In this episode, we welcome Jake Larmour back to the podcast. Jake is a trader, investor, and public speaker. Listen in as Matt and Tim discuss how he’s approaching the markets, what he’s learned through the process and more.

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Video Transcription

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Mark: I can listen to it. Keith talking is like a drug, isn’t it?

Tim:  Yeah. Very soothing drug.

Mark: As you and I have been at this for about 15 years, Tim, and like there are very few individuals that I can just literally sit back, kick up my feet, and just listen to,

Tim:  well, it’s even more enjoyable to listen to them when we’re talking sports over a beer or politics or markets too. I mean, uh, Keith, you’re an incredible conversation. Let’s start. Very insightful. I do appreciate it too. So I’m with you. I can listen to him all day.

Mark:  I’m going to shut up. I’m going to fit in the background. I’m going to kick up my feet. I don’t want to hear what he’s doing. What he’s basically, I want to hear whatever Keith pops into the Keith King brain of his,

Tim:  Well, let’s talk you, because what I want to do here, you and I just have a conversation about the trading angles on all this and, and not necessarily the news or the current market volatility, but how do you, how do you trade in a condition like this? How do you approach a given day, a given week, the way you position size, you know, things that you’re changing with. So I just want to get your take number one during really, really volatile times, whether it’s now or 2018 when the markets were dropping, uh, or even like the government shutdown in 2012 different periods that you’ve traded over the years. Uh, number one, how do you approach a situation like this?

