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Michael Martin
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So just to note on the case studies, I got some great feedback via email and also comments on the channel if you want to know what I’m talking about. There’s videos up there called Case study one, case study two, and we talked about what happens when someone was in a bit of a drawdown, but they had two winning positions in their portfolio. What would they do in that moment of time, especially how would they feel? And so it’s not for me to say what’s the right answer? I think there are best practices for sure. There’ll be more to come on those case studies. I think they’re going to evolve. There seems to be some good engagement. The audience, you all seem to being not challenged, but asked for developmental purposes. What would you do? How would you handle yourself? I think in terms of best practices, the thing that you would want to do is to just continue to follow your rules in the short run, because those aren’t the exact numbers, but it does come from some of my own trading that I used to teach.
And there was a time when I was trading very, very well. But as fate would have it, although I stayed with my winners and the winners ended up being at that moment of time as much as 20-25% of the equity in my account, my account was still down 14%. And so I had to use all of my resources to make sure I didn’t do the stupid thing, like pull my flowers and let my weeds bloom. I had to stick with my knitting, stay with my winners, add to the winners as I would, and make sure I was taking consistent small losses over that period of time. So I think that’s best practices is to find some way in your own calculus when you have winning trades on to keep them adjusting your protective stops along the way, letting the winners go. And those winners, it was like a $50k rollover account and the winners went from in the first time I was in the position, it started out small. I was up $5k and then I was up $10k and the account was, like I said, down, I was up $10k in the position. In other words, there was $10,000 of unrealized gains, but the account itself was down 14%.
Then it went, I remember it very distinctly over a one to two month window of time because it doesn’t really work out on the first of the month to the end of the month, but somewhere within that one to two month window, I went from being down 14% to being up 20%. And so that’s just the way God wanted it. It was an early test, but I had to do everything in my power to make sure that I didn’t do the hair trigger response or the thing that would make me want to do stupid things with my money in that short period of time. Now, that position eventually went on to be worth upwards of $30,000 before I got stopped. I eventually got back in at higher prices with twice the size. I go through the whole thing in the case study and bury it that way. So it would be interesting to see. So I tried to allude to that here. So what I’m trying to say is that I think there might be a right answer for each and every one of you how you would handle it. Ultimately though, you don’t really want to change your world and turn your world upside down just because you’re in a bit of a drawdown. You have to have ample cash available to take existing trades. There are ways to take haircuts, but ultimately the nature of this beast is that you want to let your winners run for as long as possible. So I appreciate everyone’s feedback and comments. If you’d like to see a particular case study, especially on trades that you would take home overnight or over the weekend, leave them in the comments or reach out through email and we’ll get on it that way.
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So this brings into sharp relief. Again, I talked about a few things earlier this week, like I don’t let people play victim with me when I know they’re deliberately putting themselves or intentionally putting themselves in bad situations. I don’t commiserate with them. I don’t entertain that type of chat. That’s why I cut a lot of people loose in my life because I don’t want to be around losers, to be honest with you. And losers are defined by losing behavior. It doesn’t mean they’re bad people, but if you’re naive or you don’t put the work on, you think something’s too easy. Or if you come in with an ego, be like, how hard could it be? I could do all of this. Then you find yourself down 15, 25%. I got no sympathy for you. If you’re trying to trade on the short end of the curve and you’re not listening to me, then that’s on you.
It’s very difficult to do that. So I think you have to think it. I’m thinking about this right now as I’m sitting here. You need to have strong sense of mental health before you need to have strong mental health. So long before you find yourself in a spot where you want to go on tilt, you want to take your computer and throw it out the window because you’re aggravated, because you’re trading sucks. You need to be able to have yourself ready long before you’re going to need to have that skill. That’s where I was lucky. I’ve mentioned before, I’ve always had a strong inner game, but I had been in business before. I had people who, Welch, I had people who owed me money and didn’t pay me. I had people who worked for me and didn’t show up for work. I had people who worked for me and tried to sniff cocaine and drink alcohol in the middle of the workday, and I had to let them go.
Everything was a reflection on me. And I was doing that when I was 16, 17, so you could stab me and cut me with a knife, but I had very, very thick skin plus who I was working for. These were very tough people when I worked at the mob places. So you had to have game. So what I would do is I would make sure this is going to come across as being probably a little bit off base. Most of you feel comfortable looking at charts, doing courses online. Maybe you’re part of a telegram or a discord. Who knows what it could be. The choices out there, frankly, there’s too many of ’em and most of them are dog shit. But you should keep track of all the time that you put into the tactics and make sure that you’re putting an equal amount into your mental game.
So if you’re going to spend an hour a day looking at charts, then you need to spend an hour a day doing jiujitsu meditation, yoga, or something to work on your inner game because that’s 80% of it. It makes no sense to me to sit there and just try to learn about the tactics of trading when you’re not doing any work on yourself. That’s why I like to be in the section that I’m in because it’s like everyone else wants to sell you a box of shit over the internet and say, if you just did it this way, you’ll make all this money or do it the way I did it. Well, I can show you the way I do show people the way I do it, but I don’t make any guarantees that it’s going to resonate for you because it’s based on my personality and my psychology and my emotional makeup.
In the online mastermind. I show how I had sugar positions on for three months in futures, taking it home overnight over the weekend. And so that might not work for everybody. I admit, people do say stupid things just to save them from the embarrassment. Someone wrote in about taking home Nasdaq 100 futures overnight that they were taking their lives into their own hands. And I’m like, no, they’re not. They’re trying to make money the smart way, using time, money, and leverage to their advantage, which is what trading is. If you’re afraid, then just speak to your fear. You don’t speak to someone else’s style.
You have to speak about what’s appropriate for you. So I would make sure, and this is inside baseball right here, coming right out of the training program is you have to work on your mental health as a form of preventative medicine long before you’re going to actually need to have a steely resolve because you find yourself down two to 5% in a week or a month or whatever would be material for you. That’s when you’re going to need the skill the most, right? You can’t try to go figuring that stuff out on the fly when you’re in the moment, right? And that seems to me to be the biggest thing that I get from folks in the email is that they understood the math, they understood the charts, but their absolute rookies in understanding themselves are understanding their own mental game. So you can anticipate for sure that you’re going to find yourself in a spot sooner or later, whether it’s a choppy market or your trading style is not amenable with the market and what the market is showing you.
And you’re going to start to feel feelings that you think you don’t want to feel like aggravation or frustration. And so from my perspective, that’s when you’re going to need to kick into your mental skillset and hopefully have a bunch of arrows in your quiver at that moment in time so that you can work through that period of time because they are coming. If you’re not in one now, I guarantee you there’s going to be something that’s going to happen. Either the instrument that you’re in or the futures contract that you’re in, or the sector of the economy that you’re in, or something that you didn’t anticipate is going to work against you in a way that you hadn’t anticipated. The blind spots are going to kick in. There might be several of them cascade, and all of a sudden you could find yourself on the short end of the trade, short end of the stick. And it’s at that moment in time that you’re going to have to rely on yourself because the trading tactics have not necessarily failed. You think they failed you, but the results of your trading might get under your skin and affect you in a certain way, where you start to undermine yourself, undermine yourself, or you start to think about things that when people start to feel insecure, what do they say? Should I start changing my rules? Should I start changing my style? Maybe I need to adjust my screener. And the reality is that there’s so much randomness in the short run. You might not have to change anything. You just have to grin and bear it, stick through it, and persevere. So to start this process, think in your brain, where have you had to persevere in other parts of your life? What can you borrow from those experiences? And what can you recall? What notes can you take down? And what skill sets did you have to deploy in that period of time that you can borrow from and use right now?
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Mike, what happens when I take a larger destabilizing loss? Well, it depends again where your emotional constitution is. If you’re writing me about it, I don’t have any intellectual solutions for you other than to ask you, are you putting in your protective stops and trailing religiously if you can’t trail based on percentage, which is ATR? Okay? You could take a look at trying to use structure and see where support is after which point. You can put your stop in below there. But if you find yourself aggravated because of the state of where the market is, if you’re aggravated about anything and you feel like that’s the predominant theme in your brain, whether it’s politics, whether it’s the summer being slow, who knows what it could be? I would literally take time off. When I was younger, I felt like a great fear about missing trading days because I felt like there was a certain amount of opportunity and I needed to be there for all of it because the opportunity was fleeting.
And if I wasn’t in the market, I could very easily ruin my career, miss out on the best trades, blah, blah, blah, blah, blah. And basically it was all bullshit. It was all self-made garbage. So what I would say is take some time off, take the rest of the week off, take a day off, look at what occurred, and try to understand from your own behavior standpoint, what was it that happened that led to this outsized loss. Now, if you lost 1%, don’t cry for me, Argentina, that’s not an outsized loss. Alright? I’m talking about something where maybe you didn’t put your protective stop in market worked against you, so the market’s telling you something, it’s saying, no, I’m the one who’s omnipotent. I’m the one who’s sitting at the head of the table and you’re lucky to be able to participate in my world, and if you disrespect me and you disrespect the risk, I’m going to communicate with you in no uncertain terms, just who’s holding all the power.
And so you have to understand that there has to be a certain type of humility that you bring to trading in that if you lose money or you lose a good chunk of your money, you can be angry all you want, but anyone who’s traded for a long time has been there, and that’s just something that you have to deal with. Those are certain little hazing things that go down in the world that happened to all of us where it took a position home overnight and the market opened lower below where my stop was. So instead of losing a half a percent, I lost say three quarters of 1%. That’s going to happen. There’s going to be times when you put on a position and you’re just starting and the thing starts to take off, and then something happens. There’s a big buyer, there’s a news story, there’s a rumor, there’s conjecture. Who knows what it is, and the thing goes up $20 before you can get more on because effectively the market moved quick or you were unprepared to win. So all that stuff thickens your skin and helps you develop what I call traitor character, because everyone talks a mean streak about being a tough guy and everything about how the world’s supposed to work, but at the end of the day, it’s life on life’s terms and everything that you do in and around your trading account should be intentional. From time to time, you’re going to come to understand that there are blind spots that you have that just kind of come with the territory because you don’t have enough experience. It says nothing about your trading ability, and it says nothing about who you are as a human being or what you’re capable of, but ignorance is out there and that’s just going to come with time.
So what saves you in those moments is or are your protective stops, and then you get to go back after the market’s closed and you do your postmortem, whether that’s every day or on the weekends, and you get to look at the situation and say, I had no idea this could possibly happen. I learned from it and now let me reinforce the stronger tenants of my trading practice. Or if I didn’t have one, how can I shore this up? You see? But you can’t try to bull your way through that. I think the more you try to bull your way through something, it doesn’t work with the market. You have to understand who’s the boss. You see what I’m saying? And it’s not, you have to understand from a standpoint of humility that if you try to bull your way through trading or through certain situations, it’s typically going to work against you.
I’ve never seen anyone kind of come. If you have fear on one side of the bell curve on the tail, and you have greed on the other side, I haven’t seen too many people come to the market continuously in either of those outlier tales and try to teach the market a lesson. Typically, they can get carried out in body bags or they just lose so much money, they quit and they say things like the market’s rigged and this and that, and they start blaming other people. Remember, we deliberately put ourselves in harm’s way, and we also have the right to not participate. So if you find yourself feeling aggravated or frustrated, first thing you can do is cut your position size down to one fourth or one 10th of your normal trading size just so that you can try to get back in the groove with things. Or you can put a times stop on yourself, right? Times stop on the trade would be like, you go long on Monday, Tuesday, nothing’s happening Wednesday, the security’s still not moving. Momentum’s obviously stalled. You can offset the trade just for the sake of doing it. And if you find yourself in a losing streak, you can put a times stop on yourself and say, okay, I’ve done nothing but lose money Monday. Tuesday.
I’m not in tune with things. I’m not going to trade, but I’ll sit at my desk and observe. Or what I would like to do is I would just not even come in, I wouldn’t even upload and boot up the machine. I would just be like, I’m taking time off. I got to get in sync. I know this doesn’t happen to me, so I’m speaking hypothetically, but if your emotions aren’t right to try to trade through all of that, it’s a recipe for disaster. So that’s why I’m saying you have to work on the mental game first because it doesn’t matter what if you’re coming to the market in a bad spot. Think of it like a relationship. You are going on a first date and you’re in a bad mood because something happens at work. You’re going to bring that to the first date.
It’s going to be a short first date, and there’s probably not going to be a second date either. So every day you have to approach the market as if it’s a first date and you’re happy to be there. You feel grateful and lucky to be there, not like you’re God’s gift, right? People have choices. And so likewise, that’s a better mindset to approach your risk management than coming in thinking that you’re owed something because you’ve put in all these hours. Putting in hours in study doesn’t mean shit. You have to put your time in managing the risk, actually managing the risk, not managing paper trades so that you can calibrate your system with what’s actually going on and feel the burn of making and losing money. You want to know what euphoria feels like and see how that prompts you to act. Do you start trading bigger? Do you double your size? It all has to be systematized, so you have to work on all of that stuff before it happens.
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So you’re in a trade, you get your order filled, and now the first thing you have to do is put in your protective stop. This is kind of like religion. It should become a hairtrigger response. I know guys have very strong reactions to hairtrigger responses, but that’s the nature of the beast of trading. You have to put your orders in as soon as you get filled and you’ve added risk, especially if you’re using a leveraged investment. Adding not a mental stop, but putting in a protective stop in is exactly what you should be doing. Now, here’s where the tricky part comes in. I get a lot of emails. I told you this is going to be email reader email week. The question always comes up from discretionary traders. When is the best time for me to move my protective stop to break even?
I’ve always advocated as fast as possible. The thing is, is that there’s got to be a little math and science behind all of that. As a discretionary trader, you’re at an enormous disadvantage in that you don’t have enough instances to really know what the best is, so have to, you rely on your gut, and that goes with part of your deciding to be a chart reader. Now, if you’re using ATR, there’s two things going on. You can look at ATR, but your ATR should also be how you use for position sizing, right? So ATR is just like a data point. It won’t mean much. So there’s a big difference between someone who’s buying two contracts, five contracts, 10 contracts, a hundred contracts like me using ATR. What does that mean? So you have to conjugate all of that to know how it works with your R.
What is the percentage of your capital that you’re willing to risk on any particular trade that’s a dollar amount should also be based on percentages. So if you’re using one half of 1% as that number, then you can look at the ATR and so every ATR becomes a half a percent right up or down so you can do the math in your head. That’s how I would take a look at that. Now as far as moving your protective stop, it seems as if there’s a crowd of people out there who get aggravated by getting knocked out of trades, and I don’t know for the life of me why that is. Maybe it’s because you only have one setup and you’re trading one instrument, so you have to wait for leap year to be able to put a damn trade on. I’ve always advocated that you really should trade one or two setups, but across dozens of instruments so that you’re not forcing trades. And two, you don’t put yourself in a spot where you can become aggravated or go on tilt because if your account’s underfunded and you can only trade the minis and the micros and then you set up finally shows up, you’re just on your knees praying to God because you feel lucky that you’re in the damn trade in the first place. So now the last thing you want to see happen is getting knocked out and getting your protective stop hit. But again, that’s something that you’re going to have to reconcile with yourself emotionally and that the truth is you go to Disneyland and you got Mickey standing there with his finger out saying You have to be this tall to be on the, you have to be this tall to be on the damn ride and you can’t reach the finger yet. That’s just the way that it goes. You would kind of invite this kind of stuff. I was talking about it yesterday. I can’t, if you want to go against the grain and bull your way into a situation that you’re ill-equipped to be in, then everything that happens after that point is on you. No one owes you anything. You’re not old enough. You’re not tall enough, you’re not this and that you to be in the game. I understand that I too started with a smaller account, but the one thing I had going for me is the emotional constitution and also the maturity to understand that whatever happened in that account was my fault, especially with the frequency and the magnitude of losses.
I knew I was an underdog, not from an education standpoint, but I know I was undercapitalized, so I had to come up with a set of rules that really worked for me and the single most important rule that I think you’re going to be using both starting right now if you’re not already doing it and going into the next 20 years of your career, even if you’re just going to run your own money, is that your job as a speculator, you can be balls to the wall hell bent for election. As a speculator, your number one job is to play superior defense. That’s it. The winners don’t necessarily take care of themselves, but you have to absolutely keep your losses small. One of the benefits like I’ve shown, and I keep referring to this because I always try to put my best material out in the community for free, is if you go back to the live stream, you can see exactly what I was thinking at the beginning of my career and why I did what I did.
If the live stream was recorded and it’s on the live tab, on the main YouTube channel, I tried to move my break, my break my stop. Sorry folks. I’m trying to move my protective stop to break even as fast as possible because if you look at the equation for the expected value of a trade, there’s four moving parts that you can try to optimize. The first part is the winning percent. That’s kind of an accuracy game, kind of hard to do. The next one would be the magnitude of your average winner. You can do that and increase that by either trading larger, which I don’t advise or holding onto your winners longer, overnight over the weekend, which I do advise. Then you have your losing frequency and then you have the average loser size, so the losing frequency you can decrease because those are things that you want to minimize, and one of the easiest ways to minimize your losing frequency is to move your protective stop to break even. So if you have 40% winners and then 60% losers, forget magnitude for a minute and you can cut and decrease the frequency with which you lose from 60% to say 40%, where you have now 20% breakevens, that helps increase the expected value of a trade, which is really the second step that you should focus on after you learn to keep your losses small. I know it sounds antithetical because you’re like, Hey man, I want to be a pro trader. I want to be a scalper. I want to be a pro speculator, and that’s all great. That’s all fine and dandy. You have to take the chances you have to be in it to win it, but at the end of the day, you’ve heard me say this before, your gains only look like gains to the extent that you keep your losses small or as close to non-existent as possible. Now, that doesn’t really work. People are going to lose money, especially if you’re a discretionary chart reader.
If you want to use the math and you’re using ATR for example, you can use ATR as the measurement to set a threshold, at which point the security, if you’re long and you’ve got a protective stop, one ATR below your entry, you can wait for the instrument to appreciate one ATR before now you adjust your protective stop to break even. That does not mean that you’re not going to get stopped out for breakevens, which might be aggravating, but I don’t and nor can I really worry about how you feel about that. It seems like some of you, when you write, I can tell that you’re aggravated and one guy wrote recently about being in that spot and it’s like, look, don’t trade then. You know what I’m saying? I don’t know what to tell you. You can’t if you’re a discretionary chart reader and you didn’t want to invest the time or the money, especially into getting a simulator so that you would know for sure what the numbers were over a 10 or 20 year period of time, that’s your call.
But now you have to live with that uncertainty of not knowing, right? That’s part of it. Again, I can’t have sympathy for people who want to feel victimized by putting themselves in these situations. Like you know what the rules are and it’s up for you to make those decisions if you want to kind of cut corners or be cheap, because that’s what it comes down to, because there’s enough affordable solutions out there that are less than a thousand dollars where you can do the work, and it’s not for me to teach you. That’s something that goes way, way deep into the premium coaching stuff. I’m not doing that here. You have to be able to do just like I did, figured it out for yourself. How bad do you want it? And if you’re not willing to do it, well, there’s your answer. You know what I’m saying? You have to have a deep look within yourself and figure this stuff out. I wanted it more than the next guy, and when they were going out doing whatever, it was boozing, doing drugs, chasing women, I was going home and doing the work, or I was staying at work, being on the phone, trying to get clients, and if you cut corners, you get the results of what that looks like. You see, so use ATR and just realize that even if you adjust your protective stop to break even, that doesn’t mean that you’re home free. It just means that you’re going to get knocked out. But you can also look at the probability of what happens when you get in a trade and when it immediately works against you and you get knocked out, and what happens when a trade starts to work in your favor, you adjust your protective stop higher because either way, it’s one ATR. And so in the short run, it’s really, really random, and if you get knocked out of five trades, that’s when people start riding and be like, man, I’ve been using one ATR, stop. Do you think I should extend it and use two ATR?
And I’m like, well, if that’s how you position size, then maybe, but you’re going to have to find a way to process your feelings around frustration and aggravation when you get knocked out of trades, especially the ones that you get knocked out of and they go on to make money. That’s just part of the deal. It’s the way it goes. And if it makes you aggravated, I would take some time away from the market and just try to process your feelings around that because if you don’t, what’s going to happen is the feelings are going to keep coming up. You’re going to get so aggravated, and that’s when you start to open yourself up to doing really stupid things like revenge trading, going on tilt or entering orders and not putting your protective stops in.
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I’m about a year behind on Reader email. I try to create lessons on most of what comes in, but first, I want to thank you all for being here. We’re in the dog days of summer. As you can see, the market’s kind of turning over. The Magnificent seven might not be so magnificent going forward. Keep in mind folks, the names that the magazines were touting in the 95 to 2000 in the.com era don’t even exist anymore. So you have to be very, very objective in your thinking despite what the hype is, especially around old coins and Bitcoin and of course ai. Anyway, one of the reader questions that came in is, Mike, if you had to start all over again, what type of trading style do you think you would start with? And that’s a really, really good question. I think ultimately you end up trading your personality.
I think if everything else being equal in a zero commission kind of world back then, like I said, the commissions were too punitive for me to trade really, really short term, I probably would’ve tried. My gut tells me I probably would’ve tried swing trading again, it’s a different day and age. You could read the tape back then, but again, the costs were very, very high and I think I would start with swing trading, to be honest with you. That’s just my gut. I don’t know, because then from there I could really kind of split the base here. I could go longer term once I got a feel for the one to five day, probably three to five day I would call swing trading and then go from there and see what would it feel like to hold positions for several weeks even in futures. And then if I developed a really, really good feel, I could maybe downtime it to day trading or even scalping where having a feel is the asset, right?
You can be taught and shown the rules, but if you don’t have a feel, it doesn’t matter. You’re not going to make any money. I think that’s why 19 out of 20 people fail in that timeframe. So I think if you were starting right now, you’d want to start with the proposition of holding risk overnight. Now, if you don’t have enough money, I would stop and I wouldn’t start until you had enough money, and I know some of you are, you probably have a different opinion about things, but I’m not a financial advisor. You’d have to figure all that out. I don’t advocate people who are just starting using their retirement money or a 401k rollover. You want to think of that as a different quality of money than what you would do with your risk capital. Trading capital by definition, is risk capital. Even if you’re 10 years for pro, right? Your retirement money is and your Section 529 money and this and that is basically your sleep-tight money. So there’s really no point in as far as I’m concerned, for you to try to put that to risk and use that as capital for a couple of reasons. One, you can’t write the losses off. Two, their contribution thresholds, and there is wisdom in the investment. Adage of time in the market is more important than timing the market. So I would really look at that money as a whole different, we talk about the quality of money. That’s what I mean by that. So that would be your safest money, your sleep tight money, your God forbid money. There’s no reason why you’d want to roll the dice or gamble. And before you say something like I am talking out of both sides of my mouth, when I did trade my 401k rollover, I had 17 years of experience. I had over $30 million of client assets, so I knew what I was doing and I already lost and made a lot of money to develop my craft. I knew who I was as a trader.
