Everybody, it’s Michael Martin, thanks for being here. I want to go back and talk about position sizing because I don’t know if I emphasized a certain aspect to position sizing as much as I wanted to. Of course I could go back and watch the video to see for sure. I just don’t have the time to do it. So I’m going to make this video. If you run a little bit of a mechanized system, you’re going to use some type of an indicator for volatility and you’re going to use it across all instruments so that you remain consistent This way, you take the subjectivity out of it. One thing that people can use is obviously standard deviation. They could also use something known as the average true range. Doesn’t matter to me, which one you use. I can’t say one’s better than the other. And two, even if there was, that’s really something for you to figure out, right? So let’s just say that we talked yesterday about some of the popular names that keep showing up. Why is that? Well, because media companies make money on advertising and if they know people have a lot of interest in the names that they see shooting through social media, what do you think they’re going to do to compete for your eyeballs? They’re going to cover those stocks, and that’s actually a disservice. But it proves the point that this is infotainment, not critical research. You’re not going to see that on television.
And so to me, when I think about people arguing or debating certain stocks, I think it’s like the red and blue states, it’s all politics. And so if someone has a strong opinion about a certain name and who cares about Netflix and Disney plus growing subscribers, whatever, it’s like, I don’t care. I don’t care what they think. So let’s just take two examples that I know I’ve mentioned in Nvidia was one. And let’s take a futures contract like say s and p 500. So right now, if you look at the 20 day ATR average true range for Nvidia, it’s about 10 bucks a share. If you look at the same for the E mini the es, the June expiration, that’s a whopping 70. So if each point’s 50 bucks, the normal volatility in the emen is going to see your equity swing $3,500. You say, Mike, I got 10,000 bucks.
I can’t swing 3,500 bucks. And I know that. So what are you going to do? Well, I’m going to risk X amount of points. Well, that’s great. So say you want to risk $2 on Nvidia when you know the daily vol is 10, when you try to shortcut the system that way and say, I’m going to trade within a $2 band when the ATR is 10, or I’m going to risk say 20 points times 50 or a thousand bucks on the E mini when the thing is 70, you put yourself in a spot where you’re going to get knocked out of the trade or you have a higher probability of getting knocked out of the trade regardless of the chart pattern because you’re trying to trade
Within what the market’s already telling you, the instrument’s doing, which is an observable and objective data point. And so I think that the teachers out there, if that’s what you want to call them, do you a disservice when they say, yeah, focus on this pattern, da da, and don’t mind the volatility. Because if you step into that type of a trade and you’re trying to trade a smaller number on your protective stop, meaning the distance between your entry point and your protective stop is less than what the 20 day ATR is, you’re likely to put yourself in a spot, even if you’re looking at one minute bars to get knocked out of the trade just because of noise. So then you’re internalizing all of that. Why? Well, because you’re not focused on the process, you’re focused on the results, and now you’re beating your pillow and screaming out loud, barking at the moon, and the whole process was bastardized from the very, very beginning.
So what can you do? Well, you could trade smaller trade less frequently. Look at the minis in the micros, but a leopard isn’t going to change his spots. So if you think you’re going to trade Nvidia and make believe that it doesn’t have a $10 vol, or if you’re going to trade the EIN and think doesn’t have a 70, 70 point vol, you’re kind of deceiving yourself, which people do. Now, you could be ignorant to those facts and maybe now you’re enlightened. I don’t know because I don’t know who’s watching. But you can’t fool mother nature. Those are the numbers whether you like it or not. So that’s why I always say trade smaller trade to a position size that you can dig. Now, if you’re trading Nvidia, which has a high share price and you don’t want to lose more than 200 a day and the vol is 10, you can do the math to figure out how many shares you can afford if you have the capital. And the same thing goes for the E mini, right? You can figure out how much do you want to lose, and then how many points between your entry and your protective stop are you willing to risk knowing that you’re very likely to get knocked out just based on noise?
And I think if folks looked at that a lot more closely, they’d avoid putting on those trades in the first place because they’re suboptimal. And what do you think happens to your trading when you remove suboptimal trades? Isn’t that like weed in the garden, right? So this is kind of the stuff that you can do just by observing your own behavior. Maybe you didn’t know how to measure fall. Okay, I’ll say that’s a coin. Toss 50 50. Maybe you didn’t, you didn’t want to. There’s a whole bunch of combinations. But ultimately, if you don’t measure vol and figure that out, some places just say, yes, trade the E mini or trade the qqs, or trade the S p Y and risk X amount. Well, that’s great, but I think it’s a mistake if you don’t look at the overall vol in the marketplace because just because you’re looking at shorter timeframes or intra date doesn’t mean you can’t see a whopping move that’s one a T r from your internal one minute bars. The A T R doesn’t care what your starting
Point. So measure the ball and know what you’re looking at before you get involved so that you can use that maybe as a filter to remove suboptimal trades, even if you have very strong feelings about where the instrument’s going to go. That’s part of maturing, and that’s part of knowing who you are as a person is behaving able to control your own behavior while you are at the trading desk. It’s too easy to lose money in good markets. I’ve said that a million times. It’s true today. It’ll be true tomorrow, and all you can really do is control your own behavior. All right. Anyway, thanks for being here. Please like and subscribe. I will create more videos, at least along the lines of what I know you like. Thanks very much, folks. I’ll see you. I’ll see you next time.

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