Here is the transcript page for episode #17.
Please visit the full episode page #17 – Will Maz Part 1 – Trader Interview for complete show information.
Transcripts may contain a few typos and can be difficult to catch minor errors sometimes.
This episode is brought to you by ENLIGHTENED TRADING COMMUNITY.
If you are somebody who has any interest in trading the financial markets — short term or long term — stocks, options, futures, forex, and more -, please click this link on my website and be sure to join our mailing list. We are currently in private beta with Enlightened. Enlightened is a trading community and will provide great information and lots of free resources. We have tons of things planned for expansion to give anyone interested in becoming better at finance and investing and trading your money some great opportunities. Get on them ailing list today, and let’s get trading and better managing our money!
Full transcripts are below
PLEASE NOTE LEGAL CONDITIONS:
Rick Mazur owns the copyright in and to all content in and transcripts of A Traders Life podcast, with all rights reserved, as well as his right of publicity.
WHAT YOU’RE WELCOME TO DO: You are welcome to share the below transcript (up to 500 words but not more) in media articles (e.g., The New York Times, LA Times, The Guardian), on your personal website, in a non-commercial article or blog post (e.g., Medium), and/or on a personal social media account for non-commercial purposes, provided that you include attribution to “A Traders Life – Rick Mazur” and link back to the rickmazur.life/podcast URL. For the sake of clarity, media outlets with advertising models are permitted to use excerpts from the transcript per the above.
WHAT IS NOT ALLOWED: No one is authorized to copy any portion of the podcast content or use Rick Mazurs’ name, image, or likeness for any commercial purpose or use, including without limitation inclusion in any books, e-books, book summaries or synopses, or on a commercial website or social media site (e.g., Facebook, Twitter, Instagram, etc.) that offers or promotes your or another’s products or services. For the sake of clarity, media outlets are permitted to use photos of Rick Mazur or (obviously) license photos as available and desired.
Rick Mazur: And welcome everybody to the podcast today. We have a very special episode today that I’m super excited about. Today we have with us William, who is my oldest child. Yeah. William, I have a daughter as well. Who’s a couple of years younger, but my son is 13 years old and going to be 14 in May. And the reason why I have him on here is that he has expressed interest in finances, stock investing options, and trading.
He sees what I do, looks at the charts and things, and has always been curious about it. And he had put together some questions, and he’s Hey, dad, can we do this? I want to get into this a little bit more. I have some questions, and I said, sure, send me some questions and let’s see what you got.
And I was surprised by the questions that he came up with. They’re very good questions. And I thought that even older people, who are new to trading or want a different perspective, can also learn from this. It doesn’t matter whether you’re old or young, if you’re new.
We were going to go through this. I hope you guys find this useful, and if things go well, we’ll make this somewhat of a recurring appearance. If will, wants to, we’ll check in on what he’s learned. And we’ll follow along with his progress. If we start trading, he had expressed interest in having me show him some trading things in the options.
And if we do that, we’ll follow along with his trades and see how he’s progressing. And we’ll go from there. So with that, what’s going on, buddy? How are you?
Will: I’m doing good. How are you?
Rick Mazur: Doing good. Awesome. So you had some questions for me, and let’s get into them and ask away, and I’m happy to answer whatever you have.
Will: All right. Cool. So jumping right in. I want to know because I’m new to this trader. Like you look for directional trades or volatility trades. Because I know that’s a big aspect of trading.
Rick Mazur: So the answer to that is both, eh, when we talk about things like stock trading, like what we’re doing with you just for reference.
So you guys know we started well with a little stock portfolio S and P ETF and some individual stocks and things like that. Now, these are meant to be for long-term holds. However, to answer your question, in the case of stock trading, I do the same thing; by the way, I don’t day trade stocks. I usually will buy stocks and ETFs to hold long-term.
Some people day trade stocks and will buy and short them or buy and sell them throughout the day. So, in that case, I’m playing it directionally. I want them to go up over time because I’m buying them instead of selling them. You would want them to go down, but we are playing stocks directionally. That’s the way I do it.
