336 · Scott Pulcini - I Was the Algorithm Before Algorithms Then I Had to Start Over

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[00:01:32] [SPEAKER_02] And there was another time too, so I was telling you about this guy used to trade against the other local, right? 990, you can look him up, you find him in a second. He used to be the biggest market manipulator ever. And I mean illegal manipulation. He saw I was loaded up with 3000, then he would start to push it in my face, push it in my face. Because at that time, and he always would do it right around 10, 15, 1230 central. To this day, it's not, that's where I've thrown away millions of dollars. Do not trade at that time of day if you can avoid it, right? That's my best advice for that too.

[00:01:59] [SPEAKER_02] Anyway, it was one day where he had done it again. I'd lost like 400 grand. And this is when Dr. Brett was there and he can validate the story. He was there. I was so pissed off. I was literally, because they were in Chicago too, this firm. I was leaving my firm to go physically pummel this dude. That's how upset I was. I was going to go to the firm and this guy was going to get killed, basically.

[00:02:22] [SPEAKER_02] And this is why I was able to scalp as large as I got to at that time is because there was no spoofing per se, right? Like it was, if you saw a thousand lot in the order book, it was a thousand lot. If you saw 2000, very rarely was it spoofing. If it was spoofing, it was basically me, right? Back then, spoofing was legal. So I knew everybody's house number, right?

[00:02:42] [SPEAKER_02] So the guy that I used to go head-to-head against was 990. Anybody traded back then knows exactly what I'm talking about because he ran the show. That guy could put on 6,000 contracts and I could put on three. He's one of the reasons I got knocked out of the game. I don't need to share names, but he was, to this very day, if I ever see him, it's not going to be pretty. But that's the moral of the story. It's like you can have the best edge in the world and think you've made it.

[00:03:04] [SPEAKER_02] And all of a sudden the rug's pulled and it doesn't work anymore. You need to find something else that works or you're out of the business. That is the biggest mistake that traders make. They skip trades because they feel like something is going to happen. That is the, again, what did I just say? 80% of my feeling, and I used to be one of the best feelers of the market out there, it's wrong. I'm wrong 80% of the time. I'd see him buy. I'd see him put like a 500 lot in and I'd ping it. It's him. I'd have some orders resting. He was sweeping my orders. I would see it's him. I'm like, okay.

[00:03:32] [SPEAKER_02] Then what he would do, he would drop it. All of a sudden you'd see in the order book, thousand, thousand, thousand, thousand out of nowhere. And then someone buys a thousand. Someone buys a thousand. So I'm like, what the hell is this? I mean, I knew what it was after a while. The guy was buying his own orders for himself, making it look like somebody was buying a lot of orders. And then all these traders would jump on and say, oh, look at all this big money they're buying.

[00:03:54] [SPEAKER_02] And then it would run into his orders. It's kind of like the algo games now that they play. And then he'd have all his offers above. It'd run into him. He would beef up the bid, which was fine. That was the spoofing part. So he would cross his own orders, beef up the bid, force traders to chase it up. Then he'd get filled and he'd just yank everything. And it was like a big vacuum, right? So the point is he was crossing this one orders, which is the most illegal thing you can do in the market.

[00:04:18] [SPEAKER_01] Markets, speculation and risk. This is the Chat with Traders podcast.

[00:04:26] [SPEAKER_03] All right, traders, welcome to an exciting episode. They're all exciting, right? Chat With Traders. Today we got Scott Pulcini. Now he's been trading for 25 plus years. He started in the, what was it, the late 1990s, early 2000s. He was trading a lot of volume, guys. He was trading 10% of the E-Mini S&P.

[00:04:47] [SPEAKER_03] Now back then that was 50,000 contracts round trip a day. And at that time, like 2003, for example, $10 million he made. He was swinging big. So he had a gift of being able to process information. This is something I want to talk to him about. And somebody very famously wrote about him, Dr. Brett Steenbarger, who many of you know, top trading psychologist. Scott Pulsini was featured in that book, Enhancing Trader Performance.

[00:05:16] [SPEAKER_03] I want to dive into that, but his story really is going to resonate with a lot of us. It's really a rags to riches to rags to riches kind of story. I mean, perhaps we don't trade 50,000 contracts a day, right? So we're not similar in that approach, but I want to discuss with him how to level up in our trading, how to size up from one contract to 10 to 20 to 50,000, 100,000. But it's important.

[00:05:45] [SPEAKER_03] And a lot of the conversations I've had with guests on Chat with Traders has been getting through a level of discomfort to find that success. If you're trading in comfort and complacency, it's hard to level up and grow to the trader that you want to become. So Scott's always been a scalper, by the way, high-frequency trader. He's always done this. I want to talk to him about that. The edge has changed, but Scott has not. So Scott, I'm going to stop rambling. Let's let her rip, Tater Chip. Scott, how are you?

[00:06:14] [SPEAKER_03] Welcome to Chat with Traders.

[00:06:16] [SPEAKER_02] Great. Thanks for having me, Kevin. Appreciate it.

[00:06:20] [SPEAKER_03] So for our audience, the traders that don't know Scott, tell us a little bit about your journey. I mean, it's been over 25 years in the making. What has been consistent? What has changed?

[00:06:33] [SPEAKER_02] Well, nothing's changed, but everything has changed. Yeah, I got in the business. I worked at Chicago Board of Trade for about four years. I was an arb clerk. If you've ever seen the movie Trading Places, the hand signal stuff, that was me working for a broker. An extremely stressful job at the time, but it got me battle-tested for trading. And then I had a couple of close friends from college and high school that were there.

[00:07:01] [SPEAKER_02] And then a guy from the Board of Trade started his own trading firm called King Street Trading at the time. And one of my buddies, I begged him for months to get me a job there. I wanted to leave the floor, and I knew that's where trading was going, the electronic side of things. So he finally got me in there, and I started at this trading firm. And back then, it was the Wild West. There was no education. There was no nothing. It literally was just half in the pit, half on the screen. And it was literally guys in the NASDAQ.

[00:07:31] [SPEAKER_02] They were putting orders, offers, 100 points apart, bids and offers. And they were getting hit on both sides. That's how crazy it was at the time. And so guys were making money, and so I wanted to get in there and let the story out.

[00:07:45] [SPEAKER_03] That was an edge in and of itself, having a spread that wide.

[00:07:48] [SPEAKER_02] Yeah, it was ridiculous. I mean, you literally, a monkey could have done it, right? So that's what gave me motivation, too. I saw some of these guys that were making money, and a few of them weren't the brightest bulbs in the box. So it's like, okay, well, if these guys can make money, I know I can make money, right? So then I was all going, oh, I sit down. My very first day trading, I lose $2,500 trading one lots. And that's scalping one lots. That's very, very, very difficult to do, right? At $1,250 a tick, you've got to lose a lot to lose $2,500.

[00:08:16] [SPEAKER_02] So I basically almost got fired from my first day because I think the limit for new traders was two rants. I had already violated that. And I just fired someone for doing the same thing, I think, just because of my relationship, that they didn't fire me after that very first day. And I went another two months where I didn't have one winning day ever, not one. So I'm about to get fired again. And then I went away on a fishing trip and read the book, Reminences of a Stock Operator,

[00:08:44] [SPEAKER_02] written in the early 1900s, which is still prevalent today as far as the trading psychology and everything else. So I read that. My buddy, who's the one that got me the job at the firm, he told me to read it. And so I read it, came back, and the 9-11 happened. And they shut down the markets for a week. And I wanted to do something. I was about to get fired. So I'm like, I got to try to figure something out. So I started trading the German DAX overnight just to try to find some kind of edge.

[00:09:14] [SPEAKER_02] And I started seeing some stuff in there. And German DAX was like, you know, do you think NASDAQ's wild? That thing was like all over the place. So I started seeing some tendencies. And when the stock market futures and stuff opened back up about a week later after 9-11, I started to implement what I learned in the German DAX and the E-Mini S&P. And all of a sudden, like, the light went on. Like, I just started seeing these tendencies, especially, like, with the first-in, first-out game. Back then, it was 1,000 lots up, right? So I can put my order in. And I didn't know exactly where I was in the queue.

[00:09:43] [SPEAKER_02] Like, you can see today with the CME MBO data. You can see exactly where you are in the queue. Back then, I would know. Like, I would get in, and I'd see thousands pile up on top of me. And then I'd know if I got filled, I was wrong. But, you know, I thought I was going to make it just turn around and peel out on the remaining size.

[00:09:59] [SPEAKER_03] How did you know they were not spoofing, though, those orders?

