329 · Peter Brandt - How a 50-Year Veteran Thinks About Risk Management

[00:00:00] This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required, compatibility and availability varies 18+.

[00:00:25] Trading in the financial markets involves a risk of loss. Podcast episodes and other content produced by Chat With Traders are for informational or educational purposes only and do not constitute trading or investment recommendations or advice. I do not use indicators, Kevin. I don't believe in indicators. Indicators are just simply a derivative of price. Why study an indicator when I can study price directly? But I do use ADX because it shows me compression.

[00:00:51] My assumption on every trade I do, Kevin, is it's going to be a loser. I do not assume that my next trade is going to win money. I assume it's going to lose money because that puts me in a frame of reference where I want to be a risk manager and not a bragger. What I tell people, Kevin, that say, I want to be a full-time trader, I would say to them, you got to make sure you have a day job. Don't just quit what you're doing and assume you're going to do 3x on whatever money you have the first year in the rest of your life. You better have a day job.

[00:01:19] And if you're going to quit your day job and trade, there are a few things that I think people should have. The first thing they should have is a trading account which represents profits they've already made. Why would somebody quit their day job and become a trader when they haven't proven in themselves they're profitable?

[00:01:35] The only way you prove that is you open an account of at least $100,000 with profits you've already made. And then I would say you need another $100,000 to pay your family's expense. In the bank, that money is not for trading. It's set aside to meet expenses.

[00:01:51] I have a bullish scenario and a bearish scenario for any market at any given time. And what pushes me to one or the other is price action. It will direct me into a narrative. But I don't want to hold on to that narrative. I want to let that narrative go very quickly if price turns. And so that's strong opinions. When I'm in a trade, I want to have strong opinions because with strong opinions, that allows me to have a big enough position that it matters. But I also want to have that opinion weekly held.

[00:02:20] And the thing that the old guys, keep in mind when I joined the Board of Trade, there were guys in the pit that were World War II veterans. They fought on Omaha Beach. These guys knew what it was like to be in battle conditions. And they would just drill into us young guys, cut your losses short, but have some way where you can allow a winning trade to grow.

[00:02:41] And the only way you can do it statistically, the only way probability theory works is if losses get cut quick and you have some provision to avoid the temptation of taking the first profit that comes along. And most novice traders think that trade identification is where it's all about. I contribute of my niche. I think trade identification represents about 5%.

[00:03:05] You really want to know who you are as a person deep down inside. Be honest with yourself and become a trader because a person will find out the good, bad, and the really ugly. And the really ugly attempts to sabotage us from success. I just make a really important point here again to repeat, Kevin. There is no real distinct edge to a chart themselves. Charts do not predict where markets are going to go.

[00:03:30] I cannot look at a chart and do a price forecast based on a chart. All a chart does is show me where I can enter a trade with a defined risk and a likelihood, some likelihood that a market will follow through. That's how a chart is for me. It's just a tool. The chart is not the answer. The chart is just a tool I use. It's a tool to which I apply risk management. My edge comes from risk management and emotional management and process.

[00:03:58] Markets, speculation, and risk. This is the Chat with Traders podcast. Traders, welcome back to another episode of Chat with Traders. Today's guest is Peter Brandt. Now, he first joined Chat with Traders back on episode 36 with Aaron Fifield. Since then, he's become one of the most recognizable traders in the world. He was featured in Jack Schwager's Unknown Market Wizards. He has authored multiple books on speculation, classical charting.

[00:04:27] He built the Factor Trading Company. And today, his market commentary and chart work are followed by millions of people. He has amassed over a million people on X. He's read by traders around the globe. Peter's journey is very fascinating because it's one of longevity. He's been in this space for over 50 years. He entered the commodity business in the 1970s, traded through everything, inflationary booms, crashes, wars, technological revolutions, the transition from open outcry pits to electronic

[00:04:57] markets. And he's remained a student, a student of speculation through it all. So I'm excited really to dive into his past, his journey, and where it's led him to today. Peter, thank you so much for joining Chat with Traders. I enjoy it. Thanks for inviting me, Kevin. I've been on Chat with Traders twice before with Aaron, I believe. And you've got a great audience. You've got a great brand. And congratulations for now being the voice of Chat with Traders. I think you serve a very important role within the market speculation community.

[00:05:27] Hey, thank you so much. You know, I watched that episode 10 years ago. So what's transpired 10 years ago, 50 years ago? Tell us a little bit about your journey. I mean, you started in the 1970s, right? This is 50 years and still just as passionate as ever. You know, it's crazy. I was a trader. Gold was not a tradable commodity in the United States until 1972, 1973. So, you know, I started trading right at the beginning of trading gold.

[00:05:54] I started trading when we started trading currency futures back at the international monetary market, which was part of the CME. You know, I have been through every bull market in soybeans and corn since 1970. And sometimes I have to pinch myself and kind of go, really? I've made a living. I've built a net worth as a commodity trader. I mean, how crazy is that? Unbelievable.

[00:06:21] And, you know, part of, you know, in reading your work, especially the diary of a professional commodity trader, you mentioned that you wanted a career out of this. You were not necessarily looking just to get rich quick. I mean, you've made a career out of it. Do you pinch yourself looking back at that? Yeah, you know, that's right. And I guess that's why I have a hard time, I think, connecting with a lot of newbie, inspiring traders who just look at it as a way to, you know, turn 10 grand into a million in a year, which is highly unlikely we'll probably get into that.

[00:06:50] But, you know, I was in the advertising business back in 1974. My brother was involved in silver coins because this was prior to the time that silver futures became actively trading. And he asked me if I wanted to get involved with him in buying these bags of pre-1970 silver quarters.

[00:07:11] And I said yes, because back then the content of silver quarter, it's prior to the Brent Woods deal with Nixon, well, pretty much pure silver. And that's the way people speculated with silver back then as they buy these coins and bags. And I did so and I made some money and it sparked my interest. But I was in a career in advertising. I was kind of a young, fast starter in a big advertising agency in Chicago. That was my major in college.

[00:07:41] And we moved from Minnesota to big town Chicago to work for what today is the largest advertising agency in the world. And my little son played hockey, which was my sport, high school and college and growing up. And he had another kid who played with him, whose father was a soybean trader at the board of trade. And so I'd stand next to him or sit in the stands and we'd chat watching our kids playing hockey, little kids playing peewee hockey. And he told me what he did. And it fascinated me.

[00:08:10] And he said, Peter, come on down and I'll buy you lunch on the fifth floor of Chicago Board of Trade. Remember his dining room overlooking the floor. And I went down there and I was like, seriously? People make their money doing this. They don't have to go to meetings. They don't write memos. They work from 9.30 in the morning to 1.15 and their day is done. Then they go golfing. It's kind of a cool gig.

[00:08:37] And so I went home and I started hustling and found out how in the world do I get in this business. I landed really a beginner's job, entry-level job, because as speculators, that's the only thing you have. Everybody, even today, you have entry-level jobs. Nobody starts with an MBA fast track.

[00:08:59] And I gained a position at the time with one of the world's largest commodity merchants, Continental Grain Company. And I got my start in 1975 with Continental Grain. And my job was to bring in customers at first. You want to be in this business. You have to bring in customers. You have to bring in customers. And I'd get paid something like a tenth of a cent per bushel of grain that I'd bring in for futures trading. And I brought in some massive customers.

[00:09:29] But even back then, Kevin, my goal was to really have a career. I was thinking in terms of career that this is something I could do. If I could learn how to trade, this would be a fun thing to do for the rest of my life. And so that was really my initial goal was to learn enough about trading so that it could be a job. I could create a job out of it. Now, obviously, making the money was part of it. And I knew that guys that were on the board of trades were making massive amounts of money.

[00:09:59] But that was not my thinking at the time. My thinking was I could be a trader for a living. That could be my career. How cool would that be? And you've sustained it. Do you think that is, again, a problem with some of the newer traders? They want to dive in just headfirst and maybe allocate nearly their entire portfolio to one, two trades and just get rich quick? Oh, yeah. I mean, there's no question about it.

[00:10:22] If I think through, let's say, a list of the top reasons why people who decide they're going to trade, and it could be futures. It could be Forex. It could be crypto. It could be equities. I mean, you name the asset class. But they're thinking in terms of the get rich stories. And there are plenty of those out there. I mean, most of them are phony, by the way. Most of the get rich stories that you see on X or YouTube are bogus. But the ones that Jack writes about in Market Wizards, they're for real stories. They're documented.

[00:10:52] Jack asked for a lot of proof. But, yeah, I mean, they go in and they, you know, it took me five years to become profitable. You know, I would make money as customers, man. I had some massive customers that were doing million bushels of corn and grain at a time. And so, you know, I was actually doing pretty well as a customer. It's guy.

[00:11:16] You know, this is back 1977, 1978, you know, where I was making $150,000 a year handling brokerage business, which was not a bad living back then. That was a lot of money back then. But my idea was I need to learn to trade first. And that takes a while. I mean, people come in and they hop in and they think they're going to be brilliant traders.

