An often times overlooked part of successful trading is the needed skill and understanding of money management. You can be firing on all cylinders in all other areas of your trading; however, if your money management is not fully under control, everything else will come to a screeching halt. I welcome back long-time member, “Mico” (same name in chatroom), to hear about his continued journey. As is the case with any trader, things have not been a smooth ride… spoiler alert: he blew up an account since his last appearance on the show, but he didn’t give up and stayed strong to correct some issues. What were the issues? How did he correct them? We talk about that and much more, so let’s get to it!
Clay: Hey, it’s Clay, and real quick before we get to the episode, I want to talk about something that I get asked all the time, “Clay, what broker do you suggest? What platform is the best one out there?” While that’s always subjective, one thing that I can say is as somebody that loves technical charts and as a technical trader needs quality charts so that I can make good decisions, the one aspect that I would definitely say matters to me and should matter to you, especially, like I said, if you do choose to be a technical trader is a quality platform that gives you good visually appealing charts.
Clay: So that’s why I always recommend Webull to people because they are a situation where not only are they very budget friendly, meaning there’s no commissions, there’s no fees, and that’s for both options and stocks. So if you’re somebody with a smaller account and really is commission conscientious, and you don’t want to be paying and giving away all your gains with fees, then Webull, like I said, offers a $0 commissions. But they also have really quality charts, which is important for the reasons, like I said, I discussed. But if you are curious and seeing the platform, seeing how it behaves, seeing how it all looks, then I’d encourage you to go to claytrader.com/webull. So again, claytrader.com/webull, and that way, you can see how they behave.
Clay: Now, maybe for your eye, you’re not necessarily going to like what they see, and that’s okay. But I think they offer some very, very quality technical charts. It’s a nice platform, very customizable. But again, if you’re curious, and if you’re out there wondering, maybe looking to change from a broker or a platform that you’re not happy with, for whatever reason, again, consider Webull, and again, claytrader.com/webull. So W-E and then bull, Webull. Like I said, then I have a little video review there that you can check things out. So like I said, check out Webull. I think you’ll like what you see there if you like the technical charts. So let’s now move on to the actual episode. This is The Stock Trading Reality Podcast, episode 293.
Announcer: This is The Stock Trading Reality Podcast, where you get to see the realistic side of a trader’s journey, get inspired and stay motivated by every day, normal people who are currently on their journey to trading success, and this is your host, taking things at face value, he really wishes you would stop it, Clay Trader.
Clay: Now, I will keep this short and sweet because I feel like I could do a whole podcast on this topic. But especially as traders, especially as somebody, if you’re listening to this, you have ambition, you have a desire for challenge. You are not a normal person. Normal people don’t look at the stock market and say, “You know what? I want to actually try to trade the stock market. I want to get involved in the most average place on earth and try to trade it and make money from it.” So I commend you, you are clearly ambitious.
Clay: Now, whether or not you’re going to stay ambitious, that’s a different story, because sometimes people paint, oh, you only need a little ambition, and then your ambition burns out real quick. But my point here is there’s a shred of ambition in you if you’re even listening to my voice right now. So my point here is, please just don’t take it up at face value, and I’m not making a statement in any direction. I’m just saying, as a general philosophy, I can’t stand it when people hear something and then their thinking goes to a very basic level.
Clay: Not that I’m saying you have to go and research and spend the next 15 days researching a topic or researching some sort of sound bite or whatever that you heard, but to just take it at face value and say, “Okay. That’s how it is.” You’re better than that, again, as an ambitious person, which is my entire premise here. So just don’t do that, all right? You are better than that. You have the ability to think critically. You have the ability to think a little bit more in depth. Again, I’m not saying you have to do it for weeks upon weeks, research anything. But just think through it a little bit more, and not to mention, that’s just a good habit for trading anyways, because if you think trading is as easy as a hot stock pick or a buy or sell service or something like that, then again, think more than just face value. There’s more that goes into trading than just that.
Clay: Man, I try to keep that short and sweet. But like I said, that has many different rabbit holes I could jump on down. But speaking of rabbit holes, we are going to be going through all sorts of the with our guests, Mico. Mico, he’s been on the podcast before, and I talked about that at the beginning. So this is a welcome back. Just to get an update on his journey, Mico has been doing great. He’s had some reminders of things that I don’t want to… Well, I guess the title is podcasts. You can see something about position sizing. But lot of good stuff here, and he’s had some bumpiness. He had a little spoiler alert. He had a blown-up account, and he’s since adjusted from that. He’s doing very well.
Clay: So in terms of what sort of adjustments did he make, how did he go about it, how long did certain adjustments take, and what was his path after blowing up an account, then you’re going to get all that and much more here with Mico. So without further ado, let’s hear about Mico and get an update on his journey. Mico, welcome back to the show.
Mico: Hey, how’s it going?
Clay: Pretty good. Pretty good. I did a little research here just so I could come across as half professional. But I noticed the last time you were on was episode 221. So for those of you listening, if you want to the full Mico experience, then you’ll probably want to listen to episode 221 first. That was back on June 10th of 2019. So well over, basically about a year and a half since you’ve been back, I want to thank you. I literally just hit you up yesterday, as of the recording of this saying, “Hey, I have no idea how you slipped through the cracks, but do you want to be on here?” You’re like, “Yeah, sure. Let’s get things set up.” Here I am the very next day talking to you.
Clay: So I appreciate the quick turnaround on that. Helps us out and makes the world go round here, as far as the podcast is concerned. But I guess, remind me, remind the listeners, kind of do a nutshell, to the best of your ability, because again, I realized that this was basically a year and a half ago, and I can barely remember yesterday. But where were you at in your journey the first time we talked when you came on. I know the title was Bitcoin micro caps and mental stops. So maybe that helps kind of remind you. But I guess, try to summarize where you’re at during that portion of your journey the last time you were on the show.
Mico: Okay. Yeah. That’s kind of where I figured we’ll just kind of go from where we left off. I was having some kind of mixed results mostly in the green side before the podcast, and then all of a sudden, things just turned around real quick. I-
Clay: For the world for the better, for the worse.