[00:10:02] [SPEAKER_02] Well, because spoofing, that's the thing. Then this is why I was able to scalp as large as I got to at that time is because there was no spoofing, per se, right? Like, it was – if you saw 1,000 lot in the order book, it was 1,000 lot. If you saw 2,000, very rarely was it spoofing. If it was spoofing, it was basically me, right? Back then, spoofing was legal, right? And there was another guy from another firm that was even bigger than me.

[00:10:27] [SPEAKER_02] But spoofing was not illegal back then, meaning, you know, you could put – if you didn't have intention to trade, you could put the 1,000 lot in. And I do this game all the time, right? I would like – I'd say I get long, I'd buy a bunch, and then I would just stack the order books with anything I had left. You know, I could trade up to 3,000 contracts at the time. So I'd say I buy 1,000, and I'd stack like 500, 500, 500, and make people like – even though I didn't really have intention in trading it, I was trying to scare the market in my direction. So that's called spoofing, right, if you have no intention in trading.

[00:10:54] [SPEAKER_02] And so, again, they did not allow that until 2007, 2008-ish. But I used to play that game all day long. But back to your question, you know, in the order book, if you ever want to do a webinar, I can actually show you some screenshots of what the order book looked like and my orders in there and stuff. But the orders were real. So that's how I was able to scalp so large because if I jumped up and bought 1,000, I'd look below me, and I'd see 2,000, 3,000, 2,000, 2,000. And I'm like, okay, if I'm wrong, I can peel out on these guys, and I have very little risk, right?

[00:11:23] [SPEAKER_02] So that's why it was a viable thing to do back then. But nowadays, I love how you're conditioned and immediately say, what about the spoofing? Because that's all it is now, right? You can't rely – first of all, it's a bunch of 50 lots and 20 lots up in the E-Mini S&P when it used to be thousands, right? And even if you see a big order in there, most of the time it comes to that price and they just pull it, right? So these algos just are running the show in most of these markets most of the time, right? So yeah, that's what I –

[00:11:51] [SPEAKER_03] You were recording all this data back then because you just mentioned you can show me a lot of those orders, and I know Dr. Brett Steenbarger was saying that about you as well. You were all in. You were recording everything and studying at night. I mean is that what gave you an edge above everyone else at that time? You were all in.

[00:12:09] [SPEAKER_02] Oh, absolutely. So that's why he asked if he could put me in his book because his book is about – it's about elite performers across industries, right? Like there was a Michael Jordan excerpt in there and like violinists and ballerinas and stuff like that. Like people that excelled got to the top of their field. So that's why it's not just about trading. It's like what did these people do to make it, you know, to be elite?

[00:12:33] [SPEAKER_02] So he had – you know, he obviously knew what I was making and then he started to see like – so at the time, I literally would just take a video recorder, put it over my shoulder, and I'd just video record every single day. And then I'd go home and I'd watch it because it was a big poker game, right? And back then, it was even more of a poker game because you can see counterparty who you traded with. So if I traded, jumped up and bought 1,000, I can see immediately was it a local down the street? Like what they call them locals, the guys that – like I was. Like I was in the market all day every day. That's a local. Or was it paper?

[00:13:03] [SPEAKER_02] How would you see that? Because when you trade into them, you see their house number. So I knew everybody's house number, right? So the guy that I used to go head-to-head against was 990. Anybody traded back then, that was exactly what I'm talking about because he ran the show. That guy could put on 6,000 contracts and I could put on three. He's one of the reasons I got knocked out of the game. I don't need to share names, but he was – to this very day, if I ever see him, it's not going to be pretty. But anyway, I could see him and I could see like – for instance, so if I would jump up and I buy – 1,000 and I would see it was him.

[00:13:33] [SPEAKER_02] I'm like, okay, I know his tendencies. Here comes the poker game. If I jump up and buy 1,000 and I'd see it was a house I've never seen before, it's like, okay, I better get out of these. I don't want to mess around. This person – this firm could have 10,000 more behind him, right? So I don't want to mess with this guy. I don't want to mess with this firm. I want to wait until it's just locals and then I can screw them out and play the poker game type of thing. So you were able to see all that information and shockingly, they pulled it, right? So I guarantee you the big houses didn't want that information out there. The CME is, you know, they're there to make money.

[00:14:03] [SPEAKER_02] They make money by commission. They're going to listen to whoever their biggest commission players are. So they pulled that data. So I couldn't see that anymore, and that was just kind of the start of the whole – my edge just disappearing, right? And that's the moral of the story. It's like you can have the best edge in the world and think you've made it, and all of a sudden the rug's pulled and it doesn't work anymore, and you need to find something else that works or you're out of the business.

[00:14:25] [SPEAKER_03] In enhancing trader performance, Dr. Brett Steenbarger actually discusses perhaps one of the mistakes made was expecting, like, the old market to return versus kind of adapting, you know, with it. So how important is it, do you think, then, to adapt with the market? He actually gives a really good analogy of Nolan Ryan. Preserve the underlying strengths and find new ways to express them, and maybe that's why he brought to you –

[00:14:54] [SPEAKER_03] I mean, he's the one who mentioned this MBO data, right, recently to you, because you're not really trading entirely different, right?

[00:15:03] [SPEAKER_02] No, I am. I mean, I'm not a short-term scalpel. I have a certain trade called the ATR reversion trade where I'm looking for these MBO data, which is the most powerful thing I've ever seen as far as an edge in the markets. And talk about an edge that has lasted. This has been almost nine years in running that I've been trading this edge. It's this data that – this enhanced data that CME released that shows these iceberg orders. That's the big money putting in their orders.

[00:15:30] [SPEAKER_02] They have to – they hide their orders, and so they just have to display a certain percentage of their order, right? So say if they want to buy 1,000 in the order book, it just looks like there's 100 lot there, right, in the home depth of market. Then it comes down and gets traded into it. Then the other 900 populates. That's why it's like running into an iceberg, right? Why do they do that? For the same reason that I got knocked out of the game. So if you're trading these algos, if they see this size, if someone comes in and drops – right now, if someone comes and drops 1,000 lot in the EME S&P, these algos will front run that order trying to make that big entity chase.

[00:15:59] [SPEAKER_02] So the game is they see the big order. They put in offer, offer, offer, offer way above, and then they front run the order trying to make this entity chase it into their offers, right? So that goes on all day every day. So that's why these big firms are using these iceberg orders, right? So –

[00:16:16] [SPEAKER_03] Okay. But that's similar to even 25 years ago, you were finding the big money. Like you said, the ID. Now we have this idea. We know he's got the money, so we kind of want to step out of the way of him. So it's a similar game, right? But now we have the algos kind of involved where you had so much edge in processing all this information. I mean, that's the edge, right, that kind of goes away with the algorithmic trading. But you're still identifying where the big players are.

[00:16:46] [SPEAKER_03] I mean, your volume is the most important part to you, right? It's less indicators for you. And studying – are you in a trade right now?

[00:16:55] [SPEAKER_02] Yeah. I just got a – so I got a short crew, long NASDAQ. So it's fine. I'm used to – this is all I do, right? I do my trade room, and I'm always on webinars.

[00:17:04] [SPEAKER_03] It was green, right?

[00:17:05] [SPEAKER_02] Yeah. But if you're going to hear noises, you're going to hear my fills, and you're going to hear book map. We call them book map Bob. He actually announces when there's a stop by spur event. So you might be hearing that on this webinar. So I apologize on this podcast. So –

[00:17:17] [SPEAKER_03] As long as you're green, that's A-OK. Always.

[00:17:19] [SPEAKER_02] I don't think I've ever been red, actually.

[00:17:22] [SPEAKER_03] Just kidding. So – but volume is mainly what you're looking at, right? Less everything else. And because you said – actually, candlesticks are a byproduct of the volume. I actually had a conversation with Steve Nissen, the father of the candlesticks recently. Fascinating and incredibly thankful for his work, too. But volume is what you're looking for.

[00:17:42] [SPEAKER_02] Absolutely. The main drivers of the market, I don't care what level you're looking at. I don't care what indicator you have on the chart. It doesn't matter unless there's volume there confirming it or not confirming it. So the two biggest things that drive markets are volume and volatility. That's where you need to identify – that's what you need to identify to be an effective trader and look for your edge. So – and it's not for me. I say it all the time. And it's not for me to tell traders what areas they think are important or they think there's the edge. That's fine.