[00:11:39] If you go through, Jack, by the way, has interviewed and included, I don't know, somewhere under 100 traders in his Market Wizards series, Kevin. And I think you just assume that they basically represent, I don't know, maybe half of the best traders in the world. I mean, his under 100 traders are among the best traders in the world. And you read through those stories.

[00:12:02] And I asked Jack once how many people for Market Wizards hit the ground running, made big buku bucks first year, second year, and were off and flying. And I think Jack said maybe there were two or three of the whole group that made a lot of money their first year and never looked back.

[00:12:21] But the common story was it took people a lot of time of solving problems, working through the process, figuring out how they trade, what they trade, when they trade, what size they trade, what orders they use. That you typically it's three to five years. And that's just to get a cent. That's to pick up the smell and follow the trail.

[00:12:43] And then, you know, but at least in three to five years, maybe you break even, start making a little bit of money and not lose it automatically. So it's that discovery period. I like what Dr. Brett Steenbarger says. He says to survive your learning curve. And that sounds like, you know, what you did in the majority of even the Wizards do is they have to survive that learning curve, which took you. I mean, you started, you said early to mid 1970s. And then you had profitability.

[00:13:13] Was it 1980? And then a month or year 1981? Is that accurate? No, I would say, you know, my first trade, 74. You know, I entered the business full time in 75. I get a ticket. I get a badge to the floor in 76. Keep trying different ways. Now I try to trading with point figure charts, with cycles, with spreads, with, you know, with a number of different ways. But I started following charts in 78.

[00:13:41] 1978, a friend bought me the Edwards and McGee 5th edition. I still have it. It's just, it's thread worn. And the pages are brown. It's all beat up. But, you know, it was that point at which I discovered classical charting was 78. So 78, I start looking at charts. I start following charts. Now these are futures markets. Back then, there were only 20 markets maybe that we could trade. That was it.

[00:14:08] And so I would chart these 20 commodity markets. And, you know, I started getting the sense that I can do it with charting. And charting made sense to me. You know, I'd look at a chart. It would tell me where price has been. It would tell me path of least resistance. It would point out levels, price levels at which thrusts could take place. It would give me an idea where market could go. It would give me a risk point.

[00:14:38] Those were all key things for me. Those were components, a combination of components I had not had in any other way to trade. And so I would say by mid-78, I started gaining a little traction. My first profitable year or half year, I would say, was the last half of 79, where I felt like I think I got it. I think it still needs work. But I think I have found the way that I want to trade.

[00:15:07] So that was five years after I placed my first trade. And then, you know, my first full profitable year was 80. And then, you know, I guess it went from there. And so you have to learn a lot of lessons. And, you know, you have to eat a lot of humble pie. And you learn by mistakes. What allowed you to stay in the game for those five years where you were learning through those losses? You know, I was really lucky.

[00:15:35] I look at these guys today, Kevin, they inherit, let's say, $50,000 from their mom. Or they take a loan and they say, okay, I'm going to do 200% a year for the rest of my life. And trading on a laptop in their mom's basement. And I go, really? Is that true?

[00:15:58] Now, I had a big advantage in that I had massive customers that were trading massive amounts of commodities. So I was collecting brokerage commission on these customers. And so that allowed me to lose money in an account and refund it. And it allowed me to support my family. It allowed me to buy a home. In 1979 was my first home. You know, back then, you know, I'm still a kid.

[00:16:28] I'm still a kid in my 20s. And so I had that advantage. And so I think it's really important for somebody who says, I want to be a full-time trader. What I tell people, Kevin, that say, I want to be a full-time trader, I would say to them, you've got to make sure you have a day job. Don't just quit what you're doing and assume you're going to do 3x on whatever money you have the first year and the rest of your life.

[00:16:57] You better have a day job. And if you're going to quit your day job and trade, there are a few things that I think people should have. I think the first thing they should have is a trading account, which represents profits they've already made. Why would somebody quit their day job and become a trader when they haven't proven in themselves they're profitable? And the only way you prove that is you open an account of at least $100,000 with profits you've already made.

[00:17:25] And then I would say you need another $100,000 to pay your family's expense in the bank. That money is not for trading. It's set aside to meet expenses. I mean, people that think they're going to open an account for $10,000 and make $100,000 a year the rest of their life, that's foolhardy. I mean, good luck. Good luck. I just hope you trade my markets because, you know, we need fresh meat in the game always.

[00:17:48] But, yeah, I think a trader should have at least $100,000 in an account that represents previous profits and another $100,000 that's set aside to meet family expenses. That's not part of the trading account. It's in a bank account. It's designated for food and rent and life insurance and child care and the rest of it. So, hey, people out there, your audience can believe me or not believe me. It's up to them.

[00:18:17] I'm just expressing my opinion, but I think my opinion would be backed up by the vast majority of people who are currently members of the Market Wizards Club. Well, you certainly back it up as well because, if I remember correctly, when you were starting out in the 70s, you actually – what gave you additional conviction to take that leap is you had kind of a backup job that you could fall back on in marketing and advertising if all went wrong.

[00:18:45] Yeah, that's a funny – Kevin, when I quit advertising to go to the Board of Trade, I worked at the time the agency was Needham to bring stairs. It's now Omnicom, a massive public layoff company. I went into the office of Dick Needham, and I said, I'm going to quit. I'm going to go to a member of the Board of Trade. If I blow out, will you hire me back in a year for a 30% raise? And Dick Needham said, yeah, of course we will.

[00:19:13] And it gave me the freedom to fly, right? Yeah, yeah. And then I was able to bring in customers, and so I didn't have that thread of having to make money in the – that's a dangerous thing, to have to make money in your trading so that you can live on it. That is not something I recommend to people. You know, when I was reading your chapter in the Unknown Market Wizards, which is great, by the way, you had referenced the job you had, which – the largest advertising agency in the country, I believe, today.

[00:19:43] And you did a piece for McDonald's that I researched, and that song's been stuck in my head the last few days, the Grab a Bucket and Mop. It was incredible, by the way. So you would have had a great successful career there, I imagine, as well. Yeah, a little side story on Grab your Bucket and Mop.

[00:19:57] It was written by an advertising copywriter by the name of John Hughes, who went on to be a movie writer for such movies as Left Behind and became a very famous movie producer and since his deceased. So that's an interesting sidelight on that. Yeah. Yeah. So in that chapter, by the way, Unknown Market Wizards, Jack titles it Strong Opinions Weakly Held.

[00:20:27] Why did he title it that? You know, what's the significance of that? You know, again, if I were to kind of list top 10, top 12, top 20 things retail wannabe aspiring traders do wrong, one of them is they embrace narratives. They get hung up on narratives, whatever that narrative may be. It's the AI narrative. It's interest rate narrative. You know, it's so interest rates go up. What does that mean to crude oil?

[00:20:55] They adopt these macro narratives that gives them bias. And I don't want narratives. I am a Bayesian. For those people who might be interested, they might want to Google what it means to be into Bayesian probability. At any given time, Kevin, I have, for instance, in the case of corn, I have played out in my mind a bullish scenario and a bearish scenario. I have a bullish scenario and a bearish scenario for any market at any given time.

[00:21:23] And what pushes me to one or the other is price action. It will direct me into a narrative. But I don't want to hold on to that narrative. I want to let that narrative go very quickly if price turns. And so that's strong opinions. When I'm in a trade, I want to have strong opinions because with strong opinions, that allows me to have a big enough position that it matters.

[00:21:50] But I also want to have that opinion weekly held so that I could be – and that's where I get grief on Twitter is I may be constructive on Bitcoin last month and now I'm not constructive this month. And, you know, people don't understand that. People on Twitter cannot comprehend that a trader could hold binary opinions of a market at any given time.

[00:22:17] That just escapes their ability to comprehend. But I want to be basically agnostic about markets. I will have opinions, but I can drop them in a day. I love that. And you know also kind of – you say that, but really your data points to that as well because looking at the last 12 years of, for instance, your win rate, you're at a 54%. Is that correct? Over the last 12 years?

[00:22:46] Yeah, I'm under 50 this year. This year has been, you know, been a gruesome year. My kids have been choppy. But I would – you know, Kevin, the people that they're chasing after 80% win rates, they're in dream world. That's God. You know, most professional traders who do this for a career would say they're somewhere 50% plus or minus 6% or 7%. I mean, they're somewhere in the 40s or somewhere in the 50s. Very few would be much higher than that.

[00:23:15] Maybe some of the options guys might be. But, yeah, I mean, the key to this thing and the thing that the old guys – keep in mind when I joined the Board of Trade, there were guys in the pit that were World War II veterans. They fought on Omaha Beach. These guys knew what it was like to be in battle conditions. And they would just drill into us young guys. Cut your losses short but have some way where you can allow a winning trade to grow.

[00:23:43] And the only way you can do it statistically, the only way probability theory works is if losses get cut quick and you have some provision to not – to avoid the temptation of taking the first profit that comes along. You don't want to date the first good-looking girl that you see. You know, you want to get a good one and hang on to it for a while. Well, I'm sure we could explore that topic with you as well.

