Live Reading of Phantom’s Book
Welcome to the live reading with question and answer about Phantom of the pits book
I found Phantom of the pits a couple of years after I started learning about trading, and it was after I lost all my money, twice while I was first trading Commodities Futures contracts in 1990s
I had learned all about entry patterns, but I hadn’t learned anything about risk control
When I created the course I reorganized all the information I learned and placed it into the order I wish I would have learned it rather than the random way I picked up these lessons over the years
Phantom of the pits is organized early in our trading course to establish a foundation that will help ensure success with the rest of the course
many people joining us have experience with trading already, Phantom of the pits will take a bit of study to get the profound shift this makes for your odds of success
some of you are new to Trading and I hope that learning Phantom of the pits approach at the start will save you years of struggle in your Trading.
Before I begin let me ask
the people on this call would you consider yourself beginner intermediate or experienced in trading? this will help guide this call to the information that may be more relevant to the audience
Chapter Two – The Book
: Behavior modification, without doubt, is the key to trading success — not only in how we think but also how we act in certain situations. We must adapt to changing situations over which we have no control. We must change the situations over which we do have control.
first access to behavior modification as a child. Example
Chapter Three – A Little History
POP: I am asked for advice often, but I don’t like to ever give advice. I only like to give guidance, as all traders must make their own bed. They must make their own efforts to learn. It is their decision as to how they will make their plan on trading. I can help guide them away from bad behavior, but it is their own determination that makes them a success.
POP: No promises, no requirements, no false hopes and no undue influences. Exactly the way it should be. Traders must make their own millions. I only need to be responsible for keeping them in the game forever
POP: Most important, they must learn that they don’t have to make SELF-LEARNED mistakes. They are always better off to learn from OBSERVED MISTAKES. It can be pretty costly to make mistakes in this business. You cannot really tell someone what to do, but often if you guide him or her, they will be more receptive to making the right decision.
POP: You see, if I am selling to take profits, I am aggressive in doing just that. It is that I have a position to get out of
Chapter 4 – Preparation For Trading
The requirements for completing a job.
- First, you must be properly prepared.
- Second, you will do the work and,
- last, you will do the cleanup.
Get the right chair – Phantom recommends a slider-rocker chair – for behaviour modification training every moment of the day.
First, in your trading career you will find that the markets go back and forth without going anywhere a lot of the time. Your slider rocker chair will remind you of this every time you use it. That step is important to drill into your thinking. Your chair will not move around the room but will rock back and forth. Second, in your trading you will find you do not ever control the market but only your position. Your chair is the same way as you can stop your position wherever you wish. I want you to drill that into your thinking also. I will repeat what I just said because it is important. You can stop your position wherever YOU want! You wouldn’t think of letting the chair oscillate if you didn’t want it to. Same in trading. You can stop the market’s oscillation any time you wish. Simply stop (remove) your position.
A clock that talks – When the time announces itself, you must realize you are required to work with your positions and not let the market work on your positions.
POP: You must establish a routine to set up the environment of each trading day. Allow at least one hour prior to the opening of your market. In this hour you should exercise from 10 to 20 minutes. This really does keep your mind sharper.
The next thing after your shower you should spend one or two minutes giving thanks to your higher power and explain what you are going to do with the funds you earn. Don’t be selfish about it. This actually gives your subconscious a reason for being a successful trader.
POP: The next thing I suggest is to get a favorite book to read. On bad days, instead of coulda-woulda-shoulda, you must expel your feelings of defeat as soon as possible because, if you don’t, it will affect your next day’s trading. Read that book if just for 10 minutes. Make it a routine.
The last thing I suggest is to pick out a person you admire most in your life for their accomplishments. There is a great deal to be learned from the person you admire most. You will need to understand your ability to become an admired person if only in your own mind.
Chapter 5 – Rule Number 1
This day is an example of the reason for this book. The grain market did a total surprise on most traders. A great number of traders got what we call “killed” today in the grain market. Most all of the new traders are now wondering what they did wrong today. There isn’t anything they did right today because they most likely don’t know what the right thing is.
Many traders — and most new traders — aren’t even aware the market can do what it did to them today. I have often said the BIG money is on the surprise side. I should perhaps have said the BIG LOSERS are on the familiar side or the popular side of a trade. I call that the expected side.
It is not what the trader does with his trades until the market starts a big move like today’s. That’s what separates the big winners and big losers.