[00:18:09] [SPEAKER_02] What I'm saying is confirm your areas with volume and volatility, meaning, you know, when you put on a trade. So you have so many traders that love these static trades, right? Like, well, when I trade NASDAQ, I like to risk 20 points to make 60. Well, that's great when the ATR is 20. You know, a five-minute ATR is 20 points, meaning it's rotating about 20 points every five minutes. If you're risking 20 points in a 90 ATR market, which we've had quite a few of them last year with all the news nonsense,

[00:18:37] [SPEAKER_02] you're almost 100 percent going to get stopped out just from the random rotations because it's so volatile. So you've got to know the volatility, you know, and your sizing correctly to that volatility. Yeah, so like I was saying, you know, the areas that traders – it's not for me to tell you guys, to tell the traders out there what areas they deem important. That's fine. What I'm saying is demand, you know, volume in that area. And the way I judge the volume is with the stop iceberg information, the CME, MBO data, the enhanced data.

[00:19:05] [SPEAKER_02] And then you also need to know the volatility of the market because if you're just using these static stop, if you're trading in a volatile market, you're going to get stopped out most of the time if you don't understand that. So those are the two biggest drivers of the markets in my sense.

[00:19:19] [SPEAKER_03] Yeah, there's a huge complaint out there because of the choppy markets at times. And the traders really need to understand that ATR to avoid some of that chop.

[00:19:30] [SPEAKER_02] Yeah, ATR is one of them, and they also need to recognize relative volume, right? So the relative volume – and I use a Sierra chart where they show you the relative volume for the exact time period of that day, and I look back 30 days, right? So relative volume is under 100%. You're very, very, very likely going to get this choppy whipsaw trade. And we actually have a trade for that. In Bookmap, that's my main platform I use. They actually have all these awesome algos. They're called Market Pulse. They have these different algos.

[00:19:59] [SPEAKER_02] One of them is called the Price Change Indicator, and that is just golden when nothing's going on. You'll see it's like I have set for five minutes, just the default setting if you get it. Every time the market moves too far too fast, based on the last five minutes, these algos come in and snap it back the other way. So then when you start, I posted something on my X feed if someone wants to go on there and look at it from NASDAQ a couple weeks ago. But it's just – you can scalp with that too if you're a scalper type trader.

[00:20:26] [SPEAKER_02] But you'll at least understand what I tell traders all the time too. Like even if you're getting frustrated and not trading it, at least you can see why the market is doing what it's doing, right? A lot of traders are getting in these position. Traders are looking for big moves, and then the relative volume dies down, and it starts to chop around. And then you can at least see the price change game like, okay, I know why this is doing this now. So you can either just not be annoyed or you can actually join in with them and make – I call it scalping around my position.

[00:20:50] [SPEAKER_02] So if I'm long and it starts to die down and it starts to do the price change game, I can get out of a portion, get out when it moves up, get back in when it moves back down. And then I can catch my R on those rotations versus trying to catch one big move, which may not happen for hours if it happens.

[00:21:08] [SPEAKER_03] Yeah, in that chop, a lot of traders are getting like wicked out essentially. They're setting their stops. They're getting wicked out constantly. Are they being hunted? Talk to us about hunting stops. And are you at the point where you – do you place hard stops?

[00:21:24] [SPEAKER_02] Yeah, I do, and I get ticked out constantly. So I'm using the zone drawing tool. So again, the CME MBO data is the enhanced data that I use that identifies not only the icebergs but stop runs with 100 percent certainty. So instead of – I've seen some educators out there like when the market makes a high – oh, those are stop runs. Well, they don't know for sure. With this MBO data, they 100 percent – you 100 percent know whether it's a stop run or an iceberg order, right? So –

[00:21:51] [SPEAKER_03] Is it because it knows the historical information based on if somebody's placing either just a stop or a limit or what that order is? It actually reads that exact order?

[00:22:02] [SPEAKER_02] Yeah, well, it's an order – it's a specific order that's put in through the CME, and then they broadcast that information, right? So it's got an order ID attached to it. So Bookmap, you know, from nine years back, they found a way – it's actually longer than that – they found a way to disseminate that data, which shows us on their platform where these stop runs and these iceberg orders occur. So it's literally order ID numbers, and they know based on the order type what it is. Right.

[00:22:30] [SPEAKER_03] Well, that sounds like a significant edge. I mean, in trading equities at just the basic level two data, you can see volume increase, but you don't necessarily know. I mean, it doesn't sound like it's as in-depth as perhaps your level three data where you know what these orders are. You can see speed on the tape, and you can say – you can basically guess is that stops getting taken out.

[00:22:54] [SPEAKER_03] But you know for certainty with these icebergs and the stop runs, these are stops, and these are big players that are holding this level.

[00:23:04] [SPEAKER_02] Right. Exactly. That's the whole key, right? So usually stop runs, I call it the dumb money, and don't be offended if you're a retail trader. That's the retail trader. I'm a retail trader nowadays too. But usually stop runs are just the retail trader puking out. Well, what does that tell you? That's important most of the time. Again, nothing is 100% trading. Most of the time it's just retail traders puking, and you'll get a reversal, right? Because that's not initiative buying. It's not big money coming in buying. It's puking. So that is information in its own right.

[00:23:32] [SPEAKER_02] If you're looking at it, again, it could be whatever you're looking at that you think is important, Bollinger Band, Fibonacci level, whatever, and you want to go short, then all of a sudden you see a buy stop run. You're like, okay, now I really want to go short if this validates the other way, and I have ways to validate the stuff. But now you know, hey, that was not initiative buying. That big green candle was just a puke, guys puking out. It's way more likely to reverse. Now this happened in my area that I wanted to short anyway. Now I have myself at a real edge, right?

[00:24:02] [SPEAKER_02] So that's what I'm referring to.

[00:24:04] [SPEAKER_03] Yeah, and you've talked about different – there's balancing and trending. So personally, like I like to avoid – I mean you can – certainly I know you have many edges, but I love the puking because that's part of how I trade too, where I'm waiting for essentially 90% to exit their position, right? You're waiting for that versus taking the comfortable trade. I was kind of alluding to that in the introduction too, how trading what is comfortable oftentimes puts you apart of the 90%. Do you find that to be true?

[00:24:30] [SPEAKER_03] If it's a comfortable trade, perhaps maybe you're in the balancing there among the 90%. Yeah.

[00:24:36] [SPEAKER_02] Well, yeah, that's what I say all the time. The worse the trade feels to me most times, especially nowadays, like I used to be almost solely a debt trader, like literally just watching – I didn't even have charts up. That's how simplistic my trading was. I was just trading straight off the order book, straight off the dome, and that's more gut feeling, like watching the orders come in and out. Nowadays, I say my gut feeling is wrong 80% of the time, right? Because they're designed to like do opposing of what – how traders think. Wow.

[00:25:02] [SPEAKER_02] So, yeah, it's – I'm very regimented now and very rules-based with my trading versus trading by the –

[00:25:10] [SPEAKER_03] Rules-based. Man, and in the book Dr. Brett Steenbarger wrote, he said, I have here, your intuition became automatic. So back then you were able to basically trade off of intuition, right?

[00:25:22] [SPEAKER_02] Oh, yeah. That's how I made millions of dollars, right? And then again, it just stopped working, right? So, yeah, I did it for years and years and years, and then it just stopped. So the moral of the story there is traders just always have to be ready to adapt. It doesn't mean throwing in a new indicator every three days that you think is going to work. It means watching stuff. So a great example of this, right? So the stop iceberg information has been the core of my trading for eight, nine years now.

[00:25:49] [SPEAKER_02] Now, this options flow is – it's now, I want to say, close second if not tied for the number one thing driving the markets. It is – talk about manipulation. It's kind of like me getting a taste of my own medicine. Like I said, I used to be one of the biggest manipulators out there. Nowadays, I mean, this hero flow. So the flow is the options flow from – it stands for hedging impact of real-time options. It's from Spot Gamma. They're like the gold standard in the option stuff, right?

[00:26:17] [SPEAKER_02] So this hero flow is the tail wagging the dog. So what happens is these entities come in – and again, it's the newest manipulation, especially at this time of day. This is when they really, really dominate. They come in, and they'll load up. So say they start selling options. They're either buying puts or selling calls. Well, the dealer's on the other side of that, so the dealers are long. Well, the dealers are not directional traders, so they have to come in the futures or an individual stock, and they have to hedge themselves. So all they do is load up the dealer.

[00:26:46] [SPEAKER_02] The dealer has to hedge, and then they drive the futures trading. So it's not the other way around. It's not the futures driving the options. It's the options driving the futures. And you can watch this hero indicator from Spot Gamma for three minutes and be like, this is unbelievable. Like it's whatever – I mean, every blip in it, and again, it's easy for me to show you if you ever want to do another webinar where I'm showing stuff. But every blip in that thing, it's what the market does most of the time, right?