Mico: For the worse. So almost immediately after the podcast, I had a pretty terrible drawdown. All of the gains that I had made up to the podcast, I basically gave back and then some over the course of about three months. So what ended up happening was I was just kind of psychologically not right, and everything just started slowly falling apart day to day, was going through a terrible losing streak, which eventually actually ended up into me blowing up my account in September. So I had to take a step back and kind of… I mean, I was pretty much forced to kind of reassess my strategy and everything and-
Clay: Let me ask you this because I’m curious. In hindsight, I get it, you sit here and say, “Yeah. You were…” Basically, the wheels of the bus were slowly falling off. I get that, and you’re saying that in hindsight. But at the time, did you realize that at the time. Did you think that was going on or… I mean, at the time, did you think… Do you know what I mean? Because it’s easy to sit here and say in hindsight, “Oh, yeah. Things are falling apart.” But I mean, because logic would say, well, things were falling apart, then why don’t you just stop right at that very second. But I have a suspicion that probably at the time, you didn’t realize that things were falling apart, or did you? I guess-
Mico: Oh no, I totally did. It was like a-
Clay: Oh, you did. Okay.
Mico: Yeah. It was like a… What’s the saying, that you’re watching a tragedy in slow motion, and you can’t do anything to stop it. I mean, that’s kind of how it felt, and I kind of saw it coming and then just one day, all it took was one trade to just run away from me and boom.
Clay: Okay. So I feel like we have a potential of an interesting mental rabbit hole here, just the human mind, because I get it as a listener, if you’ve never traded, you can say like, “Well, if he knew that was going on, then why…” I mean, I get it, but I don’t know, which is why I think we have a nice little discussion topic here. So my question to you is, “Okay. Mico, you knew that it was going. You knew that it was happening, yet you didn’t seem to change, or were you trying to change? I guess, what exactly was going on in your mind that caused you to keep on doing what you were…
Clay: I mean, like you said, you acknowledge, you’re watching. Basically, the slow motion train wreck happened right in front of you, yet you just kept watching. I mean, what exactly caused you to keep on doing what you were doing, even though you realize that it was a slow motion train wreck?
Mico: Well, I think a lot of it just comes down to still being relatively fresh in the grand scheme of things and not really having my go-to strategies down point and down to like, “I know what I’m looking for.” It just kind of ended up being a lot of mixed results, I guess, for the first six months, and I guess I was kind of lucky, and I guess that luck just ran out, and next thing I know, the trading style that I had put on at the time was just not working. I tried all sorts of things, just trying to size down and just trying to kind of take things one trade at a time. But then it just took one massive squeezer that just totally took me out.
Clay: Okay. That’s an interesting comment, because it does sound like you were trying to fix the style. I mean, you were doing some position management things. I love the comment about you were taking it one trade at a time. But to your admission, it sounds like this style just stopped working, or maybe it was just lucky in the first place, like you said. So I guess my question is, and for listeners’ sake, what was your style at that time that just seemed to stop working?
Mico: So what I was doing a lot with my entries, it was death by a thousand paper cuts, to begin with, is what was causing the drawdown. I was basically doing a one shot, one kill type entry, and my stops are just way too tight. It just kind of ended up being loss after loss, after loss, and then the feeling of trying to avoid trading on tilt comes around, and at that point, it’s just like, “Okay, I need to walk away for the day and reassess the next day.” Then it’s the same thing again, just loss after loss, after loss. I was like, “All right. Well, it doesn’t seem like this whole one shot, one kill entry method is fitting my particular style of trading, so maybe I need to do something else.”
Clay: Let me take a step back. For listeners’ sake, this is not scripted. Mico can attest that he literally logged down to the sock drawer. I said, “Hey, you’ve done this before. Are you ready to go?” Mico us said, “Yeah. Let’s get to it.” So I mean, this is truly just innocent, true conversation, where nothing has been pre-mapped out. But it just sounds so bizarre because things were working, and then they didn’t. So I mean, did you change the type of stocks you were trading? Did all of a sudden… I mean, did you start to adjust your stopwatch? I mean, were your stop-losses truly always in the same spot that they had always been. I mean, I don’t know. So nothing changed at all. It’s just one day you just started getting stopped out all the time.
Mico: Yeah. Yeah. I mean, the only thing that would change from day to day is the ticker I would trade. But it was somewhat the same style.
Clay: I’m assuming I should also know… I’m playing dumb here a little bit with Mico because Mico has been around for a while. He’s a active participant, good member of the community. So I kinda know what he’s doing generally speaking. So for admission sake, I will be playing dumb in some interview or in some parts of this. But I know you liked the micro caps. I know you liked to trade the smaller fast movers. So I’m assuming that yeah, while the tickers were different, were they always that same kind of price range, where there’s craziness going on?
Mico: Well, it actually wasn’t a micro floater that that got me. It was a Big Board ticker. But I mean, I was trading pretty much everything at the time, and now it’s definitely more focused to small caps. Occasionally, if I see a setup with large caps, I’ll take one. But I do that with smaller size and more caution.
Clay: I’m sure it will get up to present day. But I guess the moral of the story here is that something changed, whether that’d be the market or whether that be something in your psyche where you started moving stop-losses too soon to close. I guess my question to you is, if there was a death by a thousand cuts, and then all of a sudden it took one tray that just blew everything up, I would assume you probably just got sick of getting stopped out, getting stopped out death by a thousand cuts, and then you didn’t have a stop-loss on that one, and then that’s the one that finally just hit you in the face with a baseball bat?
Mico: Yeah, pretty much. I mean, it was trying to short an overextended move. I actually remember the ticker. It was WORK.
Clay: Yeah, can you share?
Mico: It was WORK, W-O-R-K.
Clay: That’s Slack, isn’t it?
Clay: Okay. For Slack chat, whatever it’s called. So I think just Slack, isn’t it? I don’t know.
Mico: Let’s see. I’m going back to the day here. Yeah. It was September 5th, a gap down, and then it just squeezed like crazy.
Clay: You just decided that you were not going to… Did you have a stop-loss in, and then you canceled it, or did you just not even put a stop-loss in from the get-go?
Mico: Let’s see. I must have had some stop ideas, and I just saw this movie was going more and more overextended.
Clay: Stop ideas. That’s a clever way [crosstalk 00:15:02]. I like that.
Mico: Next thing I know, I’m down, what is that, $2 a share? I’m looking at my account size compared to the size of the moves that just went against me, and I’m like, “Wow, I just blew up my account.”