[00:24:11] But, you know, it reminds me of the three principles that George Coyle brought up amongst studying hundreds of years of the best traders. That is, respect the trend, the price action, let your winners run, and cut the losses early. I was watching an interview with you and Jason Shapiro, and he was – he had a – I believe in that one, he said he had a 38% win rate. But he said – I mean, just again, going off of what you said as well, he would take four steps forward, two steps back.

[00:24:40] Four steps forward, two steps back. So it's just the winners, you just got to maximize. Like you were saying, Peter, just don't get so eager to take those off. Almost like once you take the trade, we're almost getting in the way of those trades, right? Like right thereafter. So maybe step away, shut the computer down as some would recommend. But why has that myth persisted, do you think, over all these years that, okay, we need the 70%, 80%, 90% win rate? Why has that myth persisted? Here, I think there's some psychology behind it.

[00:25:10] I think that people that start trading take their trades personally. I mean if they have a losing trade somehow, there's self-condemnation. I did something wrong. I didn't study enough. This is my fault. They reflect it back on their character. Look, the marketplace, the computer by which people put in orders in the S&Ps, they don't know who some trader is. They care less.

[00:25:38] Price action disregards any individual for who or what he or she is. And so there is this thing like I need a high win rate in order to believe in myself as opposed to understanding probability theory.

[00:25:55] And so I think that it's the desire not to lose, that somehow they feel that a losing trade is a negative as opposed to just the next trade for me is the next data point in a series of data points subject to random probability theory. It means nothing. The next trade is insignificant. You could take the name of the commodity or stock off the chart in the upper left-hand corner, and I'm just trading price.

[00:26:25] I'm not trading IBM or Cisco or Apple computers or grains. I'm trading price level. And that's the way it is. Just don't wrap yourself up and somehow reflect what you're doing as a reflection of character trade. So traders take it kind of personally. Okay. Yeah. Wise words, yeah. There's one other point on it. You mentioned something is watching the markets during the day, Kevin.

[00:26:53] My recommendation to people is you would be far better off if you shut your computer up during the day, especially if – You know, here's the reality. There's a lot of research that's been done on trader success, Kevin. There's a lot of good research done by exchanges, by academic communities, by government regulators, not only in the U.S., but in the U.K., in Asia.

[00:27:19] The reality is if you take somebody that is trying to trade and let's say they have three years of experience so far. They've been in this thing and they want to trade. They have three years of experience. Now, what is the probability then that they will go on and average 30% a year for the next five years with only one losing year?

[00:27:40] If you really research the data, hard statistical data, it will tell you that there's only 5 in 1,000 people that will achieve that. That to be a market wizard, that is 1 in 100,000 people. People can do 100% a year for a three-year period. That's 1 in 10,000 people. The probability of success – but people don't want to believe that. You know, anyone – and hey, good for them.

[00:28:10] You know, if anyone in your audience is hearing this, I would encourage them to pursue trading. It's a wonderful thing to do. But I would just tell them you need to understand the risks because only if you understand the risks and the probability will you approach trading as a common-sense business as opposed to just some wild gambling venture.

[00:28:35] You know, that's a common theme amongst the wizards as well, I noticed that. And Jack pointed out to our interview that they manage risk above all else. In fact, you wrote this, Peter, a strong stomach for losers and a miniature pride in the need for winners are necessary for consistently profitable trading. I was wondering if you could explain that a little bit, having that strong stomach for losers. Yeah.

[00:29:05] You've got to take a loser and just go on. You know, loser, again, it's a datum point. I have losers. I have losers. I move on. Two years ago, I had a string, Kevin, where in a 21-trade sequence that I did, entry, right? Entry trades that I put on, 21 trades, 19 losers. You know, that didn't phase me. That didn't make me want to say I need to change something. My system doesn't work. I need to figure out something.

[00:29:35] I need to quit trading. It didn't phase me because I understand that that can occur. That's more than a one standard deviation event for me, but it can occur. And so when I look and break down what trading is, I really kind of break it down into components. One of those components is your trade selection. And that's what most novices focus on, right, is where is the signal? What's my setup? Where is my setup? Can I find a setup? And so that's one component.

[00:30:05] There's trade management is a component. What do you do with trade once it's on? Risk management, money management. How much do you risk on a trade? How do you cut losses? Then there's just your whole process. I know what I'm going to be doing. If I'm alive three years from now, I know what I'm going to be doing at 10 o'clock in the morning on Friday because my trade is very well defined. What I do every day of the week is very well defined. I have a process. I have a process.

[00:30:32] And then what you need is be properly capitalized and have an ability to analyze what you're doing and make corrections that you can't. And so all of those define what your niche is. And most novice traders think that trade identification is where it's all about. I contribute of my niche. I think trade identification represents about 5%. 5% of my niche, my advantage comes from trade identification. It's insignificant.

[00:31:01] Trade identification doesn't matter at the end of the day. It's how you manage risk. Yeah, that was one of the most fascinating topics when I was reading your book that you had said, you know, it's just most traders spend nearly a year. All of their time trying to search for entries. And you were saying this is a mistake. I like what you related it to. You related it to poker and how it's less important what hand you have, but maybe it's more important how you play that hand.

[00:31:30] Do you think that's one of the largest mistakes traders make? Oh, it absolutely is. I want to talk about, introduce something, Kevin, that I think is really important. That those traders among your audience that have really made it and have been successful trading will be able to relate to. There was an 18th century Italian, Swiss, French economist by the name of Vilfredo Pareto.

[00:31:55] And everybody knows about the Pareto principle that 20% of events represent 80% of outcome. Right. That if you do something, anything, 100% of the people in church, 20% of the people in church do 80% of the volunteer work. You know, 20% of what you do produces 80% of the results.

[00:32:18] And I have never found a trader who does not tell me that 20% of their trading events produces at least 80% of their net profits. That's a datum point that I keep every year. I look at that every year. I look through every trade I've done and every year. And I have every trade going back decades that I have done. And year in and year out, I find that about 15% of my trades produce about 85% of my profits. And I think that's true for all traders.

[00:32:47] I think anybody who is out there that's an inspiring trader, I would encourage them to keep track of that number because I think what they will find is that will be true to them. So the challenge then becomes what do you do with the 85%? Because the 85% has got to break even for the 15% to give you your money. Man, that is so good. You know, since I started doing the podcast, that's really something I noticed too, Peter, in talking to the best traders out there. They're looking for these asymmetric opportunities.

[00:33:16] That was another big theme amongst the wizards, right? Looking for asymmetric trades, as Jack points out. But you did a survey once yourself where you asked, would you rather trade a system that's right 30% of the time or trade a system that's right 70% of the time? You asked professional traders and they overwhelmingly prefer the 30% system. Why is that? Well, that was among floor traders. And so that was a little informal poll that I did at Board of Trade in the pits.

[00:33:46] I handed out a deal to a bunch of, I don't know, there might have been 100 traders that were trading in the pits. I said, would you please give me your answer to this and hand me back at the end of the day? And the reason is that 80%, you're probably, you're air rate. All of a sudden, something goes kooky on you and you go into a 60% period and you're cooked.

[00:34:07] Where a professional trader understands that if you can make money at 30% right, you have got a better system in terms of probability because it represents that your risk management is better. That if you have to be right 70% or 80% of the time, that you have very little margin for error. Because the reality is that if you're right 7 out of 10 times, that's 7 out of 10 times over 1,000 trades.

[00:34:36] And any subgrouping of 10 or 20 trades within that 1,000 trades, you get into a random probability where you can be wrong 10 straight trades. And, you know, if you're not prepared for that, you're cooked. Yeah.

[00:34:53] And you even mentioned that some of the trades that you'll take, this is on the emotional side of things, where it will be the ones you're least expecting to be among the 10 or 15% that ultimately result in the net 80% more of profit on the year. Yeah. There's something that I call conventional wisdom. Conventional wisdom is the story that they're telling about the stock market, basically, on CNBC or Bloomberg. It's the narrative that most people accept.

[00:35:22] It's gold goes up because of money supply. It's some of those narratives. Silver goes up because Hong Kong silver is trading at a premium. And so you have these narratives that come into play. And the reality is, is you've got to be prepared for the surprise in what you're doing. And I am not unaware of what conventional wisdom is because, you know, I'm on Twitter. So I see what most people think.

[00:35:48] And what I've found is if it's easy for me to do a trade, and it's easy for me to do a trade if I look on social media and everybody agrees with me. I'm going to do a trade that everybody agrees with me. That gives me a little comfort in the stomach. But by and large, those trades are the losers. And it is the trade that, to me, becomes clear. That's, let's say, a short side trade and social media is basically bending the other way.

[00:36:14] That's a little bit harder to do because I'm going against the grain of what people think. And so I'm not unaware of sentiment. And it's those trades that I think are less likely to be assumed to be correct by the masses. Those are the trades for me that generally will become the big winners. Can you give us an example of one of those home run trades and maybe how they look different relative to a loser?

[00:36:42] And also, do you kind of pyramid into those positions sizing in? This episode is brought to you by Google Chrome. You think you know a browser, but Gemini and Chrome? That's new. It can help you with practically anything on the web, like restoring a vintage motorcycle from a 50-page restoration block, or finally break down that long article you've had open for weeks. Gemini and Chrome is here for it. Ready to make anything online make sense? There's no place like Chrome. Check responses set up required compatibility and availability varies 18+.