But I do not do that in stocks. I will do that only in the future. So to answer the question, I look for directional trades in futures because I day trades them, and there’s also volatility with futures. So if I’m going long or buying a future for, let’s say, the S&P Volatility is good because if I’m long and it starts going up fast, and it goes up a lot, I can make more money, but it’s traditionally, it’s directional.
And I want a little bit of volatility now with options. I’m playing options a little bit differently, and we’ll explain in later videos; we’ll teach you about the options positions and how to manage them. If you want to, when you are up with your little account, we’ll follow along with what you’re doing, but options and trades are more volatile plays, meaning we’re selling options.
And we’re trying to collect the profit off of what people’s. Are losing. So, in other words, most people who buy options typically lose. Somebody has to sell those options to them. And you typically want to sell those options in times of higher volatility because you get more money.
So options are volatility plays more. So I trade them because I don’t want to sell an option at low volatility and then have volatility go up because, typically, you would lose money that way with the way we play them. And we’ll get into that later in future videos and things like that.
They’re called negative Vega trades. Vega means volatility. And if you’re short volatility, you don’t want volatility to go up. You want it to go down. So options, trades are more volatility trades. If that makes sense. And the answer is I do both.
Will: Yeah. So a follow-up question, I noticed you mentioned ETF.
So what is an ETF in like the simplest terms?
Rick Mazur: ETF is an exchange-traded fund. So basically, what an ETF is, for example, we bought stocks for you. We bought some Disney, and we bought some Facebook. Those are just individual stocks, and ETF is a collection of stocks, and it could be; it doesn’t have to be for an index.
It could also be for a set of, for example, fidelity just came out with a new metaverse ETF. Which are the hot stocks in the metaverse; for example, you would buy the ETF and then their managers. So what they’re going to do is they’re going to say, instead of you trying to figure out. In other words, you don’t have to worry about it daily.
Now there are good points and bad points to ETFs. Their managers will go and buy and sell stocks within that fund. And then hopefully you can make a profit. The bad point about ETFs is that there will be bad and good stocks in that fund. So your overall returns may not be as much as if you could pick the winners individually.
Rick Mazur: That’s not that easy unless you follow it daily. There are healthcare ETFs; there are ETFs based on a whole S&P 500, which is the one you are in. There are also ETFs based on technology. So these managers will pick a bunch of technology stocks, Google and Amazon, and all these different companies, and they will buy and sell within their; they don’t tell you what they’re buying and selling daily. I think it’s a voo.
You own the whole basket of stocks in the ETF. And that’s a nice way for people to capitalize on a certain market or sector if they don’t necessarily know which stock to pick. Does that make sense? Yeah. They even have gaming ETFs, for example. So if you like gaming stocks, but you’re like, I don’t know which ones are going to do well, or which ones are going to do bad or which ones are overvalued or undervalued or whatever the case may be.
You would find a good fund for that or an ETF. And you would buy that. And again, it’s not the way I play it. It’s not typically set for day trading. You would say, Hey, I think gaming companies will grow over the next 5, 10, 15 years. And you would find a good fund that’s performed well, and then you just put the money, and then you can keep adding to it as you go along and things like that.
Will: No. So I know this is kind of like a basic question, but does each trader have their own rules, or does everybody follow the same guidelines and fundamentals?
Rick Mazur: Everybody follows their own guidelines. They all have their own set of rules. Some people will trade short-term and long-term; others will buy stocks based on fundamentals. Some people will buy stuff based on technicals. They call them fundamental traders versus technical traders.
There is also value add traders that will only buy cheap companies that they think have the most potential, meaning they just got beat down or sold off for whatever reason, but long-term, the manager or the buyer thinks they’re going to go up. So everybody has their own rules about what type of trades they do.
They also have their own set of rules as far as the criteria that they have to enter the trades. And that goes for anything that goes for stocks, options, and futures. Forex is just another tool. It’s called foreign exchange. It’s based on the currencies in the market, like the dollar and the us dollar, the Japanese yen, and the different currencies out there.