The only way you can get there is by actually doing it. So if you’re going to try to start, I wouldn’t start with the smallest timeframe possible and trade with one minute bars and try to scalp. I know that must seem very, very enticing given all the marketing language and stuff that you’re out there. But you have to understand that that’s for the pros in the business. That’s where the majority of the failure is. So I wouldn’t want to go congregate in that space. I’d want to find a spot where the people have much more success and that’s over longer timeframes. So the misconception is that the day traders are making more or the money, and that’s just not the case. Just looking at my notes here, I would start with probably three to five day swings, and then I would try to test the boundaries on either side to see, okay, now that I’ve got this down and I know I could make money, at least I’ve got an asset, I’ve got a skillset that I know I could at least make money with.
From there, I can extend my holding periods or I could decrease the holding periods to see how I can do maybe intraday or something like that. There’s a million ways to kind of skin the cat, and you’re never going to really know until you try. So I always say, don’t let me be a dream killer. Do what you think is best, but don’t use your sleep type money and try your best with that. I would say give yourself a time constraint. There’s nothing sadder than when I get an email from somebody who says, and I get them almost every day where someone says, I’ve been grinding away for 3, 4, 5 years not making any money, holding up. I make what I lose. I lose what I make. And if you don’t show a skillset in a short period of time, I’m going to say three months, maybe six months, if you’re sitting in front of the computer all day, you should be able to see lots of observations. And so if you can’t develop a feel within say, six months, I would pack your bags and try a different timeframe. I would extend the holding periods. It doesn’t mean that you suck. It just means that you don’t have a feel and that’s all that it means. It doesn’t mean that you can’t make money in trading. It just means that you’ve got to let go of your dream of wanting to do things in the short term. Let the people who do have a feel thrive there, which isn’t you and big deal. You just change your timeframe. I’ve seen this happen 10 million times and people go on to make lots of money. So give yourself a time constraint if you are going to practice on the short end of things, and I would say, like I said, three months is probably enough, but once you get past six months, I would say the odds of you actually developing a feel after six months is probably very small. Do what you think is best.
I’m just giving you what I’ve seen over 36 years. You could prove everybody wrong. This isn’t personal, but I am not going to, you have to understand this folks, if you’re still watching at this point, I don’t have sympathy for people who put themselves in bad situations. What’s the point? You’re not a victim at that point because what you’re doing is deliberate, so you don’t need my sympathy, but I also refuse to tell you stuff that you want to hear because I have to sleep and shave with myself, shave my own face in the morning so I can only show you and tell you what I’ve seen. There are lots of people who have been able to do the short end of the curve very, very well, but in the grand scheme of things, it’s a handful of people compared to other timeframes, right? Anyway, do what you think is best. At least you’ve got my advice, and I wish you the best.
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So this week we’ve talked about a few things, but I think one of the central themes is position sizing. That’s kind of where we make and lose our money. Everyone likes to focus on what’s the safest entry. I would let go of that. There is no safe entry. As soon as you start adding risk, it’s on, right? You’ve got the risk. So sitting around and thinking about what’s the safest place to add the risk and this and that, I think is a waste of time. You could spend a lot of time thinking about that, but what I would really do is process your feelings around making and losing money, right? You have to understand that this is a probabilistic endeavor. It’s not a game about being accurate. You might have it in you where that yet you need that for yourself. In my humble opinion, you’re going to find trading very difficult.
The markets are never going to behave other than a new puppy, and that’s just the way that it’s going to be. So they’re going to pee all over your floor, as cute as the thing might be. So I would think about how to process your feelings about making and losing money, and how do you feel about accuracy versus expectation With that, the one thing that you can focus on understanding, and this goes back to I think Wednesday’s episode and a little bit of Tuesday’s episode this week, is what is the optimal portfolio heat for you and for your style? Many of you have got into the bad habit of thinking that it’s risk on, risk off and all of that, but if you really started to study that and you looked at your behavior and you followed on with the traits that you were in and where they went after you got out, you can better formulate your strategy and understand and kind of come to terms how to hold risk overnight over the weekend with the appropriate amount of risk to optimize your expected value.
That’s the goal here, right? It’s not to keep taking $250 winners day after day. That’s not the point. The point is to, if you want to do it the way the pros do it, it’s to obviously study yourself, study the markets, and find everything that you can do to keep your gains large and more frequent. Then you’re your losses. So whatever you can do, when you look at that equation for expected value, what is it? It’s winning percent times the average winner size. That’s magnitude, so it’s frequency and magnitude on the win side. Subtract from the well, you subtract from the winners, the frequency and the magnitude of what you lose when you lose, and there’s ways to optimize that. You can look at your winning percent. What can you do to increase that without having it have to be 90%? A small adjustment, even going from 30 to 35% accuracy, or 35% to 40% accuracy can have a big impact.
How do you do that? Well, yeah, you hold your winners longer, and then what can you do? Whether it’s using your instincts, whether it’s adjusting your stops, what can you do to decrease your losing percentage? If you go back and look at the live stream that we did, one of the tactics that I did when I started out, especially when my account size was very small, was I tried to get my protective stop to break even as soon as possible because then I could have 20, 25% of my trade, so I’d just get knocked out at break even, which was better than to let them sit and languish and then finally lose, right? Because momentum stalled and typically your winners start making you money right away. So you can look at using time stops and being able to adjust your protective stop to break even as fast as possible.
You see what I’m saying? And then that can help you decrease your frequency of losing, and then if you found, and this goes hand in hand with holding your winners longer, if you traded smaller, you would have less risk overnight over the weekend, so this way you could hold onto your positions longer, and so it all kind of moves together. It’s not just about trying to figure out one particular thing. You could look at any four of the components of the equation for expected value and see how to optimize that. To me, that’s not done by looking at a chart. It’s done by looking at the data, looking at trading history, looking at what you could have done. There’s lots of tools out there. You can go figure out what those are. I just use the spreadsheet, the cleanest. There are services out there that allow you to upload your data and that can help you, and that’s great.
They usually come at a premium. I like to do stuff. Everything that I do on this channel doesn’t cost you money, so you don’t have to buy yet another subscription to something as you’re trying to figure out your way here on this journey. But that to me is a way, if you’re struggling and you find that you’re in the grind, is stop looking for the perfect chart pattern. Start looking at the data that you do have and start seeing what are the ways that you could possibly increase or decrease any of those components of what goes into calculating expected value, either how to increase your accuracy, how to increase the size of your average winner, how to decrease the frequency with which you lose, and then how to decrease the size of your average loser. Any of those things, maybe you could do several of them all at once, but it’s only going to become from studying your behavior, the one who’s pushing the button that says buy and sell. So you have to look at your own behavior, what’s generating the results, right?
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Some of you have smaller accounts, and so there’s a big problem in that. You might find it difficult to take trades home overnight because the margin increases. This obviously is a problem because your account’s underfunded and you have big money problems. The biggest problem is you don’t have the money, so what can you do? I don’t want to say as a hedge, but instead of coping and having to day trade or scalp, which might not be suitable for you for a whole bunch of reasons, one, you don’t have the tactical skill worse, you don’t have a good sense of timing, so it’s never going to work for you. There is a way that you can take risk home overnight by using spreads. Again, you’ll have to figure out what’s appropriate for you. Talk to your financial advisor. I can’t give you trading advice proper because I don’t know you, but if you took a look at some spreads, there’s ways to manage your risk by being simultaneously long and short.
By doing that, you cut your risk substantially. In this case, we’re looking at a spread between Nvidia and AMD, and in this case, you’d have to have the account set up to be able to short sell stocks. With stocks being short, you have unlimited loss potential. You mitigate that by position sizing. This spread takes a look at what would happen if you bought Nvidia and sold another chip maker against it, and you can see that the spread had been down to $120, which meant the price of AMD was higher because whenever you multiply something, a bigger number from a smaller number, you’re going to get a negative balance. But you can see that the spread here is widening. Whenever it gets bigger, it’s widening. So at the end of the day, it’s moved quite something. Right here is March, March, and here is June.
So in three months, if you felt the volatility of any one particular name was too strong for you, you could trade both very much smaller and traded the spread. Right? Then you could see that it’s narrowed from $20 to where it is now at $52. As who knows, maybe it starts to reverse, but you can see that there’s breakouts, there’s pullbacks. You can look at this and say, this might be more appropriate for you or better for you for your tolerance of risk. I don’t know, talk to your financial advisor, but you can see the spreads actually move. Maybe this thing is going to get to par where the share prices are equal and then become positive where the share price of Nvidia exceeds that of AMD. Now, you can also replicate this with options, but they do expire and you need to have the money where you can buy a call on Nvidia and buy a put on AMD if you want it to play it that way. That’s a little bit more moving parts, so I’m not going to cover that here.
But for those of you that trade futures, you can look at term structure, right? So here we’re looking at crude and you can see that the market’s inverted, so the front months are higher in price than the successive months. When the market is in a normal market, the successive months are higher priced, and the difference between those prices are known as carry charges. The carry from one month to the next in term structure can be calculated. Those values are known. They don’t typically trade to what we call full carry. You’ll probably get between low end 60 to maybe 90% of full carry. So they don’t really trade to their theoretic full carry values even when markets are normal, right? So then what happens is if the market is tight or there’s higher demand, markets can invert, and that means the front months have higher prices than the successive months, and you can see that here in crude oil.
It also says that if you bring whatever you have to the market because we’ll ensure it for higher prices, we’ll actually going to penalize you if you choose to deliver in October. So this instigates people to bring their inventory to market sooner because the prices are better than if they were to defer them. And if you look how far we can go out, you can go out to next year and you could see that it’s substantially lower. Now, there is no upper boundary where there is a full carry In a normal market between months, there is no upper boundary. When you look at what happens when markets invert to say it in English, this could go to 90, 95, a hundred, while this stays still, right? So this provides an opportunity for you to buy a front month and to sell a deferred month against it and play that spread widening.
So I took it upon myself to create another spread using October, December, which is a very liquid spread, no pun intended. October, December is a very active spread, and you can see likewise the spread has widened In October was trading went from a $0.40 cent premium to a $1.80 premium in a very short period of time. So that’s December 13th of last year, and this is April 5th, so it’s not like it doesn’t have pullbacks, but this is a case where you would buy that October and you would sell December against it. The point being is that when you’re on both sides of the market, you’re afforded lower margin, so that might help some of you who have smaller accounts, and you can’t take directional trades home overnight because they increase the margin on you. In my experience, you’ll have to clear it and see what your clearing member does for you. But normally if you’re trading intra commodity spreads, which is what this would be, you might be afforded anywhere between a 70 to a 90% discount on the outright directional margin because you’re simultaneously long and short. Two highly correlated instruments in that crude is highly correlated to crude. Now you can see that there’s chart patterns here. You got little head and shoulders, perhaps you sell it off you bottom reversals. You can trade breakouts the same difference. And so now it’s like how high can it go? How high can October go above December? Because even if they both go up, as long as October accelerates, you’re going to make money. If December collapses more than October net net, you’re going to make money. So this is just something to investigate. You might find that it’s helpful for you. Again, you’ll have to figure out what’s appropriate for your cash and your account and your tolerance for risk.
I can’t give you financial advice, so you can’t hold me accountable here. You’ll have to figure out what’s appropriate for you. But people asked on when we talked about margin and taking positions home overnight, you can do it with options. You could trade positions smaller, and if the micros are still too big for you, you might want to just consider stopping until you can raise enough money to put it into your account so you could do this the right way and not have to kind of fit something that might not even be congruent with who you are or what you’re trying to do, and use that as an overlay. It’s hard to make money in those situations. Now you’re really coping. You’re not really becoming who you are. You think you are because you’re doing trading, but at the end of the day, you have so many handcuffs you can’t possibly succeed. I haven’t seen it. Anyway, take a look at spreads. They’re very reliable. They’re seasonal, so you can count on them. In the commodities markets where stocks are secular, commodities are cyclical, and so you might find some value in that to help you along in your journey.
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So on the heels of yesterday’s episode, there was a comment in the comment section, but that’s where comments would be in the comment section about position sizing and how would you do this and that and kind of build into your position. So I just want to go back and review very quickly what we had done on the live stream a while back and take a look. Let’s go over there again. So I had been adding, so let’s talk about the risk unit first, the live stream. You can go onto the live tab at the YouTube channel and watch the full video there where I covered this extensively. So I’m not going to flog a dying horse here, but when you look at this here, one contract here, I’m adding another contract, I’m buying a third contract. There’s several ways to do that and to understand what this whole process means, you might come in and say, well, so there’s two ways that you could look at this.
One might be that one is your risk unit. That’s really what you add. So by the time you get to four, if you had one half of 1% risk units, you can say that by the time you got to buying your fourth piece that you have 2% at risk. In terms of portfolio heat, that’s important because we’re going to talk about that later this week. That has a lot to do with your returns. Returns and reward kind of go together. So excuse me, risk and reward go together. Reward and return of the same things. So look at this as how much portfolio heat can you take or do you absolutely need almost as a prescription for your success. You can have a goal to make a million dollars when you’re taking off $200 winners. It’s just you’re never going to get there. It’s fantasy land. So in the coaching that we do, we do a lot of work on what’s the goal, what’s the dream, and then how do we marry your tactics up to get there? And that’s where we start to make the adjustments because the goal has to be congruent with what you know how to do, what you can execute tactically.
So here you’re buying one risk unit. Maybe this is good enough for you. You don’t have to add to your winners. So you can just risk on risk off with one half of 1%, and that’s fine. You might find yourself in a spot where you like to add to your winners at opportune times. This one could be based on an ATR of six, so you’re adding at every three because that happens to be the optimal spot to do it if you’re using an ATR based system. So you could find yourself having four directional units, each one of equal
Weighting, right? So this isn’t pyramiding where you’re putting in smaller amounts of risk. This is just straight up adding to your winners based on your equity. Also, you could see that the stops are being adjusted in a very regimented manner, very strict manner. There’s no discretion there so that at the time that you’re done, you could do this 6, 7, 8, 9, 10 times. It depends on the move and it depends on what you’re looking to do. What is the goal? A lot of traders come into the market and they’re like, well, I got to put on the risk and I take the risk off. And that’s certainly one way to do it, but you’d be surprised how much money you can make if you just stopped selling winners and let them run.
The next way you could look at this would be like, well, four contracts would actually be my one half of 1%, but I don’t want to put that on all at once, right? Because then I’m going to find myself in a spot where I could be too big too quickly, and then if the market works against me, I could get blasted and it would’ve a very detrimental effect on my equity. So this is more my style in that I don’t cannonball in cannon. Balling might be a strong word, but nonetheless, I’d rather be wrong with a smaller piece at the very, very beginning rather than trying to get in and get my timing exactly right. By trading it smaller at the beginning, I can have bad luck and bad timing and it’s not going to mean any damn thing. So if you come back here, you can see that four contracts might be your actual optimal risk unit. So by the time it’s up X, Y, Z, you’re just getting to a spot where you’ll have your optimal position size on.
So how does that make you feel? Because at the end of the day, this is risk management is what you’re faced with. So in this case, you’re actually starting only with at the very beginning. At number one, you’re only actually putting on a piece as a taster unit. It’s like an appetizer when you go out to dinner, knowing that four contracts would be your optimal risk size, one is just you’re building into your position over time. Now, some of you might for this type of a style say, well, Mike, this thing’s already moved 9 cents, I’ve missed the move to me. Again, you don’t understand the nature of how markets work, right? Things don’t just go up two or 3 cents and then they stop. That’s something that you make up in your mind and you speak to yourself about, but at the end of the day, you don’t really have a lot of science, and I know there’s armchair quarterbacks, but Mike, nine times out of 10, it pulls back on you. That’s really not true. That’s not my experience at all. That’s why I like to look at the data because then I could learn how to position size into the instrument that I’m looking at in a way that’s appropriate for the amount of money that I’m running and for the amount of risk that I’m willing to take on any particular name, you ought to do the same and stop looking at charts and put together some spreadsheets and think about what are you going to do behaviorally, because that’s going to predict how much money you make and lose, not the chart. What’s most compelling is your behavior, not the charts behavior. You need to know what you’re going to do beforehand. And if you’re looking at things as only moving one or 2 cents and then that’s it, well, what are you even looking at it for? How are you going to make any money with that? You have to anticipate, especially with charts that are in the top right corner, things that have the possibility to move $10, $20, $30 maybe more. That should be your outlook so that you can put on a piece of risk that’s appropriate for where you are in your life, where you are with your investing and your trading, and let the winners run for as long as possible.
That’s the goal here. It’s not to make nickels and dimes and feel good about it. We talked about that. Don’t get in the habit of feeling good about taking small gains. It takes 61 days. There was a study done, I’ll have to figure out and find out where it was, but I remember distinctly that they said it takes 61 days to break a habit and replace it with a good habit. And taking small gains is a bad habit when you think about it. So you need to learn how to take on larger amounts of larger positions, but without taking on larger risk because those two things are not the same, as long as you know where your protective stops are. And just to reiterate before I close, you could see here every time we added, I was only really risking 3 cents even as the position grew.
So by the time I got to the third risk unit, like if you looked at this entire structure here and I get knocked out, everything’s largely at a break even, I’m going to lose 3 cents on risk. Three, I’m going to break even on two, I’m going to make 3 cents on number one. So this might be helpful for some of you who want to trade larger, but don’t want to just cannonball and pound in with that larger size at the beginning. And yes, there will be times when you get knocked out. There will be times when you can’t get your second piece on. There will be times when you get your third piece on and you get knocked out. This isn’t a game of accuracy, folks. This is a game of probabilities and you can’t fall to pieces because there’s certain trade that you fell in love with or you got your hopes up on, didn’t work out and didn’t make you money. You’re going to have to think about trading in terms of hundreds to thousands of instances, and all that is those are just data points for you to understand your own behavior so that you could model your behavior in a better way to make money. So it won’t always work out like this. I know that for sure this would be ideal, but you have to begin with the end in mind. So this is what you would think to do. And again, you could either say, well, this one contract happens to be the perfect risk unit for me, and I’m going to add. So you could do a couple ways. You could say, this is my trading right here, risk on risk off. You could say, one contract is my risk unit, but I’m going to add, so I’m going to follow this entire thing. That’s scenario number two. Add and adjust my stops accordingly. So I’m not taking undue amounts of risk. Because really when you think about it, you’re not really risking all that money, although your position size is getting larger. And lastly, you could say, well, I want to just dip my toe in where four, or whatever the n call it, N as a variable is my optimal size. I’m going to nibble in one contract at a time till I get to my optimal size and adjust my risk accordingly.
So that this way, if I lose 3 cents or one half of an ATR on one quarter of 1%, for example, right? If this represents a 1% risk unit, then this would be one fourth. If this four represents one half of 1%, then this represents one eighth of 1%. So you get to figure out what’s good for you and what you can sleep with, what you can take home at night. Different strokes for different folks. I get that. But ultimately, you have to figure out, this is where the figuring happens, right? It’s not by looking at the chart, it’s really understanding what would you do at key inflection points as the price moves and stop looking at the chart. That’s the best way to start understanding your behavior because your behavior is what’s going to predict profitability, not the damn chart pattern.
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I got some great feedback on the case study that we did last week, so thank you very much for that. Look folks, this is all shapes and sizes. There’s probably four or five right answers to any particular situation. I don’t have all the answers. I can see them all and understand them all, but I appreciate you all taking the time to say what would you do? We couldn’t make the assumption that the positions themselves were just stocks so that the capital allocated was like one position. Now, I’m one at times to be overweight as what you might consider overweight in terms of position size. The thing is, is that knowing how I position size and knowing how I use my protective stops at key strategic spots allows me to go to bed at night. Some of you are having some panic attacks about my position sizing and this and that, so let’s go back and take a look and now we can see that the world has changed a little bit.
We are making and losing money at the same time. So I wanted to kind of come back to this. These are to me real life scenarios that you can find yourself in and if we could talk about it, it might help you when you get there yourself. We had started with a hundred thousand dollars and in the last lesson case study, so to speak, we had $30,000 in cash and our account balance was at $92k. ABC was up $7k RST was up $5k. So now we have a situation where you continued to put on trades, but those trades ended up being losers while you did the right thing and you let your winners go. So we can say ABC is gold futures. Maybe it’s two year treasury notes. It could be a short sugar position, it could be a Tesla position, right? All it means is it call this variable one that might be even better and this is what I had to post in order to maintain the position.
So that could be equity or it could be buying power. So it doesn’t really, you don’t have to think of it as just stock or otherwise. Same thing with RST. I was just using tickers, but if I could put variable one in position two, it doesn’t really matter what the underlying is, but now you’re in a spot, and this actually comes from a real life scenario where in the mid from 2005 / 2006 I was in a similar situation like this and the accountant ended up doing very, very well, but I had to go through and live through certain scenarios in order to get to where I wanted to go. And so here, and I was trading it a little bit more aggressively than many of you, but here you have a spot where now the equity that you had in ABC is up, right? And now you have $9,000, so your gains have increased from $7,000 to $9,000 and in RST, your gains have grown from $5,000 to $6,000. The time period doesn’t necessarily matter other than it’s not day trading or scalping. This is overnight over the weekend. So consider this several days to who knows what several weeks later where you’ve put on some trades where you can actually see that you’re down 4K on the cash side, and so now you’re sitting here, you have things, you’re up even more in your winners, but your account is down. This is a real life spot where you’re going to find yourself perhaps frequently, especially if you’re holding onto your winners for as long as possible, maybe even adding to your winners. There will be other trades that you put on that you get knocked out of for losses and that might cause you to start to think about doing things in the overall account because of how you feel about losing the $4k from the cash account.
So how would that make you feel? Right? I know some of you, I know lemme just say this. There’s some folks who are like, you can’t take the NASDAQ 100 home overnight. That’s a stupid thing to say. If your account is too small, I get it, it probably doesn’t make sense for you because I understand now that they changed the margin. There’s a day margin where if you’re sitting with your hand on the trigger, you’re probably trading something that’s too big for you, so you have to be able to look away or put your protective stop in and walk away. Sitting there at the screen I think is the last thing you really want to do. You think you want to do it because you saw somebody else do it, but it’s not the most popular way to do things. I would encourage you to learn how to position size, find a contract that’s good for you that you can have overnight and then stick with it or a requisite amount of equity.
You’ll have to figure out, talk with whoever you talk to, your financial advisor or whomever to figure out what’s the best strategy for you for what you want to do. You’re like, well, Mike, I want to be the financial. Well, no, you should have people who help you who know more than you. Everybody should have a financial advisor. If you don’t want to hear the answers that they tell you, then that’s a different ball of wax. But everybody needs to have financial advisors because you don’t know your ass from a hole in the ground when it comes to money right now and trying to wing it on yourself and make up your mind and make all these decisions. You need somebody who has more wisdom than you. You see, that’s what I always did and I still do. I’m always talking with people who are, I’m punching up as they say, so I wouldn’t get locked into these crazy things that you say. They’re almost comical, but nonetheless, I just delete ’em because there’s no sense in trying to call anyone out or embarrass people. I generally think people are trying to do their best, although, like I said, some of the things that come out of their mouth, they’re like the dumbest things I’ve ever heard, but you have to do what’s best for you. What I know is that if you look at the Magnificent Seven and think about certainly their meme stocks for sure, but you can still separate yourself from all of that and think about a position size. And so if you look at how many dollars per share they’ve attained over the last, say, six months to a year, and you can only talk about taking a couple of bucks out of it, what you’re doing is not helping you. Your model is not working for you because taking out nickels and dimes over moves that are $10 to several $100 and if you’re undercapitalized, you might consider stopping and finding a way to get access to more money, real money, not these funding things because then you’re going to have to try to trade somebody else’s rules.