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[00:37:39] Avatar Fire and Ash, now streaming on Disney+. Rated PG-13. No, you know, sizing is really important. And sizing is the reason that a lot of novices blow up, Kevin. You know, my rule is I only risk a basis point. A hundred basis points is 1% of capital, right? So let's just use a round number that I've got a million-dollar account. 1% of a million dollars is $10,000.

[00:38:06] I will not risk $10,000 on a trade if it's a million-dollar capitalized account. I will only risk $6,000, which is basically 60 basis points. I'll risk six-tenths of 1% of my capital on a trade. And there are novices out there that are risking 5%, 10% of their capital on a given trade. That's the risk. That is a guaranteed tap out. They will not make it. They may get lucky.

[00:38:33] They may hit some big home runs at first. But if they continue to do that kind of sizing, sooner or later, the market's going to take them out on a stretcher. It's just a matter of keeping risk down so that you keep drawdowns down. I hate drawdowns, Kevin, because it means that I have to make the same money all over again.

[00:38:57] And if you have a trader that's putting on too much size, they're going to make 20% on one trade. They're going to lose the 20%. They'll be up 40%. Then they go down 40%. You lose 30% of your capital. You have to make it all over again. And there was a point in my trading where I decided I don't want to have to make the same money all over again.

[00:39:20] And I need to make changes in the way I trade so that I can control my drawdown, that I don't want to have to make the same dollar over and over and over again. It's harder to keep money than it is to make money. It's easy to make money in the markets. All you have to do is last long enough and have enough money, you're going to make money in the markets. Keeping it's the hard part. It's hard keeping profits. And that's where my focus is. Winners will come.

[00:39:48] All I have to do is stay alive and protect my capital. I will have winners. But then I have to protect the capital. So when you say you sign, I mean, the 1% you're risking, is that consistent across different maybe strategies or patterns that you're trading? We can, of course, dive into some of those patterns as well. But you keep it consistent? Well, it's actually less than 1%. 60 to 70 basis points. So it's 6 tenths to 7 tenths, 1%. That's a standard risk.

[00:40:14] I don't care whether I go short gold or long corn or long sugar in London or short the Nakai Dow. I am risking the same dollar amount on every trade that I do. I enter my trades all at once. I do not pyramid. I do not layer in. I wait for a signal. And I basically blow. I basically enter the entire amount, 100% of the trades at the same approximate price. Now, I use stop orders to get in.

[00:40:44] So I may get split fills. But, you know, that's the way I get into trades. It's all at once. At that point, I do. Pyramiding is dangerous. I mean, pyramiding is a real skill. Some people have the skill of pyramiding. I don't like pyramiding because if you're pyramiding, you're either adding to a loser, which is foolish. Or if you're adding to a winner, you're raising your average price of entry, which puts you more vulnerable to corrections.

[00:41:14] And so for that reason, I enter all at once. And I'll take partial profits, not real quickly, but within a week or two, if I have some money up and I'm up on a trade, I'll get out of it. That gives me more staying power in the other half. There's nothing wrong with taking money off the table. The topic fascinates me so much. I've heard different opinions, like adding to winners and then, of course, not pouring fuel on a fire with the losers.

[00:41:44] And then, of course, the single entries that you're suggesting as well. So traders that are listening, let us know in the comments what you do. That topic really fascinates me. But really what it sounds like, Peter, is you're trying to remain emotionally neutral across the board. And you don't know necessarily which trade is going to be the best trade of the year, the loser. And so you're sizing them pretty consistently.

[00:42:12] And you just embrace the risk, shut the computer down, embrace whatever that result is going to be. Is that a fair assessment? Yeah. I mean, so I trade futures. I trade spot forex sometimes. I mean, I prefer to trade currencies at the CME. I prefer to be in currency markets. I'll trade crypto. And I do trade stocks in the company account. Not very often, but I trade stocks. Within the last month, I had the best trade I've had in four years. And it was on a stock that I didn't know anything about. I like the chart.

[00:42:42] It's set up in an unbelievably asymmetric way that allowed me to put on a huge position with the same amount of risk, with that 70 basis point risk. And it was the best trade I've had as far as, you know, I think in four years. I had no expectations for the trade. Other than I put the trade on and I looked at my statement the next day and all of a sudden I have a huge profit in this trade.

[00:43:09] And so I pull back up the chart and I go, holy cow. Because I don't like looking at prices during the day, Kevin. I want to enter my orders. My routine is this. I scroll my entire list on a Friday afternoon. On a Friday afternoon, I scroll every conceivable market that I might trade. On that list, I will pick out maybe 10 charts that I really like. I will review those 10 charts.

[00:43:38] So by Sunday, I have a really good idea of what markets I need to be involved in. I have six, seven, eight charts that I'm looking at. And I put in open orders. There will be open order stops on the trades for which I have a position. It will be open order entry stops on the trades I want to enter if certain chart patterns break out. And that's my script for the week. I might add one other market during the course of the week. I normally do not like to because I really like to turn off my computer.

[00:44:08] I'll review my orders early Monday morning. I wake up 3, 4 in the morning, review my orders, see where markets were overnight, and really try to remove myself from the day's action. I just found, Kevin, that my challenge as a trader is to remove myself from the equation, is to really become an order placer, that I'm not a trader, that I'm a person who can enter orders that make sense, turn off my computer.

[00:44:36] At the end of the day, I find out what orders might have been filled, what markets have been stopped out of, what markets I've entered, and then start again the next day. So I try to remove my emotions from the equation. You know, I have just found, and I found this true for a lot of traders, that their own worst enemy, becoming a successful trader to a large degree is overcoming self.

[00:45:03] You know, if you really want to know who you are as a person deep down inside, be honest with yourself and become a trader because a person will find out the good, bad, and the really ugly. And the really ugly attempts to sabotage us from success.

[00:45:18] And so that's really been my challenge as a trader through the years, is to become very process-driven, do the same things over and over and over again, try to remove my own judgment from the markets, try to follow rules. I'm a rules-based trader, and I have rules about just about everything. And when I get into trouble, Kevin, it's usually because I second-guess my rules.

[00:45:44] I don't follow my rules, I stray from the path, and I pay the price. And that happens from time to time. It'll happen to everybody from time to time, unless you're a completely systematic trader, all the way from sizing to order entry. But there are not a lot of traders who trade like Renaissance Technologies.

[00:46:05] Yeah, I find that there's a lot of wisdom in hearing from Peter Brand, who's had over 50 years in this industry, that emotions can still exist, that we can still get in our own way. What do those emotions look like for you 50 years later? Because, Peter, I think there's this other myth out there that exists, that when traders, when they start this journey, they think that at some point that emotions will just go away.

[00:46:35] Do they ever? I think maybe for some. I mean, everybody's putting together different. And that's a real challenge, and the market is finding out who you are. I mean, I think that leads to somewhere just under 100 market wizards who have found completely different solutions. There's not a market wizard that really trades the same way. The interesting thing is that there are, from time to time, market wizards get together.

[00:47:02] We have little retreats, and there might be 20 or 25 market wizards that get together. The things they don't talk about are, do you use RSI, and what moving average do you use, and what's your chart scale? Those are not things professional traders really talk about. It's more like when you get home after a bad day, does your dog know that you had a bad day? You know, how do you tell your wife she can't be on a budget? Those are the kind of things traders talk about.

[00:47:30] But, yeah, I mean, I'm like anyone else. I'm a human being. And if I watch myself, if I start paying attention to markets during the day, if I would start all of a sudden looking at hourly charts, you know, the temptation is to find a reason to get out of a profitable trade. It's self-sabotaging. And so for me, I want to become as objective and detached as possible from a chart.

[00:47:59] I don't want my emotions to become involved in a chart. I don't want to have a narrative start playing in my head. And the way that I can do that is to try to reduce myself, to reduce the equation between a chart and the rules that I've set in place for trading that chart, for entering a trade, for sizing trade, for studying an initial stop. What rules do I use for advancing a stop? What rules do I use for taking profits?

[00:48:27] What rules do I have for similar trades that really represent highly correlated risk? Those are the things that I've put together over the years to really become finely tuned. And it's not necessarily perfect. You know, I use moving average to as a proxy for trend. And people will say, well, why that moving average? Haven't you done backtesting? I do not believe in optimization.

[00:48:55] I will tell your audience that. Optimization is a myth where you optimize rules. You have a set of rules. And you do those set of rules over and over and over again. Are there more perfect rules that I've created? Could I be optimizing the kind of breakouts? I do not believe in optimization. I believe that my rules are imperfect.

[00:49:21] There is no single trade that I can remember. This year, for instance, where when I look back at the trade, I might not have said to myself, well, if I would have done this a little differently, there would have been a little better results. If I would have done this a little bit different, it wouldn't have been a loss. It might have been break even. And we can't allow ourselves to do that, to second guess every decision we make.

[00:49:48] We need to have a set of rules, and those set of rules that are imperfect are better than trying to trade a market without a set of rules and letting emotions dictate our buy and sell orders. FOMO enters in. FUD enters in. Those are the things I want to remove from the equation. Yeah, several points I want to touch on there.