Rick Mazur: But no matter what it is, all traders have rules and criteria to get in the trades. Does that make sense? So you would have to sell it on your own. You would come up with your plan. And for example, if I’m going to teach you the options, for example, we have rules as far as when we get in, how do we get in? When are we allowed to take certain trades? How far away, as far as duration, until these options expire? We have specific criteria that we would teach you, and then you could just put those trades on. And then there are not only criteria as far as entering the trade, but there are also criteria as far as managing the trades. When do you get out? When do you take profit? How do you know when to get out if there’s a loss? So you don’t take too big of a loss because all traders have losses. It’s just you have to set it up and structure it in a way where you don’t take big losses. You can’t have 10 $100.00 winning trades and then lose $5,000 on one loser because then, okay.
You went ten and one as far as wins/ losses, but you lost way more than you won. So you have to have, you’re not profiting, you’re not profiting. So it doesn’t matter. You could win 99 times and lose one time. And we can get into that down the road because that is an actual thing. Even medium to advanced traders don’t understand that win rate is important psychologically. If you lose all the time, you can get discouraged unless you have real confidence in your system and your methods.
But some traders only win 30% of the time, but they make money. And the reason is when they lose, they’re only losing the reverse of what I just said. They’re only losing, let’s say, $50 on a losing trade, but they win 5,000 on a winter. So you could be 30% theoretically and still win. But when a trader is coming up and just learning, and it doesn’t matter what age you are to build your confidence, you want to have a system that has a higher win rate, just because you feel like, Hey, I’m winning. As long as you keep your losing trades under control, you’re okay. You follow that.
Will: Okay. So yeah, you don’t want to, you don’t want to get it’s like gambling, you don’t wanna get too carried away with your losing trades, and then yeah.
Rick Mazur: Gambling is a little bit different. Gambling is making a bet where you don’t have any defined outcome, but I don’t necessarily believe that a hundred percent either, but
you don’t have as much of an edge with gambling. You may not have an edge at all. For example, if you play a game called blackjack, you’ve played blackjack. We played blackjack together in the casinos in Las Vegas or wherever we have a 50, I think it’s a 51-49 edge.
So they only have a 2% edge; they play the same way every time. And they know that over time, because of the way other people play, and not everybody’s playing by the rules that they’re going to, they will be able to win. And you say that’s only a 2% difference. How could they make any money that way? The differences are
Rick Mazur: they’re taking bets thousands of times a day for millions of dollars. So it adds up over a week or a month, but they don’t have that big of an edge. There are other games that they have in there, like slot machines, where they have a higher statistical percentage and edge.
And that’s why typically, casinos will win all the time. But for the gambler, typically, it’s a losing proposition. The only way gamblers typically make money is they have to know when to leave. In other words, they have to say, okay, if I get up a certain amount of money, I’m going to walk away, and they have to know what that dollar amount is based on, their history, how they’ve done it, and everything.
And even then, there’s no guarantee with trading; it’s different than gambling. And it’s different than gambling because you can go and backtest these trades, meaning you can go and put them through a simulator where you can go back. Years, decades, and you can say, okay, based on what I did and I played it the same way every time, would I have one?
What percentage of the time when I have one, it’s called backtesting, and you could develop methodologies. If you can get the rules, right? We discussed the rules where you can say, I can take this trade, and I may lose. I might lose three or four times in a row in a couple of months, but over a year, every year for the last 10 or 15 years, this will make me money 80% or 70% of the time.
And this is how much percentage I can get out of it off of my investment. So you have an edge, you can have an edge if you’ve got the right rules and entry rules and management rules that everything like that’s different than gambling because, with gambling, the gambler typically doesn’t have an edge, the house or the casino
typically has an edge. Does that make sense?
Will: Yeah. Yeah. So it’s very different. Yeah.
Rick Mazur: Wait a minute now, but also, unfortunately, there are a lot of traders that treat trading like gambling; they don’t understand the need for the rules.
They think they will go in based on feel, or the market looks like it wants to go up today. So I’m going to throw some share on here on Facebook, and I’m going to buy because you can’t fly by the seat of your pants like that. You must have a distinct set of rules to get in and out.
And unfortunately, I’ve seen a lot of traders; too many traders treat it like gambling. And in some cases, that’s not their fault. In some cases, they just haven’t found their edge yet. And they don’t want to take the time to learn the edge without using real money. So they throw it on and lose because it’s so bad that it’s gambling.