Keith: Oh, Tim has always, you stressed the most important thing about training when you said position sizing, the most important thing about trading is to mitigate risk. These markets lately are incredibly lucrative, but you don’t just jump in with the same position. Size is that I would have normally day trading, the volatility is four or five times higher than I was before and are sending here at chuckling. And I did mention in the prior call that I had just been away for a weekend with my three brothers and Many on any other former floor traders. And it’s just so nice. They have the words you guys have to say cause Hey, it’s, it’s all in good fun. It’s all in good nature with my brothers and the other guys, but let’s just say I don’t normally get that kind of reception when I’m giving my little philosophies on trading cause we’d like to just kind of shoot down everything that the next guy is saying. That being said, I was on trading floors from before. The days of good technical analysis before Mr bill Gates and all the other tech-heads, it really put together good intraday trading packages. They all started to hit the scene around the late eighties early nineties and at the time we always believed when you’re trading, no matter what product you’re trading shorter, longer-term, you look at multiple timeframes. You’re going to set a trade up on whatever that trade set up. The timeframe is a swing trade with daily candles, a position trade with weekly candles, a day trade, maybe 15-minute candles, maybe something smaller. Mister always set up our timeframes with five-minute candles and every institutional trader and every floor trader that was around trading in the 90s into the two thousand would have a set up on a computer similar to what I’m looking at in mind right now, along with a time frame next to that and intermediate next to that, a smaller timeframe and for day trading the markets back in those days for day trading futures for day trading commodities, it was typically 15-minute candles, five-minute candles, and one-minute candles and I’d also recommend many people scoping One-minute candles. They’re very choppy and young. You’ve got to just be used to the quick in and out the action, but I’m focusing on that middle time frame, those five minute candles all-around 2002 or 2003 I was still a market maker and myself and the other market makers realized there was a massive change coming in the industry where the New York stock exchange was no longer number one in the world of trading securities and aren’t even talking about the NASDAQ market. That’s secondary. But for New York stock exchange stocks, the NYC stocks, the trading was leaving the New York stock exchange flaw in the early nineties there was six to 7,000 human beings down there when I was on the trading floor and there were four separate trading rooms. I remember getting the word around 2001 late 2001 early 2002 that they closed off two of the four trading rooms. Eventually a third in left with John one trading room.And it was all because of the ARCA exchange, the AFCA, the OKR exchange that new stocks eventually bought out cause they couldn’t beat them so they had to join them. But in that period of time is when the high-frequency trading was being routed. So the OKR exchange, cause they couldn’t wait for a floor trader in New York to make a decision and process a trade. And by the time the broker got the trade out to the trading post and got back to the clients, you know, minute or two, it passed at least. So we went from five-minute candles being us set up down to three minutes and pretty much all the institutional firms now use a small two-minute timeframe to set up trades. The reason we have to go to the smaller timeframes, it’s all about risk. What does an ATR of any given timeframe, how much were markets moving in the crash of 2008 by pretty much?Then I stuck with three-minute candles as my entry timeframes and I’ll certainly be able to demonstrate this even live tomorrow night with the futures trading. Certainly, be willing to share some of the trades that I’ve placed, but it’s all about what is my acceptable risk going into a trade. I have to find a combination of the right timeframe in the proper position size. Say I’m not violating that acceptable risk as a floor trader, Mark, and Tim, I used to have to take very large positions against the institutions. I’ve often heard people say, Oh, market makers make money in every trade. I’m like, you know, that might be true back in the days of options market makers cause they would typically they were selling options and they were selling extrinsic value that was there had started in the trade. But stocks, that was never the case. So as a market maker, IOD has these very, very large positions where it was nothing to have like 100,000, $200,000 of risk and trade immediately.And I didn’t want to do that when I left the trading floor. So I keep my position size is smaller, is necessitated by the full utility in the markets and I’m really good at doing a couple of things. I going to say I’m very good at, but I’ll then mitigating risk. I’m very good at building profits in a trade. Um, we had a situation where, and I sent a, I should put you guys on my a text blast. I was sending out texts to a group of individuals after the second half last Thursday morning and we’re waiting for the second hall to go away after 15 minutes. And I said a text, I said, you can’t buy them right now on the first bounce. There’s always a knee jerk reaction after a second halt when they finally turn back up in a digit again today. And that was an 80 point move in the S and P. and even if you only started with a couple of contracts, there were so many opportunities in a short period of time to add to a winning position. You launched something today it’s trading high and now it’s breaking out of resistance. You buy more at a higher price B, it’s very simple. If you buy the same number of contracts a and B, your average price is halfway between but you stop is way above that. So you have no risk in these trades. You getting more aggressive in those trades. So it all begins to first progress. Do not take a train unless you understand the risk. Do not take that trade if you understand the risk, unless that risk is acceptable. So your trading plan and then three, once you were in the trade. I don’t necessarily move a stop every candle. Like I kind of advise that to individuals that trading keeps your eye on where the trade is, where the price point is. But I certainly know enough to have a stop at least a few times in a trade so that I have long since passed on any risk in that trade and that’s when I start to get more and more aggressive. And these, these things work as well while in a different way for my swing trades, I don’t take the kind of crazy position sizes I used to on the trading floor. And um, except for my core holdings, I’m not likely to even be buying a stock anymore. I’m likely to be doing options trades. And that’s been the case since I left the trading floor. But now did have those core holdings. I can share that list with the chapter unit if they want to look at it. That hit for the most part maintain bullish trends over the last 11 years. And there’s that brief little pullback in the fourth quarter of 18 and obviously this same situation running right here, but it all comes down to the fact again, that the market will give us great opportunities to profit, but we shouldn’t get greedy, especially not at the beginning of a trade. Never take on more risk and beginning of the trade to keep saying that, but it’s so true. You guys were discussing this. I see these two-minute candles have turned down very nicely. I’m starting at about three 28 to three 30 and you say, geez, how much have they moved in the last four or five minutes? One more than you would expect. The way these mock his attorney right now, they’ve dropped from 47 they’ve dropped up, they’ve dropped almost 30 points right here, and he used to take a whole day, sometimes the S and P to move 30 points that Keith, 

Mark: right now, Trump is speaking as we’re, as you’re talking right now, and he’s announcing the guidelines that they’re putting in, which are effective quarantines the guidelines. And he’s saying that this could last into July, August. 

Keith: Oh, see I, I have my pair now. Yeah, I do always have it. I always keep some business network going just so I would be aware of when something like this happening. I hear him right here talking about it. I’ll see. There we go. Because, um, I’m not sure which of the justice boys is the oldest, but of my family, the oldest brother thought he was in charge of the other brothers, which we never thought that way. And he was adamant that this whole thing was going to blow over and by April and May and the mocks would be turned right up and it was going to be happy again. But that doesn’t sound that way. If he’s talking about these restrictions playing out as far as know,

Mark:  it’s a very somber tone right now in this press conference. It is. It is a, we have to do this. We need to adjust this. If we’re good and adhere to these guidelines, we’ll get over it sooner than later, but sooner is not. As soon as we think. It’s a very celebrated call. This is, a transforming age. Uh, this is life’s changing.

Tim: Yes, it is. No, but I mean, here’s one thing. I mean going back to what we were talking about with Keith, this is you’re watching the two, three, five-minute candles. You saw it in the price action. Um, you know, Trump’s out there on TV, you didn’t even have to know it. And if you are a trader, even in the face of all of this somber tone and all of the risk to society, you still have the opportunity to sit at home and trade and make money. Keith, which I actually, as a capitalist, I still find to be a beautiful thing, you know, uh, in the face of uncertainty, in the face of fear, in the face of all these problems, there’s an opportunity to engage the markets in a way to where you can still go out there and not have to be relying on going to a job and waiting tables. Right.