There are traders who, because of today, can’t make their next month’s car payment or their house payment now. It just didn’t ever occur to them that what happened today was even a possibility. They were over-positioned, even though they thought they had a good protection plan
Everything they did was based on their thoughts of how much they could take out of the market today. Their trades are designed to lose but not because of the good traders or the way the market works but by their own hand. The worst part is they don’t even know it was at their own hands
It is sad anytime a person’s heart gets pulled from their dreams but even worse when they lose money, too. Sometimes they lose a fortune in such a little period of time. It has happened to every trader. It happened to me when I was smarter than the market.
Why does it happen? Mostly because a trader’s plan doesn’t consider, “What if I am wrong?” Their thoughts are always expecting to be right. Herein is the key to being a successful trader. I have learned this over and over again in my trading career. I haven’t found one trader to tell me what I am going to tell you.
In trading, if you have bad luck, you will eventually have to stop trading. To be prepared for that bad luck is a requirement in trading. You will not survive if you do not plan for bad luck. My first steps in trading remove the bad luck altogether.
We must plan for that assumption in trading as long as it is a possibility and not just when it is probable. This is a very important point in understanding Rule Number 1 correctly!
This will be the surprise side in trading The surprise side is a possible outcome but not a very high or likely probability like today’s grain trade. When someone gives you a gift, you are surprised by it. Getting that gift was not a high probability. However, you are prepared for that surprise because you say, “Thank You!”
Most traders plan only for the probability side
and that, to them, is always what they consider the winning side.
This is the biggest mistake you can make in trading.
Instead, you must plan for the losing side.
Trading is not a favorable game in most circumstances, and that is what we must use as our assumption in trading. The big mistake made by traders is thinking and expecting trading to be a favorable game.
The correct way to control positions is to only hold them once they prove to be correct. Let the market tell you your position is proven correct, but never let the market tell you that your position is wrong. You, as a good trader, must always be in command of knowing and telling yourself when your position is bad.
You never want to be in a position that is never proven correct. If you only get out when the market proves you wrong, it is possible to have higher risk due to the longer time period required to prove your position wrong.
The market will tell you when your position is a good one to hold. Most traders do the opposite of what is correct by removing positions only when proven wrong. Think about that. Your exposure and risk is much higher if you let the market prove you wrong instead of your actions removing positions systematically unless or until the market proves your position correct.
So here is Rule Number one:
In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct! Positions established must be reduced and removed until or unless the market proves the position correct!
(We do not assume we are correct until proven wrong.)
(We allow the market to verify correct positions.)
It is important to understand that we are saying the one criteria for removing a position is because it has not been proven correct. We at no time use as criteria for removing a position the fact that the market proved the position incorrect.
There is a big difference here as to how we treat all positions from what most traders use. If the market does not prove the position correct, it is still possible the market has not proven the position wrong. If you wait until the market proves the position wrong, you are wasting time, money and effort in continuing to hope it is correct when it isn’t.
How many traders ever hoped it wouldn’t be proved wrong instead of hoping it was correct? If you are hoping it is correct, it obviously wasn’t ever proven to be correct. Remove the position early if it doesn’t prove correct. By waiting until a position is proved wrong, you are asking for more slippage as you will be in the same situation as everyone else getting the same message.
What makes this strategy more comfortable is that you must take action without exception if the market does not prove the position correct. Most traders do it the opposite by doing nothing unless they get stopped out, and then it isn’t their decision to get out at all — it is the market’s decision to get you out. Your thinking should be: When your position is right, you have to do nothing instead of doing nothing when you are wrong!
ALS: Yes, but who is to say a position that was not proven correct turns from a bad position to a correct position?
POP: That is the kind of thinking most traders have. They fear being wrong when they get out and that the market will show them they should have stayed with the position. If they don’t take early losses, it becomes more difficult to take a loss as it gets larger. However, the market assumption you must make is that big losses will eventually take you out of trading.
My Rule Number 1 is to address the swiftness needed in keeping your losses as small and quick as possible. It won’t always prove to be correct, but you will stay in the game this way.
Which would you choose? You have an opportunity of a 10% probability of making money in the long run if you take a position until you have lost 10% of your equity or made 10%. Or take the opportunity to have a 90% probability of making money if you only keep a position for three hours unless it has proven to be correct by that time. It is pretty clear which choice you would make.