Rick Mazur: So there were a lot of traders that do gamble. I don’t ever put on a trade, whether in futures, options, or anything like that. Because it’s such a short timeframe. I got to know that I have an edge. Now with something like stocks, like with what we’re doing, with, we bought for you, let’s say Facebook.
We know that Facebook got beaten down. We talked about that. And it might be a while before Facebook gets some steam again and catches up, maybe because of the metaverse or something else we don’t know. So we’re not expecting this to do anything in a short period. We’re going to hold it and see, and maybe we’ll even add more if it goes down, depending on what happens. But very different. Yeah, very different.
Will: Do you personally trade from like the technical side or the fundamental side of the market?
Rick Mazur: I trade technically, especially with day and medium-term trading. And when I say the medium term, usually with futures, everybody does it differently. Some people trade futures; they call it position trading, which means they buy futures and hold them for sometimes two or three weeks or more.
That’s a little dangerous with futures because futures are very expensive. So if it goes against you because of the leverage you’re given with futures, you could make a lot of money in a short period, but you can also lose a lot more money, like 10, 20, or 50 times the amount as with a stock.
So I always enter based on technical reasons on what I think that the other traders were doing; 95% of traders lose. So part of the criteria for me entering trades for futures is understanding that 95% of the traders lose. And if I know where they are buying or selling and they’re losing, then I would do the opposite.
Essentially. I would play along with them, and I know you have; you had some questions, you would, I don’t have them in front of me, but you had some questions about HFTs and high-frequency traders and all that. We’ll get to that down the road. But if you know another word, in other words, what they’re doing, I’m basing it off the charts and the technicals of what’s going on fundamentals, which I will use only for longer-term plays.
And even then, it’s more for me. Honestly, it’s more to feel that if I like a company, I will look at its fundamentals to see if they’re overvalued. For example, we were looking at; what you were looking at, what you were looking to buy, and which stock was Pfizer.
You were looking to buy Pfizer, and remember I pointed out that it was overvalued by 8%? Now that’s just one analyst’s opinion of it, but they are overvalued; in my opinion, currently, right now we were recording this April 24, 20, and 22. But it doesn’t mean it can’t keep going up even though it’s overvalued.
There are earning multiples that stocks typically trade at in different sectors like healthcare or technology usually trade at different multiples. But, so that’s an example of fundamentals you’re looking to see is the stock cheap, comparable to where it’s traded in the past. And there are other things you can learn about multiples and things like that.
For example, Netflix lost many subscribers, and their stock was up at $700 or something a couple of months back. And it’s down to 200 and something dollars right now. So on a fundamental basis, Netflix is very cheap because it’s only trading it like, I think, 18 times multiples now at 18 multiple
Rick Mazur: A stock like a soap company or Johnson, some company that’s been around for a long time. Yeah. That’s an expensive multiple, but for a technology company, an 18. Multiple is typically cheap. Companies like Tesla and Amazon are trading at much higher multiples than that.
So it’s technically cheap from a fundamental standpoint; however, just because it’s cheap doesn’t mean it’s necessarily going up. Suppose people don’t believe that Netflix is going to make a lot of money or their subscriber growth; it isn’t going to go back. It could sit here for a long time. Sure.
Maybe it could go up a hundred or a couple hundred bucks, but what will it do from there? If you buy at 220 or 250, whatever, it goes up to three, 400 for a short-term trade. And even then, you can make a profit from that. You can make money, but I would not hold that thinking.
It’s going back up to 700. So when we talk about fundamentals, that’s what we’re meat, what we mean. And I only do that with stocks; some people buy options the same way. In other words, you can buy options, betting that Facebook would go up, Amazon would go up, or whatever people do.
I don’t personally trade them that way, but some people do that and make a lot of money because you’re getting more leverage and stuff like that. There are also negatives to doing that because there are expirations with options. In other words, if I buy a stock like you hold a stock, you can hold it forever and never expire with options.