Clay: The moral of the story there is that’s all it takes is one. So to you as listeners, and I have nothing but respect, that’s why I love Mico. I love the guests on the show. People are just candid. Hey, all it took is one, and then it… Well, I’m assuming it knocked you out of the game, which I guess is a good segue into this next part of your journey. So you literally just blew up your account. What happened next? Take it from there.
Mico: Okay. So I guess, the way people kind of define a blowup I guess is kind of different than my situation, being that… For me, it was more of like, “Well, what I have is above PDT. What I have to get above PDT, it’s not exactly my money.” So my account in my eyes is really only… Well, at that time, it was like a $2,000 account. So I started with 10 grand, and I was like, “I think the wise thing to do put this up into two pieces, just in case a blowup happens.” Right?
Mico: So I was basically trading with a $5,000 account that was just extremely leveraged. So when, WORK happened, and I got squeezed, it was about a $2,000 loss. But at that point, after the drawdown, I had pretty much bled out everything all the way down to like 2,000 bucks. So it basically took me back down below PDT. So I had to take that other five grand and refund my account. But in the whole meantime that I was in the process of transferring funds and everything, I was basically forced to take a break and totally reassess, well, I can’t go back and do what I was doing, because that’s going to end up with the same results. I need to change what I’m doing.
Clay: What broker were you using that mentioned that you were getting it sounds like some pretty crazy leverage. So what was the broker, and what leverage were you actually using?
Mico: It’s Lightspeed?
Clay: Oh, so we’ll just forward a one then, right?
Clay: Okay. I didn’t know if you… Mico is one of the guys where he will… If you need to know something about a dark nook, cranny of a broker or something like that, he’s very well diversified. So I didn’t know if you knew of some sort of setting within Lightspeed or if you had a guy you could call and be like, “Hey, put me on the black Cheetah programming,” and it gives you like 20 to one leverage, but you were just using four to one. Okay.
Mico: Yeah. Well, I mean, I’m thinking in terms of, well, my account size is actually whatever’s over the PDT. So yeah.
Clay: Yeah, no, exactly. So you are looking at… If you have a $27,000 account, you’re saying your account size is really only $2,000.
Mico: Exactly. Yeah. Yeah.
Clay: Yeah. Well, and that’s actually a good point. I’m glad you brought that up. So for listeners’ sake, which is very smart, because I do the same thing. Really, any day trader, this is how you need to look at your account, assuming you want to remain a day trader being defined as trading stocks and trading as many times as you want is you need to have at least $25,000 in your account. Now, if you were talking about forex or cryptos or futures trading, then this would not pertain because you can do that with $100 straight, as much as you want. But assuming that you want to be a stock day trader, you need the 25,000.
Clay: So the way to look at that is… Again, if you have, let’s just say $30,000 in your account, well really, you don’t have $30,000, because again, under the assumptions that you want to remain and stay a stock day trader, you need at least 25,000. So you can only lose $5,000. So I love the way Mico looked at it because that is really the way you should look at it is what you have before you’re down below 25,000, and that is actually your account size. Like you were saying Mico, you were at the 27, which meant… So that’s where the $2,000 amount comes from is he had $27,000, but he wanted to keep it at 2,000 for the day trader rule. So you mentioned that you had to put in that other, what, you said $5,000 you had to bring back in?
Mico: Yeah. Yeah.
Clay: Okay. That put you back above the $25,000 again then, right?
Clay: Okay. So what was your account size at that point in total?
Mico: Well, that’s probably around 27, 28, around there. I had 27.
Clay: So then via the Mico standard, you had right about a $3,000 account size then at that point?
Mico: Yeah. Yeah. Pretty much.
Clay: Okay. Cool. Cool. All right. So yeah. Pick it up from there then.
Mico: Okay. So at that point, it was almost basically back to paper trading, except I never got into the paper trading thing, and it was [crosstalk 00:20:37]-
Clay: Can I stop you? You almost basically got back into paper trading? Please explain what that means when you-
Mico: Okay. Okay. Well, I was trying-
Clay: Almost basically, so-
Mico: Yeah. I was trying to go into some details about that. Okay. I want to reference. It was a ClayTrader interview that I heard way back that somebody had mentioned, that they had also a similar issue when it came to paper trading, that since there’s no real money on the line, they just couldn’t get into it. So their solution was to trade really, really micro-sized positions, like 10 to 20 shares. So when I heard that, that’s how I started. I started trading on Robinhood with 10 to 20 shares. So fast forward, back to pre or post blowup, that’s basically what I did again. I mean, it wasn’t 10 to 20 shares. It was more like 50 to a hundred.
Mico: But my goal at that point was just to get consistent with trading 50 to a hundred shares. That took, let’s see, pretty much October through March. So it was like about five months, about just 50 to a hundred shares a day, and that’s what I was-
Mico: Positions. That’s what I was trading.
Clay: Okay. So practicing what? Because I’m assuming that… Were you still doing the one Kill shot, or what exactly were you… I get it, what you’re doing. But what was your style, I guess is probably the best way to ask that?
Mico: Okay. So after I blew up, I actually had reached out to another trader and had a really in-depth conversation with them about their style, and I kind of got an idea of how to use multiple support and resistance levels to scale in and eventually recycle positions to get positioned properly into catching the move that you want. So I started experimenting with using multiple support and resistance levels of scale in, and that has actually been the strategy that I have been using to this day. I’m still utilizing it, and it’s working pretty well for me.
Clay: Okay. Okay. Spoiler alert, nobody heard that. But however, it took you about five months to get… Like you said, it went from October to about March, you said, so five months there. My question would be, at what point… What made you finally say, “All right, I’m consistent”? As opposed to why not four months? Why didn’t it take you six months? I mean, what actually occurred? What were you seeing that kind of led you to the point where you made the declaration, “Hey, I feel consistent”? I asked this just because I can see a lot of people wondering, “How do I know when I’m actually consistent? Is there some sort of metric I’m supposed to be looking at? Am I supposed to have some sort of like warm and fuzzy in my stomach?” But I mean, for you, what finally occurred? Did you have goals? Did you have some sort of number? I mean, what kind of metrics were you using to define when you would actually become consistent?