You really want to develop yourself and your own rules. So what would you do? Now you’re in a situation where you did the right thing, you followed your signals, you put those trades on. They could have been, say, eight trades at $500 each. Maybe you made a little, but net, net you lost $4k since the last period, albeit your, these two big winners have continued to grow for you, but now the account’s down 12% despite the fact that you have winners that are still making you money.
So this is a spot that you’re going to find yourself in. What do you do? What’s your plan? You have to have this stuff all worked out. I think beforehand, no one really talks about the management of the trade. They’re like, okay, I’ll wait for my setup. I got my chart pattern, I have my entry, my exit, I move my protective stop, blah, blah, blah. But this is real portfolio management. What do you do now? You’re in the trades. You’ve already adjusted your stops on ABC, and RST, but your account is still down, so what’s your plan? Leave your comments below. We can kind of keep the conversation going. Try to not generalize about what’s good or what’s bad, what’s good for you. I don’t care if you’re going to hold the data to 150,000 that’s in fantasy land. That doesn’t, if the future doesn’t exist, you have to think about what you’re going to do right now and think of it this way so that you have the plan so that when you’re in it, you follow your rules and you don’t freak out. I don’t want to say what I would do because this is more to help you understand. Plus you probably intuit like what I do. Anyway, leave your comments below. I’ll leave the good ones up.
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So I get a lot of questions about what can you do about your mind? How do you help your mindset? It’s not just about learning the tactical aspects of trading, although that’s what everyone’s trying to sell you is if that’s the panacea and if that’s going to be the cure to your issues. But to me, it’s more about your approach to life because trading is just a subset to a bigger mindset. So I’ve been the inner voice of trading, right? But I’ve always had a strong inner game. I didn’t know what to call it because I just thought it was normal. I thought everybody acted the way I did, and maybe they do in their own way. But the way that I kind of enhance what’s going on in my brain is through yoga, meditation. But I don’t think you have to do sit there in lotus position on a yoga mat or a bolster, trying to look at the candle and figure out what’s the meaning of life.
The quieting of your mind just allows you to have a higher level of intensity, a higher level of focus. So I would completely look at that as you could look at anything as a form of meditation, right? So yes, I can sit still and meditate. It’s not easy at first. Your mind’s going a thousand miles an hour, but to me, it’s fun. I get to sit down, quiet, turn off the phone, turn off all the alerts and the emails and all that kind of stuff, turn off the market minding and blah, blah, blah, and start to focus on just by breath. And that allows me to kind of quiet my mind when that happens. My mind is still working on things in my subconscious. I can’t necessarily explain the process, but it works for me. It is difficult at first to kind of sit and quiet your mind, but if you sit there, you close your eyes and you focus on inhaling and exhaling, that’s a good way to find your entry point.
But it’s also true that you could do something completely inane. Like if you’re just cleaning the house, you can find a meditation inside of that. If you’re into gardening, right? You’d be digging in the dirt, pulling out weeds, whatever it might be. I like to paint. I like to play guitar. I can lose myself and find any particular thing meditative. I can go inward. It really benefits me quite a lot because there’s so much going on in my life doing all these damn episodes, which frankly are a pain in the ass. You know what I mean? I’m busy. I really don’t have time to do a lot of these. So I have this week’s episodes I’m doing at the very last minute. I just didn’t have any time, but that’s because I’m meditating and I’m using my yoga. The yoga to me. I was lucky enough to be able to study with Eric Schiffman. He wrote a really great book on it called, he’s a yoga teacher, pretty well known guy, super sweet person, love him to death. He wrote a great book if you want to read about it, called Moving Into Stillness. And he was my teacher
Of them for a long, long time, for over 10 years and over on the west side. And so I really learned a lot from him on how to think about yoga, not as trying to become flexible. That’s not really the point, although that’s a benefit. I just how to feel good inside your body and think about yoga as it in and of itself as a moving meditation. Which brings me to my next point, which is hard for me. I like to go to classes and I do. I used to go seven days a week before we all got 2020, and now I kind of go to certain classes depending on the teacher, and because I have the space, I have someone come to my house. So we do it here, but that’s because I want to control the environment. What do I mean by that?
Well, I like to lose myself in the class. I’m not going there necessarily at this stage after doing yoga for 20 years to kind of learn new poses and any type of a pose that you’d see in a calendar, you don’t need that. That’s like the advanced charting packages with these trading platforms. It’s all kind of ego based showing off these crazy positions that maybe they benefit you, maybe they don’t. But it takes years and years of practice to kind of get there. It doesn’t really prove much, but everyone evolves at their own pace. I always just look at them and kind of raise my eyebrows. But you can still find a lot of benefit in doing basic sun salutations and just quieting your mind, close your eyes because then you’re not bringing in that data as an input. You can hear things, I suppose, if you don’t put on noise canceling headphones, but you can really lose yourself in that and quiet your mind.
And it’s even beneficial for one day. So that’s why I do it is because I have so much going on. It helps me concentrate better when I need to concentrate. And sometimes my best ideas are when I’m sitting there just in stillness and the light bulb will go off. That happens for me a lot. And being super creative person, I kind of need that almost as my methodology. So you might find some benefit there. I know it’s difficult to light the candle, sit there, cross-legged. Most guys don’t have the hips to sit cross-legged Indian style, I suppose they would say on the floor. But you could find anything or any way that works for you. You could sit in an upright chair, just sit with good posture and lower your head. Try to quiet your mind for 15, 30 seconds. It’s a start. It’s just like anything else in life. You’re not going to be able to meditate like a Buddhist monk at the beginning, but you can get there. I don’t believe for those of you that are listening or watching, thanks for being here and saying like, oh, I can’t do that. It’s too much. My mind’s too busy. You’re the ideal candidate.
You just have to put your mind to doing it. So that’s what I would do. But I would endorse that practice of yoga and meditation I see as one and the same, at least it is for me. You might find something different in your own practice, but I would definitely encourage you because that helps you exercise your brain and stops your brain working on mindless things that don’t really matter in your life. That certainly aren’t going to add up necessarily to your trading. So that’s kind of why I like to do it too, is that it helps me stay super focused. And to be honest with you, if I didn’t have that in my life, well probably wouldn’t be able to do this show because I have to really economize my time and use my time effectively and efficiently. And I think when you think about trading or managing money or managing risk where you can sit still for a while and it allows you time to process things when you’re constantly in kinetic energy, that’s another vibe going through your body. So you might find great benefit in moving into stillness. There’s also some other good books. There’s a lot of stuff on the internet if you wanted to do yoga. Light on yoga is probably as good as any book. I think that’s Iyengar’s book, but it’s, again, it’s only one style. There’s so many different styles of yoga. I practice haha yoga, but any number of it would be good, whether it’s Kundalini or otherwise, or this and that.
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So following on from yesterday, I like to say again, all wars are won before the battles are fought, right? That’s kind of a cliche. Victorious warriors first win, then seek battle. I want to help you refine a few things in, you’re trading right here. If you are taking risk home, taking it over the weekend, you still need to know what you’re going to do if the chart goes to a certain spot. What a lot of people do, and I think is a mistake, is they wait to read the chart and then they try to figure out what they’re going to do after the chart’s already moved. So the better way to do that is to always know where you’re going to manage the risk. Always stay in control. Obviously, the market is omniscient and it’s all powerful, omnipotent. That’s the way that it works. But the best thing that you can do in those circumstances is to make sure that you have a plan.
And most of the time that plan is focused on defense. Knowing how to enter traits to add risk is kind of easy. Knowing where to put your protective stops. That’s also kind of easy because you know the distance between your entry and exit based upon your position size, knowing your R how much you want to lose or how much you don’t want to lose, but how much you’re willing to risk in order to be in the trade in the first place. But then when you’re in trades, especially winning trades, this goes back to what we’ve been speaking about all week and a little bit from last week, although it was a shortened week from July 4th holiday, is how do you trade your P&L? How do you trade your equity curve? Because these are real life examples of things that you’re going to need to know how to do.
Again, in anticipation of market activity, you could always think about what’s going to happen after you’re out of the trade. What you don’t want to do is find yourself in a position that’s moved sharply against you, and now you’re frozen, like Bambi in the headlights about to get smashed by the car, and you don’t have a plan because at that point, it’s too late. The damage has been done. I know once in a while markets gap. That’s part of life, but it’s not the end all. Usually in those cases, your first loss is your best loss. So what I’m thinking is, what would you do then if you don’t have a plan for setting alerts or for managing your protective stops as the names move in your favor, now’s the time to start thinking about that. This is really vital because you don’t want to be in one of those situations where you buy something at $20, your protective stops at $19, it goes to $26, but you haven’t adjusted your stop.
Oftentimes that’s because maybe tactically you don’t know how to do it, but two, you love the feeling of having all those unrealized gains and you don’t want to get stopped out of the trade. So you leave the protective stop deliberately low. When the market starts to show you unrealized gains in that position, you need to be able to walk away with something. It doesn’t have to be the entire position, but you need to walk away knowing that, okay, if you adjust your protective stop, at least you’ll get knocked out having gotten paid something for the risk that you were willing to take. That’s something that you need to get used to doing because you’re taking the risk. And if you’re taking it home overnight and over the weekend where there’s a lot of alpha created, then you must be very, very proactive. Not necessarily in adding to your winners. That’s not necessarily something that everyone has to do, but I think you do have to be very, very proactive and very intentional in moving your protective stops in lockstep as your winners continue to win for you. So with that, I wish you a good weekend.
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Something different for you today. You know how I like to talk a blue streak about all the trading psychology. So now I’m going to do a little bit of a case study. Let’s just say that you have the following situation. Up here you have an account that started with a hundred thousand dollars and currently you carry about $30,000 in cash. You’ve got some positions here. Those are the market values. There’s $27k. I don’t know if you can see the point or you can’t, but there’s $27k, there’s $35k. That’s what you have. That’s the current market value. Over here, you see what you have in unrealized gains. You have $7,000 and $5,000 respectively. So $12k of the $92k are unrealized gains from your exceptional trades with ABC and RST. The rest, you got stopped out for losses. So although you’re up on these two positions, your account is still down 8%.
So the question then is what do you do? Market’s kind of choppy. There’s not a lot of follow through. It’s where are we? We are after 4th of July, we’re seeing pressure about the health of President Biden and everybody who’s kind of given him unsolicited advice about what he ought to do, both for himself, for the party, for the country. So everyone’s got their reason on. They say unsolicited advice is a form of criticism. And so with all the uncertainty out there, here we are. What are you going to do with this account? And if you get a new signal and you tie up that $30k, where do you go from here? Now the market looks toppy. Both the charts and ABC and RST I’ll tell you are looking at multi-year highs, but there’s not a lot of follow through. So this is a situation that you might find yourself in very, very frequently over the course of your career.
I know I did it. I actually do. In the training, we have case study where it was much worse. I had a 401k rollover account from when my first CTA was acquired in a man inquisition kind of a deal. And I immediately started contributing to the firm’s 401k. They had matching. So I rolled it out, it was like $50k in it and I was trading it very, very aggressively. I had 17 years experience at the time. This is all before inner voice trading was written, but it’s not in the book. I only wrote about my failures in the book. By the way. You can get the free audio book version, click the link in the description. And so I find myself trading like a whopping 2% risk unit at the time, maybe in certain circumstances, 5%, 10% risk units. But I knew I was doing, and so I found myself in a situation where I was making money in certain names, but my overall account balance was down 14%. So when you look at this situation, your account’s down 8%. What would you do? What feelings are going through your body? You have two names. You’ve puked at all your losers. So you’ve done that right now you have two positions that are up. You can figure out what the rates of return are on that money. You’re carrying some cash. So it’s not like you have to do anything, but think about it. And what would you do? Knowing again that $12,000 of the $92k are unrealized gains. What would happen if that went down to $11k, $10k, $9k and you weren’t getting any new ideas? What’s your plan? This is the kind of stuff that you need to have worked out long before you’re actually in the situation because it’s not something that you can do or you want to have to do on the fly. It’s always better to, that’s what I’ve always said from the art of war. The victorious warrior first wins then seeks battle. It’s far better to know what you’re going to do in a certain situation before you even get there. Now for this account, it’s a hypothetical account. You’re taking the risk home overnight over the weekend. Hope that helps.
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Yesterday we talked about habits and doing things that were habitual, right? I put the bitch in habitual. No. So at the end of the day, I know it’s risky for some folks because nowadays this is actually something like talk about being an idiot. I just learned this the other day because we have all the money we’ll ever need. I understand now that for certain firms, they have a day trader margin, but then they have an overnight margin, and for some traders, their accounts are not large enough to be able to carry the risk home overnight over the weekend. So yesterday we talked about habits. If you’re in a winning trade, I think it’s a bad habit to take off winners just because it’s at the end of the day. Now, some of you are like, well, Mike, you just said you have a smaller account.
Well, I know I’ve published videos about the difficulties of having an underfunded account. There’s certain realities out there that I can’t help you with. If the money’s not there, it’s not there. So then what happens is your trading model becomes a coping mechanism. You have to cope with the fact that you don’t have enough money to keep an overnight trade on, which to me, again, brings on bad habits because there’s no reason why you should offset a winning trade just because it’s the end of the day. I know some of you feel differently, but then you have to wake up tomorrow and reinvent yourself and look for another setup. I don’t want to have to keep doing all that work if I already have found a winner, they’re hard enough to find in the first place. I don’t get excited about doing blue collar work around trading.
You might be at that stage of your career where it feels good to work hard. I know what that feels like, but after a while, again, I don’t want turn trading into a Raymond Carver short story and have it be full of blue collar despair. I want to do as little as possible. That’s how I maximize the return on my work, right? Advertisers and digital marketers look at ROAS return on ad spend, return on ad spend, ROAS. And so what they want to try to do, knowing where their revenue is or what their lifetime value is, their average order value is, they know how much they have to pay for paid traffic. What are they actually spending to generate all the leads? Then divided up the cost by the number of leads. They come up with a cost per lead. And so if they can, then that becomes, again, expected values.
So if you’re struggling with this and you can’t do it only what’s the right asset class for you, right? You figured you are interested in certain asset class, whether it be stocks or commodity futures or options or foreign exchange. I can’t really help you with that. I don’t know you well enough to make that observation. I know what I got good at, so I kind of stuck with what I was good at. Looking back, it makes a lot of sense now that that would’ve been the case, that for me it was commodity futures. At the time, I didn’t know. I didn’t have the awareness. So for some of you who were struggling with that and you were looking to trade your equity curve, and you want to get out of the habit of taking small gains, but you have an underfunded account, you might consider trading options so that at least buying options puts or calls because at that point, you’ll know what your max loss is.
Whenever you have a debit or a net debit balance or an options trade, that’s always going to be your max loss. So if you buy calls or puts outright and you trade directionally, whatever you spend on that premium premium, I guess is plural. You know what the worst case scenario is going into the trade. Now, if you do bull call spreads or bare put spreads, those are also net debits and they could be lower cost than just outright directionals. And if they are net debit, right? Because at that point you’ll buy a call, a bull call spread. You’ll have a call with a lower strike and you’ll sell a call on the same instrument with a higher strike.
That’s going to have a lower premium. So it will bring in some credit, right? So that structure will be cheaper. You also trade off the upside because theoretically you’re capped at the upper strike price. You also have to think about what the net deltas are going to be. So it gets a little sophisticated. The point being is that that’s one way to learn how to conjugate your feelings with your trading style in and around taking risks home overnight and over the weekend, because you know what the worst case scenario could be. You can’t wake up and find yourself in a disaster. So as a little coaching tip, you might find that that’s something that’s digestible for you. If you bought, I don’t know, look at SPY calls that go out two weeks of a premium of a dollar, you risk a hundred dollars. I don’t know what your account balance is.
You’ll have to think of it as a percentage of your overall capital. Obviously you want it to be probably half a percent or lower, but there are ways that you can experiment with that to learn how to conjugate your emotional constitution and your trading psychology with what you know how to do, and then not have to worry and play somebody else’s game. Because when you’re sitting there trying to day trade stuff and you know can’t hold the position overnight because the margins are too high, you want to stay in control and make sure that you’re trading your rules, not trading somebody else’s rules. And that goes for prop trading firms and some of these funding accounts too. You don’t want to adopt somebody else’s behavior. You, you’re going to be excellent becoming your own person and executing your own behavior. That’s my 2 cents on it.
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I got some great feedback from folks who watched the video about taking small, consistent gains, and they thought I was being kind of sarcastic, and it’s certainly, sarcasm is a poor man’s wit. I don’t have to waste my time with that bullshit here. The point being, though, is that if you do have a small account and you take a 1% gain, I get it. It’s going to be a small dollar value. Here’s the thing though, is that people were creatures of habits. Your trading rules are nothing but a paradigm, right? It’s a set of habits that you follow. And so what you don’t want to do is get used to taking small gains because then you can get comfortable there. And then when you’re spending all this time basically churning your own account because your gains don’t ever cover all your costs and your losses.
So people say different things like trading water, this and that, grinding. Again, you have to be careful of the language that you use because the words, words have power. Words have a lot of meaning, and so just be aware that your trading rules from your entries, your exits, your position sizing. Where do you put your protective stops? How do you know to look for reversals to take your winners, for example? That becomes habitual and that’s a good thing. However, that’s why you want think percentage terms because if you’re trading like these smaller contracts, these micro contracts, feeling good about yourself taking a hundred dollars out of a trade, sure. When I was working as a golf caddy, that was a lot of money to me in those days, but you have to understand that this is not a blue collar job. It’s white collar job, and the more that you can learn to sit on your hands and stay out of your own way and let your winners run, you’d be surprised how many of those a hundred dollars winners can turn into $300 winners, all by just not affecting the trade to offset the risk.
So tomorrow we’re going to talk about overnight risk. Over the weekend risk, but for now, I want you to understand that everything that you do is somehow deliberate. Even if you don’t know why you’re doing it, it’s coming out of your subconscious. So be mindful of the gains that you’re taking because you could get super comfortable taking small gains, and that’s if that’s the case, your account balance is just never going to grow. It’s going to take years, or you’re going to have to INow your account with frequent contributions. There’s nothing wrong with that, but just be mindful about what you decide to do because it’s intentional, right? Intentions. Results. So you want to make sure that you have bigger horizons for yourself and that you love yourself enough to exact as much as you possibly can out of this, what the competition’s doing, right? So imagine you’re at a job interview and someone asks you to describe your trading process, and how do you take winners? Record that into your phone. Everyone has a microphone. Now, record that into the phone and play it back to yourself. See what it sounds like. Is it convincing? Would you allocate money to this person?
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You might’ve heard me use the expression trade, your P&L, you have to trade your equity curve. This is kind of a pro concept. I think it’s lost on a lot of newer traders, but anyway, someone asked about it, so let’s talk about it. Your account balance is dynamic in as much that when you trade and make and lose money, the account balance is going to change. It also changes while you’re in positions, and so what pros do is they always account for that up to the minute, right? They know where their equity is and they also know the volatility of the instrument or instruments that they’re trading. So instead of coming a lot of newer traders, amateurs, guys that are trying to make it newbies, whatever you want to call them, aspiring traders, they might come in and say, well, I’m going to risk $200 on a trade.
They just pick a number because that’s what they’re comfortable losing. The problem with that model is that it’s not dynamic. It doesn’t take into account what the actual volatility of the instrument might be, right? So you could use anything from standard deviation, you could use ATR. Obvious is very, very popular. Obviously that’s been spoken about quite a bit. And so when you’re in the position, you would use the ATR to determine your position size, right? You wouldn’t want to choose a number that’s too big or too small just by picking a dollar sign out of the blue, right? So most pros are using percentages. That’s their R. It’s not a dollar value, it’s a percentage of their account. So let’s say that you’re risking one half of 1% only. What’s best and your account is growing. If your account grows, your 1/2 of 1% could be a bigger dollar sign than the number that you’re picking off the top of your head.
Some places have they say, well, I only want to risk or lose it up to a thousand dollars a week, and so I’m going to divide that by five and just pick $200. That way. Personally, I think that way is wrong. Again, it’s too rigid and it puts too much pressure on the trader, and I like to always think in what I call reality. The reality is the equity curve is an expression in and of itself of how the market’s responding to my overall trading ethos. I’m not set in my ways per se, but when you evolve into the pro level or you’re able to do this and actually make money, you’re going to find that you’re kind of trading some version of your personality. That’s typically how it works. All the while keeping your losses small, of course, and so the equity curve communicates with you.
Is your style amenable with what’s going on in the marketplace? Yes or no? Because losing money isn’t bad. It just means that there’s some disharmony in the short run right there, especially if you know the system has positive expected value, so you can’t fault to pieces if you start losing money, it might be aggravated, but aggravating, and this gets into a super deep conversation, which I don’t want to get into here, but when you lose money, you kind of determine yourself how to label that. So if you get frustrated, it might not be frustrating to somebody else. You see what I’m saying? So for me, it’s just like a breeze going by. It is what it is. It’s not anything, like I said, to fall to pieces. We tend to label things in our lives so you can recharacterize that event happening in your life and maybe create a rule around it.
Again, I’m not trying to be a psychologist here, but ultimately, if you find yourself being frustrated a lot, it might come down to your very own rules. Your rules might be a mechanism to deliver to you Frustration. Yes, I believe everyone can learn how to trade. It doesn’t mean that everyone can do it though. So the dynamism of your account balance, having an ebb and flow and the volatility of the instrument having an ebb and flow, you measure those things concurrently and you come up with your position size. It’s not uncommon to have a position size, especially if you’re trading a larger account where you might have several hundred to several thousand shares. You might have dozens if not hundreds of contracts, and so as your account balance is growing, you might have to trim the hedges if the volatility expands, but your account is the same.
You might have to trim the position by a contractor too to kind of keep it within your R. So this is really what we mean when we talk about trading your p and l trading your equity curve. On the downside, it’s also very, very helpful because as you start to lose money, one half of 1% of a smaller account means less dollars, so it’s much more flexible, and that would force you to have fewer shares or fewer contracts. Some pros even take it a step further and to minimize the drawdown, they actually take a haircut on their account balance. So if you look at your p and l, could be what is the difference between where you started and where you are right now. So with a drawdown where your account balance is lower than a previous high watermark, there are certain inflection points that you can kind of pick.