There’s always a time limit. And again, when I start teaching you about that, we’ll learn about that, but there’s always a time limit. So if I’m betting that Netflix will recover and go up, I got to know the timeframe for it to go up. If I get the time wrong I could, it could still go up, but I’m already going to be out of the trade because it’s going to expire, and I’m out of luck.
There are things you can do to extend the trade by rolling positions and things like that. That’s more advanced stuff that we’ll talk about later. But again, I mostly do technicals; there are some fundamentals, but only with stocks.
Will: Yep. You said you tried the technical side, so why’d you pick the technical side of the market?
Rick Mazur: And the reason is that when you’re buying and day trading, there are no fundamentals. It’s because it’s such a short period you’re talking about, and some people only trade like me; a lot of times, I’ll only day trade in the morning.
Earnings came out in the market, and the S and the instrument, whatever I’m trading, is going up fast because there was good news or something like that. So you’re talking about two or three hours. So nothing fundamentally will happen in most cases unless there’s news, like if there’s news or earnings, but even then, I’m not entering the position based on that I’m entering the position of, okay.
I’m not entering just because I heard that they beat their earnings and they’re growing their subscriber base. I’m still looking for a technical trigger on the chart to get me in. So for day trading, I don’t know many people who do day trading off of fundamentals. It’s news because it’s short-term news moves for options.
Again, it’s hard to pick Short to medium-term what something will do fundamentally. So fundamentally, as I said, you can say fundamentally, I’m looking at everything and believe Netflix will recover. And I believe that they’re going to be the king again. And they’re going to be back up at 700.
Great. You may be right, but you don’t know whether you will be right in the short term. And the only way you can trade fundamentally is longer-term because most of my trading is done shortly to medium term. I picked technicals, which most people do if they’re trading that way.
But that’s the reason
Will: All right. Yeah. What’s your favorite asset class to trade, and if and whatever it is, why do you like the trade? That
Rick Mazur: my favorite asset class is derivatives are different than stocks. For example, there there’s a lot of different derivative things that you can trade.
But they’re just different from your normal, traditional set of investing. And what I mean by derivatives is. Futures, options, and things of that nature. The reason why is because of the leverage. So, in other words, if I’m trading stock, for example, and let’s say Netflix, we’ll stick with Netflix $200 a share, let’s say $220 a share.
If I want to make, let’s say, a thousand dollars on trade-in Netflix, I would need to go and put in $200. I would need to pull it, say I put a thousand shares. Okay. I would need to go up a dollar. Now that might not be that big of a move in Netflix. You might be able to say; I can get more than a dollar on that on most days.
Let’s say you want $2. Then I need to put 500 shares on. The issue with that is that if I want to put 500 shares on Netflix and there are things like there are called margins where you don’t have to put up the entire amount of money, we can get into that at a later date.
But to keep it simple, if it’s $220 a share times 500 shares, I need $110,000 to put on. And it’s less than that because, as I said, the broker gives you a little bit of leverage, sometimes three, four, or five times leverage. So maybe you don’t need 110,000, but you need tens of thousands of dollars to put that on, to try to make a thousand dollars, or to try to make $500.
Same thing if you’re trading any higher stock, the lower price stocks typically don’t move as much, so if they’re big companies and lower prices, they typically don’t move as much because it’s typically more mature, and things like that. So, I choose the derivatives because if I’m looking for $500 on a trade or a thousand dollars on a trade, I can say that by crude oil, I want to buy crude oil futures and do day trading.
I can do that with two or three contracts instead of buying 500 shares of Netflix. And I’m only risking. I only have to, first of all, I only have to put on with my broker. It’s a thousand dollars a contract. If it’s the S&P index, it’s only $500 a contract. So if I need to put three or four contracts on to make a thousand dollars, I only need to put margin capital that I’m putting up only a couple thousand dollars, two to three or $4,000.
Whereas with Netflix, because you’re not getting the leverage, you’re putting on 10, 20 times that you’re risking
With trading the derivatives. The capital you have to put up in margin so you can make more and risk less essentially. And when I say risk less, you’re still risking probably the same, but you don’t need as much capital to put up your wins, and losses might be relatively the same dollar-wise, but you don’t need as much capital to put into making that same amount of money.
