Why Your Trading Strategy Might Be Wrong for You · Alex Temiz and Bao Nguyen

Position Sizing and Setup Grading

• Traders previously used uniform size on every setup, resulting in large daily swings (e.g., +$10k, -$20k, +$30k) that netted to breakeven weekly due to a lack of grading.
• Alex compares trading setups to blackjack: "Bao at Disney World" represents a 50% probability (low bet), while "Bao at the club" represents a 99% probability (A-plus setup, high bet).
• Exponential Risk Scaling: Risk should increase exponentially with setup quality: C setups (1,000 shares) -> B setups (5,000 shares) -> A setups (20,000 shares).
• Progressive Sizing: Traders should start small to build trust in the process, then progressively double size as they accumulate data and validate their edge.
• Adding to Winners: It is recommended to add to winners after confirmation signals (e.g., breaking low of day, death candle) to amplify odds from 50% to 90%, but never add to losers.

Pre-Planning and Fear Elimination

• The Four Elements: If a trader feels nervous (racing heart, sweaty hands) during a trade, they have failed to pre-plan one of four elements: entry, exit, stop-loss, or target.
• Fear Source: Fear stems from the unknown; pre-planning exact loss amounts eliminates anxiety.
• Execution: Alex uses "fancy orders" and sticky notes for entry, exit, stop, and target before market open to ensure strict adherence to the plan.
• Stop-Loss Strategy: Stop-losses are necessary for risk management; market makers do not specifically hunt individual stops because the cost of moving the market outweighs the benefit of hunting retail stops.
• Range Management: To avoid being shaken out by volatility, the stop-loss range must be wide enough (e.g., if targeting a 10-cent move, the range must be at least 20 cents).

Trading Psychology and Superstition

• Rituals as Anxiety Management: Bao and Alex are highly superstitious (e.g., specific entry numbers ending in 8, lucky pajamas, Feng Shui) to calm anxiety and eliminate excuses for losses.
• Discipline over Emotion: Trading is not a job with linear pay; results should be boring and repeatable. Consistency is achieved by knowing exactly what to do regardless of market irrationality.
• Avoiding "Hobbyist" Behavior: Trading fails when treated as a hobby or when traders trade random stocks not on their watch list due to greed or boredom.
• The "Hot Streak" Danger: Big losses often follow green streaks where traders break rules, double down, or add to losers.

Stock Selection and Niche Focus

• Watch List Discipline: The process involves condensing 17,000 moving stocks down to a specific watch list (e.g., 4 stocks) to avoid random trading.
• Red Flags (Blacklist): Avoid stocks with <1M float, Chinese stocks, ADRs, SSR status, day-one stocks, high institutional ownership, or dilution risks.
• AI Integration: AI is used for rapid due diligence (checking filings, dilution, upcoming events, and reverse splits) to replace manual research, but final decision-making remains human.
• Niche Specialization: Traders must specialize in one niche (e.g., small caps vs. large caps) rather than being a "jack of all trades."
• Market Evolution: Strategies evolve; for example, the "first red day" strategy now requires the stock to trade below the previous day's lows, not just turn red.

Operational Processes and Risk Controls

• Cushion Building: Taking partial profits early builds a "realized P&L cushion," allowing traders to risk more on the remainder of the position with less stress.
• Max Loss Protocols: Traders must set hard "max loss" auto-liquidation limits (e.g., per ticker or per day) to prevent blowing up accounts.
• Pre-Market Risk: Trading pre-market is highly risky due to lack of liquidity and auto-liquidation options; Alex avoids pre-market trading on risky stocks like XHG.
• Capital Management: It is better to trade smaller sizes with a wider range (higher probability) than large sizes with tight ranges.
• Withdrawal Strategy: Traders should wire out profits regularly (e.g., weekly) to separate "trading capital" from "real wealth," reducing the temptation to gamble winnings.

Community and Education (MIC & Chat with Traders)

• Community Mission: The MIC community was built to cure the loneliness of trading by creating a shared environment where successful traders (Bao and Alex) teach their fundamentals to others.
• Teaching Philosophy: If a trader cannot explain their strategy simply (e.g., to a parent or a "kindergartener"), they do not truly understand it.
• AI Tool: An "Alex AI" tool was introduced, trained on thousands of transcripts, chat logs, and PDFs to answer specific trading questions and analyze charts.
• Market Accessibility: The removal of PDT (Pattern Day Trader) rules has increased market volatility and irrationality, necessitating a shift toward "nail and bail" (smaller, consistent wins) rather than home-run trades.

Forward-Looking Statements and Market Outlook

• AI Impact: AI will not eliminate trading edges but will shift where inefficiencies exist; traders must focus on fundamentals and core arithmetic skills first.
• Trading Expectations: Realistic goals should be established (e.g., $1,000/day) rather than chasing millions; the goal is freedom, not just a high score.
• Adaptability: Strategies must evolve with market conditions (e.g., switching from "first red day" to "break below low of day" as algos adapt).
• Future of Trading: The community aims to provide a "school of day trading" similar to vocational schools, teaching the fundamentals (addition/subtraction) before complex calculus.

Specific Trade Examples and Anecdotes

• CAR Trade: A "first red day" trade on CAR involved a stock moving from $50 to $400; the entry required the stock to be under the previous day's lows.
• XHG Incident: A pre-market trade on XHG resulted in a bust due to broker order cancellations; highlights the danger of trading stocks with extreme volatility without proper caps.
• Lucky Items: Bao wore the same unwashed, hole-ridden pajamas for months until they were washed by his wife, after which his winning streak ended.
• Equipment: Bao kept a heavy, expensive laptop as a "bad luck" relic to ensure he never blamed equipment for losses.