[00:50:10] And do you say that you don't optimize anymore because you've seen just that traders, they adjust, for example, maybe their risk parameters mid-trade. And it's a very amateur thing to do. And Peter's more process-oriented versus results-oriented. Yeah. I mean, rate of return is not a result that I care about, actually. You know, I don't – sharp ratio is a joke.

[00:50:38] Look, I'm very metrics-oriented, by the way, Kevin. I am very attuned to what the metrics of my trading are over any given period of 50 trades, 200 trades, 1,000 trades. I'm very metric-oriented. I know my metrics inside and out. You know, I'll ask somebody who is an aspiring trader, so what's your expected value? What's your profit factor? What's your Calmar? And they look at me like deers in the headlights. You know, trading is a business.

[00:51:06] You don't operate a McDonald's franchise and not know what your profit margins are on chocolate shakes. You don't know how many paper cups you need to have in inventory. Those are things you need to know. You need to know the metrics of a business. And, you know, people start trading, and all they care about is rates of return, how many X are you getting.

[00:51:29] They don't really keep track of metrics that you need to keep track of in the process of running a trading business. And so those are the things that I am attuned to. Rate of return, I let take care of itself. I don't really care. It's not a metric that I keep track of. You know, I want to keep track of what's my expected value, what's my profit factor.

[00:51:51] If you can generate an expected value, that's 20, 30 basis points of trade over 100 trades. If you can do a profit factor of 3.0 over 100 trades without a drawdown greater than 15% peak to valley, and you can do that over 100 trades,

[00:52:13] and you know that you can do the exact 100 trades next year, that the trade you did in live cattle futures will be the exact trade that you'll do two years from now in London sugar in terms of a setup. You repeat the setup, wash, rinse, repeat over and over again. And I don't really care that I optimize. I don't believe in optimizing.

[00:52:38] I don't believe that rules can be optimized because next year's markets are going to be different than this year's markets. The markets two years ago are going to be different than the markets two years from now. And markets change personality, and the best we can do is just implement a set of rules that we know will give us expected value with no worst case drawdown over a certain amount over a period.

[00:53:07] And so what I challenge somebody to do is come up with rules that you can follow. They've got to be simple, but you've got to be able to follow them. You have to be true to them and do those rules in whatever asset class that you trade. Execute those rules over 100 trades. See where you are. Make small adjustments. Try them over another 100 trades. See where you are.

[00:53:33] Because you don't really know whether you have an edge unless you follow the exact same trading rules over at least 200 to 300 trades and run the metrics and run them through Monte Carlo simulators and see what your equity curve is. And that's the only way as a trader that you actually find out do you have an edge to exploit or not. Absolutely. You know, there's something I certainly want to explore there as well with these rules.

[00:54:02] And we know you're a chartist. I want to get into that as well. But let's take, for example, one of your favorite charts that you like to trade and give us some rules. Just some inherent rules in your strategy for the listeners that you apply even prior to ever entering the trade. Let's say if you've taken the rectangle or descending triangle. Give us some of those rules. I don't like diagonal lines on charts. Trend lines are diagonal lines.

[00:54:32] Lines to a symmetrical triangle are diagonal lines. Channel lines are diagonal lines. I don't like diagonal lines. I like horizontal patterns. And that would be a right angle triangle. It would be a rectangle in head and shoulders. I like continuation patterns. I do not like reversal patterns.

[00:54:56] An example of a pattern that's not diagonal might have been a cup and handle that we had in the Dow Jones recently. Definitely Euro stocks futures have had rectangles or right angle triangles. So I like a horizontal pattern such as a rectangle.

[00:55:24] It lasts somewhere between 8 to 12 weeks. That's my sweet spot. Maybe 8 to 14 weeks. And so I look at a rectangle. Or I think some people might also refer to them, you know, as a box pattern or something like that. And so I'd like to have it be contained within a price range of about 15% of the price. And so let's say it's a commodity that's trading at 100 whatever.

[00:55:53] I'd like to see a rectangle that is 8 to 14 weeks in duration. I'd like to see it within a 15% range, so between 85 and 100 in the case of just trying to use examples. I'd like to see the only indicator I use. I do not use indicators. Kevin, I don't believe in indicators. Indicators are just simply a derivative of price. Why study an indicator when I can study price directly?

[00:56:21] But I do use ADX because it shows me compression. And I'd like to see an ADX reading, and that's a 14-day ADX, somewhere under 12, maybe close to 10. And so we have this pattern just like a Darvus box. It's a rectangle. It's right angle triangle. It's 14 weeks long. ADX comes, market trips higher. I use moving averages as a proxy for trend.

[00:56:50] I use an 18-day moving average. And so the market moves up, and we break out, and we break out by a certain amount. And what I use for a breakout is 50% of a 30-day ATR. And so I use an ATR. It's the only time I use an ATR. Do not trail stops based on an ATR. But I do enter a market based on an ATR breakout. It's the only time I use ATR. But it just gives me a standardization for what a breakout is.

[00:57:19] I've just found, again, removing my emotions from a market. I want to adapt rules that I can follow that are simple for me to follow. And so that is where I put a buy stop order to consider a breakout.

[00:57:33] And then I have set rules for sizing, where if I enter a market at a certain price, I will know today, for instance, if I'm looking, let's say, at Euro stocks utility index futures, which is a market I'm looking at. And I'll look at it today, and it hasn't broken out. Well, I'll know where the breakout is. And I know where I will probably set my protective stop if I am filled on a breakout.

[00:58:02] And I just use those two numbers to work out what my sizing is. And, you know, I'll put in a stop order. And when I put in a buy stop order to enter, Kevin, I attach to it a contingency sell order. So when my buy order is executed, my sell order automatically becomes active. I do not need to always be chasing the market to make sure that I have orders in. I want to make sure I have orders in to cover my risk at all times.

[00:58:32] Sure, I'm stopped out sometimes, and I see a market stops me out and then goes. That happens. That's life. I mean, that's why they call it speculation and not surety. But you don't optimize in those moments. You can't optimize those moments. It happens. Those things happen. I'm not going to beat myself up. Self-forgiveness is an important trait for a trader to have because we're going to have those situations of coulda, woulda, shoulda. Coulda, woulda, shouldas happen. They're a reality of trading.

[00:59:02] And so I want to try to have my trading model be on auto drive as much as possible. I want my trading model to be like a Tesla. You know, I want to put in where it goes and put in the orders and let the model really run itself during the week. And so I do that with open orders. And at any given time, I might have a position on in three and four futures markets.

[00:59:30] And I may have orders in to enter maybe another two or three markets. And so that's it. You know, if I do, if I enter two markets, two trades in a week, that's about average for me is two to three new trades per week is about what I trade. You know, maybe, maybe I'll do 150 trades in a year or somewhere between 125 and 150 trades a year. That's, that's my life. That's your life. That's your life, man. Peter, thank you so much for sharing.

[01:00:00] I know the listeners are going to find tremendous value in all the detail you shared there. And it's clear to me that when you discovered technical analysis, that book by Edwards and McGee that you had read, I mean, that you fell in love. Even to this day, technical analysis runs through your blood. What do you think it was?

[01:00:20] I mean, again, you had, you were on a journey of, you were unprofitable until pretty much you read this book that gave you direction, timing, risk, all these parameters and rules. What do you think it was? And by the way, also in the 70s, charting wasn't necessarily the most popular thing, was it? I imagine fundamentals were more popular at that point. Back in the 1970s, there were no day traders except for those people in the pit. If you were a retail trader, you did not do day trade.

[01:00:50] They were rare because commission rates were high. You know, you'd pay, you'd do a contract to coin. It was a $30 commission. You know, that was the going rate for a retailer. You pay $50 commission per contract futures you traded. Now, I was a member of the Board of Trades, so I had cheaper rates than that. I had very low rates. But nevertheless, for me, you know, I'm a visual person.

[01:01:19] You know, as a kid, I could spend, you know, we used to have maps printed. We used to have printed maps. We didn't, you know, nowadays you use your, you know, you use your phone to get from point A to point B. You didn't back then. You had roadmaps. And when you'd have an entire book of roadmaps for all 50 states, I could, as a kid, I could spend hours looking through the roadmaps.

[01:01:43] When I became a pilot, I was instrument rated as a pilot, but I still like flying VFR, visual flight rules, because I like flying with a map. I like knowing there's a grain elevator up ahead. I'm going to cross railroad tracks in five nautical miles. You know, for me, I'm just highly visual. And so charts for me really resonate with who I am as trying to fit lines.

[01:02:10] I'd like to know where lines are and boundaries and, you know, where's the boundary? How, you know, how do you draw a boundary of a state? The Mississippi River is the boundary between Minnesota and Wisconsin. You know, it's either, you know, that's the way things are done. So I'm just always visual. So being a chartist for me is very, very consistent with kind of my mind's attempt to always create some sort of order out of chaos.

