Sunday, February 21, 2016

The Power of Being Broke

I am constantly asked about why I wire out my account every month.  My first response is always, I'm not comfortable with my money being off shore, but the reality is Suretrader has a bank here in the US that they service their US clients with, so that reason is a little weak.  My fear of not having enough money to pay my taxes is another reason but if I lose it all, I wouldn't have to pay taxes on it anyway so that argument is also weak.  I also say that I want to protect my gains, which is true.  I like the feeling of having my gains safe from the chance of me giving it back.  Am I a coward?  Do I not have the true mindset of a day trader?  These are the questions that I get asked, and I also ask myself at times.  The truth is, for some reason I didn't realize until this weekend, I am more comfortable and successful trading with a smaller account.  My trading strategy was and is based around growing a small account.  What is it about trading with that mindset that makes me comfortable and more focused everyday in the market?  I never really had an answer until now.  One book I read over this weekend unlocked the mystery of why my strategy works.

You see for a few weeks I tried trading with a larger account well over the PDT rule.  I felt this was my time to take off and not look back.  It was an epic failure.  I only lost about $1500 over a period of 6 weeks because I did have my risk management strategies in tact.  It was like I forgot who I was overnight.  I couldn't see my setups like I used to.  I found myself trying to follow larger traders.  I felt I had to trade like them since I was where they were.  My whole mindset toward trading was different.  I spent too many days watching the market in a daze, not knowing what to do.  I was completely lost, just like I was when I first started trading.  Toward the end of this trial I began getting some professional help from a retired hedge fund manager.  I felt that I needed to get some guidance from someone who was used to trading with larger sums of money.  I got good advice, but that wasn't my problem.  I had lost my identity as a trader.

After this experience ended, I refunded my Suretrader account and almost immediately regained my identity.  I felt that maybe this was as far as I would be able to go.  I mean I almost made 100k for the year trading with my smaller account.  I truly believe I would have hit my goal if I had not tried to trade larger.  But at this point I had accepted the fact that I did not have what it took to trade larger, or that I just wasn't ready yet.  I decided to increase my base account size I started every month off with from 5k to 7.5k at the beginning of 2016 to see how I did with it.  It has worked out great.  At the beginning of the month my share sizes are smaller and I gradually build up my size as the month progresses, providing I am making a profit and my buying power is increasing.   Why does this work so well with me?  I mean for this month of February, I started with 8k and I am up 13,688.89 for the month. Just by employing the same strategies and increasing position sizing as my buying power grows.  I just couldn't understand why I can do it with Suretrader, but when I made the switch I folded up like an envelope.

I mentioned earlier that I read a book over the weekend that unlocked everything for me about how I am able to trade better with a small account versus a larger account.  The book is titled, "The Power of Broke", by Daymond John, the creator of the clothing brand FUBU, and more famously known as one of the sharks from the hit TV show "Shark Tank".  It talks about when you are broke, how having not a whole lot to lose and everything to gain drives you to dig deeper and work harder to get it.  That "sometimes having your back against the wall, leveraging your last dollar, and having no place to go but up; because if you have to succeed to survive, you will."

This is exactly the mentality that had driven me for the past 2 years.  I never knew it had a name.  It is what kept me up until 2 am studying charts of my trades, other traders trades and trying to identify setups.  It is what woke me up at 6 am every morning to get ready for the market before I had to go to work.  It is the Power of Broke that still drives me everyday to work harder and smarter than the next guy.  That 90% failure rate of new traders may just be a little low.  It may be a little higher.  I can tell you about 2 traders, one being myself, out of 25 who started this journey into trading together, that are still in the game.  We worked harder and longer than everyone else.  We were driven to succeed.  You see we were older, had small kids, wanted to spend more time with our families, wanted make sure we could provide the educational opportunities our children would need to make it in this world, and were essentially broke.  We had tried for years to make it the traditional way.  Working a 9 to 5, trying to save $ and provide a comfortable life for our families.  To put it simply, we had our backs against the wall.  We had no other option other than to do what it took to succeed.  This was the mindset that we have.  The Power of Broke.

I know everyone has seen the "Rocky" movies but I want to specifically refer to "Rocky 3".  When Rocky got his block knocked off by Klubber Lang at the beginning of the movie, he had lost something.  The money and fame caused him to lose his hunger.  His will and desire to win at all costs.  You see, he wasn't broke any more.  He wasn't hungry.  He wasn't hurting for anything.  He didn't have that fire deep down inside that burned because he had to win to survive.  All of it was gone the minute he experienced the success of being a champion.  Apollo Creed described it best. "You lost your edge...... You didn't look hungry. No, when we fought, you had the eye of the tiger man.  The edge.  And now you got to get it back.  And the way to get it back is to go back to the beginning".  He had to find that hunger again to get that edge back.