[00:27:10] [SPEAKER_02] I'd say between the algos, like the price change algo that we talked about and these other algos in there and the options flow, it's 95% of the trade every day. You do get pockets like 5% of the time where you get the program buying or selling. That's the big funds coming in and buying baskets of stocks, and they've got to get their business done. And like I said earlier too, you can usually identify that by the heavy relative volume. That means something bigger is going on. But most of the time, and that's what trading is, you're just playing probabilities.

[00:27:37] [SPEAKER_02] The probability is most of the time it's this hero flow or these algos.

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[00:30:34] [SPEAKER_02] There is sometimes, but I haven't seen that much of a correlation. Meaning, yeah, I mean, the other thing, too, is you need to know these GEX levels, right? So these gamma levels. The gamma levels are where you know the dealers are going to be hedging, right? So the hero flow is as they're getting loaded up right now, these gamma levels, they have them for the longer term options levels, and then they have zero data expiration. Again, that's the biggest game out there. But one, you want to know where these gamma levels are because they're like magnets. Like I was talking about the heavy resting liquidity before. The market will travel to them.

[00:31:03] [SPEAKER_02] And then there's support and resistance because you know at least the dealer is going to be hedging there. They don't always just hold perfectly. But most of the time, more often than they don't, a.k.a. trading edge, they hold because you know the dealers have to hedge there, right? So now you can imagine having that information at a GEX level. Then you have, and I say you're watching it now, buy iceberg comes in at the same level. Now you got yourself. I call that actually a sexy GEX-y. It's one of my strategies, right?

[00:31:30] [SPEAKER_02] So it's like the minute I see it, I just jump in the trade. So these are just all things that traders need to know about or you're just flying blind.

[00:31:38] [SPEAKER_03] For the traders listening that maybe can picture what you're saying, what's your confirmation on entry, though? So you see these levels. Do you place your orders with the resting liquidity or do you wait for it to confirm before you enter?

[00:31:55] [SPEAKER_02] Yeah, so I have two different types of trades. So I have three trades where I call it auto entry, meaning I'll jump in right when I hear the event fire off, whether it's a stop event or iceberg event, depending on my strategy, right? So there's only three of those that I will take where I'll jump in right in the middle of the zone. Why is that? Because, again, this is trail and error. I've traded hundreds of thousands of these, probably millions of these in the last nine years, right? So I know the tendencies. So when I first saw this stuff, the stop iceberg information introduced to me by bookmap,

[00:32:24] [SPEAKER_02] Bruce from bookmap, he kept telling me about it. And then I finally got on with him. He's like, look at this, how ridiculous this is. I'm like, this is crazy. This is the strongest edge I've ever seen. But I've learned by trial and error the best way to enter these trades. I used to jump in every, like if I see sell ice, I just jump in and sell, right? So that's another thing that the listeners need to understand. And just because you see a sell iceberg, yeah, the big money's selling. The big money's not right all the time. Every time they put a sell ice order in, they're right more often than they're not because of the big money.

[00:32:50] [SPEAKER_02] And if they keep putting sell ice in, sell ice, sell ice, the market will eventually relent. But it doesn't mean it works every single time. But it does behoove you to know where the big money's playing, right? So I have three strategies where I'll get in right in the middle of the zone. And then the other ones, again, this is from trial and error, where I force the market. And this is going back to what we were talking about, about the volatility.

[00:33:13] [SPEAKER_02] Where how I validate these areas is when I get the iceberg event, stop an iceberg event, I wait for it to push that five-minute ATR that we were talking about. If it's able to push, fight the algos and push that far out of the area, then it has way, way higher of a tendency, aka probability, to continue in that direction. So that's how I validate the area, whether it can push the five-minute ATR out of the zone.

[00:33:36] [SPEAKER_03] You said something interesting about getting away from the algos fighting each other. Does most of that happen in that balancing? And that's why you're waiting for the move outside of that, the 5% ATR?

[00:33:49] [SPEAKER_02] No, I mean, the volume events aren't necessarily balancing. That doesn't have to be a balance area. But, you know, I do pay attention to balance areas. So, again, that's important because balance areas are just traders placing bets, buys and sells, buys and sells. Not all balance areas are created equal, though, right? When you look at a cattle sector, they all look the same. But you can have a balance area that there was really low relative volume, and it was just, you know, price changing back and forth, back and forth with nothing going on,

[00:34:15] [SPEAKER_02] versus a balance area that there's 6,000 buy ice in that area, right, or in that balance area. So not all are created equally. So you need to be able to discern the difference between the two when you're looking for bigger moves. But, yeah, I mean, just because it's an event, a stop iceberg event, doesn't mean it's necessarily balancing.

[00:34:32] [SPEAKER_03] Okay, I see. That's a good question. Yeah, and, you know, without the data, you got the CME MBO data. Do you think there's any value? I mean, I know a lot of traders like to look at the book, but with so much spoofing going on there still, I mean, I know you're – the intention, right? The intention to actually get the shares is what traders need to do legally, but we still see that going on. Do you think there's value in reading the book outside of the CME MBO data?

[00:35:01] [SPEAKER_02] No, I get this all the time. That's what I tell traders. I can't tell you how many times a week I get contacted by traders asking me how do they trade the dome depth of market, right, the order book. You don't, right? Again, I used to be one of the best in the world at it. There's a reason if I made millions of dollars doing it. So if I'm not doing it, it's probably telling you something, right? I'm not saying there's not some Saman out there that can watch this stuff. But, again, I was one of the fastest clickers in the world, and I couldn't compete with the algos because I'm not faster than a computer.

[00:35:31] [SPEAKER_02] If you think you're going to look at the order book, especially, you know, like right now, look at the NASDAQ. It's like 12, 14, 15, 16 lots up. It's like, and they're being put in pole, put in pole. It's like there is no benefit of watching. There's no edge anymore in that, a consistent edge. Yeah, you can get lucky for, you know, a week or maybe a month. I don't even think you can do it that long. But I don't look at that anymore because there's just not a discernible edge. That's why I look for this as it doesn't seem to be MBO data.

[00:35:59] [SPEAKER_02] And I do have ways to scalp it, too, but not through the order book and not in my opinion anyway. And, again, I used to be best at it.

[00:36:05] [SPEAKER_03] Yeah, I mean, you're the best to get that advice from. So I want to learn about how the Scott of today was made. You know, let's go back in history once again. And, you know, you had those years where you were making a significant amount of money. You try to stick with that edge and the market kind of changed. Looking back, for example, you took some you took a few months, right, where you had some significant losses.

[00:36:33] [SPEAKER_03] When you reflect on those months, what could you do? I mean, obviously, it's easy in hindsight to say. But do you think do you think that there's you should have like did you have a max loss in place, for example? Did you have a max loss? Do you suggest this max loss on the day, max loss on the account? What are your thoughts on on just stopping on the day, stopping yourself from yourself?

[00:36:57] [SPEAKER_02] 100%. That's the most if anyone takes anything out of this out of this podcast. It's number one, right? You have to have a stop limit in place. And the best way to do it is through your firm, meaning, you know, in your mind what you can lose on a day. That's not going to hurt you, you know, overall. And it should be no more than, you know, six, five, six percent of your account size. And so you should be putting on one and a half, one, one to two percent on an individual trade. And if you hit six percent, I know that's only three, technically three losing trades.

[00:37:27] [SPEAKER_02] Right. But you just got to stop yourself. And the way to do it is, again, I love the quote from I always use the Mike Tyson quote. Everybody has a plan and they get punched in the mouth. So it's like it's very easy to sit here and say when you're not being emotional. Oh, yeah, I don't I don't need to put it in with my trading firm. I know if I lose if I lose a thousand bucks, I'll just shut it down. Trust me, you're going to have a day, especially if you're a trader and you're competitive. Most traders are competitive where you're going to they call going on tilt. Right. And you're going to have a day where you get so pissed off or you get screwed.

[00:37:56] [SPEAKER_02] You get headline. Right. So that's all that's been going on here. And you're so mad. And it's like you just turn into a different person. So now you're going to make me tell the story, the most painful story of my trading career of of not not not respecting this rule. Right. So I had so when I got to my height, this is 2004. So 2003, I made 10 million bucks. So now we're in 2004. Right. So my daily loss was one hundred thousand dollars with my trading firm.

[00:38:25] [SPEAKER_02] So not they were supposed to stop me. Like I said, you know, I'm supposed to stop myself, but they're supposed to stop me, too. Right. So now I have two layers of protection. So I don't have these type of days. This is a great example of negative reinforcement. So what had happened is it was like February of 2004. I had, again, a hundred thousand dollar loss limit and I blew through it. So, you know, before that, before I established myself, if they if you hit that limit, your firm, my firm would just shut me off. I couldn't even place it. I go to click and order and nothing would happen.