[01:02:39] And for me, that's what charting is. It's a systematic way to sort order from what might be chaos. Now, a lot of those same patterns that you were trading 50 years ago, are you trading much of the same today? You know, in 19—this is funny, Kevin, funny story. In 1991, I was invited to do a feature speech at what the time was the MTA, Market Technicians Association. Today it's called the Certified Market Technicians.

[01:03:09] And it's what technicians attempt to pass their test and become CMT certified. So I flew down to Florida to give a speech to MTA in 1991. And a few years ago, somebody sent me a copy of my speech because I have not kept a copy. And I looked at it and I go, not much has changed. I pretty much trade—there's a few patterns I don't trade anymore.

[01:03:37] I've eliminated diagonal patterns. I don't trade trend lines. I don't trade channels. I don't trade symmetrical triangles anymore. I don't trade wedges anymore. And so I've eliminated diagonal patterns and gone pretty much with horizontal patterns. But other than that, I could give the same speech today. You know, and so my trading has basically been unchanged now really since about 1981.

[01:04:04] I look back at the charts, and I have kept charts over the years. I still have copies of charts of trades that I did 50 years ago. You know, I have a copy of a chart in copper that I did in 1977. And so I look back and I'm looking for the same things in charts now that I look for then. I think I've become much more nuanced.

[01:04:27] I've become much more sophisticated in timing, in sizing, in profit-taking, and some of those things. But in terms of just the basic patterns themselves, I pretty much trade the same things now that I traded in bonds in 1982. Now, you're trading similar patterns. Are you trading with a similar time frame?

[01:04:53] Because back then you were trading over periods ranging from like four weeks to months. Is that consistent? It's similar. I mean, I use weekly charts. When I do my scroll on a Friday of every futures market in the world, you know, from – and there are some great futures markets in Singapore, in Tokyo, London, Winnipeg, Paris. And so I scroll through those markets and I scroll through weekly charts.

[01:05:21] And I want to see something pop out at me. You know, people tell me they're going to go home and study their charts. And I kind of go, what does that mean? Because I'll spend about a half a second on a chart when I do my scroll and something either pops out to me or it doesn't. And I guess that's because I've traded so many patterns, you know, thousands of patterns over the years that I kind of know instinctively this is something that interests me or not.

[01:05:48] And so I'll scroll through, you know, hundreds of charts in about a 15, 20-minute period of time. And the ones that pop out at me are the ones that I really pay attention to. Is there anything you can identify looking back, though, in 1980 that maybe worked then but doesn't work now? For example, the introduction of high-frequency trading, like what – did that have an impact? Oh, that had a big impact.

[01:06:15] You know, I took – in 1995, I actually took a niatus for trading. You know, I felt like, okay, I've made money. I'm fine. I don't need to work anymore if I don't want to. So, you know, I had been trading, you know, at that point 20 years. And 20 years, you know, when you're trading your own account, you know, it wears on you. Now, I think I've found different ways to be able to sustain myself without feeling as much pressure.

[01:06:44] But we used to keep our charts by hand back then. We'd start with a piece of paper and we'd create charts with template paper. And so there was a lot more work back then. But I think back in the 80s, chart patterns were actually more reliable. And I think they were more reliable because markets were less efficient back then. Just as is now, I think some of the better patterns come out of the exchanges that don't have the liquidity,

[01:07:10] that there might be better patterns that might come out of European wheat, for instance, than out of corn at the Board of Trade or out of a stock index in the Netherlands as opposed to the S&P sometimes. So I think chart patterns were a little bit more reliable back in the 80s than they are now. And high-frequency trading really didn't start until we had computer trading with the Globex became active.

[01:07:38] And that was in the 2000s, you know, 2004, 2005, 2005, 2006 or so. We had high-frequency trading. And I think that affects day traders more than position traders. You know, I hold positions. And so I think that I do not have the competition of high-frequency traders that a day trader would have. Yeah, yeah. So now it's taken you back in the 70s. It took you that period of time we discussed where you've got to learn through these losses.

[01:08:07] To really discover your edge, maybe where you find success, what you can identify with, for example, you being the chartist. So, I mean, looking back at that time period, you know, how— You had given an example in your book about how during those seven years, when Peter was trying to discover, you know, who you were as a trader,

[01:08:33] there was a trader on the floor who you were—he was trading soybeans, and I think he was bullish on them. And then so he recommended a buy there, and then you bought them. But you were operating—it wasn't Peter's strategy. You know, you were operating on two different time frames. So how important is—tell us about that story, and how important is it to identify, like, your way of trading? Because as you know, Jack said there's no singular approach looking at all the whizzers. Yeah. Tell us a little bit about that.

[01:09:01] Well, you know, I need to see a pattern on a weekly chart to begin with. And so that's just my standard. I don't care about hourly charts or minute charts or, you know, daily charts I use for timing, but I use weekly charts for trade identification. But you have to know your time frame. I mean, I know my time frame. I know my patterns. I know my trade. I mean, I own my trade. I know my trade.

[01:09:27] And so back when I first started and was just trying to learn how to trade, there was a soybean trader who—and this probably was 76, 75, 76. So I mean, Peter, I am really bullish on soybeans. I'm really—but man, I like the soybean market. And so I went in and bought a contract to soybeans.

[01:09:47] And, you know, about a week later, I'm down 10, 15 cents in a contract of, you know, 750 bucks per contract. And I saw John again, and I said, hey, John, you know, I'm in soybeans. I'm losing money. You're still bullish? And he said, wasn't that a magnificent trade? He had a one-day—he had a one-day time frame. You know, he was bullish on beans. For him, that meant beans were going to have a five-cent move.

[01:10:16] You know, because he was a local trader on the floor that was trading for a quarter of a cent and half cent. And all of a sudden, he felt like he was convicted for a five-cent move in beans. And for him, it was a glorious trade. So, you know, I should have asked him, what's your time frame? What point are you wrong? If someone tells you I'm bullish on something, you ask them, what's the price at which you're wrong? That's what you want to know. Where do you think the market's going to go and what's going to tell you you're wrong in the trade? That's what you always have to ask yourself.

[01:10:45] What tells me I'm wrong in the trade? Man, but, you know, in those initial years, don't you think it's important to have apprenticeship, though? I mean, you had a mentor, I believe, Dan Markey. Is that right? And that is significant, isn't it? But you can't copy anybody. So how do you distinguish the difference? Ever watch a stock rip and think, I could have nailed that if I had real capital? The truth is, many capable traders never reach their potential.

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[01:12:11] You mentioned Brent Stanbarger. Great. He's a great teacher. He's a great mentor. He doesn't mentor. He mentors big hedge funds one-on-one. He doesn't mentor individual retail traders one-on-one. But he produces materials that are good. I had a couple really good mentors. I mean, when you're trading at an exchange like the Board of Trader of the Merck, you're in a building with hundreds of professional traders.

[01:12:37] And professional traders, by and large, some of them are very secret about what they do. They don't really let much out. They're pretty tight-lipped. But some of them, they want to share what they've learned. You know, they love teaching other traders. They like helping new traders to achieve. They've been successful, and they want to pay back. And I had a couple of those, and one in particular who had been one of the all-star traders for Cargill, which is, you know, they're the largest grain traders in the world.

[01:13:06] Cattle traders, livestock traders, they're in everything, Cargill. But he had been one of their all-star traders, and he really took me under his wing. And he never shared with me how he traded. I never really knew how he traded. He didn't say, well, I'm used charts, or I do this or do that. But he would share other things that dealt with risk management. You know, he would drill into me to get out of your losses really quickly. You know, one of the things he shared with me is never carry a loser home on a weekend.

[01:13:36] Always take a losing trade off on a Friday. No matter what you think about a market, have money management more important than your market opinion. Have protection of your capital more important than what you think about a chart. Always protect your capital because you lose your capital, you're out of the game. So you protect your nest egg. You know, consider taking losses at the end of each day. If you have a losing trade at the end of the day, take it off. If you have a winning trade at the end of the day, leave it on.

[01:14:06] You look at that every time you do a trade. At what point can you move a stop to break even? And so those were the kind of things that he would share with me. How do you stay neutral in your mentality? How do you avoid news? Don't listen to other people's opinions. You have to develop yourself. You have to be your own trader. You have to own every trade you do. Don't pay attention to anybody who starts bragging about a profits in the pits. Peter, that's the last person you want to listen to.

[01:14:35] If somebody's not talking about how they trade, but you know they're making money, that's the guy that you want to invite out for lunch. Because if you invite him for lunch and you develop a personal relationship, he may share money management tricks with you. I could care less how somebody else identifies a trade, whether they use a moving average, whether they use an indicator, whether they use a chart, whether they use global macro. It doesn't matter to me. I care more about how people protect their capital. What are their money management rules?

[01:15:05] How do they really protect the profits they make rather than make money and give it back? You know, how do they control their mentality? What do they do at the end of the day to release their tension? You know, do they do yoga? Do they do meditation? What does that meditation look like? How do they release themselves so the markets don't control their lives? You know, because like I told you, I want to trade for a living. I don't want to live to trade.

