Ep250: Stephen Kalayjian – The Key to Success in Trading Is to Have Discipline

By Andrew Stotz | 08/24/2020 |

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Quick take

BIO: Stephen Kalayjian is a Chief Market Strategist and Co-Founder of Ticker Tocker, a firm that researches and develops software to help identify trends, reversals, patterns, and divergences in the marketplace for all asset classes and time frames.

STORY: Stephen once risked his entire $3,000 savings on a call option trade at his father’s friend’s brokerage. Unfortunately, that trade went bad. He summed up his experience of loss into five core values—consistency, discipline, confidence, patience, and passion—with discipline at the heart of his approach.

LEARNING: Never average down on a losing trade and always preserve capital. No trade is bigger than the market, and cutting losses early is crucial.

“If you’re gonna invest or trade, you have to have discipline.”

Stephen Kalayjian

Guest profile

Stephen Kalayjian, Chief Market Strategist and Co-Founder of Ticker Tocker, has over 30 years of experience in the industry trading stocks, futures, and currencies, having begun his career at the American Stock Exchange in 1983.

In 2005, Stephen founded his firm to research and develop software to help identify trends, reversals, patterns, and divergences in the marketplace for all asset classes and time frames. Stephen seeks to generate high alpha trading ideas throughout the day. He and his team employ technical analysis through utilizing the proprietary charting software he developed on Ticker Tocker to forecast the market.

Stephen has traded nearly 2 billion shares over his career.

Worst investment ever

Stephen’s worst trade was one that he made early in his career. When he was 19, a just-graduated high school student, he had saved about $3,000 by doing odd jobs for years. He was eager to leave some mark on the trading floor and opened a brokerage account, staking everything on one notion.

In August 1983, he purchased 50 call options on a blue-chip stock for about $2.75 each, confident that the stock would rise. But Stephen was a call-option novice. He didn’t realize their worth deteriorates over time, and he certainly didn’t have a stop-loss plan.

He buys more as panic sets in

As the stock began to fall quickly, Stephen panicked. He continued to buy more calls as the stock fell (averaging down), digging himself in further. By Thanksgiving, the position was worthless, and his account was “broke beyond broke.” He remembers entering a trading post with his head in his hands, piling up losses, wondering how many times he had gotten it wrong.

A December market rally gave him just enough to salvage a thin margin on his trade: he sold some call contracts in January that ultimately closed out the position and kept the profit. As he describes it himself:

“I had no risk, no discipline… I just rolled the dice,” Stephen admits, describing how his savings vanished.

The inevitable turning point

In retrospect, that catastrophic first trade was a turning point. Stephen summarizes the lesson he lives by in the five words: consistency, discipline, confidence, patience, and passion – and discipline is “everything” in trading. What had seemed like a ruinous loss proved to be his best teacher.

Lessons Learned

Stephen took away some hard-earned trading lessons from that episode – lessons he now teaches to others:

Save capital at all costs: Always treat risk management in trading as non-negotiable. Only trade with money you can afford to lose. Trade only with what you can afford to lose. Set a hard stop-loss prior to every trade so you never blow your account.
Never average down: Throwing good money after bad only adds to your loss. When you are against a trade, take the loss and exit immediately. Do not average down.
Take losses graciously: It’s okay to lose. All traders are going to lose sometimes, but what makes the difference is getting to grips with it and moving on to the next one. Accepting a losing trade and moving on to the next one was what Stephen learned was far more important than covering a losing position.
Practice discipline and patience: Persistence will conquer the pursuit of get-rich-quick dreams. Stephen applies the discipline he practiced as a top athlete (he even got a teetotaler award in high school for exercising self-control) directly to trading. He has a solid plan, stays patient for high-probability situations, and avoids making impulsive judgments.
Stay humble: No one is bigger than the market. Even the most popular stocks can blow up. Stephen watched giants like Enron disintegrate and witnessed those who would not sell suffer the most. He reminds us: the market has rules of its own – follow them, and do not let pride be your ruin.

Andrew’s Takeaways

Andrew draws several takeaways from Stephen’s experience that apply to every trader:

Discipline is survival: Always think of yourself as too poor to afford to gamble. Risk-manage every trade. When you can’t afford to lose large amounts, you tend to trade more conservatively.
Always wear your seatbelt (use stop-losses): He concurs that stop-losses are like seatbelts. Everybody uses one in a car because without it, a crash can be deadly. When trading, not placing a stop is like jumping out of a plane without a parachute. Use protective exits on all positions.
Preserve cash and capital: Risk only “house money,” not your livelihood. If you lose a trade, the market owes you nothing back, so always use only excess funds you can afford to lose.
Emotional discipline: The majority of traders won’t sell winners until they drop. Andrew emphasizes taking profits when your goals are achieved, rather than hoping. Better safe than sorry.
Learn and adapt: Every trader is going to lose from time to time; the difference is learning from those losses. Having a plan and sticking to it—even when it is uncomfortable—keeps you in the game.

Actionable Advice

To put Stephen’s lessons into practice, all traders can implement these steps:

Always plan your trades: Define your entry, exit, and stop-loss before you trade. Then stick with the plan. Never allow fear or greed to overrule your rules.
Implement strict risk controls: Never risk more than a small percentage of your account on one position. Put a stop-loss on each position and commit to it 100%. Consider stops as seatbelts – if you don’t wear one, you’re taking a chance.
Never average down: Don’t wager more money on a losing trade. Take the loss (even a small one) and move on. Remember: you can’t win by doubling down on a loser.
Manage position size: Always decide how many contracts or shares to purchase so that when the stop is triggered, you lose only an acceptable amount. This reserves your capital for the future.
Learn continuously: Seek quality education and guidance. Leverage sources like Ticker Tocker analyses or other reliable trading forums to learn the right techniques at speed.
Review every trade: Keep a trading journal. Analyze your losers and winners. Did you stick to the rules? What else would you have done? Turn every loss into a lesson so the same mistake is not repeated.
Be patient and disciplined: Wait for high-conviction setups that work with your system. Avoid trading out of boredom or fear of missing out. Each day, there are good trades; remain patient and allow opportunities to come to you.

No. 1 goal for the next 12 months

Stephen’s number one goal for the next 12 months is to inspire and teach traders the right way through Ticker Tocker. His goal is to help people change their lives by making trading knowledge accessible and practical.

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About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.