[00:38:55] [SPEAKER_02] I get on the phone. I'd be like, what's going on? We shut you down. You're at your limit. Fine. That's what they're supposed to do. Right. Well, it got to the point, a.k.a. negative reinforcement, negative reinforcements when you do something that's wrong in trading and get away with it. Well, of course, you're going to do it again. Right. Because you got away with it. So there were so many times where I would lose the hundred thousand dollars like before 10 o'clock. And I'd be like, I would just get up and leave, go take a break, you know, go back to my condo, take a nap or whatever I needed to do. And I come back level headed in the afternoon. I say, hey, I call the risk manager.

[00:39:25] [SPEAKER_02] Hey, could you give me an extra 50 grand? You know, I'm back in my own mind. Like I'm not losing my mind. Could you give me 50 grand? So many times I take that 50 grand, I make back the 100 grand and then I'd like end up up 200 grand on there or whatever. Right. So they got to the point where they would just trust my judgment and not shut me off. So that first day in 2004, I had 100 grand. They would call me. So just shut me off. They call. I mean, yeah, I got it. I'm fine. Hang up. Right.

[00:39:51] [SPEAKER_02] Because I'm pissed off. That day I lost eight hundred thousand dollars in about four minutes. So, again, should have been shut off. I should have stopped myself. Impossible when you're on tilt. And then the thing is, too, both of these times, it was even more embarrassing. It happened a month later. The exact same thing happened to me a month later. Firm calls. Yeah, I got it. Lose another eight hundred thousand dollars. Right. When it is both of those days, I woke up the next morning and I literally said, what did I do?

[00:40:21] [SPEAKER_02] Like, who was that person? Like, you know, I don't remember like, well, how could I have let this happen? So the moral of the story is it's going to happen, especially in this environment. You are going to have a blowout day. I don't care who you are. It's going to happen. Make sure you don't lose. Don't don't be me. Right. If I just were respecting my loss limit, I would have an extra one point four million dollars in my bank account. Right. So the moral is it's going to happen to you at some point.

[00:40:48] [SPEAKER_02] Have your protections in place and have them in place before you're emotional, because you're not going to be able to control it. But there's going to be at least one time. You're not going to control it and you're going to pay the price dearly.

[00:41:00] [SPEAKER_03] Even 25 years later, does that still ring true? Do you still use protection even these days?

[00:41:07] [SPEAKER_02] Yeah. I mean, I can control myself nowadays a little bit better. Right. But, yeah, I still, you know, with the trading firm that I have, I have shut off limits. Right. So if I hit six percent of my account size, they just shut it off. And there's no there's no reasoning with them. It's like it doesn't reset until the globe opens back up at five o'clock. But, yeah. And that's the way you have to have it. Just just know there's always another day.

[00:41:33] [SPEAKER_02] There's thousands and thousands of trades in your lifetime. There's going to be another day. Just you just say today's I don't know what this is. I don't know what's going on. And you're going to have it. I have the best edge on the planet, in my opinion. And there's days that I just say, I don't know what this is. This makes no sense. You know, it's a headline. It's the options flow, whatever. Just say I'll see you tomorrow. It's just like an athletic event. Right. When you go out and play an athletic event, you go play a golf game or a tennis match. You don't just sit there and keep getting your head kicked in. Say you're betting money, playing these 40 events.

[00:42:03] [SPEAKER_02] You don't just stay out there for 24 hours just getting crushed. You just be like, all right, you win. I'll see you tomorrow. We'll meet up again tomorrow. That's how you have to trade trading. Like you got to treat it like an athletic event. Like you're not going to win every single day. Just say you got me today. I'll be back tomorrow. We'll meet up again.

[00:42:20] [SPEAKER_03] Yeah, you got the you got the Callaway hat on. So I know that not a paid product placement. Yeah, exactly.

[00:42:28] [SPEAKER_02] I've been paying a lot of people on the golf course, too, getting upset.

[00:42:32] [SPEAKER_03] Yeah. I mean, what tells you these days? I mean, 25 years later, do you still get tilted? Because some traders are under the belief like, you know, one day I'm going to escape being tilted.

[00:42:44] [SPEAKER_02] Yeah. I mean, the things that tilt me now that set me off my triggers are the stop-offs to the ticks. So with the stuff I'm using and we have this own drawing tool that draws the CME and data, the events right on the heat map. And these entry points and the stop points that I base off of this information are ridiculously accurate. Like it's maddening how accurate it is. So I cannot tell you. I have a collage.

[00:43:08] [SPEAKER_02] So for the last year, I have over 150 stop to the exact tick. The market turns around and goes exactly where I thought it was going to go. And I'm not talking area. I'm talking exact price. That's my trigger. And I try my best. It is embarrassing, too, because I have a trade room. I get I trade live every day, twice a day. Right. And I get on there. It's like the first one happens. OK. Second one. Third one.

[00:43:39] [SPEAKER_02] The thing that traders need to know. Right. You do not pretend like you're not mad or emotional in trading. Right. You don't you don't internalize it. Keep it inside. Get it out. I don't know. My way is I just talk. Talk. I just bit broken monitors. I did it before I was on my podcast or even better. My webinars. It's even better now because I'm talking to myself anyway. At least I'm talking to somebody. But even back when I was at my trading firm, I had my own office. Not many people did at the time because I kind of earned it. Right.

[00:44:08] [SPEAKER_02] I was number one trader there. But guys would walk past my office and they'd hear me just talking, talking, talking, talking, bitching, bitching. And they go into the owner's office and like, who is Pulsini talking to in there? He's like, oh, it's this imaginary friend that he talks to. So that that was I've been doing it for 25 years. That's how I get it. Right. That's that's my puking, if you will. Like, that's how I get it out of my system. Some some traders have to get up and take a walk. Some traders have a squeeze toy, whatever, whatever you need to do to get it.

[00:44:36] [SPEAKER_02] Get out and not just act like it's not bothering you. You need to figure out that in your trading life, like what you need to do. Again, go work out whatever you need to do. Mine is just incessantly bitching, incessantly bitching. So, again, I what did that look like after the $800,000 losses?

[00:44:51] [SPEAKER_03] What did that look like for Scott?

[00:44:54] [SPEAKER_02] Oh, well, that day I used to be an immature screen breaker, too. So I literally shattered like four screens. Like the risk manager came into my office. I literally was like, look at this. The candle was like this big. And that's what I lost in it. And I ripped off the through the monitor against the wall. It was it was really bad. Right. So and then there was another time, too. So I was telling you about this guy used to trade against the other local. Right. Nine ninety. You can look him up. You find him in a second. He used to be the biggest market manipulator ever. And I mean illegal manipulation.

[00:45:23] [SPEAKER_02] We can get into that story, too, if you'd like. But anyway, there was one day that he had run. So remember, I said it was a poker game. Right. So he knew he knew he knew my my firm number. Right. We were 023. That was King Street Trading. And he knew or actually it was the clearing firm where we traded. ABN Embraer was the trading firm. So anyway, he know when he had me caught because you could see he saw I was loaded up with three thousand. Then he would start to push it in my face, push it in my face, because at the time and he always would do it right around 10, 15, 12, 30 central.

[00:45:53] [SPEAKER_02] To this day, it's not. That's where I've thrown away millions of dollars. Do not trade at that time of day if you can avoid it. Right. That's my best advice for that, too. Anyway, it was one day where he had done it again. I'd lost like 400 grand. And this is when Dr. Brett was there and he can validate the story. He was there. They I was so pissed off. I was literally because they were in Chicago to this firm. I was leaving my firm to go physically pummel this dude. That's how upset I was. I was going to go to the firm.

[00:46:23] [SPEAKER_02] And this guy was going to get killed. Basically, my my boss and Dr. Steenbarger had to physically accost me at the door so I wouldn't leave to go kill this dude. That's how I'm talking about going on tilt. That's the ultimate. Right. When you want to go kill someone, that's that's not that's not a good tilt. So but that's just one of the stories and how emotional, you know, my triggers. Right. So I don't get that bad nowadays. There are some days I get upset, but not like that.

[00:46:50] [SPEAKER_03] I feel like we need to put a hotline number at the bottom.

[00:46:53] [SPEAKER_02] Well, I mean, it's all very embarrassing stories, too. Right. But it's just it's good for people to learn. Like it's very possible for this stuff to have. Oh, I love that. You're dealing with money. It's all relative, too. Yeah, that was hundreds of thousands of dollars. But, you know, it could be one thousand dollars for somebody. Right. If that that's a lot of money to them. Trust me, the triggers are the same. And it's that when that's the other thing, too, that's what allowed me to get to a big size in my trading is because for me, it's about being right or wrong. It's not about the amount of money I would lose. Right.