Mico: Well, I mean, my first goal was just to try to keep the losses small and try to stay green every day or as many days as I can. So then I’m looking at my P&L daily, and I’m saying, “Okay. 30 bucks, 50 bucks.” Then using the same share size, I noticed that my P&L at the end of the day was actually growing bigger, but using the same share size, which meant that I was actually getting more out of the trades, and that’s what started making me think, “Okay. Maybe I can kind of bump up my share size a little bit to the next level.”
Mico: In about March, I went on a really hot streak, and I started bumping up back to my normal share size before I had blown up, which was around 300 shares, was my average share size. So I was doing 200 to 300 shares, and by the end of the streak, basically my first loss, which I think happened in April, I think it was somewhere at about 10 grand or so, and all my positions were just 200 to 300 shares.
Clay: Because it sounds like there was a scaling-in attribute hair, so I mean, what did you start to scale in at?
Mico: So at this point, I think in April, I started trying to bump up 300 to 500 shares with 300 to 600. So doing 300 and 300 as part of my scale in.
Clay: Oh, okay. So you would go up over. I thought you meant your total at the end would be… Gotcha. Gotcha.
Mico: No, no, no. That’s after the streak, where I was doing 200 to 300 shares. I was looking at where I’m at and I’m thinking, “Okay. Maybe I can probably bump it up to the next level.” Then at that point, things were kind of going sideways for about two months, between April and May.
Clay: Market-wise or sideways in terms of your results?
Mico: P&L wise. I was having some mixed results with a bigger size or the scale ends and the bigger size.
Clay: Okay. So that part makes sense unlike previously, where your style seemed to have just been working, and then all of a sudden, it turned into a slow-motion trademark. That actually makes total sense. You increase share size, and then all of a sudden, P&L just started to magically go sideways, which makes a whole lot more sense in terms of… Sounds like you weren’t quite mentally comfortable with the size you were using?
Mico: Yeah. I think that might be a part of it. Well, I mean, I guess what I want to say is kind of outside of the timeline. It’s more kind of recent. But I guess kind of looking back, there’s not really much more to say on that. After it going sideways, it kind of started getting consistent with that size again, and that’s kind of where I’m at now.
Clay: Okay. But I guess my point was, it would make sense why it started to go sideways. It wasn’t that you had done anything wrong. It was just an adjustment period, and the adjustment period was caused by the fact that you had increased share size. But to your point, it’s not like the strategy all of a sudden fell apart, and you started losing money hand over fist. It was just going sideways, which all right, going sideways, because he’s mentally adjusting to this new size, and then it just continued on from there. Is that pretty much a fair summary of how it played out then?
Mico: Yeah. Yeah. That’s pretty much where… That’s where it’s at now pretty much. So what I’m noticing with bumping up and share size, there’s kind of some execution differences I’m noticing to try to keep the risks small. So I’ve been trying to experiment with how I’m scaling in to size now, and I actually recently watched a panel of some guys that work at a prop firm, and they actually confirmed what I had had assumed would be a good, proper risk management strategy. So there’s a couple ways that I kind of break down the scalings in my head. One is kind of taking the rubber band move and having a couple scale-in levels for how overextended the move gets.
Mico: But then for all their scaling idea I have that I’ve been experimenting with, and it was working really well up a certain point, and I’ll get to that in a minute. So what I’ve been doing lately is taking a starter position and then as soon as I say on the tape that it starts to go in my favor, I’ll then add to that position. So it’s basically like the adding to a winner type scaling, and that has actually been working quite well. The one thing I’ve noticed though is sometimes I’m premature in doubling up size on the position, and the way I’ve been compensating for that is if it doesn’t immediately go and do what I want it to do, then I’ll take the ad off and just keep that starter position. That way, if the trade goes against me, I’m only taking a loss on the starter position.
Clay: How long do you give it to behave the way you want to see it behave before you would retake off the starter position? Or-
Mico: Well, that’s-
Clay: Yeah. Excuse me, before you would retake off the ad?
Mico: That’s totally where I’m doing it by feel still, just looking at price action, looking at the level, seeing how price reacts to the levels. The drawback to that strategy is that a lot of times I’m getting chopped out for paper cuts over and over and over before I catch a big move, and that kind of takes a lot out of it. What I noticed was it would kind of take a lot of mental strain from doing it that way sometimes. I guess I should probably highlight the biggest loss I’ve taken, which was this month and how it’s attributed to the strategy. At one point, I was on my best week ever.
Mico: I was on the way to cracking a five-figure week, and it was a power hour on Friday, and I just felt totally mentally drained. I mean, I didn’t tally up how many actual tickets I put in that that week. But I think two days during that week, I pushed over 200 tickets. I was trading like a hundred thousand shares in those two days. So that was a lot of trading, and that was overtrading, now that I look back at it.
Clay: What commissions are you are… I guess, who are you… Well, let’s shelf this real quick. But walk us through the broker journey, because I know you’ve been with the several different brokers. So I mean, are you still with CenterPoint right now?
Mico: No. I actually switched over to Cobra.
Clay: That’s right. Okay. Okay. I mean, I guess I hear 200 tickets. So my first question becomes, what was the commissions and fees on something like that?
Mico: So that’s based on per share, zero, three a share.
Clay: Okay. As long as you’re making money, then for the most part, you’re okay then. So it’s not like it’s totally tracking you or anything like that?
Mico: Yeah. Yeah. Pretty much.
Clay: Why did you change from CenterPoint to Cobra?
Mico: Well, the clearing firm. So CenterPoint has a bunch of clearing firms, and the clearing firm I got approved with, and I just was not liking the way that they handle their locate situation, especially when I’m in a room with some guys that are with the other clearing firm, and they’re saying that, “Oh, all these tickers are easy to borrow.”
Mico: Then for me, I’m looking at the locate screen, and I’m seeing, “Man.” So I have to pay for the locates because I’m with this clearing firm. Meanwhile, they’re easy to borrow at the other clearing firm, and they’re never cheap either. They’re always like 3 cents a share or 4 cents a share for everything. There’s nothing that’s ever a penny or 2 cents. Everything’s just super expensive. So I was just like, “You know what? I’m kind of fed up with this,” and then Cobra actually reached out to me, and they offered me a deal. So I was like, “All right, I’m moving over to Cobra.”