[01:15:34] I want to be a trader is what I do. It's not who I am. But I think with some of these young people, trading owns them. Their current position owns them. Their current position defines who they are. Their setup defines who they are as a person. That's never been what I want to be as a trader. You know, I want to be a trader who looks for certain things in the markets, does the same things over and over and over again. You know, wash, rinse, repeat with the same setup,

[01:16:04] with the same risk management rules. I just make a really important point here again to repeat, Kevin. There is no real distinct edge to a chart themselves. Charts do not predict where markets are going to go. I cannot look at a chart and do a price forecast based on a chart. All a chart does is show me where I can enter a trade with a defined risk and a likelihood, some likelihood, that a market will follow through.

[01:16:33] That's how a chart is for me. It's just a tool. The chart is not the answer. The chart is just a tool I use. It's a tool to which I apply risk management. My edge comes from risk management and emotional management and process. That is where I get my edge. My edge does not come from a chart, does not come from a chart pattern, does not come from a stop order. It comes from emotion management. It comes from process management.

[01:16:59] It comes from repeating the same rules over and over and over again. You know, that's where I get my edge. There is no edge in a head and shoulders. There's no edge in a rectangle or an ascending triangle. That's just a tool to which you apply risk and emotional management. So much wisdom here, Peter. Thank you again for sharing all this. I mean, when you look back over the course of your career, I mean, what are you most proud of?

[01:17:29] Um, I'm really proud that I could support my family doing what I'm doing. I mean, that's really been something that's made me really happy. I've been able to pay for my kids' college educations. I've been able to help grandkids do different things, you know, take an intensive Spanish learning trip to Spain for a summer, that sort of thing. That makes me really happy.

[01:17:57] It makes me happy that I can give money to two really, really, really worthy causes. Because there's no, actually, there's no social, there's no social redemptive quality to being a trader. I mean, it's not like being a doctor or being a teacher. I mean, being a trader adds nothing to the society. But what you do with your money can. And I'm really am very proud that Jack chose me to be in Market Wizard's book.

[01:18:26] That's an achievement I'm really proud of. I'm really proud that I've been able to share things about risk management with other people. Through forums such as this, Kevin, where I can talk about things that I really think are important for young traders to know. So I'm really, really proud that I was asked to do the foreword for the hardcover copy of Richard W. Schaubacher's book. You know, Edwards and McGee did not create the rules.

[01:18:53] The rules were created by Richard W. Schaubacher in 1933. In not a book, it was a manuscript called Technical Analysis and Stock Market Profits. It's all of these things like head and shoulders and trend lines and fan lines and horns and megaphones and that sort of thing. They trace back to Richard W. Schaubacher. And Richard W. Schaubacher's writings were put into a hardcover book for him a few years ago.

[01:19:21] And I was asked by a London publisher to write the foreword to Schaubacher's book. That is the Bible. I was asked to do the Bible for the real, you know, the foreword for the real Bible of chart analysis. You know, that is really something I'm super, super proud of that I was asked to do that, that I was recognized to do that. So those are the things that it's not what you do. It's not what money you make. It's what do you do with the money you make?

[01:19:52] I don't buy, I don't buy Lamborghinis. You know, I don't drink expensive wine. I don't fly a private jet. You know, I'd rather do other things with money that really help people. I'd rather feed the hungry. You know, I'd rather do things like that. I'd rather give to causes that might go into a country that has serious hurricanes

[01:20:18] and try to recover food supplies and that sort of thing. So, you know, I haven't been greedy. That's something that I guess that for me, my achievement has been to be excellent in what I do. I want to achieve excellence in the things I do and how I trade.

[01:20:48] If that produces more profits, that's good. But if it doesn't, I want to achieve excellence. I want to be excellent at how I enter orders. I want to be excellent at how I examine my trading metrics. I want to be excellent in how I review markets. You know, I want to be excellent in all aspects of my trading and seek excellence in the things that really matter. And, you know, then you let trading results speak for themselves.

[01:21:15] You know, you don't go after big performance. These ideas of guys talking about they're doing 10x. I see that on Twitter all the time, Kevin, as somebody's advertising they bought a stock and they made 1,009% in four weeks. In the first place, that's bogus because what they're doing is they're reporting the results against maybe the cost of an options. So how did they do on their other trades?

[01:21:42] What was the result of that trade against their total trading capital? That's the important thing. How have they done for the year? What's their worst drawdown? And so I see a level of dishonesty, especially among people that do YouTube channels. So I think my advice for novice traders is stay away from YouTube. Stay away from the experts, the self-proclaimed experts.

[01:22:09] You know, all they're doing is they're using a chart to try to sell a service. You know, and you really need to develop your own skills. That doesn't mean you do not read books, that you find books, you find things that work for you, and you cobble together your own approach. But you've got to own your approach. Don't try to trade like someone else is trading. You develop your own approach. But risk small.

[01:22:35] You've got to know that the odds of a new trader making money in his first three, five years is very, very, very small. And so assume that you're going to lose money. My assumption on every trade I do, Kevin, is it's going to be a loser. I do not assume that my next trade is going to win money. I assume it's going to lose money because that puts me in a frame of reference where I want to be a risk manager and not a bragger.

[01:23:01] And so you try to hold your money together for the three to five years while you figure out who you are as a trader. Because it takes three years to just pick up the clues, just to figure out what it is you want to be, what markets you want to trade, what time frame you want to trade, what kind of orders do you want to use, what's your setup.

[01:23:22] And then it takes a few years to kind of really work that through the system and work out the bugs in it and then see where you are. But you've got to have your capital at the end of the day, at the end of that three to five years to even be in the game. Yeah, it reminded me of this quote that says amateurs, they focus on money. Professionals focus on risk. And I know that's how you've identified yourself as a money manager.

[01:23:50] You know, you embrace this risk versus a trader. And, you know, you gave perhaps the greatest answer to that question. Thank you so much for it. You know, looking back, though, I mean, if you could, the young Peter, the 25-year-old Peter, if you were looking back and say something to him, you know, what would you tell young Peter? The chances of running 10,000 into a million. And I know there are those people who have actually done it.

[01:24:19] There are those people that Jack has written about. They're few and far between. You know, we're really talking one in 100,000. When you talk about the odds of running 10,000 into a million in three years. And, you know, that's fine if somebody wants to assume they're one of those people. But the reality is that, you know, there may be one person in your entire audience that is going to achieve that. Of course, everybody thinks they're the one. But you assume you're not.

[01:24:48] Look at trading as a marathon, not a sprint. Figure out how to keep your money together. You know, let me give you some figures that are interesting, Kevin. You know, really speaking to those people who think that they can do 100% a year and do it every year. You know, Renaissance Technologies is really the most known,

[01:25:14] the most successful trader of speculative markets. That's Jim Simons Group. There's a book on it, excellent book on it. They've got probably 100 PhDs working for them, and they trade. Their average rate of returns 45%. That's the best in the world. Stan Druckenmiller, probably the best equities trader in the world. He averages 40%.

[01:25:43] Paul Tudor Jones. Everyone talks about Paul Tudor Jones. He's infamous. Paul Tudor Jones hedge fund has made 46% in the last three years. Three years, 46%. But yet a novice thinks they're going to do 10x every year for the next 10 years. You look at the turtles. Everyone talks about the turtles.

[01:26:06] Take a look at what those turtles did that left the turtle program and became commodity trading advisors and ran hedge funds for years. Some of them were very successful, but as it grew, they averaged about 30% a year. 30% a year is outstanding. 30%, 35% a year is world class. 30% a year is only going to put somebody in trouble.

[01:26:35] It's only going to cost you your account. You may be, listener, a one in the 100,000. That may be you. But it's not you if you cannot figure out how to keep your money together for the next three years. It'll never be you. And so that's what you focus on in the early years is how do you work out? How do you solve all of the problems that you're going to face to try to become the trader? How do you learn who you are as a trader? In the meanwhile, you need to protect your capital.

[01:27:04] There's only one way to protect your capital, and that is bet small, get out quick. And you just use that as a rule. It doesn't matter how else you trade is you need to cut losses short because if you don't cut losses short, you're going to take big losses. You know, my average loss last year was 17 basis points. That was my average loss.

[01:27:30] That's two-tenths of one percent was my average loss last year, and that's the 45 percent that were losses. And so that's what you have to look at. You've got to keep losses at least under one percent. People that take losses of 10 percent, 5 percent of their capital, they will blow out. It's just a question of when. But it will happen.

[01:27:57] You just assume that there's a graveyard stone waiting for you that said, thought you could beat the game. So that's my advice. Think long term. Think what does this look like for you in 10 years, not how much you're going to make this year. Don't think in terms of – you've got to trade because you love to trade. If your reason to trade is you want to make a lot of money, that's the wrong reason to trade.

[01:28:25] And it's a reason to trade that may cause you to not be successful. Trade to become good at it. Trade to achieve excellence. The money will come. But the motive for trading has to be that you like it to begin with. It's a challenge you to begin with. And you want to become good at it. You want to become a craftsman.

[01:28:51] So like the old furniture makers of Europe 200 years ago, they were craftsmen. It's like artists. They're craftsmen. They become skilled at their craft. And view trading not as a science, not as an art, but as a craft. You want to become excellent craftsmen at what you do. And you do that by knowing there's an apprentice time that lasts three to five years to learn how to do it right. Right.

