Margin - Your Best Friend or Worst Nightmare

Some of you will just think this entire post is just flat out preposterous and appalling. And that's OK, that's your prerogative, and nobody is forcing you to read my content. Have a lovely day and be on your way once you're offended nice and proper.

I'm going to be straight up honest in this post. I've spent the last two years trying my best to explain how the average person could break into day trading and find some success in a reasonable, responsible way.  Today, I'm drifting away from that and explaining the more unorthodox way, and the way I did it.  Honesty is something that's hard to come by in the FinTwit community these days, so doing my best to be a breath of fresh air in that regard. I'm aware not everyone will agree with my views, and that's FINE, but please don't tweet at me or leave comments and give me your own opinions on how I'm wrong and you think there's a better way etc..... TIA.

Also, all the comments I'm about to make, I'm referring to a certain type of trader. I'm not catering to the masses anymore, so now I'm just going to talk about what I want to talk about, and about my personal trading style, not generic tips. So please read the rest of this post with that in mind.

I'm directing this at people who want to be cold blooded killers in the game. That's who I've found myself gravitating towards and associating with everyday as I grow on my journey, and I wouldn't change a thing about it, I love it. People trading way more size than me taking on incredible (calculated) risks yielding mind blowing profits. I don't want to be "The Average Joe Trader" who makes a couple hundred bucks a day and is content with that. I am far from content with that. For some people, that's fine. And there's absolutely nothing wrong with that. The market can be an outlet for many different types of traders with many different styles and expectations, and there's something for everyone in this game. If that's you, then you can stop reading now, you probably won't enjoy the rest of this blog if you're extremely risk averse.

There are very few people who successfully grow a small account. I was lucky enough to be one of them though. I didn't start out with money and a healthy bankroll, I grew one. So I'm going to tell you how I did that without sugar coating it. Long story short: I did it utilizing leverage.

Unless you have a 50-100K+ account or something along those lines, you're gonna need to use margin. Even then you'll still use it. I know guys with million dollar accounts that use margin every day, and use a lot of it at that. Now before we go any further, let me clarify here what I mean by using a lot of margin.

What I DO mean: Don't be afraid to max out margin on your account (spread OUT between multiple names in a responsible manner). Pretty simple.

What I DON'T mean: Don't fully leverage yourself into ONE name. That is asking for trouble. The beauty of margin is it allows you to trade multiple names at once you normally would not have effective access to. That being said, I told you I would be honest in this post, and I intend to keep that promise. I'm not going to lie and say I've never fully leveraged myself into one trade. I've done it many times. I did it yesterday actually. My starter position was reasonable and I brought the house & loaded the boat once I was CORRECT and trade was working, not to try and add to loser/fix a mistake when I was WRONG. Huge, huge difference. (And I almost never do use of leverage is to trade multiple names simultaneously 95% of the time, the way it should be used.) But anyway, just know it is not smart regardless unless you have insane conviction and ample experience. It's extremely risky, and you better understand the consequences well before doing it if it does go bad. Overall, I'd recommend just not doing the one-name max leverage at all, period.

I see so many "educators" teach that margin is the devil, and that when you're growing an account, you shouldn't use it. I COMPLETELY disagree. I think it's a great tool when used correctly, and a great way to help you more effectively trade large cap stocks. If I didn't have 6:1 leverage early on, I would never be where I am today writing this post. When I had my Suretrader account, I used MAX leverage, pretty much daily. Some people will roll over in their graves thinking about that. But, it's what I did. And I think if you want any chance of making it out of ST or your small broker in one piece looking to reach the magical 25K mark, leverage will be your best friend.

Now I am not telling you to go out and unload 6x margin all over the place on every trade you take. It's a double edged sword, it can be your best friend or your worst enemy. But if you have a small risk 2% of your account per trade.......whatever small number, I think you're out of your mind. You'll be 70 years old with grey hair by the time you get out of there and make 25K. (It's one thing if it's your first acct and you are learning etc, then it's fine, but remember, that's not who I'm talking to today, I'm talking to those who want to actually see good returns, and in a reasonable time frame at that.)  I believe the absolute best way to actually grow a trading account is to trade less often, being very selective, and when you find a good one... HIT IT. If you find a great trade and usually take 1000 share positions, well shit, put 3-4-5K on. If 5K is a normal position for you, put 10-15-20 on. Why not? I don't mean just take a huge position one shot full size or add to a loser either. Start in small, and add only to winners, and if you really like what you're seeing, scale in more than usual and reward yourself for being correct, and have patience to let the trade work. If you want to be a scalper or piker and you have a 2% max risk per trade well.....I wish you could see my face thinking about that right now. I completely disagree with that approach. If I did that, and was "100% safe and responsible" and never used leverage or large position sizes, I'd still be sitting there in that stupid ST account treading water going nowhere right now, I guarantee it. Up down up down up down up down up down. You know the feeling I'm sure. That vicious cycle ultimately ending at "down."

Here's what I've begun to learn by watching some of the best do it. I'm talking about guys who are making 40,50, 60K or more a DAY sometimes, and that's not out of the ordinary at all. Not every day of course, but at least once or twice a week just putting up insane days. How?

You need to do some of the hardest things you'll ever have to do in your life to reach this point, which is why so few ever accomplish it. I know I'm certainly not there yet, but have plans to be for sure, and watching some of these guys operate is priceless. You have to take polar opposites, oil and water emotions & disciplines, and seamlessly combine them to work in your favor. There are two in particular I like to refer to, I'll call them "Calculated Recklessness" and "Intensive Indifference". What on earth do those mean Dante?  Great question.