Keith: That is true, my friend and we are very all blessed that we are involved in trading financial markets.

Tim: Yeah, I’m with you. You know, I’m thinking through this and I’m thinking about our community out there. Keith, you’re a veteran. You’ve mentored many, many, many, many people a day. Trading’s not for everybody. You know, I think it requires a specific type of mindset and skillset or maybe it’s not for the people who haven’t been trained on it yet. Uh, you know, you do day trading, swing trading, position trading and investing. We have long since said that in this environment, day trading is probably the way to go because of the cleanliness of the candles. Uh, I’m assuming you agree with that. Is that right?

Keith: Well, yes, I do agree with that, but that’s really how I make my living as a floor trader for 21 years. We have nothing other than glorifying day traders. In fact, I think, I think people have better skillsets to trade off the floor now than was ever possible on the floor. Again, for the fact that we got stuck in positions, we didn’t want all the time. Um, again, what I like about any trades that I do, I always feel comfortable in any single trade I’m ever, and Tim, even if it’s turning against me if the markets are trading life cause I have my out, whether they have a stop in place or I have a point in time or I’m going to exit the trade that’s starting to turn against me when markets are shut down, which obviously stock and options market shut down. I’m not saying it mitigate the risk, I’m just saying it’s not the same comfort level. I can take some pretty large positions on is trading life and have no worry whatsoever when and that that came from the trading floor days. We could trade in and out of back then, you know, half a million ship positions. But we always tried to lighten up as much as we could by the end of the day. So when I say day trading, do you know that um, if people want to give the hand a day trade, I’m going to be showing this tomorrow night, one of them, of the five times when markets are most volatile, they’re all around the opening and closing of markets and banks are, are worldwide with the first one at the beginning of a trading day. It’s not 9:30 AM East coast time. The beginning of a trading day is in the evening in both the mountain time, Pacific central and East coast. Our evenings when our friends in the Asia Pacific room start their trading days. And those used to be a little bit boring to trade because of all utility was low, but you can get in trade safely whatever products are trading at that time, currencies, commodities, futures and you can get into those trades with reasonably low risk. And yet the trends over a period of a few hours in the evening or even more than we were seeing around the opening of us markets. And I did have certainly some of my day trades progress overnighting them. My, Maggie used to refer to it as the go-to bed trade, not just in currencies but in commodities and futures while commodity futures. So if I have moved from a two-minute candle entry up to say the three to a five-minute timeframe to the 15 minute time frames, Oh, it doesn’t take much for me to just say I’m going to let this thing run an hourly candle now. And next thing you know, you have a swing trade going even in a leveraged instrument like you know, oil futures. So, um, it’s just right now with single, a lot of those I have to tighten up the stops because you have a, like last Thursday, what was it, 2300 point down day in a roughly a 2000 point update in the Dow back to back. But it’s very simple. It really isn’t. We have to always make sure that our clients, your clients, I realize that just have strategies that you completely understand and that you know what the risk is in that trade and what the risk will be if a market changes overnight, et cetera, et cetera. And with that formula in place. If our fi clients, if your clients keep their eye on the risk more than anything else at the beginning of a trade, I think they all will be very successful in their endeavors.

Tim: I love it. When you sit down to trade in a given session, do you have a financial target? I mean, are you trying to make a certain amount of money or do you have open-ended targets? Uh, how do you approach like setting goals for the day?

Keith: I certainly have not for some time now. I’ve been worried about a daily profit goal. Um, you know, I do want my class to start out with nothing shorter than monthly goals because there are not so much lately, but there are certainly have been times when my would just kind of chop sideways for a couple of days, a couple of weeks, and there’s a day traded primarily. I’m not gonna just say, geez, if I had to make $2,000 day, I’m watching, I’ll be very disappointed if the is chopping sideways and I find something better to do with my time. I’m, you know, I’m out the door, I’m visiting with my young grandkids. Um, I do set monthly profit goals and I might be one of the few people on the planet that literally wants to make less money in the middle of the year when the month, the weather out here is really nice. I don’t want to look at the end of July or August and say, gee, I made as much money as I made in December, January, February, and March. The weather is horrible out here this time of the year, but it’s getting better. But I, I set my profit goals more about how much time I think I want to devote to the world of trading and I want to do less time in the world of trading. And it was summer months. Um, but one more time, you know, it’s no problem hitting profit goals now because of all activity. Again, four or five times normal expectations. But my original trading plan was set based upon monthly profit goals were based upon my willingness to be trading at least one of two times every day at least the first couple of hours of the US trading day.

