Hi everybody, it’s Michael Martin. Thanks for being here. So got some follow up on a few things about indicators that I think I could tie into a couple of the videos. So again, this was a comment on I think Friday’s video, which was what do your indicators actually tell you? And the comment was about reducing the noise around your exits and your entries. Again, this could be a two hour discussion with people, especially when you’re dealing with the psychology of stuff. There are a few indicators that can help you and give you objective information that you still need to interpret in order to make a decision about adding or removing risk. And then maybe even how much of the risk to add or remove, right, if you’re initiating risk, if you’re offsetting risk, if you’re taking off winners in partial or in full. And so what are some of those indicators? Well, volume is a straight up number. It is what it is, and you can see what the average is and any particular day.
How does it compare to another day? Then you conjugate that with the price. As far as volatility, again, you can pick standard deviation, you can pick average true range. I would just pick one and use it consistently because again, at that point, the number is objective. It is what the 20 period attr on sugar. It is what it is. And no matter where you are on planet Earth, if you are looking at a daily chart and you put in the 20 day atr, you’re going to get the same number. So it’s not something that you have to kind of interpret. It does give you an idea though, about what the dollar volatility is. You can look at relative strength for stocks. You can look at fundamentals like earnings or what’s the cost of their debt, because interest rates have a lot to do with earnings.
So it’s hard to say whether it’s actual earnings or the cost of corporation’s money. You can really debate that because the interest rates definitely affect earnings. Earnings drive stocks. So I don’t really poo poo indicators, but what I always do is turn it back to the individual because that’s what I did in my own self-reflection, right? The way to become a world-class trader is to endlessly study yourself. Most people are going through chart books and this and that, and that’s great. You need to have a wishlist. But to me it’s like it doesn’t matter. What if you don’t know who you are? And by that I mean what makes you tick? Why do you do what you do, especially around money? And why do you do what you do that you’re conscious of? And then why do you do what you do? That’s in your subconscious
Around managing risk. So you have people who are complete risk, they stay in cash, they buy treasuries or certificates of deposit. Then you have risk lovers on the other end who might like the action more than anything. Who knows what kind of skill they have. And then somewhere in the middle, you have risk averse folks who are willing to take on risk if there’s an ample amount of reward. That’s also very subjective, right? Because you might think of yourself as risk averse, and on a scale of one to 10, that could be five, but for someone else, they might think that five is too conservative or maybe even too aggressive, but they still consider themselves risk averse for the way they understand risk. So in a long-winded way, the indicators, I realized early on that the more indicators I was overlaying on a particular chart didn’t necessarily help me understand how to make an entry or an exit better.
I couldn’t improve. My entries are exits by looking at indicators. I could adjust position size, but I don’t like to use trades like, oh, if I have strong conviction, because to me, conviction’s bias. And if you don’t have any experience, it’s like when I hear someone say that, it’s like, I know they’re kind of par. Don’t take this the wrong way, but they’re kind of parroting what they’ve heard somebody else say. Because if you have two years of experience, you don’t know what conviction is. To be frank, you don’t have enough experience. What is that number? Probably 10 years. You need to see several market cycles in order to have that type of a feel because two years is not long enough period of time. Despite your success, you have success. I celebrated if you’re struggling, I know what that’s like too. I celebrate that because now you’re getting closer and closer to what it is that’s going to work for you as a trading style.
But I realized that I was overlaying, and this is even within before I knew what I was doing. So I always talk about four, four and a half years before I kind of had a clue and I knew I could do things consistently. Again, consistency is about behavior. Behavior predicts where you end up. So you can look at all the chart patterns in the world, but which one can you trade and can you execute consistently? Which means where can you see the setup, put your rotor in, wait for the market to come to you. Your stops get triggered, you get put into the market, you’ve added risk. And then how can you learn to sit on your hands for as long as possible to let the winner run so that you could make as much money as possible for the risk that you already know that you’re willing to take? How do you know? Well, you’re already in the trade. So for me without, I don’t want to do how to too many how, how-to videos. There’s enough of that out there that you don’t need it from this channel. I had to figure out looking back and conjugating that with all the labor that I had done
To make some money and pay my bills, whether that was the landscaping company that I had and that I built to when I cadid golf bags to when I waited tables, I worked hard. And my sister and I have an enormous amount of grit. We have depression at our parents, so we know how to work hard. But the thing is, we had to learn how to work smartly. So every time I made a stupid mistake in the marketplace, I always would say to myself, not to be super hypercritical of myself, I would say, if this doesn’t work out, I know how to make money. It’s just super labor intensive and if I don’t go to work, I’m not going to get paid. And I had to remember how I felt when I had those types of jobs. And again, I was working hard. There was no problem.