[00:47:20] [SPEAKER_02] So and that's why a lot of traders can't can't size up, because the minute they do, they they start to panic and they can't trade that big a size. For me, I could trade in between if it was a one lot or a thousand lot, it felt the same to me. It's about being right and wrong.

[00:47:34] [SPEAKER_03] Huh. OK. Yeah. I mean, for the traders that are listening and they do want to size up, but maybe for them it's not right or wrong. I mean, how can they get to that mindset, Scott, where they're thinking less about the money and more about the trade and the money ultimately be in the byproduct of that trade?

[00:47:53] [SPEAKER_02] Well, you have to get to the traders have to get there or they're never going to be a good trader. When I and I joke because I was a Star Wars nerd. Right. When I finally took off as a trader is when I turned off the targeting computer. Remember when Luke Skywalker blew up the dust star at the end when he turned it off so that when I finally turned off my P&L and stopped staring at my every tick, every dollar tick, that's when I finally took off. I just trusted the process and there would be days. Of course, you're always going to know where you're at. And that's why. And if you're losing, that's why you're stopped. Because if you're stopped, limit, then you're done.

[00:48:22] [SPEAKER_02] But I would turn it off and I would just trade, trade, trade, trade. And there's days that I thought I was up like, you know, 50, 80 grand. And I look at my P&L is up like $240,000, things like that. It's like, wow, I had no idea. That's when you if you can get to that point where you stop because because when you're staring at the money, you start to think about your the money and real world terms. And Trading in the Zone talks about this, too. You cannot think about by Bart Douglas, the second best book that you can get. That's enhancing trade performance.

[00:48:51] [SPEAKER_02] But if you start thinking about your trading in real life terms, that's when you're a panicky trader because you're looking at the P&L like, oh, my God, I'm up my car payment and my and my house payment for this month. And oh, my God, I just gave it back. I got to get up. Right. You cannot you cannot make it in this business looking at your P&L like that. So the best advice I can give there, just turn it off. Have your loss limit in. So if you have a bad day, just shut off. You don't even need to see it. And you'll be shocked if you turn it off and you just trade. You just trade.

[00:49:20] [SPEAKER_02] Don't start to lose track of where you are as far as being up. You look at the end of the day, like you just follow all your rules and you put the trades on. You'll be shocked. Like you'll have days like you make five, ten times more.

[00:49:32] [SPEAKER_03] This is Kevin. We hope you're enjoying this episode so far. If you are, take a second to leave a comment. We read them all and truly care about what you think. And if you haven't yet subscribed to our email list, visit chatwithtraders.com and click subscribe so we can keep you posted on information that matters. Now back to the chat with our guest. Go through that for one of your trades, Scott. So you see the iceberg coming in. You see the stops taken out. Do you start with small and build a position on it?

[00:49:59] [SPEAKER_02] Walk us through a trade. So a trade is, you know, for me, I have. So for instance, I'm only risking not only I'm risking $500 per trade per strategy. But I mean, there's times like today right now, I have three different crude short strategies on. So I was basically risking $1,500 on the trade. Remember, I got knocked out of the business. It's not like I was a million dollar trader where I got back in and I was able to put, you know, huge money in an account. When I got back in, I actually didn't even have enough money to put in an account because I got knocked out 2013.

[00:50:27] [SPEAKER_02] You know, fast forward six, seven years later, Dr. Brett contacted me on Bookmap and I got back in the game. I was trading Apex, you know, the trading funding company to try to get, I didn't have any money to put in a trading account not to trade seriously, right? Nowadays, I did have a friend back me for a quarter million bucks and I still trade the Apex and I copied to that. But the point is, you know, I'm risking, for instance, 500 bucks and I have built in the zone drawing tool. Again, this is on Bookmap. You go to Bookmap Marketplace, you can see it's called Scott Zones.

[00:50:57] [SPEAKER_02] If you guys want to see that, but you need the NBO data and everything else, just contact me if you want to learn how to get all this set up. But the point is with the zone drawing tool, and this is so important. So this zone drawing tool helps eliminate almost all the issues why traders don't make it or blow out, right? One, it shows you the area, right, the important area to trade, the edge. It shows the volatility. So it's showing you where you get in an ATR or get out an ATR, and then it shows your position sizing. So I know automatically looking at the zone drawing tool, again, it's hard to just talk about it versus showing you.

[00:51:27] [SPEAKER_02] But it shows me if I want to risk 500 where I'm entering a trade and then stopping out and it's all based on the ATR stuff and the zone information, it tells me exactly how many I can put on to risk 500 bucks. So it's like, it's very, very rules-based, regimented. It's like, I get in here, I get out here, I know I could put on this many contracts, and then I just let the trade work. That's what I mean. You have to be like that. So that's what algos do, right? Algos don't trade emotionally.

[00:51:55] [SPEAKER_02] Algos know where they put it on, know where they get out, and that's what they do. And when I say they, obviously it's impersonal, but the point is that's why algos make money. So if you want to make money in the markets and beat the algos, you have to trade like an algo. That means you have your exact areas you get in, get out, and you know your sizing, and then you just put on the trade. Whether you feel like it's going to be a loser or not, that is the biggest mistake that traders make. They skip trades because they feel like something is going to happen.

[00:52:25] [SPEAKER_02] That is the, again, what did I just say? 80% of my feeling, and I used to be one of the best feelers of the market out there, it's wrong. I'm wrong 80% of the time. So the way to combat that, I tell my traders too. So I can't tell you how many times I'll be on a webinar and someone will say, oh, yeah, I suck. Because I'd be like, okay, I'm long because the guys are following my strategies. I'm like, everyone's long with this strategy. That's trading the strategy, correct? And then a guy will be like, no, I didn't take it. Like, why did you take it? Because it was ripping up and I just didn't feel like this one was going to work.

[00:52:55] [SPEAKER_02] I'm like, okay, well, first of all, that's not following the process, right? You're not trading like an algo too. This is the best way to think about it. If you're so sure you didn't get along there because you didn't feel like it was continuing to go or whatever, then you should put your entire life worth, net worth on the short, right? Because you know what's going to happen next, right? No, you don't. That's why you just put on the trade because you don't know what's going to happen next, right? So all this stuff is also laid out in Trading in the Zone by Mark Douglas, right? Oh, yeah. You don't know what's going to happen next.

[00:53:25] [SPEAKER_02] He used an analogy between a happy dog and a dog that bit a kid and how once the kid got bit, he was afraid to start. He didn't run up to dogs anymore. It's the same with trading, right? You have winner, winner, winner. Oh, this is great. And you have loser, loser, loser. That's like getting bit by the dog. Now you're afraid to put on the trade. So the biggest thing, though, I bypass in all this, you have to have an edge. You have to have a viable edge that works. That's what I teach my traders. That's the thing.

[00:53:52] [SPEAKER_02] You come in my trade room, you may have a lot of issues in your trading. You don't have to worry about if there's a marriage. This is an edge. It's a proven edge. And it's nine years running and strong. So now you've already knocked that domino down. You got that done. You have the edge. Now you just have to put the trade on. It doesn't matter, though. I can show two traders, three traders, the exacts, which I do every day. I show them the exact trade, where I'm getting in, where I'm getting out. Out of the three, they all have different results. One guy doesn't put it on. Another guy puts it on, panics out. The other guy, we're a huge profit.

[00:54:22] [SPEAKER_02] So again, it's all dependent. You get to the point where you're regimented and you trade like an algo.

[00:54:29] [SPEAKER_03] Yeah, I love that. Mark Douglas, I'm a huge, huge fan. Love his books. And you mentioned there. This is something I want to dive into a little bit, too, because it sounds like you maintain a consistent sizing. I just I've spoken to a lot of different traders. More recently, Jeff Holden, where he says you got to swing on the A plus setup. But I know Mark Douglas discusses work in probabilities, not having expectations, as those are a visual representation of what you think is going to happen.

[00:54:57] [SPEAKER_03] So are there ever any times where you do lean into a position, maybe an iceberg is building or you size up? Or do you keep across all your strategies? Do you keep that consistent risk across all of them?

[00:55:11] [SPEAKER_02] No, you have to. You have to definitely go for it. The A plus. So I have a plus trade, which I learned. So when I got back in the business, remember, I said I got knocked out when I got back in. Dr. Brett was with SMB Capital. They trade stocks. So I actually trained with them for close to like six, eight months that I was going to trade stocks. And that's where I learned about the A plus setup. So they actually ground their traders. So they want their traders to lay out. And I'm sure you talked about this. Lay out their A plus setups.