Mico: So far, everything’s been pretty good. I mean, a safer the past few weeks. But I think across the board, like all brokers are having some issues with the low case situation with small caps right now.
Clay: Correct me. I’m playing dumb here a little bit, but locates are… Well, let me actually take… For explanation sake, what Mico means by locates is when you short, you need to borrow shares to sell, and then you’ll buy them back later, which is called the cover. But not all shares have readily available shares that you can borrow. Basically, the riskier the stock, the less and less shares they’re going to let people borrow, well, because it’s a risky stock. So that’s what, it’s a borrow. You got to try to borrow, but in some situations, you have to actually locate shares to borrow, which is where these fees come into play because that’s the locates. So Mico the question becomes, it sounds like you are often trying to short stocks that most brokers would deem “risky”. Is that a fair summary of a big part of your strategy?
Mico: Yeah, yeah, pretty much. I mean, if you want to short small caps, you have to find a broker that is specialized to find the locates to be able to short small caps.
Clay: So that is the whole backbone of why Mico would be moving around. So yes, you can short small caps, but there is more effort that goes into it, and it is going to be costlier. So I don’t know if you mentioned. Oh well, you said you got a deal at Cobra. So-
Mico: Yeah. But I mean, lately, it’s been a whole new challenge. The challenges now try to balance between paying price gouge rates for locates and pre-market when you don’t even know if you’re going to be able to get a trade out of that ticker come they open. So that’s the new challenge.
Clay: So before that, you’d usually… Because the way it works is, and correct me if I’m wrong, but you have to pay for the shares before you even use them. Right?
Clay: Yeah. So I mean, what Mico was saying is sometimes you can pay for shares to have to short, but you may never actually short them, which means you paid a fee on something, but then you never did anything with them to try to generate a profit back, which sounds like it’s quite the challenging thing right now. So are used to finding it quite often, where you’re, like you said, paying to locate, but then you don’t even ever use the shares [crosstalk 00:37:02]?
Mico: Oh, yeah. Yeah. That happens, especially in this current market. I think it’s like a domino effect, because everybody that trades small caps already knows the locate situation. So as soon as the locates are available on whatever the ticker in play is, and lately in this market spend like two or three tickers. So as soon as the locates become available, people are jumping on them in the pre-market. By the open, they’re already gone. People are paying some crazy prices for stuff. Well, yesterday in the past week, there’s been like $2 tickers that were 14 cents a share for locates.
Clay: 14 cents a share on a $2 ticker?
Mico: Yeah, exactly.
Clay: Is this all the applying demand-based, or is the brokers always adjusting things based on, I would assume how much demand, how many people want the actual shares?
Mico: Well, that’s what they say, but it’s hard to really know.
Clay: Well, it sounds like, if everybody wants it and they’re jacking up the prices of 14 cents, I mean, man, that’s crazy.
Mico: But you know the ironic thing is though, that’s also caused this market to be extremely trappy because so many people want to short everything. So what I’ve actually been doing lately is I’ve been longing into traps, and that’s actually been working out for me lately. I mean, yesterday, I made all my money on the long side.
Clay: That would make sense if, like you were saying, you know supply and demand based off of the prices that are being charged. If the prices are super crazy, then you know that there’s a lot of people out there to short. I feel like it’s probably, and you probably have experienced with this. You pay for shares too short. So there’s got to be some sort of mental component where you’re paid for these shares. I need to short, I need to short, I need to short it. So I feel like a potential pitfall would be you start to visualize situations where you shouldn’t really be shorting, but you visualize that you want to short because, well, I mean, I already paid for this, so I kind of got to use this, or else I just totally… I mean, is that a struggle that you have to fight through when you do?
Mico: Oh, yeah. Yeah. That’s totally a challenge. I think that’s also part of a psychological trap as well. I get reminded of the day SPI ran and went parabolic. I remembered that those locates were pretty expensive.
Clay: Yeah. So you know a lot of people out there already had the shares to short. Yeah.
Mico: Yeah. It opened a what? Around $3.54. I remember in pre-market, the locates were like 14 to 19 cents a share in pre-market, and those all disappeared too. So people had already scooped them up at that price. So the people that bought those, they probably had FOMO to use those locates way before it went parabolic.
Clay: Right, and now they live under a bridge. For those of you listeners, SPI went bonkers to the upside, which you’re going, if you’re a beginner, bonkers to the upside is not good if you are short, because when you are sure to stock, you want to see it go down and that’s how you make money. When prices go up, not a good situation. I mean, were you… I’m trying to think. What was it? KODK, SPI. What was it? KXIN were a recent one. I mean, were you shorting any of those? Did you ever have… Maybe the better way to answer this is, have you ever had one of these really backfire against you? Because at the surface, sounds good. These micro caps are garbage. They go down, which, I mean, the vast majority of the time, yeah, they are garbage. They’re pumping dumps. One hit wonders, and they do go down a lot.
Clay: But all it takes is an SPI or a KIXN or a KODK or a PLRY from a couple of years ago. It can really change the outcome of an entire strategy. I mean, have you ever been part of one of those? Or maybe we can circle back to that big loss you took. Is that what happened in that situation?
Mico: Well, work was an entirely different scenario?
Clay: No. Didn’t you say you had a big loss a couple of weeks ago on a Friday when you were mentioning worn down?
Mico: Oh, yeah. Yeah. Actually, that was on VVPR.
Clay: Oh, okay. That was another bonkers one.
Mico: Yeah. But it actually wasn’t the big moves that I got wrecked on. I actually got wrecked on the consolidation at the very end of the day. At that point, I was mentally spent, and I went into this hole where I was just trading on tilt, and I just kept bumping up my size, bumping up my size. Next thing I know, I’m in 5,000 shares of VVPR, and I’m just kind of trying to chase either direction for a big move for some reason, and then I’m just stopping out for like 50 cents over and over. Next thing I know, boom, I was up two grand on the name. Then I look at my P&L, and I’m down 6,500 on the day. I’m like, “Holy shit. What happened there?”
Clay: Oh, you just explain what happened there. That was a whole lot of revenge trading and trying to get things back and-
Mico: Yeah. I just slipped into this psychological blinders on, this whole, and it was like full gamble mode, and it was like, “Wow, I can’t believe that.” That happened so quickly. I was speechless, because I went from possibly being up 10 grand on the week to all of a sudden, I’m only up 900 on the week. I’m like, “Oh man, I can’t believe I just did that.”