Most traders don’t know what their choices are when it comes to assumptions about what is possible in trading
The theorem now is to assume your position is wrong until the market proves what you positioned is correct. Keep your losses quick and small. Don’t ever let the market tell you you’re wrong.
Always let the market tell you when your position is correct. It is your job to know you are wrong and not the market’s job.
The other side of the coin is that you will get positions that are correct. You must be bigger at that time. This will require a Rule Number 2, which is designed around adding to winners in an unfavorable game to come out ahead in the long run. When you are correct, you must continue to use Rule 1 to keep losses small. It’s okay to be wrong small but never okay to be wrong big if you expect to trade in the long run.
Chapter 6 – Rule Number 2
Press your winners correctly without exception.
Sounds pretty elementary but correctly is the key. What you hear quoted most of the time is “cut your losses.” Cutting you losses is only one side of the coin. Without Rule 2, you will find that trading still isn’t even a 50/50 game. Without a correct method to press your correct positions, you will never recover much beyond your losses. You need rule two to ensure you have a larger position when you are correct.
There certainly will be debate on how you know when to add to a correct position and on how a market can turn a correct position into a wrong position.
Rule 2 does not mean just because you have a position in your favor that you must now add to that position. “Correctly” in Rule 2 means you must have a qualified plan of adding to your position once a trend has established itself. The proper criteria for adding positions depends on your time frame of expectations in your trade plan.
You might be a day-trader just trading back and forth, a short-term trader, weekly trader, monthly trader or trend trader only . The add criteria will be different for each trade plan.
Rule 2 is important for it keeps you in a good position as well as impresses upon your own thinking about having a correct position initially. Most traders are conditioned to want to take a profit to prove to themselves that they are right. Being right does not, in itself, make the most amount of profit.
Most traders also want to get out before the market turns and takes away any profit they may have. Ordinarily, they will let losses get larger but only let gain get started before getting out.
Correctly adding to a proven position must be done so that a pyramid isn’t established that will hurt the trader in a minor reversal. Each add onto an original position should be done in smaller and smaller steps.
As an example, if you put six contracts on as your initial position, you should use four contracts for your first add and two contracts for your next add. This gives you twice the original position when all three positions are in place. This is a 3:2:1 ratio in establishing three levels of positioning.
Without exception the rule indicates it is not an arbitrary decision on the trader’s part whether to add. Keep in mind this does not exclude the correct method of adding in respect to variables of different trading plans. What is a correct way of adding in one trade plan may not be in another.
Reviewing Rule 2, it states only that you must add to correct (proven) positions and that it must be done correctly. The rule does not tell you how to add, as this is your requirement in the trade plan you develop. The rule makes no exception on adding to correct positions.
The intent of Rule 2 is twofold: Reinforce your correct position both mentally in your thinking and your execution and increasing the size of your position.
Trend traders will get larger when they are correct, but day-traders will start larger and get smaller when they are wrong. Daytraders can be large when they are wrong, but trend traders will never be large when they are wrong.
These two rules are to give you the long-term ability to continue to trade with the least amount of drawdown and the best possibility of making the most money in the long run. Huge drawdown is the critical reason some traders go out of the business. You must start your trade plan with rules created to protect your equity. I am presenting those rules to incorporate into your plan. Experience has proven these rules a necessity in survival and reaching your objective of making the most return with the least amount of risk.
Follow UP On Rule Number 2
we must address Rule 2 when creating the trading plan before the trade is placed. It is a solid rule and its importance cannot be diminished in trading. Until you see the reward from Rule 2, it is very difficult to understand
Many traders will leave a plan to add to winners on the back burner when it is time to add unless you fully understand the need for this rule.
I believe most traders want to have a certain size position, and that is the position they place from the start. This is not a correct way to allow you to use Rule 1 and definitely Rule 2 properly. When you see an expected move from the start of trading, your thinking is counter to ever adding in the first place.
True, you should be at least twice as big or larger when right than when wrong, but you must work that position into your trading plan. You never risk it all on the initial position being correct or you are defeating the rule.
I want the traders to ask themselves two questions:
“Do you put only part of your expected position on from the initial entry?
“Are you planning for adds prior to your initial trade?”
If the answer to either of these questions is no, then you must go back and rethink your trading program. I have said it before. If you can think it, you can do it.
Perhaps the traders aren’t thinking it to begin with because it certainly is not expected thinking without the proper planning.