It’s a discretionary decision, so that’s kind of up to you, but they absolutely work. So for example, let’s say that you traded your account up to $100k and then you were down like $2,000 afterwards, or 2% you might put a rule in that says, okay, at 2% I’m going to take the rest of the month off just to make sure that I don’t take larger losses, which could affect my emotional constitution, which could affect my behavior, my behavior of which predicts where I end up in life. Too many younger traders, mostly guys want to be bullheaded and want to stay in their and say, well, I’m just going to trade out of it and just kind of further the losses and further the drawdown. And I know I might be preaching to the choir here because this is the abundance of the emails that I get.
I’m in a losing streak, I’m pissed. I don’t want to be here, so I’m just going to try to trade my way out of it. Position sizing goes completely out the window because what they’re thinking about is the distance between where they were, where are now, and what kind of position size they would need to put on to recover that amount of money. It’s a quick way to lose a lot of money actually, especially if your trading style is not in tune with what’s going on in the marketplace. Sitting on your hands is a huge asset. As a speculator, you have the right to not participate. So I would exercise that right as much as you possibly can because at least you’ll have the money. You can’t say that you’re going to miss opportunity, right? That’s the devil on your shoulder saying that you need to participate every day.
I don’t believe that at all. I think even day traders can take time off, and it does wonders for their psychology as well. So anyway, if you’re down 2, 3, 4, 5%, you could take off the week, take off the rest of the month, the haircut comes in when you’re at say 10. Again, this is a discretionary decision, so it’s going to be different for everybody, but I know when I was coming up, there were guys who were like, if I’m down 10% and I’m trading 90 cent dollars so to speak, I’m going to actually trade as if I only have 60, right? So the example would be you had a million dollars, you lost a $100k, you’re down at $900,000. So that instead of taking one half of 1% or $4,500 at that point in time, the traders actually going to position size as if they only have $600,000.
They’ll take a one third haircut. The money’s still there, of course, but they’re going to trade it as if it’s a lower notional value. So that would mean $600k would mean my risk unit now at one half or 1% would be $3,000, and the reason you do that is that forces you then to trade smaller when things aren’t working out. Could be human error, could be bad analysis, could be bad luck, could be bad timing. It doesn’t really matter at that moment in time because you’re losing money, so you want to have to shore up your equity as quickly as possible. You can be more drastic because at that point, the goal is to kind of get back in tune with the market. Don’t cut corners if you cut corners. What I would say, and you need to take a flyer because I spoke to a good friend about this earlier, actually this time last week, in that you want to honor your creativity.
You want to honor your sense of intuition, your insight, your feel for the market. However, you don’t typically do that with your normal bed size. If you’re looking for your setup and it’s not quite there, but you have a, I don’t like to shut people down being a dream killer. That’s why I don’t say don’t trade even to the 19 out of 20 people who fail at it. It’s because some of you might actually develop a feel and do it, and then you’ll be off to the races. It’s not up for me to say don’t do it, but if you want to take a flyer and go on a hunch, you think you have a feel, you don’t know that that’s not the case. Even though it sounds like the word hunch kind of seems like it’s throwing darts in, its complete guesswork. It very well may be, but you don’t know.
After hundreds, maybe thousands, over my career now, I’ve had millions of observations of watching data points and charts and otherwise time and sales level two, this and that, getting information off the floor. So if we have the biggest super computer right between our ears, I can’t deny the fact that all that information might be somehow working in the background and my brain is cogitating in my subconscious what’s going on in the marketplace. So you want to honor those bursts of creativity, of insight, of potential feel, because that’s where the magic could come from. I don’t know if you could do it after a month of study, maybe you can’t if you’re gifted, I don’t know. Most people can’t, but try it anyway. Here’s the rub. Do it with 1/10th of 1%. Take the flyer, but do it with an option. Do it with something that could only minimize the loss, because if you’re going to go on a hunch, the goal at that point isn’t to make money, which is like, well, you’re like, Mike, don’t be stupid.
Of course it is. That’s where we’re trading in the first place, but you don’t understand trading it if that’s where your head’s at. Your job is to develop a system with which you’re compatible. If you’re going to take a flyer at that moment in time, you have zero data to make any judgment calls on. So the point is, is to try it as a process and then repeat that maybe a dozen times or more where you’ll have data to go back and say, my hunch was I was onto something. Let me make this little adjustment here, knowing my position size is deliberately small. Once you know that your new instinct actually works, then you scale it. That’s how all experimentation in the market should come, is you should always start small with a meaningless position size so that you can get your feel so that you can determine whether or not, if you’re a discretionary chart reader, I’m not talking people who trade purely systematic rules.
They already know what the expected value is. But if you’re a discretionary chart reader, which is probably 99.9% of the folks watching the show, you have to start small. That’s the experimentation part, to get the rules down, to figure out the pattern, to figure out what your instincts might be showing you. Once you figure out that it can make money and it has positive expected value, the scaling part’s easy. Too many people start rolling the dice because they’re coming off a big week and they’re like, yeah, I’m just going to do this trade, and they really have no business being in the trade whatsoever.
So now they find themselves down and they’re aggravated because they let the hubris of the moment of their other successful trades kind of subvert their overall activity. So you want to be mindful of that. Anyway, that’s the nuts and bolts of it on trading your P&L, trading your equity curve. If you have any other questions or follow up, please add to the conversation. I don’t care about peacocking or otherwise. If you’re doing great, that’s perfect. I’m happy for you.
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So the past two days we’re talking about how to make more money. I think it comes down to how much uncertainty you can learn to live with. We all understand that trading is probabilistic, right? It’d be great if we could just have nothing but certainty. But when you have less than a hundred percent certainty, as soon as you have 1% uncertainty, you’re dealing with some type of probabilistic outcome. So depending on the criteria that you use for entries and exits and this and that and your position sizing, we can say, I think it’s fair to say for most everybody that trading deals with probabilistic outcomes. And to me, if I had to summarize it in a sentence for all the guys that I know from the generations above me, like market wizard type guys, folks my age, and to the generation below me, younger than me, of course not below me, they’re just younger than me.
That’s what I meant. The amount of money that you can make really comes down to the amount of uncertainty that you’re willing to deal with from an emotional standpoint. And if you look at that and create a strata of the people that you know who made the biggest money, also taking into account the amount of time that they put in. To me, I can create the strata based on, because I know them personally, what they were willing to endure. The emotional risk. You have financial risk, and you have emotional risk. And I think the quickest way for some of you who are struggling to kind of increase your p and l increase how much you make every day, week, month, year, is if you worked on the psychology aspect of what risk you were willing to endure, how do you feel about the risks? Some of what I get via email, it seems like it’s not terribly rational or you kind of like the risk, but you only like it when you think you can see it, right? Which is kind of a false sense of understanding of the risk.
Two, it also happens to be prevalent, very, very prevalent, especially in the folks out there who are trading one instrument. And that could be the E mini, it could be the MNQ, or even if you’re just focusing on those lower margin indices, to me, that’s all one product. And you’re like, you’re in and out, or you’re trying to find several trades a day. I would say, well, what would happen if you just bought the SPY or the QQQ and you held it for a couple of weeks? How bad could it possibly be? You want to know how you can teach yourself how to do that. Go back to the live stream that I recorded and just steal that whole model. That’s why I did it. And just see if you had X amount of shares, how bad could it be if you had
A retracement while you were in the position? Look, especially to see what happened overnight. Look to see what happened over any one particular weekend. How bad could it possibly be? And then change the position size. Say, okay, well I couldn’t do this with a thousand shares, but if I did this with say, 10, 15, 20 shares and I actually would’ve made more money than I did trading it. So just remember that to me, I see too many people buying classes joining Discords, doing all kinds of bullshit, wasting their money, and they’re not tackling the thing that could really set them free in many ways. And that is understand your emotional constitution in and around managing risk, and what do you feel when things are uncertain? Also, understand what you think. What kind of control do you think you’re in? If you’ve got more than one monitor and you’re looking at one minute bars, what do you really think you’re in control over?
Hint, nothing. You’re not in control of anything you think you can better see stuff. This is an illusion, but this is what I want you to do for homework. Any of these episodes that I record are basically free coaching. It’s very autobiographical for sure. Almost all of it, if not all of it. And you get to really go to school on yourself. That’s what I think makes this so valuable is that it’s not like they say, teach someone to fish or give them fish. Look, if you’re really starving, I got fish to give you, and there’s no problem with that. But at the end of the day, trading is an endeavor that you really kind of have to do by yourself. You have to eat your own cooking. And so really understand when we think about probabilistic outcomes and the uncertainty, you can study the math all you want, but it really, your emotions affect your behavior and your behavior predicts where you end up in life.
So if you don’t get in control of where Adam meets Eve and the whole process, which is in your emotions and your psychology, you’re destined to repeat the same stuff over and over and over again, even if you’re not even aware of it, right? Because then it’s not unlikely that your subconscious is really running the show. Anyway, we’re done now for the week. Tomorrow’s the holiday here in the United States. It’s the Independence Day so I’ll be off Thursday and Friday. I’ll be back Monday and check out the interview that I did with the folks at All Star Charts.
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On that note of taking things home overnight and over the weekend, the key tactic that you might not be working on, if you’re constantly looking at charts, the solution to me might be right underneath your nose, and that is money management. If you talk to most professional traders, they’re not going to talk to you about some magic entry. There’s really two schools of entries. There’s moving average crosses where the faster crosses, the slower, there’s your entry. You could have breakouts and then in and around that after the breakouts where you’re moving into higher territory, you can buy the bounce if there’s a pullback. But with all those strategies right there, those entry rules, so to speak, the key to making money is your position size.
How much inventory can you handle? What’s your stomach lining? And there’s no one answer fits all right? A lot of people position size using ATR, sometimes they just pick a static number. I think it’s a mistake if you use an intraday ATR, I think no matter what you’re doing, you want to use a daily ATR because it could give you a misleading measurement. So if you had a stock that had an ATR of say, $25 over 20 days, like some of these bigger stocks that have higher share prices, and then you try to look at five minute bars, you might be like, Hey, now the ATR is only two bucks, but if a 1% move is $10, you see that can happen at any point during the day. So trying to trade inside of what the ATR is to me is a recipe for frustration.
But learning anyway, to manage your inventory appropriately, to me is actually where we make our money. I know I’ve talked on the show before that we make our money in position size. The entries are kind of important. You have to find something that you’re comfortable with entries as well. You have to be comfortable with those. But when you really look at it, it’s the difference between your entry and exit multiplied by the position size. I get an enormous amount of email from people who were really just grinding. And the thing about the grind is that it’s right. It isn’t the market at that point. Why? Well, given your entry criteria and what you’re willing to risk, you really don’t have enough on even at the beginning to make any money. And then as soon as you’re making any money, you’re taking the position off. And so very, very difficult to pay for your losers when you have small gains.
You’d need to have a system that would be 80, 90% accurate in order to pay for your losers and then have money left over to actually grow your a damn account. That’s why I’ve always suggested keep adding money to your account over time. Don’t just think you’re going to trade your way to financial freedom at the beginning. You can drop in a hundred bucks a week or whatever you can afford and grow your account that way too. There’s nothing wrong with that. That just gives you more leverage. It gives you more room. Call it a buffer. It doesn’t matter to me. There’s a lot of names for the same damn thing, but position sizing. And then money management to me is absolutely key. And when I hear from folks who clear at any number of the broker dealers, man, they don’t have any clue about position sizing.
They tend to have bigger positions in the things that they’re so cock sure about, and that would be crypto, certainly Bitcoin, certainly Nvidia, or anything around ai. People can just start believing what they want to believe, and they start with this kind of infinity or zero style strategy. And that to me is very problematic because then it’s like when things work against you, you’re not in a position to think objectively and that you have to move inventory out of your account. And that’s the quickest way to start losing a lot of money or giving back a sizable chunk of your gains if you have them. And that could be realized or unrealized gains. So the one thing I got really good at was knowing where my inventory was, where my prices were, and then where my levels were. And then I went in and I set stops and or alerts in the system to help me pay attention as I was doing my studies, as I was looking at other markets and trying to manage basically a basket of orders.
These days, I find myself, people said, Mike, how come you don’t do live trading well? Because I think that question kind of comes from a day trader where you want to look over the shoulder and see my charts moving. I don’t have any of that. I know what I’m doing the night before, so very early in the morning, the day after or the morning of, I’ll call in my orders and put ’em in the hands of the traders. I’m not sitting in front of the screen. I mean, if that’s where you are, that’s where you are, right? Nothing wrong with it, but I’ve kind of graduated past that, and there’s no point in me looking at the screen because I know if I get filled, the phone’s going to ring. They’re going to say, you got to fill, here are your prices. Because usually there’s more than one. There’s usually sufficient skid and slippage. And then I’ll just take out my paper and I’ll read my protective stop into the phone and give them that order. They’ll give me a ticket number, they’ll timestamp. It’s usually good for the day. And then I’ll review it at night and say, okay, does this number and does this order still make sense given the prevailing market? So at any given time, I’m really just babysitting a shopping list. And the shopping list is either to add some risk or add more risk, or to remove all of the risk through a protective stop or a trailing stop when I’m in a winning trade. So there’s no point in going through all that. It’s not going to really help you in your trading to watch my live trading because it’s a complete snooze.
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You are not going to want to hear this, but the quickest way to grow your account when it’s smaller $5k, like we said in the last episode, is actually to sit on your hands for as long as possible. That doesn’t make sense to some of you because you’re going to want to do the feel-good thing, which is to take the trade off by the end of the day. This here is the problem. It’s hard enough to find winning trades in the first place. So many of you are doing so much blue collar work around your trading in that you have to go out and reinvent yourself every morning. One of the things that I took advantage of was moves that were not going to end in one day. So that meant how could I feel comfortable taking the risk home overnight over the weekend? It’s not something that necessarily comes easy because until you’ve actually done it, you find that you have unrealistic goals.
You have an unrealistic understanding of the nature of risk. Some of you make up in your mind that only bad things can happen overnight, and that isn’t the case. Now, of course, there will be times when you’ll be in a position and it’ll move against you, but that happens in almost every trade that I’m in, so I don’t take it personally. If it moves up and there’s a retracement, then it moves up again. Then there’s another retracement because I position size accordingly, and sometimes you can use ATR, sometimes you can use structure, but when I go back and I was just rewatching the live stream myself that I did, which you can see on the YouTube channel, if you go to the live tab and click it and rewatch it, I could relive a lot of those trades very, very vividly. But despite from getting stopped out from time to time, the majority of the time when things really start to move, you’re already in the winning trade.
And so I took advantage of that, and I literally was thinking the other day, I made more money than I actually should have because of the nature of how market moves unfold. This also ties in nicely to those of you who are working nine to five jobs or you have a career of some sort and you can’t find the right amount of time. I know someone wrote in about algo trading, but to me that’s more related to high frequency trading in that you’re having the computer do everything. Most people want to try to figure it out like it’s a crossword. So I don’t really think I have that big of an audience or folks who want to kind of do the alga thing. They feel more self-actualized, looking at charts, trying to figure out that way, using their ingenuity. It doesn’t mean it’s better or worse. It’s just a different style of doing it. So if you’re in that spot and you are trying to grow your money, the best thing you might consider doing is trading smaller and learn how to stay in those positions for longer periods of time. You saw that with Nvidia, right? I know some of you might be
Trading the indices because they’re smaller and you’re afforded lower margin and all this and that, but you have to get out of that mindset that buying five or 10 shares of a high quality stock isn’t going to manage or mean anything to you because my goodness, the Nvidia trade was worth several hundred dollars per share. Cocoa kind of moved the same way. They did increase the margin on you, but nonetheless, when I sit back and think about the trades where I made the most money, it wasn’t because of the ingenuity of my having to add and remove risk constantly moving my money. While it’s true, I did add to my winners at key inflection points. The money that I would’ve made on my first risk unit though was still more than enough to pay the bills and then some. That’s what I learned to do first.
I later learned to add to my winners at key inflection points knowing again, where the protective stops would be. So if you find like you’re kind of shoveling sand against the tide and you’re kind of making and losing and you’re not really growing your account, before you would learn a new trading strategy, I would say go back and look at the trades that you were in and then look at where did they go after you got out, because you might have already uncovered something that’s quite genius in your own trading is that you found the good names to start with. You just got out of them too soon. So the key to that is, like I’ve said, is learning to live with the uncertainty. If you want to have the feelings of growing your account, that might be on the other side of a feeling that you’re not willing to feel right now, which is I’m a little skittish about taking risk home overnight over the weekend.
Now, doing that doesn’t mean you’re an investor. Even if you, I’ve held positions for 12, 13, 14 weeks just because the moves were pronounced and they kept going. It doesn’t always happen, of course, and it’s not going to happen every trade. I know what you’re thinking, but that that’s a truism. Of course, that’s not going to be the case, but you’re never going to experience that if you automatically remove or take your winners off too soon. To me, if your exit criteria aren’t hit, there’s no reason to remove the risk from your portfolio. Risk is a good thing. You can’t make money without risk. You don’t want too much of it, but if you look at the volatility or the structure, you could always price that risk accordingly and build your position size and learn to take a smaller piece home over the weekend so that you can get used to it. Then once you get used to it, you can increase the size. Anyway, that’s the way I did it.
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What should a good coach do? I get a million questions like this all the time. What do you bring to the table? This and that. In my humble opinion, and there’s a lot of opinions out there that’s saying opinions are like belly buttons or something like that, right? Where the umbilical cord comes in. It’s a good analogy. In my opinion. A good coach should help you fill in the gaps of what you already know and get you ready and comfortable to kind of jump out of the nest on your own right? And that should be able to be done. In my programs, it doesn’t last more than three months. The key is can the person do the work and are they coachable? A lot of times students will be like, I know everything about charts. I’ve read all the books, so my response is not to sound like an appendage that’s beneath your belly button.
I say, well, why aren’t you making any money then? For everything that you know? And I remind people like, yes, I went to really good school. I read all the books. I even met all the market wizards. I got their cell numbers in my damn phone. But at the end of the day, I have to execute all that stuff. Doesn’t mean anything. So the preparation should be on the coaching side. I know what I have to do to prepare for the market starting Sunday night. Then I have the postmortem. It’s like, what does the student know? What do they feel? What feelings do they like to feel? How can you marry up their behavior? Or what are good trading practices with their emotional constitution, with the amount of time, money, and effort that they have given that they might be working a nine to five job, or they have an RIA or they might be in a family office, that type of a deal. What is the goal? If someone says, Hey, what do you think about Nvidia right here? I’m like, I don’t know. What’s your goal? How do you know? Maybe it’s time to sell it short.
So without knowing what the person’s goal is, there is no one who can help coach you. If you’re that person, you need to know what you’re doing it for. And it’s not like, oh, Mike, I want to make a million bucks. That’s not really a goal. That’s like saying I want to lose 10 pounds in New Year’s resolution. You need to have a process. The process depicts your behavior, and the behavior predicts where you end up. So you want to make money. A better goal would be like, let’s define a goal. How do you make big money? Well, you have a small position that moves very, very big, or you have a big position that moves very, very small. So which style are you? Because if you have really big positions, sure you can risk two or 3 cents if you’re that good, and you have that kind of timing on the short end of things as a scalper, but if you don’t, you open yourself to outsized losses. And so now you have to think about, again, expected value. What is the expected value of your trading strategy? That’s where the compatibility comes up with what’s your financial goal? Well, you the, and this is to me, all part of the coaching is like, what is your financial goal? Then what’s the expected value of you know how to do right now? Where can you expand that, right? Because your goal really should be to increase your expected value over time.
You see, then you can figure out, well, how many trades would you need over 250 trading days in the year? What would be the result of that with that average expected value, which is a weighted average, right? Are you anywhere near what your stated goal is? And if your expected value suggests you make 250 K, but your goal was a million, well now what can we do to change? Because you have to change the man, or you got to change the man, right? So bring your goal down. Well, I don’t know. I don’t want to compromise. Okay, well, that might mean that you have to extend your holding period so that you let your small winners become bigger winners. That requires testing. That’s all customized work. I can do it for you or do it with you with simulators, or you might have to increase your position size.
You might have to increase your sense of leverage. So we get all of that compatible also with the time, money, and the effort that you have. So I think anyone, it doesn’t have to be paid, right? Anyone can give you advice. Anyone who’s like a senior leader type of a deal. You could call it coaching, mentoring, consulting. Doesn’t matter to me what you call it, because it’s all it to me. It’s a function of my time. I don’t have a lot of time. So I have to kind of set up the consulting in a certain way so that it works for me and it works for everybody else. They’re getting good value, but it doesn’t have to be paid. So those are all the considerations that you should, some of ’em anyway that you should be considering when you’re looking to build out your career as a trader and have that person help hopefully uncover your blind spots.
I give away what I think is the most valuable stuff, which is here on the YouTube channel, and to do the audio only versions on Spotify and Stitcher and Google Podcasts, and I guess it’s called Apple Podcast now. So I syndicated the audio version or on the audio only platform still. But how to get that person up and running so that they know what they’re doing. They have a plan, they’re prepared. They know exactly what they’re going to do any given day. They know it’s a game of probabilistic outcomes, and they have the discipline to stick with it. The folks who aren’t coachable, I don’t even work with them because I know they’re going to not do the work, and that if things go wrong, they’re going to end up blaming me. So the interviews are like they’re really two way, and if they’re not committed or if they have to want to break up the payments, to me that shows they’re not committed. You have to jump in and burn your bridges. I mean, burn the boats. Don’t burn bridges. That’s bad. Don’t burn bridges. But like Hernan Cortes, you’ve got to burn the boats. There’s no place to escape to. You put your head down, you do the work, and you guarantee your own success. So where I rise to the challenge is to work with the client at their pace. Sometimes they can move very, very quickly. Sometimes they have to go slowly. Sometimes we have to pad it with a week and take two weeks over certain lessons. But to me, that’s what I think a good coach should do of any shape or size. Doesn’t matter again whether you’re paying for it or whatever. But there has to be a period of time when the coach can look you in the eye and say, our work here is done. Because if I’m doing my job, I make myself obsolete. I hope you have a great weekend.
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Trading with a day job. Okay? Talk about one of the more arduous things that you might try to do in your life, especially if you’re trying to trade on short-term timeframes. This is very, very difficult because you’re putting yourself in an environment where your time is actually very, very limited. You could find yourself in a spot where you’re forcing things because I live in Los Angeles, opening bells at six 30 for the stock market. Cocoa opens at five o’clock in the morning. Man, that’s early. So you put yourself deliberately in harm’s way. When we talk about the goal for the trader is to have a system with which he or she is compatible, the compatibility is not just you psychologically and with your financial capital, but your environment, right? And your environment is that you’re working a nine to five job. Maybe you’re work from home.