That is exactly what happened to my mind when I switched to a larger account.  When I looked at over 200k buying power after being used to looking at 30k to 60k, I felt I had made it.  I felt like I didn't need to be who I was, that I could be that guy that I always saw as a successful trader.  Suddenly I didn't feel like my back was against the wall.  I'm here to tell you it makes a difference.  I needed that hunger to drive me.  I needed that hunger to keep me moving forward.  That's why the minute I switched back and I was back to square one, where I started, everything fell back in to place.  I needed that lesson. I needed to understand how I worked and what I needed to be aware of as I progressed in this industry.  I am very thankful that I had this lesson when I did.  Now, when the opportunity presents itself again, I will be ready.

I feel that I have finally unlocked the secret of my success as a trader.  The Power of Broke only works for you if you tap into it and put it to work.  You don't have to be broke financially to use this power.  The Power of Broke is a mindset.  There is tremendous power in it.  The more you need to succeed, the more likely it is that you will succeed.  The more you've invested, not a financial investment but an emotional and personal investment, the more you will get back in return.  This is the fuel that will power your passion.  The fuel that keeps you driving forward when everything around you says quit.  Tap into it.  It is there for anyone that wants it.

So what have I learned.  I need to keep the Power of Broke mindset throughout my career.  It is what drives me.  It is what drives my trading strategy.  It doesn't matter how much I make or how much I keep in my trading account, I will always keep that hunger, that desire to grow, that desire to get better.  I will have a goal every day.  I will do my homework everyday.  I will bring my passion to the market every day.  I will remember I am "The Average Joe Trader".  And I will always remember the ways of the shark.  Even when a shark is sleeping, he is still swimming, still moving forward, still ready to attack when an opportunity presents itself.  You see if a shark stops swimming, he will die.  In order to succeed in this industry, you have to live the ways of the shark.  You can find out more about the SHARK mindset here:  "The Power of Broke", by Daymond John  and download the shark points.  I know this book is written more for entrepreneurs  looking to start a business but if you think about it, as traders that's exactly what we are trying to do.


16 comments:

  1. WOW! Very powerful stuff! I see a second income stream developing for you...motivational speaker. You could sell that kind of insight for a pretty penny (of which I am fond!). Sounds like your key to success is to never relax...which means I may NEVER be rich...lol. Your '15 year-end total is very impressive.You should be very proud of all you've accomplished.

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  2. Thank you for the personal share, Ed! Following you as a trader is a real joy, because rather than following just your trades, we are following the trader. In your videos we hear what you are looking for, why you entered trades, and what potentially spooked you out. The fact that you are not a trader with millions of dollars to your name makes you relatable. You are right now in a position where many of us hope to be at some day. Like you said, you got there through dedication, perseverance and hard work. Sharing some personal insight into your fears and goals is always a perk for us who see you as an example.

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  3. Hi, Ed, great insight! I'm learning from your trades in the chatroom everyday! How long does it take for you to become a profitable trader after you started live trading?

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  4. It's an amazing and helpful article,.
    24option así?

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  5. Hi Ed , excellent article. One quick question on sure trade, is it legally allowed to use in USA and transfer money between accounts. I'm planning to open acct, so would like to get expert input from yo
    Thanks
    Suresh

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    1. As far as I know it is legal. I have been with them for over 2 years and have not had any problems. I wrote a blog on Suretrader so you can check it out as well

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  6. Ed, I'm curious as to share size. Are you maxing out buying power on every trade with the 8k account? Or are you using a set share amount like 400 or 800, etc?

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    1. I will use 80% of my bp. If things go well my bp increases as the month progresses and I can increase my share size. So my trades are easier to manage as I scale out I will use lots with multiples of 3 and 4.

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  7. Ed, I'm curious as to share size. Are you maxing out buying power on every trade with the 8k account? Or are you using a set share amount like 400 or 800, etc?

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  8. I've been enjoying your stories and information Ed. You are exactly where I want to be, soon!!! Thank you for sharing.

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  9. I've been enjoying your stories and information Ed. You are exactly where I want to be, soon!!! Thank you for sharing.

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  10. Ed: Your writings are always powerful, this one being no exception. "The Power of Being Broke" and using it to your advantage really resonates with me. Fortunately for me and in my current position "The Power of Broke" is not strictly a mindset but also a grim reality, L.O.L. but not for long! "The Power of Broke" reminds me of the musician or let's say a Rock & Roll Band that becomes a "One Hit Wonder". They create one great album and it's game over or any future musical recordings are mediocre at best. They seem to ignore the basics of what got them to where they are. They sell out and disappear into the dustbin of music history never to be heard of again. Then on the other hand you have the musician or artist who constantly re-invents themselves, adjusts quickly and makes the business of entertainment a life-long career, they keep the artistic passion alive and make the next album or live show even better. Many successful artists never forget their roots and where they came from. They stay humble, keep working hard because they love it and absolutely refuse to disappoint the fans. They never forget the days when dinner consisted of crackers and Kool-Aid. This is the type of trader I will strive to become. I'm hungry. Thanks for your dedication, excellent trading education and constant words of wisdom! I look forward to seeing you and all the other dedicated students at the top!

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    1. Thanks! Thank you for sharing this with me! This is what keeps me motivated to continue writing!

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