[00:55:39] [SPEAKER_02] If they don't trade bigger when they get their A plus setups, then they literally get grounded the next day. They have to get put on the simulator the next day or the next week or whatever it is. Right. So, yes, you want to be consistent with your sizing. But when everything is in line, you know, confluent per se. So, for instance, I do every morning I look at structure. So I look. We talked about balance areas earlier. Right. That's the biggest thing you can look at. Markets are either trending or they're balancing. Trending or they're balancing.

[00:56:06] [SPEAKER_02] Well, they're trending when they break out of balance because whatever was wrong in that area needs to get that all out. Right. So I'll use balance areas and how the market's responding to those areas to give me a thesis. So my thesis is just it's just a guess based on what I think should happen based on these balance areas in my experience. So now I have my thesis when the volume event matches the real time volume, which is the most important. So that's happening right now. And that matches my thesis. That's when I go for it.

[00:56:33] [SPEAKER_02] That's when I trade two, three, four times bigger normal size because you've got to go for the throat. And they all talk about it. SMB talks about it. Dr. Brett talked about it. He's a curse of the event. You've got to go for it. So, yeah, you want to be consistent when they're just normal trades. But when it's all online, you've got to take your shot.

[00:56:55] [SPEAKER_03] But have the conviction. So there's a couple things here, Scott, I want to look at. It sounds like you have to have the conviction to put on the trade. A lot of traders, they may have conviction, but they don't execute on it. But then also, like Peter Brett told me recently, of course, he's known for in the Unknown Market Wizards, the strong opinion but weakly held. You know, there are so many out there that are brilliant.

[00:57:24] [SPEAKER_03] There could be brilliant people, Scott, but they can't execute or they need always a reason to hold on to a trade or a reason why a trade didn't work in their favor. So how important is it to have a strong opinion, have the conviction to execute on it, but just know to get out and move on. You don't need a reason for this trade not to have worked out.

[00:57:48] [SPEAKER_02] Well, that's what I say, too. So the traders or the people that tend to struggle in this business are the smartest ones, right, which is kind of an anomaly, right? So it's like the smarter you are, the smarter a trader is. This is from my experience, right? So the smarter a trader is. So we're talking like physicists, doctors, and like even lawyers. Like they want a reason for every single thing that happens in the market. And you're never going to have a reason for every movement in the market.

[00:58:16] [SPEAKER_02] And they, you know, and they, I can't tell you how many of these traders I have in my room. I have one in there now. He's been in a year and a year and a half. And he's better, but he's still, he's still pretty bad, right? Where he's just has to have a reason for everything that happens. Hat just continues to bring new things in to try to, and this isn't trading in the zone too, right? Traders feel like the more they pile on their trading as far as indicators, the better they're going to trade. It's the exact opposite, right?

[00:58:42] [SPEAKER_02] So the traders that do the best are, you know, I'm not going to say dumb, right? I mean, I'm not the smartest dude in the world. Like I used the analogy earlier, I'm not the brightest bulb in the box. But, you know, I'm smart enough and I can recognize patterns, right? So if you are a brainiac, you just got to turn it off, man. Stop trying to add in 85 things to validate a trade. Stop trying to make a reason for everything. I can't tell you. Even I'm on the bookmap, right? I do a live trading webinar, a free one for a bookmap every Thursday.

[00:59:12] [SPEAKER_02] Guys are like, what do you think this is here? Do you think the shorts are stopping out and then the big money is putting on? Like, I don't know. You're never going to know unless you're sitting next to the person. Even with the iceberg orders, they're like, well, what are they doing here? Are they getting out of the position? I don't know. You're never going to know. I know the area is important because it's an area of concentrated traders that are loaded up. When it moves out of there, I know it's going to be very likely a bigger move out of there. And we have reversion trades that come back to the zone.

[00:59:40] [SPEAKER_02] The point is you're not going to know why the guys are doing them unless you're sitting next to them or you're God Almighty. And I doubt you're either. So just trust the process. Dumb it down. Again, my stuff, when you watch me trade, it looks like I've got a bunch of indicators. I don't. It's just the zone drawing tool, my reversion lines, and the GEX levels on my chart and the heat map, right? Like I make my trading as simple as possible, and that is how you're going to make it in this business. Do not confuse yourself.

[01:00:07] [SPEAKER_03] Yeah, a lot of traders, they start their journey, Scott. And, you know, I was one of them too, where you think the more indicators you have, like you said, it's going to equate to better results.

[01:00:19] Right.

[01:00:20] [SPEAKER_03] And it's just a fallacy. It's just a fallacy. It's the opposite. It's the opposite. That's what it is. So you mentioned earlier legal manipulation. Do you want to expound on that story?

[01:00:34] [SPEAKER_02] You don't have to. Not legal. It was illegal back then. So that same trader I was talking about, I don't like to name names, but you could easily find out. He actually got banned from trading or from futures trading in like 2016 for a year or two and fined. Big deal with me. His fine was at Paltry. It's just like these biotech firms, right? Like they know they're going to get fined, you know, 10 million bucks, but they made a billion. So it gives a crap, right? So this guy was the same way. Anyway, so he was spoofing too. I was spoofing. It was legal back then up until 2007.

[01:01:02] [SPEAKER_02] What he was doing was crossing his own orders. Now that is taboo. It's always been taboo. Why would he do that? So he would wait. Again, like I said, it was around 1015, 1030 central every day. Then the reason he would wait for that is because he knew the big money was now not in there as often, right? So like that's when New York goes to lunch, then Chicago goes to lunch, all the big traders, right, from the firms. Then he would start playing his game. But what he would do is say he wanted to get long. He would start buying, start buying, right? And I would see it. I would ping every order.

[01:01:32] [SPEAKER_02] That's how active I was. Every order that I saw coming in the order book, I would just ping it with one loss just to see who it was because you could see counterparty, right? I'd see him buy. I'd see him put like a 500 lot in. And I'd ping it. It's him. I'd have some orders resting. He was sweeping my orders. I would see it as him. I'm like, okay. Then what he would do, he would drop it. All of a sudden, you'd see in the order book, 1,000, 1,000, 1,000, 1,000 out of nowhere. And then someone buys 1,000. Someone buys 1,000. So I'm like, what the hell is this? I mean, I knew what it was after a while.

[01:01:58] [SPEAKER_02] The guy was buying his own orders for himself, making it look like somebody was buying a lot of orders. And then all these traders would jump on and say, oh, look at all this big money they're buying. And then it would run into his orders, kind of like the algo games now that they play. And then he'd have all his offers above. It'd run into him. He would beef up the bid, which was fine. That was the spoofing part. So he would cross his own orders, beef up the bid, force traders to chase it up. Then he'd get filled, and he'd just yank everything. And it was like a big vacuum, right?

[01:02:25] [SPEAKER_02] So the point is he was crossing his own orders, which is the most illegal thing you can do in the markets. It's called washing your own trades or cross trading, right? So I called the CME in many times. I remember about the video recorder. I was videotaping it. I was literally narrating it as it happened. Nothing ever was like I would literally say, okay, here he is. Watch what he does here. And I would ping it, ping it, ping it. You could see the house. You could see he was doing it. We called him in two or three times.

[01:02:54] [SPEAKER_02] Nothing was ever done as far as I understood. But, you know, it is what it is. But the point is it was brutal. And that was one of the reasons I got knocked out of the game, too. You know, it was high volatility. I mean, it was a couple with low volatility and the alga was starting to take over. And then this guy didn't help things at all. Like, he's the guy. You can even see in my journal. Actually, I just did a podcast for Titans of Tomorrow. I brought my P&L books from back then. I'd have a calendar book that I would write now.

[01:03:21] [SPEAKER_02] And you should see how many days that I was just bitching about this guy. Like, manipulator got me again. Cheater got me again. Cross orders. Blah, blah, blah. So it's funny. It's not funny because it cost me millions of dollars. But it's comical to look back and look at some of the stuff I was saying back then about it.

[01:03:38] [SPEAKER_03] Do you still have the video recordings of them? Oh, yeah.

[01:03:41] [SPEAKER_02] Yeah, I have the video recordings. I actually put them on. I did one of those things where you transfer it. So I have some of those. And I have screenshots, too. So if we ever get back another webinar, I can show. Oh, okay. I can show. Actually, you can see my orders in there. And the order book, I used to use trading technologies back then. So you can see all the orders. And it was. That'd be fascinating. Traders, if you're interested in that. That's the biggest thing for traders to see how much was actually in the order book back then.

[01:04:07] [SPEAKER_02] Like the thousand lots, thousand, thousand, thousand, thousand versus 10, 10, 10, 10 nowadays. Right?