I don’t have any judgment, but you have to think about how your attention is bifurcated. So you might find that trying to trade or scalp, it seems like, Hey, if I get up and start trading the pre-market at 6:00 AM local time, I got to be at my desk clocked in at nine o’clock. Latest. I’ve got three hours, and how many two minute intervals can I find in that three hours? Seems like there’s a lot of time. Well, there’s actually not, so you might be forcing things. That’s what I get from folks via email is that they can’t make it work, and I think it’s because they don’t know the plan coming into it. So they say, well, what am I going to do? I’m going to log into my machine to start looking at two minute bars, and for the love of God, when come hell or high water, I’m going to find something because I need to get that trade on. If I’m going to be a trader, I have to make these three hours work. Whereas you might know somebody else who’s skilled at intraday trading. It could be two minutes scalping, it could be several hours of holds day trading, whatever. It works. Some people are very, very good at it, but they don’t have the pressure that you have that you have to deliver at work. And so you can’t focus on the market at all.
And if you find yourself like, I’m just going to go peek. I’m going to go take a look and see if I could see anything. At that point, you’re really acting at a desperation, right? That’s not, again, I think would you hire yourself, if that’s what you define professional activity as, would you hire yourself if that’s what your trader was going to do, have their attention on something other than the market during trading hours, but peak in once in a while. So you have to hold yourself to a higher standard. That might mean you have to think about taking risk home overnight and being like a 1, 2, 3 day swing trader, maybe traded smaller. Maybe look at option debit positions with options so that your losses are minimized so that this way you’re not trying to rob Peter to pay Paul, right? Because your focus is a huge part of who you are as a trader, and if your focus is bifurcated and or your attention span, however you want to define it, to me, you’re starting out in a handicap situation because especially with the short end of it, meaning the shorter timeframes, man, you got to be at your desk focused laser in on the screens to see those opportunities.
Take advantage of your sense of timing and nail the trade for as long as you’re holding period is going to be right. So that’s the harsh reality of it, is that the compatibility part isn’t just you and your emotional constitution, your sense of emotional intelligence. Anything that goes in the chapter of trader psychology and your tactics, it has to deal with your environment. You see what I’m saying? So don’t set yourself up to lose. If you know that you’re handicapped, you see now, maybe you can check in during your lunch, but again, make sure that you have your plan. Like I talked about how I planned out my week, my preparation was a monster asset for me. Again, married up with my sense of optimism.
It’s not that I didn’t have fear, but I didn’t process the fear or losing that I was losing because as long as I followed my rules, I won the day, I did the best that I could for what I knew how to do at that moment in time. Always room for improvement. Absolutely, a hundred percent. Still to this day, I’m improving right now. Can’t you see? So keep in mind that your trading style, if you’re working a day job, you might have to tweak what it is, even though you might really want to. Did you ever go shopping for a certain suit, but it just didn’t look all that good on you? It looked really good on other guys, but you might be husky or you might be too short. So double breasted suit is not compatible with who you are at that moment in time.
Doesn’t mean you can’t get it and wear it, but you might want to figure out something that looks a little bit better. And so likewise, when you’re trying to trade with the day job, I really don’t know of too many people who are like, yeah, I’m going to try to do this and make it work with my professional career. It’s very, very difficult. And I know I did a video on when do you want to leave your job and become trading? We talked about how much money you would need to have. So this is kind of like the reality check is that you might have to try to have longer holding periods if you’re working a nine to five job, eight to four, it doesn’t matter what it is to me. I know I have viewers all around the world, so some of you are starting at night in Europe and all this and that. You want to also make sure that if that’s the case, you put a lot of pressure on your partner. If you have a family and be like, Hey, I got to start trading right in the middle of dinnertime. Make sure that you communicate that with your partner, that you’re going to be checked out. In many ways, I can share with you, there’s a lot of people and partners who have resentment over it. If you have a family, you’ve got to participate in the family on some level, and you can’t say, I’m trading. This is my time. You got to work that out ahead of time and make sure everyone’s on the same page because that situation in my experience, doesn’t get better. The resentments grow, the fights get bigger, right? So that’s what I’m saying. Environment has a lot to do with your trading, what you’re compatible with. It’s micro and macro.
The post Trading while working a day job first appeared on MartinKronicle.
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In order for me to grow my account from $5k to $50k and then from $50k up to a quarter million. It all started with preparation. Remember, we had to read a few things. There were a few good books that they weren’t really required reading, but they were ones that some of the old timers and some of the guys that I met from Hayden Stone, it recommended that I read, and it wasn’t cheesy titles like where were the client’s boats really put me asleep. It was more like Art of War, Thorstein Veblen “Theory of the Leisure Class” on conspicuous consumption, extraordinary popular delusions in the madness and crowds. All those books had a really big impact on me. When I first started managing risk. I knew just like in playing poker, when you trade, you have to play your cards, but you also have to play the people on the other side of the trade because you don’t know when you’re putting on a trade that you couldn’t be part of a larger order. That’s where the Contra broker and firm could be tutor investments or David Shaw or Caxton or whomever. So I always knew that playing Superior Defense was the name of the game, but I also knew that what gave me confidence to attack the day attacking while also playing Superior Defense was my extraordinary preparation.
I used to come, in fact, when I would apply for certain jobs, they would say I was overqualified and it bothered the living crap out of me. But my level of preparedness was really what was one of my bigger attributes or characteristics as a person. Again, I wasn’t looking at one instrument over multiple timeframes to kind of sniper in to know for sure I didn’t use indicators. I felt that they were useless for stocks. Relative strength is important for sure, but on the commodity side, there’s really not that much that’s really worthwhile because ultimately if they use price or what have you, all the other indicators based on price become lagging indicators almost by definition you see. So I was like, okay, well, no predictive value on that. See, so what I would do is in planning my trading week is I would actually first of all envision enormous success.
I had an unbridled amount of optimism. I was like, if Paul Tudor Jones can do this, and he got smashed in that cotton trade when he was on the floor as depicted in market wizards, I can do this. If Kovner can lift a leg on the spread that he had done when it was limit up and then it went limit down on his long, then I can do this because those are very human situations. You see what I’m saying? And you live and learn. You thicken your skin, and so I just always knew I was going to win. I didn’t know when and I didn’t know how much, but I was unstoppable, and that type of optimism is what carries the day. You have to envision yourself winning. If you approach this with any type of trepidation, like, well, I’m just going to check it out, see how
It goes. To me, I think the fight’s over before you actually start, and I don’t mean to sound that way. I’m not here to hurt your feelings, but I always knew that I was a grinder and I was a street brawler, like no one was going to stop me because this was my ticket out of blue collar despair. One of my favorite writers is short story writer. Rest his soul. He’s passed away is Raymond Carver, and if you read those stories, it’s absolutely blue collar despair. I would highly recommend that you read some of his stuff just for the appreciation of, there’s some great books too. Off the top of my head is Will you Please Be Quiet Please and what we talk about when we talk about love, I think if you’re interested, Anne Beatty’s also very good. But anyway, I’m off the topic now.
I’m on a tangent. So let’s come back to the story. Michael, get back to the main point, dam it. So my preparation started Sunday night, and in those days you have to remember the data and all the information and the opinions and all that stuff didn’t exist. No wireless technology. There were no apps. There were no internet. So nowadays you have too much. You have to make yourself a bit of a sieve, one of those screen kind of filter thingies and probably mucking your cards at the poker table. The majority of what’s out there is bullshit and noise. So you have to, I wouldn’t consume everything that’s published because it’s like it could end up confusing. You can’t develop your thesis based on what other people think. You got to eat your own cooking. So that’s why I very quickly stopped following firm research or other financial advisors who were walking around the office telling me about their various stocks and ultra tick stepper and this and that.
These guys did. They were salesmen. They didn’t know their ass from a hole in the ground when it came to evaluating companies or what was going to make it good. They just knew that they were up. They were caught up in the hubris, and it was yes, like Nvidia and Bitcoin, it was an infinity or zero kind of situation. They had no risk management whatsoever, none, maybe, like I said, a couple of the Hayden Stone guys, but for the most part they did not understand risk management. So anyway, coming back to Sunday night, I always found it better. I wasn’t a one instrument trader and I didn’t believe in wishlists and all that kind of stuff. I think language has a lot of powerful, what does it mean when you have a wish list and you separate the words? It’s a list, but what does the wish part actually mean? Is there a better word that you can you call it your abundance list, right? So I was that way. Like I said, here’s Saigon and here’s Hanoi. I was very, very vicious with myself and chose very specific language that was always in the present tense and only pointed to my success in the future. It always had to feed my optimism.
I’m still built this way today. I have that gene that says, how hard could it be, right? How hard could it be? So the Sunday night preparation was more like, okay, here are the price structures for these various instruments, and the good news is that there’s really like three dozen commodities that trade. There might only be three or four of ’em that look like they could make a move up or down. Most markets probably true for stocks too. Most markets are non trending depending on how you define trend, but most stocks and instruments are not trending. So you’re sitting there kind of waiting to see how things evolve, and then I would actually write out my orders. I’d write out the position size, I’d write out where my protective stop’s going to be, and then I would say, okay, if it looks like I could get in and get a second risk unit on here’s the price, then I would go to a calculator because the phones didn’t exist, so there wasn’t the calculator on your damn phone.
And then I would go to a spreadsheet and double check everything because I’d multiplied through the contract size of this and that so that I knew my math was clean as a whistle before I even got to the point of entering my orders. So I knew exactly what I was going to do and how I was going to behave regardless of what I felt over time. I didn’t mind getting into the first and maybe the second risk unit in the same day, but what I didn’t do is add my third risk unit that usually cost me money because of the nature of if moves become too extended, you can have mean reversion within the day or within the next few days and you end up being fully loaded with zero P and L. What do I mean by that? So say you were risking $1 and you found the inflection points for this particular instrument at $2 intervals.
So you buy it at $20, your next unit was $22, your next unit was $24. These are all effectively 10% moves. It seems like it’s $2, but it’s still 10%. Again, I was thinking percentages. So what would happen if you got in the same day? You got $20, $22, $24, now you’re up 20%. It’s not terribly out of your imagination to think that it couldn’t trade back to $22 before it resumed. But the problem is, is that if you’re using consistent bed sizes, which I recommend that you do, so this way it tempers your greed and your sense of hubris and your fear. Your average cost is $22, so you could have three risk units on at $20, $22, $24 if it pulls back to $22, now you’re fully loaded and you have no P&L. So I was very, very, very judicious as to when I was going to add my third units and I vacillated between using a volatility measurement. In today’s day and age, you can use ATR and or structure and people would refer
To if you do stage analysis, you would be thinking about bases. I would live through the base. I wouldn’t worry about trying to sell or trade inside the base. I didn’t know what this was at the time. It just seemed like the natural thing to do. I didn’t know about stages and bases when I was doing this. I’m using today’s language, but I had no idea about, I didn’t even know if any of the books on it were written at the time. So the key to me was from the art of war, they say the victorious warrior first wins and then seeks battle. I didn’t know what the outcomes of any of these were going to be. I knew it had positive expected value because I had already grown my account quite substantially and other people were starting to take notice. They were asking me my opinion on stuff, which is very, very awkward because I wasn’t even done with my own two year apprenticeship or training program, and I was already teaching people inside the branch.
So then I would say, okay, I have existing positions. The next day was like, okay, where am I going to put my protective stops? Where am I going to add Now I’m babysitting a book of stop orders. I was in effect my own specialist. I didn’t use limits. It was always stops, stops to get in, stops to get out, meaning using stops to add risk and using stops to remove risk. I never wanted to do or shoot from the hip and get in at the market or say like, yeah, if it goes to $26 in the previous example, I’m just going to sell everything there because I wanted that discretionary slash emotional feedback. I can’t take the profitability, it’s too much. The abundance is too much for me, so I have to offset my winners by picking some number out of my back pocket that was stupid and cost myself a lot of money by trying to pick tops that way.
So I knew, and then I would say, okay, now I have excess equity. What can I do to add more? Or if the other name’s on my list, my abundance list showed some promise, I would set my alerts and wait for those alerts to go off and then just sit and wait, then add the orders and wait for the market to come to me. I was always in a state of being placated I was never chasing, and if the market didn’t come to me, well then that’s cool. I never put the damn trade on. Anyway, in that case, it saved me a lot of money by not chasing, and that gave me a sense of confidence because every day, sometimes, especially with stocks, there’s like 80,000 stocks. You’d see that one would move and you’d like, how did I miss that? And a lot of times it was like analyst upgrading, okay, you can’t predict that. Take over candidate rumors, that kind of stuff. That always existed, but that wasn’t something that I could know ahead of time. So I usually just kind of discounted that and say, okay, well based on my information and what I can
Garner from the things that I can observe, I’m not in that loop. I don’t know when things are going to get upgraded. I don’t know why anything would be a takeover candidate or a merger candidate. I wouldn’t know that ahead of time. So I didn’t worry about it. It was a waste of my time to put any thought to it. I only kind of held myself to a standard of what I could observe and what I was willing to do because then I would say, okay, I missed that one. How could I improve on it?
And so from time to time you would get knocked out. You would miss an idea. But the key for me was I was always in control of my own behavior, and that is why I say behavior predicts where you end up because there’s so much of it is unknown, all the outcomes are probabilistic. The best you can do is put your trades on and wait and see, collect the data, calculate what your expected values are, understand your portfolio heat because there might be that sweet spot, and then stay out of your own way. Let the market tell you when the moves are over.
That’s the way I did it, and that’s the way I continued to grow my account was I started with the winning attitude of optimism. I had a plan and I stuck to it. I didn’t waiver from that. Now over 36 years, especially in the first two or three, did I take flyers and did I pull things out of my back pocket? From an experimental standpoint, yes, but I never came in with a 5% risk unit because some guy down the hall was bullish on Amphenol or something like that, or thought gold was going to go up. I was much more objective. I was an opportunist, and I figured if I’m an opportunist who’s also an optimist, that’s a really good combination. As long as I have hyper defined risk management rules, I wasn’t like, I really love this company, or I love the analyst, and so therefore I’m going to put a 10% allocation to it.
This other one I like, but I don’t know the name. I don’t really know what they do, but the chart looks good, so I’m going to do 2% over here. That’s a recipe for disaster. If you’re Paul Tudor Jones, you can do that. If you’re just starting out, you can’t. That’s where your biases come out. You see what I’m saying? You think you feel something. Well, what does that mean? Is that scientific? Is that a chapter? Is that a part three of the CFA? How you feel? Maybe CMT has that. I dunno. I’ll ask Brian Shannon or JC Parets and see what they say about it. So that’s how you temper your enthusiasm or not, is to just use the same risk unit. This way. At the end of the day, when I would go home at night and say, okay, did I win the day? Even if I lost money, if I had followed my rules to a T, then I won the day. Then I could stay optimistic and stay enthusiastic about my progress because it was the discipline and my attitude that encompasses or is a huge part of my behavior and behavior predicts where you end up, you know what you should do behaviorally, go watch this video here.
The post How I plan my trading week first appeared on MartinKronicle.
The post How I plan my trading week appeared first on MartinKronicle.
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So how I grew my $50,000 account, this is part two of the other video I did, how I grew my initial grub steak of five or six K when I was first starting my trading career and I didn’t know anything. I’m 36 years into it. In many ways I still feel like I don’t know anything because the market’s always morphing, trying to basically kill us and take all of our money. But once I hit that goal, I remember being in not a state of shock, but I remember like, okay, I had a really succinct plan, much of which was documented by the way, in the live stream, which you can go see on the channel. If you go to the live tab, click on it, you can watch the replay. I said, you know what? I’m going to stick to my knitting and use this same type of methodology that guaranteed my success.
Now, in the short run, you don’t know if it’s skill or luck because randomness is everywhere, right? Do you think things happen because it’s the hand of God or because it’s randomness? Well, what are we? But for our faith, at that moment in time, I said, okay, well, how can I optimize my portfolio now that I have more capital, I have more margin. I always referred to my account as margin. Even when I was trading stocks, I was like, okay, now I have more margin. And so what I did was I went back to the whole thing with portfolio management, where you have the X and the Y axis, and then at zero you have the market risk, and then as you add names, you come down, you can diversify away the unsystematic risk, and there’s an optimal number of instruments that you can have where that helps you with risk reduction.
Mind you, risk reduction is not risk management, it’s just risk reduction. It’s largely done through diversification, and so I figured that it was like after six, there was only marginal benefit to be over and being over diversified, I knew my goal was to amplify my cash, obviously pay the fees, pay my taxes, so I rounded it down to five because it was an easier, it’s hard to divide any number that ends in zero by six. You don’t get a really clean number. So I said, okay, let me divide everything by five. And then I came up with partitioning my capital that way, and then on a very regimented basis, I still stayed hypervigilant on the data and where things were and how to add into my winners. I just had more choices. Now, if the winners kept working, I would keep adding. There was no rule that said I had to only add twice or add three times.
Maybe I’m stupid. Maybe I got lucky. I don’t know. It worked out in the end. Then it was like my next campaign was to take it up to $250k. So I tried to just think about rates of return and percentages. I didn’t try to think of the numbers because that was the biggest amount of money that I ever had in my possession at the time, and I didn’t want to get overs psyched out and start saying like, okay, I got to take bigger risks, or I got to take smaller risks. I just wanted to stick to the plan because everything from my plan was based on percentages.
I didn’t deal with dollars, and that was important because as the numbers became more staggering and I got into six figures, I kept saying like, wow, if I lost all this money or took a big hit in the margin, I could be back to waiting tables again, which I didn’t necessarily, I liked it. I met a lot of great people. I made a lot of money. It was just that there was no intellectual property in doing it basically, and the money that I was making was basically as good as it was going to get. There was no, if I didn’t go to work, I didn’t get paid. Again, think about yesterday’s opportunity, opportunity, cost lesson. If a woman I was dating at the time who I’m still very friendly with, she largely worked Monday through Friday, and my jobs were all largely, I did work during the week.
I largely worked six days a week at the golf course and at the restaurant, but most of those folks were going to Jones Beach in New York, in Long Island or the Jersey Shore down by Spring Lake or maybe even up to Cape Cod. I’ve been to all those places a million times. I love the Cape. I love Jersey Shore. I love it all. They’re all very, very different kind of temperament and personality wise, but they’re great this time of year. So if I said, okay, let’s go to the beach on a Saturday or on a Sunday. The golf courses are really, really busy. Restaurants in the morning aren’t really open. So it was more about Saturday night, but that was always opportunity cost. Those were always decisions I had to make. If I went out on a date and I didn’t work a Saturday night, it was not just what the date was going to cost me, it was the fact that I was going to miss out on a couple hundred bucks of tips.
So I was like, okay, well what’s the total cost of doing this? I always had a strong understanding of opportunity cost, and so in growing the account, once I got to $50k, I’m like, okay, well, I’m going to basically dance with the girl who brought me. I have this methodology I noticed, sit on my hands and wait for the right setup, but I also know how to sit on my hands when I’m in a winning trade and learn what are the best times to add. Adding to my winners was absolutely key. If you’re looking for an inflection point, what was the asset? It was my sense of timing over because these were commodity positions that I was holding for weeks if I could, and knowing when they were lower risk entries for my second and end degree entries. You see what I’m saying? Always moving my protective stop in lockstep with the price action so that I always could calculate for the most part, what did I actually have at risk? In portfolio management land, we talk about portfolio heat. You see what I’m saying? So what does that mean in case you don’t know? So if you have three trades on in your portfolio and each one is risking one half of 1% from the current market value, you could say that your portfolio heat is one and a half
Percent, which is what you would forgive or forsake of your capital, your corpus, the money in your account if you were to get stopped, right? And it doesn’t mean losses. You can have protective stops below your winning trades that would just knock you out of your winners, but it’s still coming out of your overall high watermark. So that’s where you calculate that. If you had ten one percent positions, you’d have 10% portfolio heat. So if you had 10 quarter points, you do the math, you’d have two and a half percent portfolio heat, and so when you go back to thinking about trading as a business over time, when you look through your winning and losing periods, you might be able to see like, huh, when I have too many positions on for my particular trading style, assuming that you’re using consistent bed sizes, which you should be, you might find that when you get up like four or five, 6%, that’s too much for you both spiritually and financially. So you might find that there’s a sweet spot for your trading style. That’s how that works.
The post How I grew my $50k account – Part II first appeared on MartinKronicle.
The post How I grew my $50k account – Part II appeared first on MartinKronicle.
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Tagging into last week’s video on thinking about trading like a business. I got some really great feedback, mostly from email, some comments on the site, and it really hit me that I left something out. So I’m sorry, but I think inherently you might know this, the idea being opportunity cost when my account was very, very small and I wanted to think like a business person, I had limited capital, I had limited resources, which meant I had limited margin, and I tried to crank that to the nth degree without being fantastically stupid. Just to reiterate, I took $3k and put that in stocks and staying with blue chips, I could trade under Reg T and enhance that. It was $6k. They didn’t really have day trading buying power then, and two, it was too expensive to day trade the future’s margin, like I said, with Delta on notional value.
So I was able to take like five, $6k and trade it. It was somewhere between $35 and $50,000 depending on what instruments on the future side I was trading. Prices were much lower, volatility seemed to be much lower, and therefore the margins were lower. Really what it’s based, the margin is based upon. So then I thought about, okay, if I had to be highly selective because as soon as I committed capital, it tied up resources. So I immediately started thinking about opportunity cost. What is the cost to me? No such thing as the free lunch, is it Milton Friedman? So I used to think to myself, if I put this money down, what opportunity am I missing out on by making this choice today? So I learned how to be highly selective, and it wasn’t from reading charts. That’s not it, because oftentimes you’re not going to even see it there.
I got it from looking at the data and understanding that sometimes these moves, they don’t evolve right away. They take some time to kind of gestate and then they kind of become ripe for the picking. So I learned how to be, not have a sniper entry, but learned how to sit on my hands before I put on the trade. I learned to sit on my hands while I was in the trade and let the thing move as fast as possible. So if you want to judge your own trading that way, because only you can be the judge and jury, I can’t judge you on what you’re doing. I can only try to help you. That’s the whole point of the channel here. Everything that comes out of my mouth is really to help the viewers, and it is largely autobiographical. So when I was, I don’t remember the time, but 30 years ago, the total return on the S&P500 was 12.25%, so call it 12%. So that meant basically if Rule of 72, if you had X amount of money invested, your money would double in 6 years, 12% goes into 72 six times, and so outside of taxes and commissions and fees and this and that, if you had them that buy and hold at 12% would double your money in six years. So then the benchmark you would use if you were going to trade net of commissions and fees and also taxes, right? You have short-term capital gains. Some of you, if you’re trading in taxable accounts, you want to look at that net return and say, okay, if I’m only making 5% net net for all my work, although the returns from neither my trading nor from passive, buy and hold, S&P 500 stuff is guaranteed, the yards are in your favor. If you can do it for 10, 20 years that you will make money. So that’s what I benchmarked my behavior against was I knew I could get 12% if I just bought and held and put my head down and started raising assets and did the marketing thing, which I had to do on some level anyway. But the question was what am I doing with my money today that I would outperform buy and hold?