[01:29:21] When you look around you as some of the most successful traders, I mean, money certainly is a byproduct of that passion, right? I mean, have you even met any traders who were just their focus was the money and they became successful? Or overwhelmingly, it's those who are passionate about trading and turning that into a craft like you just mentioned. Money ultimately is the byproduct of that. Yeah, I mean, I think there's a lot of people come in for the money and learn quickly that it's more about the money, that it's not about the money.

[01:29:50] I mean, I think that's common. I think a lot of people who become very good at trading, their initial thing is, hey, I know a couple of traders. They all drive Lamborghinis and they live in the wealthy suburbs and they play golf at the expense of golf clubs. And that's a cool thing to do. And so there's that motive that pulls you. You hear stories of successful traders and you can't avoid hearing stories of successful traders. And there's no way that doesn't affect somebody somehow.

[01:30:18] And so I knew full well when I went into the Board of Trade that I was going to join a group of people that were pretty financially successful. There was the ability to make a lot of money. And certainly that's the case for a lot of people who might become, you know, one of the under 100 traders that are no market wizards is there was an attraction to make money to begin with. But I think at some point in time, even in their lives, they learn this is about becoming really good at something.

[01:30:46] Because ultimately, that's the way you learn to make money and hold on to that money and let that money accumulate and grow and compound over time is you have to become good at something. And so the focus becomes how do you improve in different areas of your trading and how do you focus on those improvements? And it becomes process oriented.

[01:31:08] And out of the process comes consistent profitability with minimum asset volatility, which for me is the key. Is I try to limit my drawdowns every year to less than 1%. 1% drawdown for me is a big drawdown. You know, I certainly have them. You know, I may have 2% or 3% drawdowns. Have you become more risk averse over the 50 years? Would you say?

[01:31:35] No, I think I'm not necessarily risk adverse. I think originally it was how do I take the asset volatility out of play? You know, I think in the early years I had 35% drawdowns, 38% drawdowns. I think in the early years I probably had some 50% drawdowns marked to the market at least. And those are no fun. But you live through them. And then you swear you're never going to have them again.

[01:32:05] And I always like to tell people their worst drawdown is the one yet to happen. And if you take that attitude, you'll be a good risk manager. And so it was initially just this feeling like I'm sick and tired of having to make the same money all over again. How do I take asset volatility out of play? Now, we certainly have market volatility we deal with. But as a trader, you have asset volatility. And how do I reduce that asset volatility to the point I can sleep at night?

[01:32:35] You know, how does that done through how I process markets, how sizes I put on? Is for me at first, I think it became I need to limit my worst drawdown to 20%. And then there was a point in which I felt like, OK, I can live with 10% drawdowns. And I think as you get older, you know, I'm approaching 80 years old, Kevin, that 80 years old next year. You know, at 80 years old, you don't want to be swinging for the fences.

[01:33:01] You know, I'm too old to lose a million dollars and make it back. And so I think I'm not necessarily risk adverse. I'm volatility adverse. I'm asset volatility adverse. And so I've developed the rules that I believe have taken asset volatility out of play.

[01:33:24] You know, when I look over the books that you've written or been in, the interviews as well that you've been into, you know, come away with the impression that, and like you mentioned earlier, like your success, that wasn't necessarily built on Peter, like forecasting into the future. It wasn't you trying to predict, you know, the next big move. It was like we had just discussed where 80% of the profits have come from 20% of the trades.

[01:33:51] So it's not about identifying, like you say, identifying that perfect trade, but more controlling the losses, surviving the adversity, and staying in the game long enough for perhaps that opportunity to emerge over time. Would you say that's a fair assessment? Yeah, I mean, I think, you know, last year, I had big gains through January of this year, actually, in silver and gold. They were my big markets last year.

[01:34:20] You know, and that changes year to year. You know, the year before that, I think it might have been interest rates. You know, I never know. I never know from year to year where the profits are going to come. But in the case of silver, you know, one of the things I do to manage a position I have on is I just use a simple eight-day moving average. You know, as long as market stays above the eight-day moving average, I stay with the trade.

[01:34:45] And if someone wants to look at the silver chart, you know, it basically went from $40 to $120 without breaking an eight-day moving average. You know, and so I wouldn't have expected that. There's no way I would have been able to predict that I could use an eight-day moving average and stay with silver for a $60 move. But those will happen. They're one-offs.

[01:35:12] They're, you know, they're two standard deviation events, but they do happen. But without rules, it would have never happened. I didn't make money in silver because I was a silver bull. I made money in silver because I followed my rules and silver happened to make, you know, a $60 run when it broke out through. Actually, it was $0.70 when it broke out through $55.

[01:35:40] You know, and it's the same thing with the stock market. You look at the NASDAQ. Look at the NASDAQ going back to the March lows. You know, there was one big correction. But other than that one correction, the NASDAQ index has stayed above the eight-day moving average except for that one correction that occurred in March. We had the March break. But then, you know, we've started back up.

[01:36:04] And so both legs, the one we're in and the one we were in earlier in the year in the NASDAQ all stayed above the eight-day moving average. Well, you know, those things happen. You don't expect them to happen, but they happen. But if you don't follow rules, they never happen. You know, if you're out to grab quick profits, they never happen. You know, people say you can't go broke taking small profits.

[01:36:32] The reality is you can go broke taking small profits. You will go broke taking large losses. You will make money taking small losses and periodic large gains. But you can't get the periodic large gains if you want to take quick profits. And so just the way that the statistics, the way that the number, there is beauty to the math of trading.

[01:36:59] The math of trading is just beautiful once you understand the math of trading. But the math of trading requires small losses and periodic large gains. That's the only way the math works. And so the temptation to take a profit every time you take profits. And believe me, Kevin, when I was wrong 19 out of 21 trades, my temptation on that 22nd trade that was a profit was to take it and run.

[01:37:27] But it's only because that 22nd and 23rd trade, I avoided the temptation to take profits. And the only reason the numbers work. And perhaps those 19 trades that were losers, maybe you had an opportunity to take a small win. But you had the discipline not to. Yeah. Yeah. Yeah. I've heard it put this way, Peter. You know, you got small wins, large wins, small losses. But you got to avoid that big number four, which is the large losses that you pointed out.

[01:37:57] So, look, Peter, you've been so gracious and spending so much time instilling wisdom into us. This may be the largest, the longest episode that we ran. So, hey, traders, if you're still in here and you're listening, comment below 50 years for us so we still know you're here and you're in it for the long run. Not for the quick win, but for the long run. So, Peter, we'll end with this. You know, the single most important takeaway, you'd leave the next generation of traders. What would that be?

[01:38:27] Be patient. You're treating as a marathon. Take small losses. Learn from your mistakes. Avoid taking small profits and see what happens. Don't watch the screens during the day. Don't be a day trader. Learn the whole positions. And I think you start stacking things in your favor. Excellent. Well, Peter, where can the traders find you if they want to follow your work?

[01:38:58] You know, I'm on Twitter. You know, Peter Brandt, at Peter Brandt. On Twitter, they can find me. It's the Factor Report. I mean, the Factor is my company. And it's the trading I do is for the company account. So they can find me on Twitter. They can join. You know, I look at Twitter. And one of the things I say, who are these million people?

[01:39:21] I mean, I don't see that what I have to say to people is actually worth having a million people want to hear it. So I'm just, you know, my grandkids, they called me and said, you know, Papa, you've got a million followers. And I kind of go, huh? I mean, who are these people?

[01:39:41] So, you know, anyway, I think for people who want to hear about risk management and dealing with their emotions, I have things worthy to say. If people want to hear about my next trade, I really, they don't need to follow me. I do post charts from time to time that I think are interesting. You know, I post charts that I think are the type of charts that are patterns that I base my trading upon.

[01:40:10] I don't make recommendations. You know, I do not make recommendations to people. But I do comment on the process of trading and on the agonies and on the wins, on the losses, on, you know, going through hard times. How do you withdraw? How do you go through a drawdown? You know, what's it like to have 20 straight losing trades? What does that feel like? You know, how do you deal with that? You know, those are the things that I really want to teach people.

[01:40:40] You know, they can find their big, brilliant trade from someone else. I don't want to have to be the person that brings it to them. Excellent, Peter. Well, traders, we'll put those socials down your website and X account below in the description. So, traders, you can follow Peter's work. And thank you to the listeners that made it to the end of this episode. Thank you, Peter. Of course, incredibly kind and gracious of you to share so much of your wisdom with us. Traders, that wraps up another episode of Chat with Traders. Thank you again, Peter.

[01:41:09] Until next time, maybe in 10 more years. We'll get you going here. I got this to work. It's good that we got this to work. I'm glad that we finally did. And, you know, we were able to connect. And that's awesome. Amazing. All right, traders. Thanks, Kevin. Take care. You've reached the end of this episode of Chat with Traders. But rest assured, there are more episodes loaded with real market insight and zero hype on the way soon.

[01:41:37] So to stay updated with each great new release, subscribe to the podcast. And we'd love it if you'd leave a rating and review. We'll catch you next time on Chat with Traders. Chat with Traders.