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The most important thing in your trading is your trading edge. And for some of you, without getting into it, because probably a myriad ways to look at this, it is the expected value of your trade, right? The expected value takes into account what’s your frequency of winning. Obviously that compliment and of winning and losing has to add up to a hundred. And then you take into account the magnitude of your average winner, the magnitude of your average loser. There’s a video on the YouTube channel already about it, so you can go check it out. I’ll see if I can drop a link in the description, but at the end of the day, to me, that’s the most important thing because that’s really the, for whatever system, mechanized system that you’re trading, whatever chart setup you’re looking at, and if you’re just starting out, it should be one that is what tells you to put the trade on or not. You need to have an edge and to simplify things. For those of you who are struggling and cannot find the consistency that we spoke about yesterday and how to build your confidence, you want to try to simplify your trading rules back, test them. If you don’t have actual trades, you can get the expected value from back testing. That might come as a shock to you because they don’t speak about it enough, but it is possible to run your entry rules subjectively choose a risk unit that’s subjective, figure out how much you want to risk dollar wise, percent wise, whatever it might be, and then simulate that entry and exit system. That risk management system to me robustly over several dozen names rather than trying to focus on one instrument. And the reason I say that, because some of you were like, I’m just dedicated to trading MNQs right now. The problem with that is that when you’re starting out and you should only be trading one setup to get good at it so that you can set and develop a feel, okay, there might not be enough setups for you to hit your goals. What’s a bad goal? I want to learn how to trade. It’s a bad goal, and I’m not even going to tell you why, because I want you to figure it out for yourself. Leave a note in the comments for me. When I see people struggle, my heart breaks because they overcomplicate things and ultimately, whatever it is that you think you want to learn, remember I said we don’t get paid to know stuff. We get paid to execute.

That’s the key to everything in life. Can you execute, even if you’re an employee, can you create more financial abundance than what you’re getting paid for? That’s how companies work. And in return, you get a guaranteed paycheck, you get benefits, this and that, right? So there are trade-offs to make. I didn’t want those trade-offs in my life. I chose my own path. So I’m not talking out of both sides of my mouth, but it comes down to a personal preference. I don’t judge you based on because I didn’t walk a mile in your shoes. I didn’t live with you. I didn’t know what your environment’s like. I don’t know who your family members are. I don’t know what the rest is you had to live through or overcome. I can’t tell you what’s best, but I do know that if you are willing to look within yourself and see what you’re working on and then conjugate that with the results that you’re getting in management, we used to say, “you’ve got to change the man or you’ve got to change the man,” which of course is meant to sound like a Dr. Seuss rhyme in management. You’re like, okay, look, here’s what’s not working. Let’s have a discussion about it. Why? Perfect. I hear you loudly and clearly. Here are the resources that we have. However, there has to come a point in time where we get the results that we both need. And so here’s what happens, and this is what a good manager would say, right? Because people don’t leave bad jobs, they leave bad managers. So I was always crystal clear with people and say, here’s what needs to happen and here’s what needs to happen by when. Here’s what happens if it doesn’t happen, so that everyone’s crystal clear. Are we clear about stuff? Because typically it comes down to behavior. We’re not getting the results that we need for this. It makes sense.
Would you agree yes or no? These were your goals that you stated you weren’t under any type of duress. You put your goals down, you haven’t hit them. Why? What more resources do you think you need from me? Or that I can get access to help you because I’m willing to do it. I’m the guy who jumps on the grinis for people. You probably probably doesn’t come as a shock to people because when you win, my heart’s full and I don’t care if you pay me because karma wise it will come back to me in another way. You see what I’m saying? That’s why I do the show. You all know that because when I started, there wasn’t anyone to help me and I felt scared and I knew I could do it and I had zero resources. So anyway, and so that’s to change the demand internally. If those parameters don’t work over the next three, six months, whatever it might be, then you have to change the person by physically changing them, getting a new person in the seat to get the job done. So you can borrow from that and say, perfect, put yourself in my shoes. Change the camera. Now you’re speaking to me. Would you hire yourself? What is the asset? What is it that you bring to the table?
I don’t allocate. I don’t typically make introductions. I don’t the politics of it. I’m not a third party marketer. I have helped people understand what marketing is, especially if they’re traders and they’re Mr. Inside, so to speak. There’s an episode, an audio only episode that you can see on Spotify or if you go to Martin Chronicle in the top right corner, there’s a search bar that says, search my site or something like that. And if you type in the word backers, you’ll see an episode that comes in how to find trading partners who would put up money and how to bring them on, how maybe help you build a company around that. There are certain industry that are kind of standard, but ultimately what matters for if you’re a trader is do you have an edge? And that’s the most important thing because if you can express an edge, then there’s really no reason to put a trade on the edge is the whole reason to do it.