And in traders speak, portfolio managers speak, they think about this concept of alpha. If the market is beta, then what you bring to the table above and beyond buy and hold through all the choices that you make or don’t make. Because sometimes the best trades are the ones that you don’t pull the trigger on. That’s the alpha. It’s the difference, the mathematical difference. So then when you think about that after tax and after commissions, if that’s an issue for you, you have to figure out what makes sense, what rate of return for all the time, money, and effort that you’re going to put into this, what makes sense for you to even do this, right? That’s why I never discouraged people from trying to scalp or to do buy or sell zero DTE options because I’m not a dream killer. If that’s your whole goal in life, then by all means you have to try it.
You’re never going to know until you actually try it. What I do encourage you to do though is to keep a journal. It doesn’t have to be a diary, and it doesn’t have to be anything more sophisticated than a Google Sheets, but to put down, log your hours, log in your study, log in your preparation, keep track of your time and keep track of your p and l. How much are you adding into your account every week, every month, and cash deposits? What is your account growing to? And keep track of your hours so that this way you have a very black and white understanding of your progress or not, or lack thereof because it’s not putting a stick in your eye, but what gets measured can get improved upon. So you have to be honest with yourself. I’m not going to try to hold you to a certain standard, I’m just here to help. You have to hold yourself to whatever standards you want, but you do need to, I think this is where people don’t measure it as a business is they’re like, yeah, I’m still plugging along, trying away. And that’s kind of flacid, right? That’s like no one cares if you’re trying hard. That’s not how the market works. You don’t get rewarded for being a good guy. You don’t get rewarded really even for having a strong work ethic because we get paid to execute, and so you have to execute or not, and if
Then you either can find someone else to do it or you have to change the parameters of what you’re doing. Case in point, if you are trying to trade on shorter term timeframes like scalping, and after say six months, you’re just not getting it, there’s a chance that you just might not have that feel that you would need to really excel in that super hyper short-term space. One minute bars, two minute bars, that kind of deal. By all means, try it because if you can catch a knack to it, then you can really kick some ass. I know some guys that can do it. However, a lot of folks who try it, they don’t ever get that feel and they’re in discords and a whole bunch of times go by, A lot of time goes by with no results. So then you’re sitting there saying, man, how come this isn’t working?
Again, we come back to opportunity cost. What did you miss out on, right? If you could think about being in some of the bigger moves, whether it’s SMCI or even having 10 shares of Nvidia, it’s not sexy, but that’s the opportunity cost of what you didn’t do to try to make it as a trader, and I’m not trying to crack you upside the head either. That’s not the point. But this is how you go to school on yourself because you’re probably a team of one, just like I was, and I didn’t have any of these resources. I didn’t know what else to think. There was really no one there.
So that’s what I would do is I would benchmark things against the s and p or things that you know could have done that you didn’t do what you missed out on. So think about it this way, if you have $10k and you’re down $2000, so you’re at $8,000, you’re trading $0.80 cent dollars, but if you took some of your money, even a thousand dollars and put it in Nvidia at $505 when it broke out months ago, what would that have grown to? Maybe $12k, I don’t know. Depends on your position size. So now the gap is $4,000 because you could have had $12k with buy and hold or even putting some of your money to buy and hold, right? With the S&P in today’s date, kind of being close to historic highs doesn’t matter why. And so if you’re down on your equity, but your equity from buy and hold would’ve been up, that’s a big gap, and so now you’re behind.
So that’s the kind of score keeping I used to keep. It’s like, okay, buy and hold. I was down. Now I need to see 50% to kind of catch up to what I could have done if I just bought and held, and that’s the reality of it. It’s sometimes not pleasant to look at. The other thing you can do, because give you this to chew on, if I always said as far as my own coaching or mentoring, it’s more consulting than anything. If I do my job, I make myself obsolete very, very quickly. There’s no reason for us to be in business for 12 months. If that’s the case, then I have completely failed you. You know what I’m saying? So I put a big premium on guaranteeing results to people, but they have to do the work. I don’t want to be involved with them for six months period of time, unless that was the engagement once a month or every other week or something like that.
So I want to push the birds out of the nest, so to speak, because as soon as you can stand on your own two feet, you’re going to go parabolic. So if you’re one of those people who are in the discords and you’re not making progress after whatever, 3, 4, 5, 6 months, maybe some of the folks have been doing it for two years, unless you can show the p and l is a direct result from what you’re getting from that, the opportunity cost there is like, well, if I took my $100 or $200 every month that I’m putting into this discord, and I edit that to my account, because just because it’s a trading account doesn’t mean you can’t add every month to that account to grow it as well. I would do everything possible to grow my account. Sometimes I’d put in $35, $50.
Why? Well, because at that point, $50, $60 was 1% growth, and it was also the intention of it. I was showing the universe like, I’m going to make my account grow any way, shape, or form legally, of course. So keep that in mind when you’re kind of doing your own bookkeeping on yourself and keeping track of your time, money, and effort. If the time is kind of getting beyond six months, you might want to pivot and extend your holding periods. Likewise, if you don’t have the stomach for holding overnight over the weekend, try to think about swing trading over a couple of days to see how that works. But again, just remember what gets measured can get improved upon, and you have to be judge and jury on your own behavior.
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So going back to Tuesday’s episode, thinking about trading as a business, I got a comment on the YouTube channel from someone who’s like, I’ve been day trading futures for two years. It hasn’t been working. I’ve been thinking about trading options now and having a longer period in a longer holding period. Is that what you advise I should do? And so I want to go back to Tuesday’s episode about thinking as a business. If you had a retail store or if you were a wholesale operation, or you were a manufacturer, sooner or later you have some costs, you’ll have variable costs. But at the end of the day, sooner or later, someone has to sell something. You have to create revenue. So I don’t know if you should just start and go and change asset classes and timeframes. That might be a big jump. If you like futures and you know that that’s what you’re interested in, you might consider just trading smaller and having a longer holding period of time and try that first.
That’s what I would try to, I don’t want to say fix, because you can make money trading in the short run. You might be having difficulty with it. I know it can be done though. However, for your emotional makeup and what you’re looking to risk and this and that, you just might find that it’s better for you to have smaller positions and hold them overnight over the weekend perhaps. So that’s what I would do. If I was going to make any change to my system. The first thing that I would do is just try to change the holding time, because the difference between futures and options is gigantic in so many ways, and I’m not even going to get into it here. This is just a completely other world. I don’t necessarily think that you have less risk because you have debits or net debits.
The key to making money to me has always been around position sizing more than entries and exits. I’m sure that’s up for debate, just my humble opinion. But what I would do is I would always, and this goes for anyone who’s out there, if you’re struggling doing what you’re doing and you want to make a change, the first thing that I would look at is keep what you’re doing. But you might be getting out of otherwise winning trades too soon. I get a lot of comments like that is I get in whipsawed, but you might not be giving yourself enough room for the daily. A typical mistake would be you look at the 20 day ATR, and it might be like 50. And so when you downtime, the ATR downtimes, so you might consider still using a daily ATR using intraday timeframes to give yourself more room and stop getting knocked out of trades.
Because in the short run, the data are very, very random. And it could otherwise be, your whole system could be just a mechanism to give you frustration because intention, sequel results, what’s the result of your trading? If it’s aggravation and frustration, you have to say to yourself on some level that you’re deliberately doing that, right? Just like a cigarette isn’t really a cigarette in the world of the people who would make tobacco products, they look at it as a “nicotine delivery device.” So with that in mind, think about all the rules that you’re following or not following and the results that you’re getting. If it’s frustration, then you could say that you’ve perfectly built a system to do nothing but aggravate yourself. Because if that’s where you’re at, that’s where you’re at. So, okay, I don’t want to feel those feelings anymore. What do I need to do?
I need to trade smaller, increase my holding period, and so this way, give myself much more room so that if there is some zigs and zags right after you get in, then you’ll be there. You’ll still be there for the retracement as well as the rebound, or if maybe your entries are not that good. And so what you think as an entry is actually the beginning of this spike up, draw down, and then retracement. Why don’t you wait for that to happen first? Then get in so you can kind of go to school on yourself again. But that’s my humble opinion. I know there’s a lot of smart people watching the show. The thing is to experiment and understand that you have to understand. So I was trained in economics, right? So applied microeconomics could be said to be finance, and finance really has one.
There’s a lot of thesis, thesis, but one is that cash has time value. You’d rather have a dollar today than a dollar next week. At the same time, you have to put in your time. You have to put in time, money, and effort to develop your craft. But when you go back to Tuesday’s lesson, when you start thinking about business being a business-minded entity, how long, if you were going to start a business, say you’re going to start a restaurant, you’re going to build a mobile app, you’re going to do one thing. How long would you put good money into a system that wasn’t making money before you wanted to pivot? So my advice on that is if you’re trying to trade on the short term and you can’t get a feel within three to six months, it’s time to pivot and increase your holding period.
Because the folks who do it very, very well, they develop that feel. They actually have the feel. They just have to uncover it and see how they can apply it to the market. So if that’s not showing up for you, it doesn’t mean you’re a bad person, and it doesn’t mean that you’re a loser. It just means that you have to pivot and try something different. Try another asset class or increase your holding period is probably the easiest thing to do, and then see how that works, how that feels. Because again, we label stuff and the studies that I’ve shown would encourage you to take risk home overnight despite how you might feel about that. I also have the data because I study the data as much, if not more
Than how I study the charts. And I look at like, okay, well what does overnight risk mean? Why do people so afraid of that? Why do they feel like they’re any more in control? Because they’re awake and sitting at their screen. You’re not. But you think that you are because you label it that way. That’s not the reality, at least for me. You might think differently. But at any rate, hope you had a great week.
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So if you want to try to figure out if you’re newer in the business, what’s the likelihood of you making it go back in your life and think to other endeavors that you took on at other times, it doesn’t matter how old you were or not, but measure your level of “stick-to-it-iveness.” What was your sense of persistence and determination? Because I think mindset is more important than strategy in many ways. A lot of folks don’t even get to maximize the strategy because like they say, if you can’t take the heat, stay out of the kitchen kind of a deal. So that’s where I knew I was going to make it. I had already made up in my mind when I started Jiu Jitsu, I knew that I was going to get a black belt because I knew when I started that I wasn’t going to let any obstacle get in my way and psych me out of doing it so that I would eventually quit. That’s not really what I wanted to do, and that’s just how I’m lucky that way. Really lucky. It’s just how my brain works. I knew then it was a question of finding the right teacher, which that’s a pretty interesting story on how I did it. I didn’t really just show up at a gym to try to train and do Jiu Jitsu. I actually picked out the teacher that made all the difference.
So it doesn’t have, to me is a personality trait. It has a lot to do with trading, but it could be also extra trading. So if you’ve ever tried to take on something like I’ve trained folks who are seals or army rangers for example, so I know they have it in them to do very, very arduous tasks under very, very extreme conditions, and they have that mental fortitude, and that’s why I want you to think about how can you give yourself the best chance to win. It’s just like don’t quit trade small. It’s not about making money at the beginning. It’s about finding your process that you can replicate day after day after day after day to the point where it’s monotonous and boring because then it’s easy to scale once you figure out what to do. So that’s why I like to say, I know some of you are really lucky too.
You just get it short term, longer term, it doesn’t matter. So this channel might not be of great value for you because it’s really written and produced for the folks who are in the process of sorting things out. But that’s where I kind of knew that I was going to be able to make it is I knew I had the right mindset. I knew I was a risk taker already. I was already a businessman. I had already made and lost money. I had had clients, I had built a company and sold it, and so I know it probably seems like it’s best wards to come at you and say mindset is more important than strategy. But from where I’m sitting and from the emails I get and from the comments that I see, there’s a lot of people who just get frustrated and they quit or they trade so big and they lose a lot of money. They thought it would be a lot easier than it was going to be, and then they’re completely stunned into silence and they’re sitting on their hands and they don’t know what to do. And I have empathy. There were moments
In when I was like that. I knew it was going to be short-lived, and I just needed to process my feelings and my frustration and my aggravation about not being able to figure it out. It’s like that stupid clue on a crossword puzzle where you kind of know what it is, but it’s a big 15 letter word and you only have six letters at various spots and you can’t figure it out. Sometimes I’ll have to walk away from the crossword and it’ll kind of hit me afterwards. But think in your life of specific instances, it doesn’t matter. It could have been sports could have been like a weightlifting goal, could have been some other achievement that you had in your life where you really had to think long-term on how you were going to pull it off, how you were going to try to manifest it, where the outcome was uncertain and you didn’t know how long you’d have to put in the effort, the money or the effort, the time to get that all going.
And then you could feed upon that and you could say, okay, I can borrow from that model. I can go to school on myself and say, here’s what I did. Here’s what my process was. I focused on learning a little bit and then I tried to apply that knowledge right away. I didn’t try to spend five years to build a strategic plan and not take any risk because traders trade at the end of the day. So that’s where you have to be with this. As you’re building out your model and thinking about where you want to be is go to school on yourself and use that inner strength. Be highly motivating. I have a whole bunch of that stuff from school and academics. I have a lot of stuff from athletics. I have business success, and I can go back into my personal history and say, here’s what I did at that moment in time.
Here’s how resourceful I was, and so I can learn to rely on myself. That’s really where you want to be because once you find out the trading tactics, it might not seem that way right now, but you might be able to look back and say, my trading rules are actually very, very simple. You could teach ’em to a ninth grader, but it’s how I pull them off that makes all the difference. That’s how I create my alpha, and it’s being able to live with the aggravation, the frustration, and not knowing the uncertainty. Because as I say, or I’ve said before on the show, there are two payoffs to every trade. There’s the emotional and psychological, and then there’s the financial part. But when you’re kind of building your career, you also have uncertainty, which is a type of emotional risk. You don’t know when the payoff is going to come, so there’s a lot of front loaded uncertainty that you have to work through. Maybe the money’s incidental for you, hopefully it is. But I like to think that once you get the system down, once you get your set of rules down and you know that they have positive expected value, at least mathematically, you can see that there’s an edge. You might not be able to articulate it, but that’s okay. You’re just starting.
Don’t put so much pressure on yourself. Think about what your peers are doing. So that’s what I would do is to think about getting rules that have positive expected value. Then try to understand where does that edge come from? Because as long as you don’t even have to understand where it is, if you can follow the rules systematically, you’ll be able to make a lot of money and do it consistently over longer periods of time. Your returns might be spiky, meaning you might make money 4, 5, 6 months of the year, really big months, and then you’ll have six down months. So you’ll give some back. That’s totally fine. Some of you might want to trade smaller and be like, I want to just make a thousand a month and have green months all the time, all shapes and sizes, man, I support all of it however you do it. It works for me.
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I got a great email from somebody. I’m going to call him Thomas. It’s not his real name about how to change his mindset around trading. So carrying on from yesterday, I want to talk about how you can start to think like a business person, but very, very quickly, tomorrow’s a holiday in the US so there’s not going to be an episode. Markets are closed, so we’ll pick it up again Thursday. So to think about business-minded trading, the first thing that you can do to change your mindset in this space is if you were a boss and you ran a trading desk, would you hire yourself or the person who exhibits your behavior?
And that could be a bit of a wake up call and kind of help you snap in line a little bit more. Because ultimately if you’re going to get an allocation, you’re going to have to show your results. Sometimes they want to see daily vol because of their particular way of managing risk. They want to see how your style of trading is going to behave or work with the stable of traders that they already have in their existing portfolio. And so don’t be surprised if that’s something that might be shocking to you. They want to actually see the day-to-day mark to the market volatility on your equity. It used to be back in the eighties, the vol was very strong because people trading much larger positions. These days it’s actually smaller, but nonetheless, there’s a place in the world for everybody. So when you think about being a business minded, think about yourself as a subsidiary of a bigger company and say, okay, if someone was going to acquire me and put my assets to work, what is it that I actually bring to the table?
Right? That’s a very interesting question. So if you can start to look at your own behavior from the outside looking in, you might be better able to ascertain what it is that you should be doing and certainly the things that you shouldn’t be doing because the allocators don’t give you that long of a leash. They only give you three, maybe six months depending. So you really have to kind of start making money right away. There’s not a long period of time where you’re going to get a big chunk of change and they’re going to let you sit on it and not do anything. You’re going to have to perform. They’re going to want to measure your behavior that you stated that you were going to execute versus what you’re actually doing. Once you get the allocation and there’s not a lot of room for, you’re starting to waiver. So think about this as a business and that might better help you figure out what is it that you’re doing in terms of efficiency. If you’re spending lots of time doing research, but you can’t find your way to pull the trigger, you’re probably not ready. If you’re looking at outside sources for trade ideas, risk management, is everybody else doing it? You’re,
You’re looking for social media, you’re probably a little bit of a ways away from getting to that pro level. And pro level just means behavior. It doesn’t necessarily mean that you have to go out and register. It doesn’t mean you have to go out and build a company, get an office and do all that. But typically professional traders are the ones who are getting the results. So you want to at least exhibit that type of behavior because it’s the behavior that predicts where you end up. So you want to try to find a good role model who can do that over and over and over, and then model their behavior and see what part of it you can make your own might not be a hundred percent fit, but certainly you can borrow a lot from other folks and try it on for size. And then think about this, okay, am I taking flyers or is this really a set business plan? Where do my profit margins come from? Why am I trying to day trade one thing and long-term trade something else? Anyway, just food for thought.
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There’s a saying out there that says, hard times create very, very strong people, strong leaders, and I can attest to that. I know a lot of you are struggling out there trying to make it get the consistency that you want, and I support you a hundred percent. But keep in mind that if this was easy, everybody would be doing it. Most folks try and fail. They just don’t have what it takes, and it doesn’t mean they’re bad people at all. It just means that the emotional constitution that you need to deal with, the uncertainty that’s omnipresent is too much for most people. You have to realize that you’re looking at where’s the culture of employment? Really in America, if you don’t own your own company, you’re probably an employee and everything is set for you in many ways, and you have certainty at the end of every month or every two weeks.
However you get paid, you’re going to get your paycheck. It’ll probably be eftd into your account. You probably have some type of benefits. You might have some payroll deduction that gets swept into a 401k. All of that is done for you, but your upside is limited, right? It is what it is. And maybe you can get a raise. Who knows? Certainly if you change jobs or try to apply for a bigger position in another company, you can get more money. But the way it works here in trading is that everything is uncertain. You don’t even know what your next trade’s going to be for the most part. So trying to jump into that culture, it’s completely 180 degrees at a phase with what most people know in terms of working and having employment and being able to deal with that level of uncertainty can really start to grind at you when you want to make big plans.
So when I think about the hard times, I can sit back every once in a while, I’ll do it. I don’t really sit back and start falling in love with my reflection like narcissist, but sometimes I just sit back and wonder and say, holy mackerel, I’ve come a long way considering where I started. So you just do a little bit at a time and for a moment in time, I’m proud of that. I’m proud of the persistence and the determination. You can’t take that to the bank. I’m so aware of that. But you do have to stop for a minute and celebrate the longer term wins, the ability to do it for a longer period of time. And so just realize that if you are going through some struggle and you’re trying to figure it out, that’s part of the process too. That’s part of thickening your skin. I think that’s actually a good thing for you to have to experience because at the end of the day, the markets are going to change, the environments are going to change. You’ll have new administrations in the White House, you’ll have new things happening around the world. You’ll have earnings, disappointments and otherwise. So being able to deal with that just really thickens your skin and welcomes you into the new
Of trying to make it as a trader, really no other way. And so that’s kind of like part of the hazing process is you working out your system, trying to figure out what rules you’re going to follow, put those trades on, have some persistence and determination, and show up for work the next day. Because so much of it is failure. There are a handful of people who can do the short-term stuff very well and have green days. If you can’t do that, it doesn’t necessarily mean that you’re a bad trader. Your returns throughout the month might be kind of spiky, but if you finish the month net net with wins over your losses, you’re still doing a great job. So that’s why I wouldn’t freak out about it. So just remember that you can define what you think is a hard time. I tend to be optimistic about things and be like, okay, how hard can it be kind of a thing?
That’s the gene that I have. And so I don’t really look at certain things as they go down. For me in the market where I feel I don’t want to feel victimized. I’m like, okay, well that’s just trading. I have a very broad understanding of the fundamentals of the markets and the industry itself. And so as long as I can get away with the losses that I’m willing to take, then I feel okay, I’m not going to go upside down about something that’s frustrated after putting in a lot of work. And I think that you can calibrate your system that way too, to understand that part of who you are and who you’re becoming is really going to be defined by diamonds are made under a lot of pressure, let’s put it that way.
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I got a great question from a direct email from someone asking about what’s the most objective way to build your trading system or your trading rules, your setups. And truth is like it’s always subjective, right? You can look at head and shoulders, you could look at whatever type of chart pattern you want to look at, and some of them are earmarked for being bullish. Some of them are supposed to be bearish. What I have found is that it doesn’t always work out that way in real life. And ultimately when it comes down to patterns, it’s not so much the pattern, but it’s how you trade the pattern. So that leads me to believe that all chart reading effectively is very subjective despite what the chart pattern is supposed to be. I know people pump in, here’s 12 bullish patterns, here’s 12 bearish patterns. I always feel bad for the folks who see that because I think it’s misleading.
It’s not the pattern, it’s you. You’re what matters here. You’re the asset. I’ve said that before. It’s all about your behavior, not the chart pattern’s, behavior. You need to enter and add risk. Then you need to protect your capital. You need to add risk. You need to protect your capital. See where I’m going here you have buy stops above the market to add risk. You get filled immediately. You add protective stops because you have to protect your capital. That’s very subjective behavior because it’s all based on you and all your thoughts, feelings and actions around making and losing money. How do you feel about risk? And that’s intellectual, but what do you feel emotionally when you add risk, remove risk and or have to manage risk? There’s really three different parts. So there’s a saying, I don’t know who came up with it, but effectively all systems are discretionary.
That’s a hundred percent truth because you are choosing all the inputs, you’re choosing the quantity, you’re choosing the position size, which to me is the most important thing, right? Because really how we make and lose our money is in position size. People focus on entries, which to me are somewhat important in that it is the go no go kind of a deal of where you’re adding the risk to your portfolio. But I have found over the years that my entries can be kind of super sloppy because my position sizing is phenomenal. And that’s really at the end of the day, what makes for the good horse race.
You could have had a lot of people, for example, I’ll give you an idea. When the market crashed in 87, I remember I was just at Wall Street a few years later and everyone was talking about particular analyst, a woman who had picked called the market. And I didn’t know any better at the time because I kind of started with my journey in risk management around the same time the first market wizards came out and I was like, wow, imagine to have that ability to kind of predict the crash. What I didn’t know was that in the pro circuit, about 95 other guys and perhaps women as well, were also very, very aware that the market was going to crack. And over the years, as I got to know them, know these people personally and read about them as well, any of the pros, certainly the folks in market wizards, they were all short the market.
Some of them were also short bonds. Some of them were also short. The dollar, which is really what caused the break. I think it was James A. Baker iii, who was the treasury secretary at the time was speaking, I want to say in Berlin or somewhere in Germany. And he said, well, we’re not going to intervene and support the dollar. And that led to the cascading of that was like the straw that broke the camel’s back and then everything broke. Bonds sold off big, and then the market opened lower, and then that was black Monday, so to speak. So to me, it all comes down to what are you prepared to do behaviorally? So you have to look at the chart as you’re having a conversation with the instrument, with the market for that particular instrument. And the instrument is communicating to you, here’s where the price is, here’s where the volume is on any particular day.