Clay: Well, I want to commend you, because this is nothing but respect. I totally knew about all that because Mico flat out came to the chat room and just set… I mean, he told people about it. That’s why social media, you got to be very careful because it’s easy for people to… When you have the SPIs and the VVPRs and all these things, I go bonkers to the upside, oh, yeah. It seems as though everybody’s making money on those things, but you rarely see the case where people actually fess up and talk about losses. Mico, he didn’t hide anything. He came and told everybody, which is nothing but respect there because we’ve all been there as traders, where human mind is a crazy, crazy place, and to his description, all of a sudden, you do look down.
Clay: It’s almost like somebody possesses you all of a sudden, and it’s almost like an autobody experience or something. But I’m glad that you still were green on the week after what seemed to be… It sounds like things went haywire against you.
Mico: Yeah. Yeah. So there’s one important piece that I want to also add to this loss and how it ended up like that. It was just kind of day to day. I was just starting to grind out some pretty big wins, at least big wins for me. I logged my P&L on a website where I can look at the progress and see the P&L chart, the P&L curve. I’m like, “Man, I’m doing pretty good. My P&L is starting to kind of go parabolic, which is great.” Then I’m like, “That might not be such a great thing because I’m also bumping up size in an exponential fashion as well, probably quicker than what I’m able to psychologically handle.
Mico: I think that’s when things started to kind of slowly fall apart was I was going from trading with 500 to a thousand share positions, and then within like a week’s time. So I went from 300 to 500 to 500 to a thousand in the course of a couple months, right? To get acclimated to the bump up in size. But then I went from a 500 to a thousand shares size positions to all of a sudden 1,000 to 2,000 in the course of two weeks or a week. So all of a sudden, my P&L started getting really big because I’m trading double the size that I just was. I don’t think I was ready to psychologically deal with all of the other mental aspects that come with that.
Clay: That’s a fantastic story, nothing new. I would say, and this is why trading is so challenging is because think about it, Mico did what a rational person would do. He did the logical thing. I am having success. I know how to use the calculator. If I bump up my size, those numbers get bigger, and why would I not do that? Because I’m having success. So let’s increase shares size. There’s nothing illogical about that at all. But then you factor in the realities of the human brain, like Mico said, and psychologically, there’s spreadsheet math, and then there’s trading math. Trading math has a lot of voices that come with it, and it’s hard to explain unless you kind of get out there and do it.
Clay: But that’s why trading is so hard is because the rational, the logical thing to do is the exact opposite thing that you should actually be doing. In Mico’s case, like you said, he got way too far to out of himself, too quickly. So I think Mico and I, we would both echo the same thing. If you want to increase… I’ll ask you, Mico. What is your thought on this? If a trader, really, and I won’t even say a beginner. I would say a trader at any level, if they say, “Yeah, I want to increase share size,” what is your opinion? What is your thought on delay it by one month and then do it? Do you think there’d be any… Do you think that would be a good way to approach it? My theory being what you said is usually the first time you want to increase share size, you’re probably not quite ready. So let’s just prove it to yourself one more month from that point forward. What do you think about doing something like that?
Mico: I mean, I’d have a hard time putting a time, date, or time restriction on that, because I think it’s going to differ from trader to trader. I mean, for me, it took a long time to size up from 50 to 100 shares to 200 to 300 shares. Then it took a longer time to go from 200 to 300 to 300 to 500.
Clay: But I mean, would you agree with… Usually, the first time the voice in your head tell you, “Hey, it’s time to size up.” It’s probably not actually the right time to size up. Would you agree with that?
Mico: The first time, probably not.
Clay: Exactly. So my point is the first time where you get, you’re like, “Oh wow, I’m on a streak. Yeah. All right. Yeah. It’s time to size up. Don’t do it.” I do agree, is it a month? I don’t know if it’s a month. But my core point here is just don’t listen to that voice the first time it shows up. Prove it to yourself a little bit more, whether that be another couple of weeks or a month, maybe even longer than that. I think most traders would say yeah. The first time, the bump-up, the position size, voice shows up, don’t listen to it because you’re not ready. I don’t care how great of a streak you’re on. I don’t care how fantastic you’re feeling. The first time that shows up, don’t listen to it because odds are…
Clay: We hear this. I’ve done it myself many times, even the podcast. I don’t even know what episode this is. 200-something. We’re approaching 300 episodes. Heard it over and over again, position size is something that always just eats people. So I would assume that, as of now, have you dialed back your position size then?
Mico: Yeah. Yeah. I’ve dialed back from 1,000 to 2,000 back down to 500 to 1,000. That seems to be, I guess, my comfort level right now. That seems to be working pretty well.
Clay: After that big loss, did you immediately dial back the position size after that big loss?
Mico: No. No. I still went at it for a couple of days. But then I had another big loss after that. It wasn’t as big, but it was still a considerable loss. It was last week. So I ended up… Was it gross green and then net red after commissions and fees on the week? That was kind of one of those weeks. So that was pretty much how big that loss was in context of things.
Clay: Then after that is when-
Mico: No. It was after that was like, “Okay. I need to go back to the size I was comfortably trading with.”
Clay: It looked like today, you had a good solid day if I remember right. Is that accurate?
Mico: Today was definitely not a solid day.
Clay: You were green, though, weren’t you?
Mico: Yeah. I mean, I actually finally caught a move on WEI. I caught that long in after hours. I was actually long way earlier than that, and I had gotten shaken out. I stopped out, and I was like, “Man, I don’t even know what’s going on with this thing.” Then it was like five minutes before the close. It starts rallying and breaking out. I’m like, “Oh, okay. They’re going to run this thing in after hours.” So that one trade is what made my day, though. I had originally gotten all chopped up in CBLI. I was looking at a pretty decent or pretty bad red day.
Clay: Well, you had mentioned you started off down 1,400, I think I saw in the chat room?