So, in other words, if I want to make $500 in a day with stock, I will have to trade so many shares that I will have a huge account. I’m going to have a; if we’re using Netflix as an example, I’m going to have a 30, 40, $50,000 account. I can make the same money on the same trade in crude oil with the $5,000 account instead of a 20 or $30,000 account.
So that’s why I do that. Now. Some people prefer stocks. They have a bigger account. But most people don’t have huge accounts. And that’s why when people have smaller accounts, I recommend starting with futures, and you can even trade what they call micro futures.
Or even with Forex with the currencies, they’re called nano contracts, micro and nano contracts where you’re talking about three or $4 for every point move verse, verse $50, with the normal contract. So you can come in with even four or five, 600, $700 account, and now you’re not going to make as much with the $700 account because you’re going to have to trade the micros, which is smaller.
But the point is that I use the derivatives because I’m getting the leverage. The leverage allows me to risk less and make the same dollar amount, and I don’t have to have as much in my account to do it. That’s the reason.
Will: All right. How do you choose your stops when you’re trading options?
Cause I know, that’s like a huge thing in options. When you want to pull up,
Rick Mazur: Again, the way I trade options, I don’t use hard stops. What a hard stop is basically when you’re in a position, you will set a price. And if that option price gets to that level, you’re out and lose whatever you lose.
The reason why I don’t do that with options trades is that I’m hedging. I have a built-in hedge with my position. Meaning it’s like insurance. I have insurance if it goes against me to where I will not get killed without being able to do something about it. So my positions are never in one direction.
And because we were talking about volatility, the reason why I trade options is with volatility. The volatility will work in your favor. If it goes in the direction you want, it will go temporarily outside your favor if volatility increases. So basically, if you use a stock with options, the way I trade them, you can get stopped out of your position, and it can end up doing exactly what it’s supposed to do anyway.
So I don’t do that for that reason. And because I’ve got the hedge built in. Now with futures, I do use a stock. And how do I choose my stops based on the technical, support, and resistance levels? So if I’m looking at a chart, for example, and I think the market’s going to go up and I can make a certain amount of money on a trade, I know where I’m wrong, and this is where traders need to learn.
They need this part of them learning the system. Part of my entry criteria is that I will only enter the trade. If I take a trade and it’s going to be too far away before I’m wrong, and I have to take a bigger loss, that’s not a good trade to enter.
If I can set my stop to a point where I’m wrong, I’m only losing a certain amount of money based on everybody’s differences because some people try to make it. $3,000 on the trade, and if you’re making $3,000 of retraining, you could afford to lose $3,000 if your win rate is okay. But so it’s different for everybody, but I set my stops.
I chose them based on. I was being able to get in and know where I was wrong. And I set my stop below where I’m wrong. So if I say I’m going to buy here. And I think the market might wiggle around here. It might go up a little bit. It might go down a little bit, but I’m not going to be down that much money.
Suppose it wiggles around there or is down temporarily cause you never lose until you close the position. So you’re temporarily down; it’s called intra-trade PNL, meaning you’re up or down in the middle of a trade, but you haven’t won or lost unless you lock in a loss or a profit. It’s an acceptable loss.
And again, when we get more into the charts, we’re just doing this as a podcast right now; everybody who’s listening to this is primarily listening to it as a podcast, we are recording a video, and it will be on YouTube, but because it’s more of a podcast audio format, we’re not doing charts today or anything like that.
But if we do another one where we do charts, I will show you exactly what I mean. There is a trade somewhere, but I can’t enter it because there’s too big of a potential loss. And even if I put my stop there, I would get stopped, and it would still work. It’d because I can only risk so much that you wouldn’t just take that trade.
You’d wait for the next setup, and I can show you on a chart row, which makes more sense than anybody listening to this. If you subscribe to the podcast or watch it on YouTube, you can subscribe to the YouTube channel. You’ll get alerted. If you select the notification bell, you’ll get an alert when these new videos appear.
I’m going to have will on and hopefully in a recurring situation, as I talked about earlier with his account, and then I have other traders on as well who are older traders who need help as well.
Rick Mazur: Stay tuned for Part two of the show coming soon!