[01:04:13] [SPEAKER_03] Yeah. Traders, if you're interested in that, let us know in the comments. And we'll certainly be having a second episode coming up, Scott. So, you know, the last words over to you. I mean, what would you like to instill in the traders that maybe are just now starting their journey? You've been doing this for a long time. You know, what's the best piece of advice do you have for them?

[01:04:35] [SPEAKER_02] Well, number one, you need an edge. Right? You have to have a discernible edge. And you have to have the rules around your edge. And you need to trade the edge every time you see it. Number one. Two, you've got to protect your money. Right? We've talked all about all this stuff already. Right? Protect your capital. Some days are not going to make sense. This has been the most trying period of my 25 years, the last year and a half. Between the tariff headlines and then what we call it Iran ping pong, where every five minutes, Trump says something, the market rips off the page.

[01:05:04] [SPEAKER_02] Iran says that's not true. The market goes back down. It's been brutal. Right? So I tell traders, if you're just even breaking even the last year and a half trading futures, you're doing pretty well.

[01:05:14] [SPEAKER_03] What are you doing to manage risk in this headline ping pong? That would be just getting stopped out.

[01:05:19] [SPEAKER_02] And usually to the tick, too, like I said. But yeah, there's nothing you could do. Again, you can have the best trade on in the world, the best looking trade, and it's moving in your favor. I mean, this happens to me three times a day. It's moving in my favor. Trump says something. The thing rips off the page. Right? Now, I joke, too. It's not even a joke. It's not even funny. But they're selling the—it could be $100,000 a month to get the feed, his true social feed, like, you know, 10 seconds before it comes out to the public. Like, it's insanity. Right? But someone always knows. That's another thing, too.

[01:05:48] [SPEAKER_02] When you get the stop iceberg information, you literally will laugh out loud. LOL. Like, here comes a number at 9 o'clock. Right? All of a sudden, 4,000 bias comes in the E-Mini S&P 30 seconds before the number. I wonder if that person knows that number. Right? So it's just like—the thing is, it's frustrating, but at least you can see what they're doing. Right? With the iceberg stop. The flip side, with the headlines, there's nothing you can do. That's where you got to get your stops in, too. You put your stop in. And, like, I say every day to my traders, I said, okay, here's my order.

[01:06:18] [SPEAKER_02] I'm in. I'm in this trade. Now, I just got to hope I don't get headlined or heroed. Heroed is when you get the options game. That's the newest manipulation that we talked about. I'll show you guys that, too, if we get back on. But that's why you don't know what's going to happen next. You just put the trade on and hope that you don't get headlined, heroed, and just hope the trade works. Some trades just don't work. But that, again, the best way to think about it, the best analogy that I know of is liking it to a casino, right? A casino is consistent.

[01:06:47] [SPEAKER_02] They don't sit there just because one guy comes in and waxes them. You know, a big whale comes in and beats them one day. They don't just shut down the game and never deal blackjack again. And they know that if they just keep dealing the cards, a.k.a. taking the trade, over the long run, if they have an edge, which they do mathematically, the way the game is set up, they will make money, right? So they don't panic over a losing hand, a losing day. They keep putting the trade on, dealing the cards. And they have the rules and things like that. So that's exactly it.

[01:07:17] [SPEAKER_02] If you think about it like a casino, again, straight out of Mark Douglas trading in the zone, that's how you can internalize it and just be like, okay, I know over 100 trades, 80 of these or 70 of these or 60 of these or whatever are going to be profitable. I know I'll be profitable. I might have a string of five, 10 in a row that lose. That's my point. If you know you have an edge, you just keep putting it on. I know this is the best edge I've ever seen in my life. So I don't panic. It doesn't mean I don't get pissed at losses.

[01:07:45] [SPEAKER_02] It's even more because the expectations make it more painful because I think every trade should win because I saw – I see how powerful this stuff is. It's still not easy, but I don't skip the national trade, though, is what I'm saying. I still put on the trade. And if it's just a day like we talked about this entire webinar, if it's a day that things aren't working, all right, I've lost four in a row, five in a row. I'm done. I'm out.

[01:08:03] [SPEAKER_03] And does it apply to every market? Are you trading basically every market?

[01:08:07] [SPEAKER_02] Yeah. I mean, I have a large – so that's how I utilize my bandwidth nowadays. So I used to be able to watch these orders come in. And I process things very quickly. Well, now I don't trade off that nonsense anymore. I can watch – for instance, I'm watching crude, gold, Russell, Dow, E-mini S&P, NASDAQ, soybeans, wheat. So I – because I want to take – when I hear these events fire off, I want to take – I don't care what market it is. It doesn't matter what market it is. You need to know the threshold, meaning what is a – what's a sizable amount, a tradable amount for that market, right?

[01:08:37] [SPEAKER_02] So, for instance, I will not trade an iceberg order at least – if it's not at least 700 in the E-mini S&P. NASDAQ, it's 150, right? So you need to know your thresholds, and that's all built into the zone drain tool I've been telling you guys about. You need to know your thresholds from the market, a tradable amount, and then, you know, again, your risk and everything else. But, yeah, that's – I want to take advantage of cross markets. So I – especially on a day like today when nothing's going on, I hear soybeans. I'm like, okay, I'll go trade soybeans today, right?

[01:09:03] [SPEAKER_02] I don't trade it every day sometimes, but, you know, you just – I want to take advantage of these events. Gotcha. Yeah.

[01:09:09] [SPEAKER_03] And lastly, Scott, I mean, your resilience is very admirable. You've seen the highs. You've seen the lows. A lot of traders, they fall by the wayside once they hit the lows. I'm sure you have many stories there as well from some of your friends that maybe got out of the market and never came back. So what do you think differentiated you from them?

[01:09:32] [SPEAKER_02] Just perseverance, you know, knowing that – you know, again, I haven't – I've been through the ringer, man. I've been through the ringer. And somehow my wife's been with me this whole time. It used to be a joke, like when I first started not being able to make money anymore, I used to say, oh, yeah, you married – you thought you married Superman and you got Clark Kent, right? It was funny at first, and it wasn't funny like six, seven, eight years down the line. You know, again, I had to leave the business and go into medical sales and go kiss doctors' asses in their office every day. Talk about eating humble pie, right?

[01:09:59] [SPEAKER_02] Like these guys treat – a lot of these doctors treat their sales reps like terribly. And I had so many times I wanted to say, do you know how many more money in three years than you're going to make in your lifetime? And you're treating me – you're talking to me the way you're talking to me. It was very – I had to swallow big dose of humble pie. But the point is I just – you know, I was out of the business until I saw a book map and I saw a different way.

[01:10:23] [SPEAKER_02] When Dr. Brett contacted me, he said, this reminds me of how you used to view the market looking at the heat map and everything else. So once I saw it, I'm like, okay, I'm back. But I wasn't always like, oh, yeah, I'll figure it out. I had to get out of the business for seven years, right? So the thing is for your traders, yeah, you just got to – you know, you got to – the biggest thing is you want to be able to have some source of income where you're not just relying on –

[01:10:47] [SPEAKER_02] because if you're relying on trading to support your family and you have no other outs, like it's either you make money or you're done and your family's going under. And it's not – it's never going to ever, ever happen, ever. Like maybe one out of a thousand, I would guess. Same with gambling, right? If you – anybody who gambles knows if you have to win, you're not going to win. It's just – it does not happen. Anybody who has ever gambled at anything or traded, when you're not worried about the money, that's when things just flow. It's like, oh, look at that. Hey, I just won another thousand bucks.

[01:11:17] [SPEAKER_02] Oh, I just had another $5,000 winning trade. When you have to make money, it's just – I don't know what it is. It's something in the universe. It just doesn't happen for most people.

[01:11:26] [SPEAKER_03] Incredible story of resilience, traders. Let us know your thoughts. And, Scott, thank you so much for coming on Chat with Traders. I'm sure we'll see you back here soon. I'm excited to share this story with the traders. It's going to resonate. Resonate with me. It's going to resonate with a lot of traders out there. But last word over to you.

[01:11:43] [SPEAKER_02] Yeah. I do this every day for my trader, my trade live. And just teach my edge and come on by. I do the book map webinar. That's a free one on Thursdays, 9 a.m. Central if you want to kind of see what I do. But, yeah, come on by and learn the best edge and features trading, in my opinion.

[01:12:00] [SPEAKER_03] Yeah. We'll throw your socials down below if you, traders, you want to follow Scott's journey. But, traders, thank you for listening to an excellent episode here. Chat with Traders. We'll see you guys next time. Thanks for having me, Cous.

[01:12:11] [SPEAKER_01] 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. 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.

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