Mico: Yeah. Yeah. Yeah. I was down about 1,400. But then I had put on a short position on the lower high bounce on CBLI, and I rode that all the way down for almost a buck a share. So that recovered the majority of those losses, and then I caught a few little parabolic spikes and some other little trades here and there. Then WEI came, and that basically made my day. So it’s kind of like just like one blow up trade can ruin your day, all it can take is one big move. I caught like $2 a share on the second half of my position in WEI. I mean, I didn’t, I had no idea that thing was going to run at 10 bucks, but-
Clay: How much it ended up going was $10?
Clay: In after hours? Last, it was like seven something. Wow.
Mico: Yeah. That’s where I locked it in. It was getting close to seven bucks. I had 485 entry. I was like, “I’m up almost $2 a share. I’m locking it in.”
Clay: Oh, yeah. But to your point, which you’re absolutely right, it’s all about losing in the sense of Mico took some losses, but he didn’t go until. He didn’t lose his mind. He didn’t get possessed or anything like that, though. But he kept it controlled. He just thinks sometimes that’s how stocks are or not necessarily stocks, but anything you’re trading. It’s just you’re going to have days where things just don’t behave the way you think they should and they will. But as long as you just take the losses and then all it takes is one, to Mico’s point where, “Hey, back to the green.”
Clay: Well, I kind of sidetracked myself. So after the second bigger loss, you dialed back the position size. I mean, how have things been going since then? Have you kind of… Do you feel a little bit more at ease? Are your results telling you that maybe you’re back on that previous trajectory that you were on before you really started to ratchet up all that size?
Mico: Yeah. Yeah. Actually, if you look at my P&L chart, there’s like a solid trend line that the parabolic spike kind of started to deviate away from the trend line. Then it actually pulled back to the trend line of the pace that I’m at, so-
Clay: So I mean, it sounds like the… I mean, which is… It’s a good thing to know what the problem actually is, and it sounds like it’s more than safe to come to the conclusion that, yeah, it wasn’t your style. It wasn’t the strategy. It was just strictly a money management issue via the form of a position size. I mean, it was a position size problem, from what you’re discussing. If everything, all of a sudden, you dial back to your original position size and hey, look, everything’s trending the way it should be again.
Mico: Yeah. Yeah. Pretty much. Because I think what also happens too is the problem with doubling upsize so big is if one trade that double size goes against you, well, you’re still stuck at that double size to try to kind of make it back in a sense, you know? So-
Clay: Exactly. Yeah. Everything’s got to stay proportional to each other, or else things the math can get wonky in a hurry there.
Mico: Yeah. So I also noticed that I was… To compensate for that, I’m looking at this big red loss, all of a sudden, and I’m like, “Man, I have…” Then the tendency to Martingale, the position or your next trade happens, and then that’s all of a sudden where the blowups start to come, and it’s like, “Oh man, I need to put on a 4,000 or 5,000 share position just to make up for that losing trade.” Then all of a sudden, things spiral out of control real quick.
Clay: Yeah. Exactly. Even though things could be totally from a technical point of view or from a trade thesis point of view, everything may be sound. There are no guarantees in the market. So I mean, when you leverage up that much more, than it all it takes is one little hiccup. Then yeah. Like Mico’s describing and like I think most traders that have been there, all of a sudden, it’s like somebody flushes the toilet bowl, and the problem is you’re in the toilet bowl when it was flushed, and it’s not a good outcome, but yeah. At least you’ve identified the problem, and at least, you… You kind of over this little stumbling block, it’s good to hear that it didn’t totally wipe away.
Clay: I mean, yeah. Nobody wants to have most of their week gone or have a red week, but that’s much better than having an entire account being gone or having an entire month being wiped away or something crazy like that. So I mean, it sounds like you’re learning… not necessarily learning, because I know you know better, but it sounds like you’re having some reminders offered up to you at a relatively cheap price compared to what the market could do to some people.
Mico: Oh, yeah. But I mean, at this point in the game, I take every red day as like paying into market tuition. There’s always a lesson to learn with that red day.
Clay: Okay. Is there a lesson to learn, or is it a lesson just a reminder of, there are no guarantees in the market, sometimes things are just random?
Mico: Well, I think there’s always something to glean from it, either psychologically or something. I mean, I don’t know what it comes down to 10 years into trading or what. At that point, maybe it’s just completely robotic and down to how the setups play out and whatnot. But at least where I’m at right now, there’s still a lot of psychological lessons that come [crosstalk 00:57:33]-
Clay: I would offer you up encouragement, because you know what you’re doing. Sometimes there may be nothing to learn. Maybe it’s just, you know what, it met my criteria, and it just didn’t work out. I mean, I get it in hindsight, you can go back with hindsight and be like, “Oh well, this was wrong because I could have entered there.” Well, yeah. But at the time, you had no idea how exactly everything was going to play out. So I mean, I do understand in hindsight, it can always appear that there’s a lesson to be learned. But I mean, that’s hindsight. Sometimes you just got to be like, “Hey, I know what I’m doing. It just didn’t quite work out, and it is what it is.” I don’t know. I’m not saying this will happen to you, but what I see all the time is people actually do know what they’re doing.
Clay: They actually have a strategy that works, but then they subscribe to the philosophy of, “Oh, I took a loss. Therefore, there’s something to learn.” And then they go and start imagining a bunch of things, and they start tweaking their strategy, and all of a sudden, now they actually are taking bad losses because they tweak things that didn’t need to be tweaked because at the end of the day, just remember the markets are random, and our job is just to manage your risk and make as educated of a guest as possible.
Clay: So I don’t want to see any listener… Now, to be fair, if you’re a beginner and you’re taking losses, odds are… I’ll go out into the wind learns at about 99.9% of the time. There is a lesson to learn. So if you’re brand new, don’t be like, “Oh well, some guy in a podcast said that.” Just because you lose, I mean, there might be not anything to learn. Well, no. If you’re brand new there, I’m guaranteeing there’s probably things to be learned. But there does reach a point where I feel you are at Mico, where it’s like, you have an understanding of the market. You know how to trade. You have a strategy.
Clay: So sometimes don’t over-complicate and think, “Oh man, there’s something I need to learn.” No, it just didn’t work out. So there’s my little soap box speech there, but that’s always an interesting talking topic there. But where are we at? Wow. Are you going to be at the webinar tonight?