But then the question became, okay, I need to figure this out because I want a different lifestyle. I want a different quality of life than I did if I was working nine to five or crazy hours, I wanted more liberty. So that was a motivating factor for me. And I learned quickly that I had to be willing to feel every feeling, even the ones that I thought I didn’t want to feel. Because all those feelings are trying to teach you something, especially when you’re learning to manage risk because you’re trying to figure out who you are as a risk manager, which is what traders are. And it occurred to me early on because I was like overlaying this, and then I was using chart things that don’t work, like point and figure charts. They’re not really that good. And you can see there’s studies on that.
You don’t have to take it from me and go through all that process. And I can’t tell you, you could sit and say, wow, I wasted so much time. But you could also say, I exhausted every possibility. So there’s a couple of ways to look at the same thing. If I’m negative and I’m a complainer and I’m mentally weak, I’m a weak human being, I could say, oh, complaining, complaining, complaining bitch and belly ache. But that’s not what successful people do. I just simply said, I covered all the bases and I had to see for myself what worked. So it wasn’t until, and it was an emotional and a psychological breakthrough to not use indicators because as I called them in the book, emotional bandaids, they were normally there because there was a feeling that I was unwilling to feel and I needed some type of reassurance that I couldn’t get from just looking at say, the chart and the volume in and of itself.
Again, those days, stocks traded in eighths, maybe sixteenths in certain circumstances, but mostly everything traded in eighths, and the spreads were who knows what, an eighth to a half, sometimes more in equity space and sometimes even more. And obviously sometimes option spreads were two bucks. And so until I got comfortable and ready, willing and able to feel all the feelings that I was feeling in and around managing risk, I learned to keep a journal of those just to, so that I’d be able to ideate like, okay, why am I in fear if I know my entry? And I’ve already calculated what my position size was before I even put the trade on, and I knew where my stop was, there’s really nothing to worry about because in those days, I didn’t know what my winning percentage was and what my average winner was. So I couldn’t have enough data to calculate the expected value of a trade.
And then I kept much better records probably a year into it, because again, don’t forget, there was no computers. Everything had to be done by hand. So every time you wanted to add something to your day, you had to think in terms of how many hours it was going to take. It wasn’t like point and click, and then you can do all this stuff. Now it’s much easier to keep track of all that data. So I don’t poo poo any indicator per se. I just don’t think that they tell you what they think they tell you. There’s nothing about them that’s terribly predictive. So therefore it doesn’t help you really add or remove risk from your portfolio. So again, we come back to how do you feel when you have to feel uncertainty? And I kept trying to exercise that muscle so that I would get that to like 15 on a scale of one to 10, 10 being the highest, I wanted to be so in control of my own behavior that there was no uncertainty, that I was willing to not experience because it’s just a trade and there’s going to be thousands of them.
So I don’t have to be worried about how any one particular trade works out, you see? And so that’s why it’s more like I’m not indicators as much as I’m saying that you need to know why you’re looking at the indicator. To me it’s because it fulfills an emotional need. Again, if you want to measure ATR so that you know and you eventually calculate the dollar vol, you kind of have to normalize the risks if you’re in the commodity space. Why? Well, because silver’s 5,000 ounces, gold is a hundred. Crude oil is a thousand, right? Sugar is 1,120, right? Or whatever they call it, 50 long tons. Cotton has a different multiplier. So you need to know what the average volatility is so that when you multiply it through on the notion of value or the contract size, you can kind of have an idea what the dollar ball is.
You don’t have to really worry about that on stocks because it’s just basically the share price. And that’s when my trading actually improved because I realized that I had to embrace the uncertainty. I had to know that I could just go into the marketplace on any given day, follow my rules. I’m largely powerless over the outcome. I can’t steer the market. I can’t steer the names that I’m in. And so when you look at indicators, look at your willingness to feel the uncertainty around managing risk, because to me, the more you’re willing to feel those feelings, it doesn’t mean you’re reckless.
That’s when your trading’s going to improve because you’re going to get a better understanding of what the risk is. You’re also going to get a better understanding of how you behave around risk. And that’s what trading is, knowing when to add and remove risk. And so the indicators to me, were just lagging indicators in that they, they told me stuff that I could already see on the chart or even in my p and l, right? Anyway, appreciate all the comments and all the feedback. Please like and subscribe to the channel. Leave a comment. You could message me privately. I don’t have to divulge anything. Happy to help you in this journey because I get to rehash all this stuff and remember, and that kind of helps me not make stupid mistakes even going forward, because anything can happen to anybody at any time. So thanks very much for being here. I’ll see you tomorrow.

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