Here’s what the average volume is, here’s how people have behaved at key inflection points, new highs and new lows and this and that. And so then you have to figure out just like you would with any other human being, how are you going to approach that person and start a conversation? That’s how I look at it. It’s all human interaction. Because to me it’s like you have to look at, are you trading an you can go look this episode up, it’s on the channel. Are you trading the charter? Are you trading the crowd? Right? And on some level, I understand that they both can be somewhat similar, but it’s the crowd, the human beings that have the intentions, right? And intentions, equal results, behavior predicts where you end up. So I’m more concerned with how the people are going to trade the chart more than the chart itself, right?
Because the chart in and of itself is just a reflection of human beings behavior, who bought what at what price for that particular day or that particular timeframe, put it down. It all comes from the exchange, that data. So it’s legit, and there you have it. So when you think about your trading, that’s why self-knowledge is so important because when you start to figure this stuff out that it’s not you, it’s me, you. No, you’re right, it is you. It’s it’s not the chart really. It’s how did you trade it? Did you want to watch the chart and not put any alerts in because you’re going to going to wait and see because when you do the wait and see thing, you both at the same time, you have enormous opportunity cost because the markets will move away from you faster than you can get in that can lead you to chasing. Or if you’re having regrets and strong emotions, and then you’re full of indecision, should I get in here? I don’t want to buy it at the top. It’s going to pull back
My holding period’s too short. Anyway, the truth is you missed the trade, you got to take it off your screen, you missed it, you blew it. You fucked it up. Basically. That’s the way it goes. And I don’t mean to put a stick in your eye, but that’s when you learn like, okay, I have to take these alerts seriously, or even better. I need to have the conviction enough to put my bis stop in and add risk. And if you feel fear, you have to go back to what your goals are and say, okay, well, why do I feel fear when I’m going to add risk with a vehicle or in a vehicle that could bring me financial abundance?
Why do I have these strong feelings? Am I not worth it? Is my self-esteem like do I not need it? Or I can only make so much and then I have to get out because it’s too painful to make a five R trade. I have to stay at two. That’s just who I am as a person. I’m always going to be beta. That’s your call. I don’t know. I try to help people through this every day. And for the life of me, I don’t understand why they get comfortable taking small gains for all the work that they’re willing to do. If you’re doing the work you deserve to get paid, it’s not even a question at that point. You deserve to get paid. It’s your birthright at that point, you are taking risk. You deserve to get the returns. At the end of the day, there will be losing periods. And that kind of goes with it. And as I’ve said, if you know what your numbers are, you can kind of predict the frequency or the probability of a certain losing streak of losing trades. You can figure out what’s the probability of having a six trade losing streak.
So that’s all stuff that you can know ahead of time again, and calibrate your system for understanding, better understanding the results of your behavior because it doesn’t say anything about you and any of your intelligence or lack thereof. It’s pretty simple. You add risk and you remove risk. To me, intelligence is everything else. It really doesn’t. It’s not at play here. So be very, very careful about what you hear other people say that you automatically adopt as your own ethos without having any proof. And I know in religion, right, what are you but for your faith? But this is something different because now this is tangible. This is stuff that you can do. You can put money to work, make money in the market, and withdraw that money and buy other assets. And that is a bonafide process that you can do every day. I know you can do this, but you have to study yourself. You have to study your own behavior, and you have to understand how you feel because it’s all emotional. How do you feel about adding risk? What do you feel like when you have to manage the risk that you’re in, that you just added?
And then how do you feel when you remove that risk? What comes up for, are you still anxious? Are you mad at yourself? Did you turn into your devouring mom or your overbearing dad? Right? Where does that, it all comes from your environment and how you grew up. Same for me. It’s no dig on your folks. It’s not the point. We’re all products of our environment and the stuff that we see every day, and we take that in and it falls into our subconscious and it becomes learned behavior. So sometimes you could be acting out stuff, you don’t even know where it’s coming from. Well, it came from your upbringing. Somehow you saw somebody demonstrate a certain type of behavior when they were taking on risk. You might’ve heard people say really stupid things like, oh, you can’t trade in the stock market. You can’t even buy blue chip stuff because it’s legalized gambling and we’re not gamblers.
But in the meantime, they’re spending $100 a week on those scratchers where you have no chance in ever making money, or they’re playing a Powerball in a lottery again, where you have a one in 12 million chance and they do nothing but give their money away as opposed to even doing something like $200 a month S&P 500 investment dollar cost averaging. So it’s hard when you are getting mixed emotions or mixed signals like that because people, everybody, parents, siblings, aunts and uncles, grandparents, they all have biases. And it’s our job as risk managers to undercover uncover where our thoughts come from. Why do these beliefs are so important to you? You’re not betraying people if you challenge. You don’t have to challenge them to their face, but you’re not being a disloyal person. If you challenge the things that you were taught by the people that were closest to you, they very well might’ve been amazing human beings.
They just could be completely ignorant on the concept of how to manage risk. And then that becomes problematic because if you grew up in that type of an environment, you might find yourself second guessing yourself, even though you might have really, really good instincts. That’s why I say try to do some experimentation, but do so with small amounts of risk because you’re not going to know until you try. I know you can do this. I’ve seen some really, I don’t want to say it this way. Well, I’ll say it this way. I’ve seen some pretty dumb people make a lot of money. Why? Well, they could stay out of their own way. They just knew like, okay, it’s a game of taking chances. I’ve got to put the risk on, and if I put the risk on and stay out of my own way and the things are going to move, I’ll manage the risk while the trade’s on, and that’s it. And I’m not going to overthink stuff. I’m not going to start reworking my model. When the risk, how many times you do that, you add a piece of risk on in your portfolio, then all of a sudden you need to have to see the chart in 17 different timeframes
As if those data points actually matter because you had be hypervigilant now, and I’m sure there’s archetypes for that, right? People who are adopted are hypervigilant. They tend to be more hypervigilant. Again, I’m not a psychologist, but I do nothing but read. When I put my alerts in and my protective stops, I go read, I get to feed my brain. You can do the same thing. Download the audio book of the inner voice of trading. The link is in the description.
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The best way to use alerts for your trading charts to me are to put them above the market so that when the price trades at or through those levels, it alerts you. Then you can adjust your protective stop hire, not take off the winning trade. There’s no point in putting an alert in below because you wouldn’t want to adjust your protective stop. That’s something that has to be ironclad and rock solid. So if you buy something at 20 and you’re risking a dollar, your protective stop goes in at 19. Now, depending on your comfort level, which is really what this comes down to, because there’s again, financial and emotional payoffs, you might find it necessary to reset your protective stop every dollar move up, right? If that makes you anxious, or if you have too many positions, you might be able to set it at say two R, right?
If your R is $1, so maybe at 21 you set an alert and then it goes off and you go in and you adjust your protective stop. In that case to break even remembering to cancel the one at 19 and do it that way. Some of you might be, that’s too much work. I don’t want to keep looking at the machine all day. Obviously, if you set it for 25 cents, that’s manic behavior. You don’t need that either. You have to be watching every 25 cent move. It’s a little too much, so you might find benefit in doing it every two bucks. So this way if it goes to 22, you can adjust your stop to 21 and leave it at that. So it takes all different types. You really have to figure it out. Do a little experimenting to see what makes sense for you. If you’re trading only one instrument, it’s probably fair enough to use your R.
If you’re trading several instruments though, you don’t want it to become a full-time job, especially if you’re doing other things during the day and trying to work your job while at the same time keeping an ear to the tracks as you’re listening to the market watching your deal. The benefit of using alerts is that that allows you to not have to look at the screen. You have to go through it and make sure that you set it up right, make sure that it’s going to make whatever noise or it’s going to text you, and then you have your volume ups. So you go through that, like you set the alert, but you don’t have the volume up on it, or it doesn’t actually give you an alert proper unless you’re looking at the screen. That kind of defeats the purpose. So practice while the market’s open, put in an alert and see what the alert looks like when it does get triggered, especially if you’re newer. I don’t like the idea of using mental stops because the market can sell off and smack you for reasons that you can’t understand, and then by then, it’s too late. It’s also not the time to hedge. I talked about that last week. Should you hedge in another episode? Should you hedge or should you just get out? You got to remember, your first loss is always your
Best loss, and if you’re already down on your position, it’s too late to hedge, right? That to me, as a person, would need to show more emotional maturity and realize whatever you thought was going to happen with the name, it didn’t happen. It worked against you. It is possible that you could get out and it could rally back up, but you don’t know that and that might happen in the future. All right now is that you’re down and you have to manage risk right here in the right now, trying to manage risk about how you might feel next week if it rallies up, puts you in a different state of mind of trying to predict the future. Humans suck at prediction despite what you think. So if you’re a short seller, it’s the same type of a deal where you can just put in your protective buy stop above the market.
Then you could put in an alert below the market so that as the short sale works out, you can get the alert. Then you can adjust your protective buy stop lower at least to break even first and then into when it gets into zones of profitability. That’s how I always did it. I never really wavered. I didn’t set alerts above and below the market because again, if it worked against me, I would rather just have my stop order already. There. Again, I was trading commodity futures, which were highly leveraged instruments, which were appropriate for me, kind of always have been, and I knew the leverage was a sword that could cut both weights. So it was always my intention to be like, look, if my timing’s wrong, if I have bad luck, or if my analysis is garbage, it doesn’t matter to me if it’s against me, X, Y, Z movement, dollars cents, I just want to get out, protect my capital, and then I’ll come back and review everything afterwards and kind of see what did I do wrong when I do my postmortem?
How could I have improved my trading? How could I have foreseen? What was going to go down? Was there some type of an announcement or a report? What was the catalyst that caused the move against me? Sometimes it’s just a big seller, and that’s just the way that it goes. I had to use tighter stops the time because I didn’t have a lot of money, but I also didn’t want to have to be hypervigilant and get tied up looking at the market because my account was small and underfunded. I knew that that was going to eat me alive. Two, I also had a job to do. I had clients to serve, and I had to kind of do the political thing in the office to kind of keep the boss off my back. So the only way I could really do my trading was to go in, put my orders in, get filled. Once I got filled, my protective stops went in. Once those protective stops went in, I knew it was about adjusting the protective stops most likely upward as the name would start to work out. So I didn’t use good till cancel orders. I would enter protective stop. There wasn’t overnight trading in those days,
So certainly not on the scale or the availability that you have today for neither stocks nor futures. It was very, very limited, and so two, I didn’t want to bring the attention to myself what I was doing. I had to make it look and feel like I was actually acting like I was working for my clients more so than I was trying to trade my own account. And then I would basically go in and wait for those alerts to get hit, and then I would adjust my stops. If it would keep moving, I would keep adjusting my stops. Yes, and every once in a while I’d get knocked out, but the key was is that I wanted to know that I had someone watching my back. I had someone standing sentry on my equity of my account, and those were my protective stops, and I had protective stops in on any position that I had on in the market, and I always had alerts above where I thought it could go, and once those levels were achieved, again, I want it might not work for you, but I didn’t set alerts at where I wanted to remove the risk.
I set alerts so that I knew how to remove my protective stop hire and stay in the trade. Again. I always took things home overnight over the weekend. You might not have that ability just yet because you can’t handle the emotions around it. On the other hand, there were times when I would add to my risk, and so I would use that alert for two functions. One, I would adjust my protective stop and I could also use it to add another risk unit, calculate everything so that now I would have, again, if you look at the live stream, I would have a protective stop to now remove two contracts or something like that. Or if I had a hundred shares and I bought a hundred more, I’d make sure that my protective stop reflected the fact that I had 200 shares in inventory that had to go if the time got there.
There’s a lot of ways to do this. You have to find the way that’s most suitable for you for your trading style. I just know that if you put too many alerts in, you don’t necessarily know that they’re actually material price points. You see what I’m saying? I had everything worked out ahead of time, so I knew exactly what behavior I was going to execute of my own. When those price levels were achieved, either through my protective stop getting hit or the alerts going off above the market, I had it all written down. I say like, okay, if to stop, this alert goes off, I’m going to add a risk unit and then cancel my other stop or cancel and replace it and add a new stop to take into account the new inventory or this and that. So experiment and see what works for you.
Make sure that the alerts are going to get to you in the appropriate way. Maybe it’s going to be through an app and there’ll be a popup that comes on your screen. It’ll also make a noise. Make sure you have your damn volume up on your phone if you’re doing it that way. Same thing with texts. If you’re going to use text, make sure that your phone at least vibrates. Can you hear me now? So figure that out. You can have to do a little experimentation, but ultimately you’ll come up with something that works like this video.
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I started my trading career with $5,000 and damn I didn’t have any money. So I know some of you who are trading the minis and the micros are kind of feeling the same way. You’re backed into a corner. The good news for me is that those didn’t exist at the time. The E-mini didn’t even exist at the time. The S&P 500contract was $500 a point. Margin – I remember like it was yesterday was $39,000. It was clearly an institutional product, and I remember breaking up my money. I kind of talked about it in the live stream. I put some money in Reg T for stocks and the rest went to futures margin and I was trying to trade upwards between $35 and $50k of notional value across both asset classes. I knew if I could do 10% on the notional value trading like $40k notional and I did five or 10% there, then my own account could be up 40 to 80% on my own equity and that was what I needed to do to give myself some more room.
You can start with $5k for sure, but you have to be highly selective. I wouldn’t be trading the minis or the micros because there’s not enough points in it to build your equity to make a difference. Now, I do agree that playing defense is job number one. I think all traders should be thinking about learning how to play superior defense first before going out and trying to make their fortune. But ultimately what really made me money was taking the risk home overnight and over the weekend when my trades were working out. That’s going to seem like it’s an impossibility for many of you because you’re afraid. In lesson 12 of the mastermind program, we actually take a look at securities and I isolate what actually happens overnight and over the weekend from all other price action, and we look at that and we study it and we kind of try to figure out, well, who did I hear this from and why did I take this on as my own belief without having experienced it on my own? So we actually take your favorite ticker and we put it in as an exercise and you might be surprised what the results are.
In 80% of the instances, the money that’s made is made overnight. That flies in the face of what you think is practical, but you could do that exercise on your own. You don’t need me, so you can do it with 5K, but I was embracing the overnight risk and that made the biggest difference because again, lucky for me, the minis and the micros didn’t exist. Lucky for me, the commissions were very, very high. Since then, they’ve compressed 95 to 99% and in some cases of trading with certain apps, you have no commissions. They’re probably still color in your
Trades or picking you off with their high frequency trading. So there is a hidden cost on the execution side. There just isn’t a markup or a markdown on the trades. So the environment that I was in really helped shape me for the better. So I totally think you can use a small account, but my goal was to grow it as fast as possible and when I took the data, the open, high, low close data from the chart and put it into the spreadsheet, and then were able to see if I had gotten in on a particular trend early on, and then I just sat on my hands, what did I have to live through in terms of surges in my equity as well as near term pullbacks? I became emotionally comfortable. It was kind of like an emotional back test, if you will, on the equity and what I needed to do.
And I said, okay, I think I could live through this. Let’s give it a shot because my friend, I trained with Boss Rudin, not with him in standup, but at doing Jiujitsu at one of his schools. He would kind of say, it’s only pain. It can’t hurt you. And I kept saying to myself, it’s just money. If I lose some, I’ll just earn it back somehow. I always, at that point in my life, I had known I was a hustler. I knew how to make money, I knew how to work hard, so I knew I’d always have money and I knew I wanted to do this business and be a full-time trader and then eventually make a living as a trader, not make a living with commissions and fees on client transactions. I was commissions and commissions as a way of making money on Wall Street as a financial advisor, financial consultant, whatever.
I think I was kind of like in the third quarter of that, I left in the third quarter of that game when I went out on my own and then I got two and 20, right, 2% management fee, 20% incentive fee because at that point I was good and I knew how to make money. So I was like, okay, I’m going to use other people’s money to grow my own money at that point. So then I would just pull all the cash, put the trades on, grow my money, but at the same time earn 20 cents on every dollar that I helped somebody else make and then that kind of compounds. That’s a really cool way to build your own wealth. That said, if you’re underfunded in that regard, you kind of have to figure, I don’t want to say you have to wing it in terms of your behavior, but you have to adopt a wing it mindset in that you’re underfunded by definition, so you have to be super selective in what you’re picking out.
I wouldn’t pick stuff that’s limited, like whatever it is, the MYM or the MNQ, a lot of those, I wouldn’t go to choose those. Those products were created for you and you’re like, well, I don’t understand, Mike, you just said that things were created for me, but you are trading against professionals and so you are the fish in the barrel. You’re not the one doing the shooting. You see what I’m getting at? So despite what the features are of your trading platform and how you can create buying zones and color this and doctor that up and add lines for where you’re going to enter, and here’s where I’m going to add and here’s where my protective stop is. This isn’t art class, right? Features aren’t benefits even though you think it’s kind of cool. I haven’t really seen a lot of people do that in real time and use it to their advantage.
Again, features aren’t benefits. What you need to get good at if you’re going to trade the short term is have a really phenomenal good sense of timing, but I would trade bigger contracts that can make you more money. Obviously you still have to use protective stops, but if you do the math and you start to see based on the frequency, or excuse me, the number of trades that you’re putting on, the frequency with which you win and then what the expected value of the trade is, you’re never going to grow your wealth with an expected value of say, $25. Even if that’s on a $2,500 account, you’re like, Hey, it’s 1%, and you’re right. It is that it is 1%. The problem is is that your losses and the mistakes that you’re going to make when you’re starting out are going to eat up whatever little gains that you have.
Now, I did a video on this. You can go look it up on the channel, but I think it’s called the problem of taking small consistent gains. You’re going to eat yourself alive with that strategy, doing a lot of work, putting the work in, but you’re not going to make any ground. You’re shoveling sand against the tide. So my goal is to help you understand the nature of risk, and that risk is like fire. It’s not all bad. If it runs out of control, it can be bad, but most instances, your interaction with fire is probably in a situation where it’s controlled. And so that’s what you need to embrace. I think if you want to grow your account as fast as possible, stop taking small winners, learn to embrace risk either with smaller positions or longer holding periods because some of my biggest trades were the ones that I didn’t offset and I just let them keep going, and I had no idea when I started.
Just like I talked about on Monday, when things don’t go as planned, it can go as planned on the good way too. It can go as planned and work against you for sure, and we saw that last week. But if I was telling you when I was getting into the sugar at 8, 9, 10, and then I bought more at 11 and 12 and this and that, I had no damn clue it was going to go to 19 within the next couple of weeks. Didn’t have a damn clue. I just stayed with it and that was a trade, and I pulled out over a hundred K on that trade, and that account was a 401k rollover that started with like $50k. So I know you can do it. You just have to think big. It’s all mindset. The trading tactic parts are kind of easy when you calibrate your system to say, Hey, I’m in a winning trade.
It’s going up and down in a winning fashion. I just have to learn to deal with the pullbacks. Pullbacks don’t mean corrections. They could over time, but if you look at any really good trend, there’s upwards and downward movement in an overall upward manner. The key is what can you live with in those moments when it stalls or when there’s a slightly down day in an overall upward trend? You see what I’m saying? And that’s why I put, again, if you go back to the replay of the live stream, that’s why I put all that data in the spreadsheet because I wanted to kind see like, okay, let’s talk. I can talk to talk. Let’s see if I could walk the walk. We don’t get paid to know stuff. We get paid to execute. So I had to put in those numbers and see, okay, at the open on this day, I was up a bunch, but then I gave it all back intraday.
I gave back, I could be up $200, which for whatever, that’s 4%, and how would it feel like if it closed flat or if it closed down and I gave it all back after having opened strong, how would that feel? So by studying the data, I could understand the nature of price action itself, which was the whole rub. That was the whole value of the study. So then I was able to calibrate my emotional constitution and say, okay, in order to catch a gigantic move of say 30 cents in corn from here to here with all these little up and down moves, here’s what I had to have lived with. How bad is that? Why would you fall to pieces? Now, again, it’s not predictive, but I needed to put myself in a what if scenario because there wasn’t the back testing engines that existed.
So I had to use the spreadsheet, right? I was using Lotus 123, and I was putting in the open, high, low close data for that particular day over the course of a two and a half, three week trend in a commodity future contractor stock, and I multiplied it through, if I had X amount of shares or X amount of contracts with this cost basis, here’s what my account balance, how it would’ve fluctuated given the open, high, low close for that particular day of that instrument, and then keep a running total of my account balance. And I studied like, okay, it tends to move up three or 4%. It pulls back 1%, then it moved up another three 4%, then it kind of pulled back.
What is the nature of the behavior of this instrument? And you can do that by looking at the prices. It’s a little harder to do it on the chart. You’re looking for cloud formations and this and that, but if you actually look at the prices, you can say, okay, then the next campaign and the next leg up and the trend, it was up 8%. It came back three consolidated for a few days, then it went up another 6%, it came back 2% or 3%. Then it rallied back up the next day. And I got to understand price action and how things unfold in those larger campaigns. And that calibrating those financial moves with my emotional constitution was how I really designed and developed my own system and sense of position sizing, how do I move my protective stops? That was from really looking at the data.
The post How I grew my account from $5k first appeared on MartinKronicle.
The post How I grew my account from $5k appeared first on MartinKronicle.
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Someone asked in the comments, if I add to my first unit and add a second risk unit, do I wait or look for a confirmation and you can see it. I don’t remember the damn video, but it was a video, a comment, and I wrote back, I really didn’t know. I don’t know really today what is a confirmation, because to me, I’m a price action trader. So the price kind of confirms. I don’t need an indicator to tell me something that I can already see in the price you see. So I am a pro trader who doesn’t use any indicators. I don’t use macd for stocks. I’m aware of relative strength for sure, but you can use anchored VWAP to kind of have an idea of where you’re getting in. But typically you should be able to see the trend when you look at the chart if you have to.
Downtime, there is no trend. And at that standpoint, it’s like, why are you putting the trade on? Do you like the action? So I’m not looking to make a couple hundred bucks a day. That’s not worth my time. So you might feel differently. So I don’t look for that emotional bandaid of indicators to kind of help me understand what I can already see in the price. I feel like confirmations, if your P&L is kind of tied to the market price, that’s really all you need to see. If you want to know where you might be able to add a second, third, or fourth or Nth risk unit, you can certainly use ATR that’s been backtested to show that adding at one half ATR is the optimum. You might find if you backtest, it’s different for you, but I tested it at the portfolio level across dozens of instruments at the same time, not one instrument at a time.