And for those of you just starting, think of it as positive expected value. That comes from consistent behavior. Can you do the same damn boring thing every day or you do need more action? If you are less than two years, two years or less in the business, you should be focusing on one thing and mastering that. I’m sorry if you were told that it can happen easy and fast and you could make a lot of money working 20 minutes a day. I look at that stuff and I think as a skit for Saturday Night Live, that’s comical. Some of you, very few of you, one in 10,000 will be born with a knack or a good sense of timing or have a good feel. You probably already have that in other areas of your life, so that’s a good thing. But it’s extremely rare if you don’t have an edge and you can’t express that edge. If you can’t tell me what your edge is in two or three sentences, you don’t have it. You can develop it. You just have to keep working at it, but it’s not that sophisticated. Simplify, simplify, simplify. It’s a great exercise for you to do that. Think about it. If you can’t explain to me what it is that you do and you have an edge and you can’t do it in two sentences, it sounds to me that you’re confused. And then I start to think like I’m happy the person made money. I wish them financial abundance, but at that point, I can’t tell if the person just has no sense addiction and can’t enunciate and say specifically what’s on their mind or if they were just in the right place at the right time and they’re really the victim of luck. Therefore no hypothetical allocation. You need to have clarity of thought, the clarity of thought, right? Thoughts, feelings, actions and
the behavior or the actions that predicts where you end up in every area of your life. So that’s why I like to think about expected value. Think about the expected value. If you don’t have enough of actual trades or if you try to do 75 different things, the expected value is not worth much. Why? Well, because you’re all over the place and you’re not likely to replicate that same path going forward because you were throwing darts. That’s why I say if you really want to get good focus on one damn thing, days and weeks and months are going to go by.
But that’s the nature of the beast. If you feel like you, oh, I have fear of missing out. I have fear that other people are making money, I’m very competitive. The competition is with yourself. It’s not some funding challenge, it’s not some trading competition. That’s all macho man bullshit. You compete with yourself. Kobe wanted to win so much that he’d be out on the court when it was still dark outside working on his craft when he had already had personal accolades. There was something within him that made him want to win. And I’m not even a basketball fan. I haven’t been to a basketball game in 20 years, but I appreciate the mindset that’s the key.
Baseball’s probably worse, hardest sport in the world hit a round object with a round object. You fail 70% of the time just like trading still end up in the hall of fame. So if you don’t know what your edge is, you should go inward and try to determine what that is. What is it that you think you bring to the table? Because it’s not in a chart pattern, it’s your ability to focus on doing one thing that works over and over and over again, not for the excitement, but because it only makes sense for you if you’re a capitalist and you want to make money to express a trade. When you know that setup or that mechanized rule or that moving average crossover is one that has over time over thousands of trades, positive expected value.
If you’re making stuff up on the flight, think about it. It’s really an act of desperation and I know that happens when you’re underfunded. Why I started, I was underfunded. I’ve lived it, and it’s very frustrating. You have to make choices and the opportunity cost is enormous, but when you’re underfunded, you find yourself doing shit out of desperation because you just don’t have enough money and you don’t have enough. If you don’t have enough margin, you have to find yourself trading these micro contracts where the opportunities just aren’t there as frequently as you would want. Every day is not a trading opportunity. It might be a revelation for you.
And that’s the hard part is knowing when to sit on your hands because sometimes, again, I’ll leave you with this as a speculator, you have one thing going for you that’s an enormously powerful tool, and it might be counter emotional. It’s certainly counterintuitive in that you have the right to not participate. Pensions, they have to be invested endowments, they have to be invested. Investors in their 401k who are outworking jobs, for the most part, they’re buy and hold, so they kind of have to be invested. But as a trader, speculator in stocks, foreign exchange options, commodity futures, the ability and the right for you to sit on your hands is enormously powerful because it helps emphasize the fact that you should only be putting on trades when you have an edge, a definable edge that you know can replicate. That might mean you sitting and waiting like a sniper, not for sniper like entries, but just waiting for your setup and waiting and waiting.
It’s probably easier to do if you’re looking across 150, 200 instruments rather than trying to find something on one instrument day after day after day because you don’t have enough money. I talked about the ills of being underfunded. You find yourself doing things out of desperation because the pain of not trading is actually bigger than the need to make or lose the money. You have to be emotionally engaged. But I feel like this week should really help you put things in perspective because when you think about the pros or anyone that you look up to, they may have their set up and sure over 30 years you can probably develop a couple of them, but keep it simple. Define, get one trading edge. You have to understand how rare that is, but it’s what makes or breaks people as traders is they have a trading edge. They can articulate it. Can you write it out on a piece of paper? You don’t have to send it to me. In fact, I don’t even want to see it. I just don’t. In some level I’m apathetic. But I know that that’s what’s most important for you is to have that edge, be able to express the edge.
That’s the key. It’s why the casino makes money. They have an edge. The game for you. You’re thinking you’re getting what they call economic utility. Another fancy way of saying pleasure because it’s fun to gamble, I suppose. It was never fun for me to lose money, but as long as they have the edge and you have the money, you’re seeking fun. They’re trying to make money. If you’re selling a stock, you can’t be bullish. You might not be bearish, but you’re certainly not bullish anymore. So even in the world, you have these opposing ideologies. You’re going to Vegas or Atlantic City for fun and they’re operating to make money and create a fun environment for you, give you a back rub, we’ll bring you free drinks, whatever it might be so that you have opposing ideologies, your different needs that are getting met. But as long as the casino outside of say, blackjack or poker, they have an edge on everything.
That’s why they’re in business. So you have to make yourself the casino by finding a rule, an entry rule with a corresponding exit based on a position size that makes sense for you, which is a subjective choice that you can follow day after day after day, and do that consistently, then grow from there. You have to be patient. So whatever feelings that you have to feel when you have to be patient are things that you’re going to have to reconcile and come to terms with. It’s not going to happen overnight, and I’m sorry if someone gave you, sold you a bill, a bunch of goods or services that made it sound like it was going to be easy, but it’s not. I wish it was different.

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The post Things to learn before trading appeared first on MartinKronicle.