Well, the last two hours of the US trading day, Markets tends to move more near the opening or closing of banks and markets worldwide and probably everybody realizes that nine 30 East coast to about 11 1130 East Coast, there’s an overlap of the two biggest money centers in the world. The European money centers and the U S money centers. They’ve long since adjusted their hours over in Europe. They now have a closing that corresponds with the 11:30 AM East coast time. So for two hours, you have the very two biggest markets in the world, the European markets in the U S pocket trading simultaneously. But I think it’s a mistake to initially expect too much out of anybody in the world of trading. Our clients are really doing themselves a disservice if they think they have to live by a certain profit goal. I’d rather the trading plan be based upon the risk you’re willing to accept and how much time or how much trading you think you can do in that period of time. It could just be swing trades, it could be covered calls, it could be positioned trades, but it will never, ever, in my opinion, ever get to any point other than the fact that you look at the risk up front in the amount of capital you’re tying up in a trade. And then obviously you do have to know based on ATRs and projections about what your relative profit goal should be over time. Sometimes I have targets and as soon as I’m entering the trade, I have a target in place. Other times, you know, we’re free falling. I’m not gonna limit myself on those trades. In fact, I’m looking to add to those trades. But so, those two-minute candles morph into the three of the five-minute candles into the 15-minute candles and, uh, to just to carry oil’s really good. At this guys, if you don’t trade well, I’ll look into that. I’ve had days where oil would give me a trade setup just to have to say our markets were opening at nine 30 you know, the stock and options pockets and if that trend continues, next thing I know, you know, half-hour an hour to the trade, I’ve moved off with a smaller timeframe and I’m going to 15 to 30 minute time frames. Next thing I went to the 30 60 minute time frames and we in that trade the entire day, all the while adding to the winning positions. You remember you’re doing that when you have an average price that’s if you long, your average price is much lower than we as stops are. And if you’re short, your average price is much higher than what you buy. Stop siren. Given that you’re trading a leverage instrument, you’re adding two positions with no risk in the trade. That’s a pretty good undertaking.

Tim: Yeah. I love it. And last question from me here, Keith and I always enjoy having you on here and uh, you know, it’s, it’s fun having these podcasts in general. It’s obviously not a fun time for, America right now for the globe it is a very disconcerting time. But uh, you know, that’s why we’re here as a community. Try to give some insight, some wisdom, some knowledge together. Uh, what advice would you give brand new traders out there? People in our community. If you could talk to them a little bit just directly as a, like the godfather, somebody with a lot of experience, what advice would you give them?

Keith: Well, number one, I already said this. I was concentrated on the risk part of the trade to begin with. And then we’ve always heard this expression that if you love what you do, you’ll never have to work. Oh, you don’t have to work a day in your life. You love what you do. I just really love the idea of trading. I’ve been hooked on it since I left the world of engineering and people listening in to learn to enjoy what the financial markets will give us. If you control your risk, then you shouldn’t be emotionally into those trades. You should really be trading with your mind and not the gut, if you will. So I would just want everybody to realize that you will have the skills to succeed and to just enjoy what you’re doing and look forward to the time that you trade. If you can do that, I know you can all be very successful, like one more time. Don’t, don’t try to compensate for the late start and, and don’t, don’t anybody out there say, Oh geez, it sounds like there was this great opportunity to profit over the last two months because markets go down faster than they go up. Yeah, that is true. But I think there’s going to be more opportunities in the next few months and eventually when, as we discussed in the prior show when we finally can see the light at the end of the tunnel, the coronavirus epidemic and all the stimulus money that’s going to be pumped in and the economy will eventually turn around. We just don’t know when. But then you’ll have all your appetites that do bullish trades. And that’s a, you know, we, we did discuss very briefly the idea of differences between real estate and financial markets, but you will never convince me as a, as a guy that loves the financial markets, that it isn’t this wonderful opportunity that we can just change our bias from bullish to bearish. And we love, we love volatility and we, I absolutely love when the volatility picks up on the downside because I have the opportunities that I said to do airs trays to sell oil futures and buy them back later to be buying puts on what was the longest time directional options. Trades were mostly just doing call or call spreads on options and they turned into a tuck, put trades and put spreads. There are always opportunities. I just love the financial markets.

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