Clay: Okay. Okay. Just if I start to cut you off, which I’m kind of doing here, and we’re almost at an hour. Where did the time go? But was there anything else, any talking points or anything that you wanted to bring about just… Mico, you’re we’re well known in the community. You’re in there quite a bit. I mean, is there anything else that you wanted to off the top of your head or maybe you gave this some deep thought reflection that you wanted to bring out before we wrap things up?
Mico: Yeah. I mean, I think that we pretty much touched into most of it. I mean, where I’m at now is basically just trying to pace myself with position size.
Clay: I like the way you split. Yeah. Yup.
Mico: Just trying to put on solid trades day in, day out. Now that things are starting to get a little bit more consistent in terms of gains at the end of the day, it’s definitely starting to take a lot of the pressure off of this whole trading career idea, and it’s becoming more of a reality, which is a good thing.
Clay: Exactly. But my favorite part was on it. Hopefully, as a learning lesson, the one thing is when he had to reboot, he had to just start with that small, small position size. He was at that for five months. That’s not easy to do. That takes discipline. That takes very deep understanding of just how bad things can get if you don’t show the market respect. Because yeah. If you’re using 50 shares, you’re not going to see huge, huge gains, especially if you’re cruising around on Instagram and social media. You’re going to be like, “I mean, what? 50 shares?” The temptation is going to be so real for you to want to increase way faster than what you should. But just realize that if you’ve been at it for a few weeks or a couple of months, Mico did it for five months. So there’s nothing wrong with that.
Clay: In fact, I would argue, and Mico was a little data point here that yeah, you know what, take your time. Truly get comfortable and consistent, and then you can worry about it. There’s nothing wrong. You’re not supposed to be able to start to scale up and ramp up your position size within a week, two weeks or a month. I mean, Mico was at it for five months. I mean, would you agree, Mico? It sounds to me like that was kind of the backbone, the true foundation to where that offer up was kind of this launch pad for where you’re at right now, doing very well. I mean, would you agree that it was just five months of discipline to just stick with it and not increase position size?
Mico: Definitely. Actually, when I have some newer traders reach out to me, and they ask me some things, that’s what I tell them is just to get consistent with small buys. I believe that’s the very first step that everybody needs [inaudible 01:02:16]-
Clay: Still there.
Clay: Yep. I think you might’ve cut off. Can you hear me?
Mico: Yeah. [crosstalk 01:02:28]-
Clay: It sounds like you were saying that when a new trader reaches out to you, you just tell them, “Get consistent with small size.”
Mico: Yeah. Pretty much. It could a lot longer than what they think it’s going to take. I mean, it started off full time and-
Clay: Still there. Oh, Mico, are you still there? Mico, Mico. Well, we were at the very end. So if he pops back up, I’ll bring him back in. But at this point, I think we’ll call it good. Technical difficulties to end. I’m not sure where he went. I don’t know if he had internet problems or something, but-
Clay: Hey, you’re back.
Mico: Yeah. My internet disconnected.
Clay: Okay. All right. Well, we still got… So to your point, again, you were just saying-
Mico: Oh, yeah. I was like-
Clay: … it’s going to small size get consistent, and it’s going to take longer than you think it’s going to take.
Mico: Yeah. So I went full time in December of 2018. Right? I’ve been trading and get knowledgeable in trading for two years before that. Right? It wasn’t until three years and eight months before I actually was able to pay myself for the very first time. That’s basically one year and eight months of full-time trading before I was able to grow my account to a level to where I’m like, “Okay. Now I can actually make my first paycheck in quotations to myself.” So-
Clay: That should be motivating to people? I mean, if trading was gambling, then what Mico just said is not possible. But the kicker being it is possible, but not happening overnight. It’s not happening next week. It’s not happening next month. How long will it take? Nobody knows that. But any trader is going to tell you it’s not going to happen in three months because you buy somebody else’s strategy, and they’re going to teach you how they trade. If only it were that easy, you got to figure out what works for your personal risk tolerance. But it is possible, and that’s what I find very, very motivating. It just doesn’t quite happen as fast as what others may lead you to believe.
Clay: Well, that was a nice end point there. Did you have any other nuggets of wisdom there? Because that was fantastic. Are you going to be able to sleep tonight?
Mico: Yeah. I should be able to sleep tonight.
Clay: I just don’t want you to wake up in the middle of the night in a cold sweat saying, “Oh, I wanted to mention this.” So I want to give you a good peaceful night sleep.
Mico: Yeah. I think it’s all good. I mean, I don’t have any positions overnight. So I’ll sleep pretty well.
Clay: All right. Well, excellent. I’m just looking out for you. But in all seriousness, Mico, thank you very much. I appreciate you. Again, I started off and I’ll end saying literally, like I was telling you, as listeners talk to Mico in the chat room actually late yesterday, too, so yesterday evening and then boom, essentially less than 24 hours later, here he is doing the interview. So only every guest were this easy to get on. The backend logistics of all this would be so much easier. So I really do thank you for that quick turnaround, and yeah. Well, I don’t know how you slipped through the cracks, but you’re going to have to come back again sooner than just a year. So can we agree that we’ll try to get you back before it becomes over basically a year and a half?
Mico: Well, I mean, yeah. We’ll see.
Clay: I guess I can live with that. You don’t want to make a comment if you’re never quite sure. But it’ll be my goal. You’ll be hearing from me again. But yeah. Just keep it up, man. It sounds like you’re killing it. Doing very well. Pace your position size. I liked the way that you said that. That sounds like it’s the current big thing for you. But thank you very much, Mico.
Mico: Cool. Yeah, for sure.
Clay: All right. For you listeners, before you go, final few things. First off, if you’re listening at claytrader.com, then on the bottom right hand corner, there’s a live chat box. So be sure to reach out to us through there. If you’re listening on iTunes or any other podcast players, then be sure to ideally, hopefully if you’ll enjoy this, leave us a rating, and better yet on iTunes, if you can leave us a written review, that really goes a long way, and I’d really appreciate it. So just the little things like that can go a long way and just communicating to us that, “Yeah. Please keep making these episodes. I’m finding them beneficial.” That just helps us to know that this is all still worth our time. So thank you to you as listeners. Thank you to Mico. We will see you all back next week.
Announcer: This has been The Stock Trading Reality Podcast. Thanks for taking the time to hang out. To learn more about Clay and the ClayTrader Community, including the trading team, premium training, and more visit claytrader.com.