Traders love to be right.
This is your enemy . . . to love to be right. Your motivation must be to love to do the right thing in trading by either reinforcing correctly your position or removing it should it not prove to be correct.
By incorporating Rule 2 in your game plan from the start, you will be eliminating the desire to be proud when the market moves your way and want to take profits to show that you are right.
You will become the best trader you can be by being wrong small, not right small! Get that in your mind now. You are going to have to press your winners if you really consider yourself to have the ability to make a living or extra income from trading. Otherwise, face the truth that you are only playing to break even.
You must understand that you are not the one who will determine your market position size. It is going to be the market and must always be the market. Rule 2 is going to tell you to put a complete plan into effect before taking the initial position.
Over Trading
I cannot help you with over-trading or being under-margined. You must correct that situation before you can ever expect to be on even ground with the big funds. You must at all times be able to put only a portion of your expected position on at entry and be able to at least double your size somewhere along the route of an expected move.
The protection is Rule 1, but the biggest protection is Rule 2!
Now I am going to tell you why Rule 2 is the biggest protection of all.
You never suspected what I am going to point out.
You have all heard that you should not add to a loser! Well, Rule 2 takes care of that from the start by keeping you with a smaller entry position in the first place. You never have your entire position until you are getting the move you had expected.
Now, why would I encourage you to have half of your total position at entry?
Because it is a losers’ game from the start and you knew that from Rule 1. Now, from Rule 2, you find out that, to trade it correctly, you were never really suppose to have your initial position upon your entry of a trade.
Traders are over-trading most of the time when they say they can’t seem to justify adding to an existing position.
Most of the time a trader does not think about the reason for adding because they have their initial position on from the start. This is their maximum risk from the start.
That is never what you want in trading. You must take some risk but never your maximum. That is exactly what they are doing if they cannot plan for added positions along the way.
Chapter 7 Trading With Rules 1 and 2
Most of your money from trading is going to come from trades that take off rather quickly from when you put them on. That is the reason Rule 2 is so important.
As crypto traders, we are after a better return than most would consider fair in any other investment. That is another reason for creating Rule 1. You are expecting a big reward and fail to see the big risk that faces you at first.
Peace of Mind
A trader must know and accept what the market can do along the damage side to equity, to mental peace and to self-esteem. Every day is a big surprise in trading. You must plan for the surprise from the time you put your position in place.
Rule 1 is the rule that keeps you in control at all times when that position is in place
With Rule 1 you are freeing yourself from having to feel bad. You put the trade on based on the trade plan. The market either confirms and you now have a good position, or it doesn’t confirm and you are not okay with the position and you get out.
Simple! Only a big deal if you don’t get out when it isn’t confirmed as a good position
The logical step is to have the plan in place for the next step before you put on the trade. I would guess that 95% of the traders put the trade on and then wait for the market to prove they have a bad position. Even if the position is correct, their next step is wondering when to get out. It’s human nature to do it their way. It causes a lot of unsuspecting reactions in their lives.
The time to get out of a position is not when the market is proving your position to be a correct one. You have the opportunity to be wrong as often as correct, but when you are already proven correct, this is certainly the time to step off of first base. We have two rules to keep us protected from our lack of certainty and enforcement of certainty.
Many trading plans have the trader in a position at all times, the thinking being that the market is either going to go up or go down. Well, this is just absolutely an idiot’s plan.
When you take a position, do you feel you have taken a good position?
POP: Never! Do you understand my NO? If a trader thinks at any time they have a very good trade, they are going to get removed from trading very quickly.
I make the best trade on my trade probabilities program, but who is to say my guess is better than someone else’s?
Never do I know it is a good trade until it proves to be. To feel you are making a good trade is signing your death warrant in trading.
The majority of traders do certainly feel they have a good handle on a trade and are only putting on good trades.
Markets go to extremes, and that is certainly a challenge in always being right. Once we know markets go to extremes, we can put that on our side and exploit the advantage. Very few traders exploit that advantage. You must press your winners with Rule 2.
It’s perfect as the best time to learn about trading is when the market is closed. Most traders only learn when the market is open, and what a mistake that can be! It can be costly and emotional.
There are no long-term trades!
Only trades that turn into long term held positions.
Don’t ever let anyone tell you they have a long-term position on at any time.
How do they know? How does anyone know? Only the market can tell you,
Next – Start into Part 4 of 6!