1) Calculated Recklessness

This one is basically what I described above. When you find a great niche play, you should be going way HEAVIER than usual. Not every trade is the same. If you have some standard "I use the same size for every trade" well that's foolish to me. I don't get that. If you show me a smallcap stock that I'm familiar with, that's gapping up 50% on shit news and has a big ATM think I"m going to be using the same size as my other trades? HELL no. I am bringing the house on that trade. 3, 4, 5x normal size without even thinking twice. Maxing BP if I have to, I don't care. I did yesterday actually. I loved the $AMD short so much yesterday I literally used every dollar of BP they'd let me, left me with this much.

Some would call that utterly stupid and reckless, but there's reasons why I did that, and it's a calculated decision. Now again, I'm not talking about adding to infinite on a loser or jumping all in on one entry, that's not calculated recklessness, that's just flat out recklessness, and stupid. But it can be done, with a PLAN in place, typically a tighter stop due to increased size, and again, start in small/normal, and scale into WINNER, that's the only rule. Adding to losers, doubling down, I don't even want to open Pandora's Box there. Unless you're insanely experienced with a huge bank roll, that will kill you. Don't do it. I like to think I'm pretty experienced now, and I still don't do that.

If you want to make big money in trading, more than a safe, cushy couple hundred bucks a day, that involves certain things, like breaking comfort zones. At some point, you're going to have to make yourself uncomfortable. Using size that makes you uncomfortable. I talk to some of the best in the game on a daily basis, and I can't tell you how many when I ask about their "best trades" stories - most start with "man I was so fuckin nervous you have no idea." Now that's extreme, don't sign on tomorrow and trade size on multiple names out of the gate until you pass out, that's not what I'm saying. I'm just making a point the ones who truly kill it in this game...they do things that are uncomfortable sometimes. They make profits that nobody else makes because they're willing to do things that nobody else does, is my drift.

See, here's the problem. In trading, we aim to have as little emotion as possible. How do you foster a state of minimal emotion? By being comfortable, right? Right. But as I just mentioned, being comfortable won't get you anywhere. Do you see the problem? Back to the oil and water analogy. So much of elite level trading contradicts itself. You want to make yourself as uncomfortable as possible while still being comfortable. Which is why it's so hard. This brings me to #2.

2) Intensive Indifference

What on earth does intensive indifference mean? Well intensive means "I care a lot" and indifferent means "I don't care at all".........what? How can one care and not care, Dante this is a trading article not a Philosophy course, cut the shit just explain it.

By intensive indifference, I mean you need to be fully, proactively managing your situation responsibly, as in don't eat a loss that's 50 or 75% of your total trading capital. Know your numbers. But at the same time, you can NOT think about the money. You have to become completely indifferent to the money, while managing it diligently at the same time. Whether you win or lose, you shouldn't be shocked or surprised by either. It's just another trade. That's easily said, much harder done, but you probably already know that.

This may still be confusing, so I'll use an example. One of my buddies took a 6 figure loss a few days ago. I got on the phone with him after the session to talk about it. I don't care who you are, how long you've been doing this, or how much money you have, that is a massive amount of money, and it is going to get to you no matter what. We're all human. If you've ever experienced a large loss, you know what I'm talking about. It's just about the worst feeling in the world - our big losers hurt 1000x more than our big winners feel good. And you need to find a way to take that inevitable pain, and shut it off. Forget about it. And move on. So intensive indifference again - you need to be intensive in the sense you're always well aware of where you stand and are never taking a loss that's going to cripple your trading career, but at the same time if you do end up taking a big loss, you need to be indifferent to it. It can't bother you. It just can't. Or else you're done.

The thought process can't be "man......I can't believe that happened......." walking around feeling sorry for yourself, thinking about it nonstop, and then coming back the next day completely gunshy. It needs to be "Well...I fucked up there, that really sucked. But it's over. It's not coming back, and harping on it or crying about it does not make the money come back. So why do it? Just put it right in the rear-view mirror and back to business as usual the next day. Again, much easier said than done. But this is an ESSENTIAL skill once you start sizing up, because it WILL happen to you, you WILL eat a sizable loss, and you WILL be tested beyond your farthest emotional limits.

Very few people can do this. It would absolutely crush most. But you somehow have to find a way to make it work if you want to be a high level trader making extremely above average profits. That's just the way it is.

So to recap, calculated recklessness - don't throw size around everywhere, but, when the time is right and you find one of those golden plays, its okay to make a calculated decision to be a little more aggressive than normal. And intensive indifference - constantly know where you stand and never do anything that will jeopardize your entire career on one trade, yet at the same time if you do end up taking a big loss, you need to not give a shit. You literally have to think "Well...that sucked, but I do not give a shit. Its only money. I'm a good trader, and I'll make it back." That's the attitude.

Alright that's enough rambling I think. I hope that's helpful, it's just some insight to the way I now think about trading. I was not always like this, but this is the style that I gravitated towards and the one that showed me the best results. I am not saying my way is right, or wrong, or good, or bad, or anything. All it is, is my way. Every trader needs to create their own way, and I just thought I'd share mine with you today.

Good luck out there!

- D


  1. Great post! As a new trader I saw there was NO way to get anywhere fast by not using margin. I use it daily, but limit my loss tolerance to a percentage of my ACTUAL bankroll. Theres no other way a little guy could go in 500 shares of $AMD, etc... That said, it's not for everybody. Thanks for taking the contrarian position.

  2. Thanks for this Dante :) I get a sense of reassurance from this. look forward to trading with you in IU.

  3. Awesome post Dante! Thanks for all the valuable content you keep putting out!

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  5. I have found margin to be personally helpful in pulling profits from the markets. That being said, I have seen first time traders wreck accounts very quickly with the use of margin. As long as you are well aware of the risks associated and use that knowledge in your risk calculations, margin is a great tool.

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