, right? So I was looking at the economic data and some of the impacts that we saw and the numbers that we saw in 2008. I was comparing that to 2020, you know, after the pandemic started, basically, and we saw unemployment skyrocket to a level that dwarfed the 2008 financial crisis. We saw economic data that dwarfed, other economic data that dwarfed what happened in 2008. And so my thought process, and I know I'm not alone in thinking this, is that, oh boy, we are going to have some volatility, and when I say volatility, meaning the market's not going to go up for a while. It's certainly not going to rip back to new highs. And it's going to be more like, okay, we saw this big downturn, now it's going to maybe chop around with big swings down here, but it's certainly not going to have a V bottom, right? It's certainly not going to just come down and march like it did and then rip right back up to new highs. I mean, that's not even, that's not going to happen. But guess what happened? That's what happened, right? It, the absolute V bottom, it literally went down. It was the fastest market decline that we've ever seen, and it was the fastest market increase that we've ever seen in the, in the duration and the capacity of percent gains and losses that we've ever seen. But we didn't know that was going to happen ahead of time. You can always talk to people and they say, oh yeah, I knew exactly that was going to happen. No you didn't, okay? The next question you always ask when somebody says that is, okay, how much money did you have in place betting on that exact thing happening then, right? That's when you get the real answer. It's kind of like the guy who says, football game is played. I knew they were going to win. Oh really? How much did you bet on the game? Nothing. Okay, well then, let's, let's calm down a little bit, right? So these are all just points to help you create a mindset around whatever is known is already priced in. And if that's the case, we have to be strategic about the way we place trades. Can we make an assumption to make a small, you know, directional trade within our portfolio? Yes, absolutely. We do it all the time and it's part of trading. It helps keep us engaged. It does, it can help, you know, lift your performance of your portfolio over time potentially if you happen to be right on some of those. But more importantly, as long as you're being strategic, putting the probabilities in place, having proper risk management in place and keeping your position size in check, it all makes sense to do, but don't think that you know something because nobody really knows anything. If you know it, so does the next guy and so does everybody else. So I hope this was helpful. If you guys have any questions, let me know. If you want to join a community of like-minded traders, just go to community.navigationtrading.com. We've got hundreds of traders interacting on a daily basis, not only about the mindset stuff, but also sharing trade ideas with the sole purpose of helping each other become better traders. Look forward to seeing you on the inside and we'll see you in the next episode.