And I’ve been able to figure out that half ATR is the best spot. You could also wait for structure because if you’re looking, and I forgot who used the language, either Bill O’Neill or Wykoff, they talk about stage two trends and stuff. Sometimes in those stage two moves, they create little plateaus or some people call them bases because a lot of words for the same thing. You could actually wait in the stage two for something to base and then acquire more at that next breakout to the upside. Me, myself, I don’t like to trade inside of a trading range. To me, that by definition is a trading range is dead money it, it’s a period of time, a range of prices where neither buyer nor seller are in control. So I’ll stay with my original position
And kind of wait it out, but I’m not going to add, I’m not going to try to buy it support and sell it resistance for peanuts. That’s not what I’m doing it for. You might feel differently and want to try that. So test it out and see for yourself. It’s not my cup of tea. I would much rather have bigger positions over a larger move myself. I have very clear goals, and I think goals are important to help you understand the behavior that you take. If you don’t have a strong goal, how do you know what actions to take? Right? You might actually have too little risk. You might be offsetting your winners too soon. You might find that if you look at your goals, you actually need to take stuff home overnight over the weekend because mathematically, there’s no other way to do that.
Now, I don’t want to rehash stuff that I’ve already done, but if you want to go to Trader Mindset on the YouTube channel where you’re watching this, I think somewhere along the top you’ll see a live tab. If you click there, there’s a replay of a live stream that I did where I talked about having a financial goal. What do you need to make? And then if you look at the expected value of a trade, what do you make on average? When you do trade, you can get a rough idea of how many trades you would need to put on with that expected value in order to hit your financial goal. So you might find that helpful, but to me, I learned to feel all my feelings and to appreciate what they’re trying to communicate with me. Most of them were kind of all surrounding and kind of tied into the uncertainty that we need to be with.
I don’t want to say live in because that makes you sound powerless and you’re much more powerful than you think. So the uncertainty is will the name continue to move up? And if not, I have my protective stop in. So it’s like, oh, okay, I’m okay with that. I’m uncertainty. If it goes up, I’ll make a little bit more money. I can adjust my stop hire. If it comes back on me, I’ll get knocked out. But that’s the nature of trading. So I got really, really comfortable with that, and that freed me up energy wise because I didn’t have to sit there and worry. So I knew I was going to put on tens of thousands of trades over the course of my career. So I was like, what do I care about? Any one particular trade? I’m not going to go parading around the office or calling Victor and saying, I just nailed this trade.
That’s great. What are you 14? I don’t need that feedback mechanism. I don’t need him to feel proud of me. I’m doing this for me. So you might find something similar. And if you’ve got several indicators or overlays on your chart, whether it’s, and I don’t even want to get into the names, it might sound like I’m picking on people and I’m not. Try taking some of those off. Just look at the price and really investigate how comfortable are you with dealing with the uncertainty that we need to deal with when we trade? It doesn’t matter whether you’re a scalper or whether you’re a position trader or an investor for that matter. What do you actually think it is? What’s the emotional need? What is your emotional need for the indicator? Because what you think it might be telling you, how do you know? Like someone said to you, one-on-one is two, right?
But can you actually prove it, which is a little bit more sophisticated, and I’m not trying to be a pain in the ass, but most people take these assumptions that certain indicators have certain value, but if you’ve never challenged that, how do you know? You see what I’m saying? Now you’re just saying you can’t time the market. You got to buy and hold. You’re just parroting shit that other people said, and for some reason you believe it’s true. I’m not that kind of guy. I want proof. And it’s not because I don’t trust, it’s because I want to understand the nature of the things that I’m involved with because they in and of themselves will be a feedback mechanism for me, and that could be very, very valuable information. So if there is efficacy on a certain indicator, I want to know under what conditions that efficacy is going to show up.
Because if it’s only once in a blue moon that it’s got to be freaking leap year for it to matter to me. So in that case, it’s a useless indicator. You see what I’m saying? So I wanted to know how any of those indicators going to be valuable to me given my emotional constitution and my trading style. So I found out like ADX – “oh, ADX, it’s been over 70 now for a long time.” Well, that doesn’t mean it’s overbought. You’re not going to see a strong trend that doesn’t have a damn 70 ADX reading. I can see that it’s a strong trend when I observe the chart. I don’t need ADX to tell me because it’s not a trading signal. It’s like heartbeat, okay, you just had a bunch of sugar in salt, so your blood pressure’s a little high. What’d you expect it to be? So that’s the way I look at it. I don’t look at any of them as a panacea. And I would encourage you, if you’re looking at these technical indicators that you’re overlaying your charts on, start to peel them off and build more confidence in yourself and your own ability to read the chart. You might be surprised on how powerful you become.
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What to do when things don’t go as planned as you might’ve noticed, you’ve done all the chart research, you’ve position sized where your entries and your exits are. It’s a beautiful setup. You can see yourself putting the trade on and then sailing off into the sunset with all your new financial abundance and then something happens and things don’t go as you had hoped. So what do you do? Well, this happens a lot. You’re in a strongly trended move and for no particular reason, the thing sells off against you very, very sharply. So that’s happened to me enough times, so I don’t these days get emotionally invested in the outcome of any one particular trade. People always say like, well, I feel happy when I’m making money. I feel bad when I’m losing. If I lose a few times in a row, I feel really bad start to question my whole existence, and I always like to think of it from a very sober way of doing things In that you have to focus on your process and stay out of the results.
If you put out a trade on and then immediately start looking down at your p and l, you might be into the action. You have to dissociate yourself from the money. The money is just points in the video game, right? You’re playing space invaders. It happened this week in a couple of things in the past week. I mean, look at Friday’s action in August Gold and in July silver they got taken out back and shot. They’re very difficult to trade. When you’re dealing with three to 6% moves in futures, it’s very, very difficult and if you don’t have experience with those markets, I want to be careful to share with you they’re not for the amateur kind of crowd, be very, very careful. Those markets are super volatile and the contracts are big and you can see very big swings in your equity. You know what I’m saying?
It also happened in Nvidia. I’m sure many, many people watching were in doing their pre-split kind of trade looking for things to go well, Thursday the stock was up between one and 2% and then news hit the tape that there was going to be some kind of antitrust thing going on. Stock sold off $60 in about 10 minutes, which kind of breaks everyone’s heart because it’s a real crusher. When you’re in the middle of that and you’re kind of looking forward to holding it through Friday, then Friday’s going to be the split. Monday’s going to show the new trading and this and that, and so all you can really do though is manage risk in the here and the now. So many people, especially with Nvidia, are thinking three months out and you can’t really manage risk three months out because three months out as the future and the future doesn’t exist. All we have is the ever evolving moment of right now and now and right now, and so you
Can about where you want to be and the goals that you want to hit and what that’s going to look like in the future. So that motivates you today to take the actions that you need to achieve those goals. I don’t think you need a written plan. Written plans for trading is a bit of a waste of time. If you want to build a business that’s probably a little bit different, but all you really need to do is to have a dollar and a dream, put the trade on and figure out what step number two is going to be after. That’s why I advocate putting in alerts or putting in protective stops so that you know exactly what to do if certain inflection points occur in the marketplace. And you can do that even if you’re a short-term trader or not, and certainly swing trading.
Scalping, scalping, you’re kind of already on top of the market, so it might be a little overkill, but try it on for size. I mean it can work. The key is that what I’m trying to say is you have to understand that unexpected events go with the uncertainty That’s called trading, right? We deal with probabilistic outcomes. Every once in a while there’s going to be some outlier event that kind of hits you broadside. Some people, I am not really big in social media. I don’t really have an emotional need to share and I don’t need people’s feedback on my own actions. I’ve got that down to a science confident in my own behavior, and so it is possible that these outlier events can happen. They can take you out back and give you a crack upside the head. They obviously suck. It’s happened to me so many times that you’re kind of like, okay, well that’s trading.
You can bellyache about it, but I don’t really know too many really, really successful traders who bitch all the time. It’s just part and parcel of what goes on when you’re managing risk. You have the two, as I like to say, there’s two payoffs to every trade. There’s the financial and there’s the emotional. You have the financial risk and reward, and then you also have the emotional risk and reward. And living with the uncertainty is a huge part of making money. And I think the more uncertainty that you’re willing to feel and endure, the more money you’re going to make. I’m not saying be a reckless gambler and be a risk lover. I’m just saying that being able to live with the uncertainty and the probabilistic nature of the outcomes of trades, the more you can get comfortable just being in that spot and saying, okay, here’s my goal.
Here’s my setup. Every time I see a setup, I’m going to put the trade on. I’m going to stick with it. I’m going to make money. I’m going to lose some money, but at least I have an idea of what the probabilities are. And then my sole purpose in life at that standpoint as a trader is to just follow those rules or trade that setup and not necessarily worry about any one particular outcome of any one particular trade. If I’ve learned, I don’t want to say I’ve learned the hard way, but I’ve done enough living to know that if I get my hopes up on something, they say expectations have built in disappointments and I don’t like that myself. So the way I avoid it is I just don’t get my hopes up on any one particular trade. I put the trade on. I have an idea of how it’s going to go over many, many decades of experience, and that’s really what I focus on.
If I do feel good, it’s because I can just replicate my discipline day after day after day. That’s what I take solace in. I don’t really care about the outcome of any one particular trade because I don’t care about the tickers. I know what a lot of the tickers are and what the companies do, but most of the time when people send over tickers, the students that I have, they’ll say, Hey, was this is my setup on this chart? I just want to make sure I’m doing it right and I’ll take a look at it Half the time, I don’t even what the hell the companies are. If it’s like a $6 stock, I’ll be like, why are you trading penny stocks or something like that, but that’s what they pay me to do.
Or they say, I’m really frustrated because trading on two minute bars every time I get in, I got knocked out. So I say, well, if it’s gone on long enough, extend, look at intraday, maybe 30 minute bars. Look at swing trading. Try to extend your holding period and trade smaller this way you can stomach the swings. You might also be underfunded. And so that kind of goes with it. Either you’re going to have to deal with the big swings, your account is underfunded, but you want to get out of the complaining part. So really just understand that these things are going to happen. There’s going to be once in a while where you get your heart set on something, the outcome of the trade, for example, and all the money that you can make and it’s not going to work out. I will say this though, there have been trades that I’ve been on.
I don’t know about the frequency. I’d have to look that up. So I don’t want to just say something. I could be inadvertently talking shit when I don’t want to do that. But I sometimes mention a period of time where things were just completely cooking for me in oh 5, 0 6 and I couldn’t lose. It’s like I had the Midas touch and it wasn’t me per se. I am a reflection of all my thoughts, feelings, and actions. And I have a paradigm, the sum total of all my habits, it just happened to be an 18 month window of time when my trading style was very amenable with what the market was showing. And so they say, you make, Hey, when the sun shines, I was printing cash. It doesn’t always happen that way, but if you stick with it, you absolutely will have the tail events on the other side. Now, in that period of time,
I made hundreds of percentage points within a nine month window trading sugar, gold and copper. And if you asked me when I put the sugar trade on early on, I put on a bunch of contracts and then I was waiting to add to my next, my fourth risk unit, and that took almost six weeks. And every day I was putting my order in, buy at 12, buy more, buy more at 12. And it got to the point where it was selling. It wasn’t selling off, but it was at the lower end. It had kind of entered a trading range, but I was up and I stayed with it. And then the thing, it ended up going and breaking out from 12 and kind of not going directly up. It kind of went up and then went parabolic until it went to 18 or 19, and all I had to do was sit on my hand.
So I do promise you might’ve had a tough week last week, depending if you’re trading some of the medals. Copper got copper sold off gold, sold off, silver sold off. The soybeans have sold off. The Nvidia was doing well until the news of the antitrust thing, despite the news of the split. So it might’ve been a tough week for some of you, but it will turn if you are persistent and determined, it absolutely will turn. And if you stay in your winters long enough, you will find that they go up and they go up and up and then the slope of the line will change, and then you can’t have a chance to go parabolic. So you kind of have to take the thick with the thin, but don’t be discouraged. It’s just the natural order of things. They’re going to be surprise attacks and keeping your losses small. They say your first loss is your best loss. Once you get out, you can think with a clear head. You don’t have to worry about it.
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How to stop becoming emotional about trades. Well, the way I did it was I assumed responsibility for everything that I did. I live in a paradigm of personal responsibility and I stopped blaming the market and other people for my losses and my missteps and anything that wasn’t positive, I quickly stopped becoming a victim. I wasn’t really that way anyway in my life because I had already owned and run a business by the time I had gotten to Wall Street that I had built and sold, and I had plenty of interactions with people and people who didn’t pay and people that were pains in the asses and this and that. So in order to become a very disciplined traitor, I had to be able to control my emotions. And in doing so, I realized that the first way to do that was to control my behavior because behavior predicts where you end up.
And for all the different ways that I invented to lose money early on, I realized that was of my own doing, right? So the sooner you can get to the point where if you’re failing, it’s because of you, not because of the market. Even when I put on trades now and they stall, right, and they don’t work out and I have to use times stops even before I get stopped out for losses, I’m still putting the trades on. No one’s holding a gun to my head. And that really helped me grow. It empowered me, actually, it taught me that I was in control or certainly could become more and more in control because certainly when you’re starting, you’re like, I’m not in control of anything actually right now. So I also got a great comment from someone who said my skin was glowing. Can you see?
I don’t know. I’m getting older. I was thinking of getting a little tuck here, a facelift. What do you think? Would this look good? Looks natural, right? Anyway, I’m being facetious. I’ve already had my facelift. No, I haven’t had any face. I’m not going to ever do that. I do have a little, should I get rid of my wrinkles or this and that? I think that comes mostly from the women. It might be something that they’re thinking about more than the guys, although the guys are terribly vain. But thank you for noticing my skin regimen. Anyway, back to the show. It is clean living, right? My skin is a reflection of the inner beauty that I have in my soul. That’s right. It’s my risk management that keeps me glowing. It’s probably water and diet I guess, as much as anything. But anyway, the more you’re willing to accept the responsibility, I think of all your actions, the more empowered you’re going to be. That leads to confidence. And you know what I have to say about confidence? So I’m just like, okay, the best way to stop making mistakes is to minimize
Actions. So that meant minimize the amount of time that I would read research, especially once I figured out that it didn’t help me make money. Minimize and at least monitor. First you have to measure, right? Because what gets measured can be improved upon. So I had to measure everything upfront and that was easy for me. I had been doing that anyway. I was constantly building spreadsheets on everything from batting averages from my favorite baseball players to the team’s winning percentages. And I was kind of like a Bill James kind of Before Bill James, I watched weather, temperature, humidity levels and marked the days so that I could see the seasonal tendencies. I did that in New York. I know that probably sounds stupid, but I was just interested in the data. I knew once I had the data, then I could make a model. So trading and modeling and all that came very natural to me and it’s kind of how I, my trading strategy was to get all the data and then to isolate one item at a time.
Most of the stuff is like how you can use macd to make 10 million, like this eight figure trader bullshit. You can. So I would say, okay, lemme put it into the back tester and then evaluate it and see and test varying levels of it. Did that increase my expected value of a trade? To me, that was all that mattered. Certainly I’ve backtested stuff and I’ve geared portfolios to go from million dollars to 50 million inside of 10 years. The problem is you have to live with an 80% drawdown in order to get that. So again, what can you emotionally? And the drawdown came at the end pretty much. So you were up to 50 and you walked away with 10, still up basically a million a year I guess. But that’s a lot to have to live through. And you can put in parameters to step, there’s a step function that says, okay, if you adjusted the values by one increment or decrement, right? Usually it’s start here and then build it up. You can run the test over a portfolio of securities and do it with 10 different valuations to see if there’s one that’s optimal.
Then what they actually do also is Monte Carlo the thing and vary the start date. Why would you want to do that? Well, because you have, there’s, there’s a lot of limitations to back testing. One, they’re not necessarily predictive. They don’t actually change on a dime, but this all falls into place of how I accepted responsibility for my behavior and stopped blaming other people. It’s about ownership. This is me, this is my business. Everything that happens in it as a traitor is a reflection on me. And I knew enough and I had watched around the office of guys who were really bullish on certain names and they couldn’t lose, and it was infinity or zero kind of model. And I was like, man, that’s kind of reckless because they just completely blinded by the hubris of what’s going on and the tickers don’t even matter anymore.
But it was more like, man, if you can’t get out of your own way, who’s going to be there to protect the client capital? And this happened a lot too. When people were already up in the name. They were like, this is going on forever. And there was no risk management. There were no protective stops. And in certain circumstances, the names would come back to be below break even, and then the people would be resigned to, I don’t give a shit. It’s still going to be great. In 10 years, we’re all going to be talking about this. And I was like, how are people even trusting these people with money? How are the clients even trusting these people? So became, so the point is when I had a protective stop in those names and I got knocked out, they were all like, you’re an idiot.
You’re going to be sucking my kneecaps in 10 years. And I was like, this isn’t really competition in that regard. This is just trying to play superior defense, manage my equity. I don’t really have it to lose, and I’m too young in the business to want to take on clients or find out that I had a $20 stock that’s now trading at 12. I don’t have it in me to kind of overcome the types of complaints or objections clients might have over that type of a deal, even if they are or were investors at the time. So again, self-knowledge is really, really important. Managing the client expectations, that’s a different ball of wax. You have to remember inside the wirehouse, those people are marketing wirehouse, like a Merrill Lynch type of a deal. They’re consultative salespeople. They’re trained with licenses that allow them to speak to the public, but there’s not a lot of training in house actually on how to run money.
I think a lot of them fancy themselves as portfolio managers, and they very well may be constructing portfolios, but at the end of the day, it’s largely asset allocation and they get paid quite handsomely for asset allocation. But in terms of asset allocation is risk reduction. It’s not risk management. And herein is the problem. So if you work at a wirehouse, I’m not putting a stick in your eye, but I know what the training is, and most of it doesn’t qualify despite what the marketing people would call it as portfolio management. It’s more asset allocation, probably more so if they’re picking the securities or if you’re using a third party manager. I didn’t want to go that route. And I wanted to accept the responsibility of the p and l. So that’s where I started using the back tester and the simulator I was using, doing everything by hand in Lotus 1, 2, 3, and saying, if I had made these decisions, what would it look like? It wasn’t always pretty. So I just had to keep iterating, iterating, iterating. When they created these trading engines that you could use to backtest at the portfolio level, I never cared about trading one idea at a time because who’s going to just have one thing in their portfolio?
And then I was like, okay, well, if I put these trades on, some are going to make money, some are going to lose money. Then you learn about using time stops. What happens if momentum stalls? Because everyone needs diversification, whether you’re an investor or a trader. So the number two thing after that is momentum in your favor. So what happens if you have the idea, which is probably right, but the momentum stalls. And so the stock that you bought at 20 bucks stays at 20 and kind of languishes there for a while. So I learned to employ time stops to say, okay, well, whatever I was thinking was off base or out of line with what everyone else was thinking, and the buying pressure didn’t show up when I needed it to. So now I got to reallocate that cash, especially when I was starting out.
I didn’t have a lot of money to go around, so if something stalled, I had to get out of it. That was just the way it worked. But that was all when I kind of realized I’m in control here. I can limit my losses. And that’s a very, very empowering statement to say, and your protective stops are a very, very powerful tool to be using because when I would get into some of those names, I wouldn’t have the same size position on, but I didn’t know. I didn’t know a lot like what you might know now. I didn’t know about stock picking. I didn’t know I had to learn that all on the fly. So you could get caught up in what was going on in the office and what other people who were successful were doing. And so then that becomes a problem because now it’s like, okay, now my p and l is a reflection of somebody else’s thinking.
So I had to get out of that. And I did that very, very early on. That’s why I’m not necessarily a big fan of all these alert systems. It’s like you got to eat your own cooking. To me, if you want to be successful, it’s okay to read research, but at the end of the day, you have to trust your own instincts and know how much you’re going to put on and at what place and where do you know you are wrong? Technically, it’s one penny below or one tick below where you got in from a financial standpoint. But obviously you have to give some room for the ebb and flow of the day-to-Day price action. And by just doing that, not using any indicators, I just became a pure price action trader who systematized his rules, who employed times, stops who added to his winners, and then stopped really relying or caring what other people thought.
Why was that? Well, because most of the folks, they were just parroting stuff that they heard. Like the TV folks, the financial journalists, they don’t have a lot of original thought, to be frank. They get sent research reports and tips and this and that through email, and then they read it on screen with an authoritative voice as if they’ve come up with the stuff themselves. But it’s basically all from their sources. What are they? But for their sources in many ways. And then it creates a talking point, especially if it’s a lightning rod, then they get viewership or page views, or they get shares and vanity metrics on Twitter. And I don’t need any of that. I don’t need to participate in that. I don’t want to call it a game condescending, but the business is advertising. And so I don’t want to participate in their advertising model.
I’ll do my own research and I’ll make my own decisions. I don’t need anyone else’s thoughts or opinions on things. My risk management rules, I can’t manage my risk based on what Warren Buffet thinks of a particular stock. I don’t really care what he thinks about anything to be frank. So same thing with commodities. I have great respect for a lot of the folks who trade commodities, but I trade my rules that are congruent with who I am as a person. And the more you can kind of steer your ship that in that direction so that you’re autonomous and that, and that you don’t have to internalize other people’s opinions or alerts and that you accept the financial and the emotional responsibility of what you do, that to me is when you’ll start cooking with gas, because that really empowers you. It sets you free, it liberates you from all the noise, and then you just get to operate as a self-contained unit. And I know what you’re saying, Mike. You’re such a big unit. Well, at least I got a glowing face. Have a great weekend.
The post How to stop becoming emotional about your trades first appeared on MartinKronicle.
The post How to stop becoming emotional about your trades appeared first on MartinKronicle.
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When you’re in a position and you’re losing money, don’t hedge it. Just get out, right? There’s an old kind of joke that says when you’re out in the water and you develop a hole in the boat, you don’t drill a hole in the boat to let the water out. That’s what happens when you start hedging positions when you’re already losing money. The best thing to do is have of course, your predetermined spot where you’re going to get out, and if you don’t like how much you’re losing, then going forward, first of all, get out of the position going forward, then adjust your position size smaller so that if the same thing happens, you’ll lose less money, right? The goal and the ethos of professional traders is to keep your losses small and to play superior defense. I know everyone wants to triple their account, but that only is going to happen if you learn to keep your losses small because your gains only look like gains to the extent that you keep your losses small, otherwise, they all wash out and then hell’s the point.
You’ve done all this activity for no money. So I get those kinds of questions like, I got this position, would you buy puts here? And I’m like, well, where’s the overall position right now? Because the time to hedge, for example, if you’re in options, it is possible for you to trade with a hedge on and create what’s called a synthetic position. Long the stock with a married put, that’s something different. That’s when you’re initiating the whole structure at the same time. You’re not adding a hedge after the fact, after you already have unrealized losses. So this is about emotional intelligence. If the money’s gone, the money’s gone. Selling calls at that point doesn’t make a lot of sense because A, it truncates your upside, and two, it doesn’t mean, look, you can buy a $20 stock and sell a $2 call. What happens after $18?
You’re still losing money and then your upside is capped at whatever the strike is. So now you’re trading a completely different strategy. You’re coping with the fact, well, your trading model is actually a coping mechanism. It’s not really a trading model at that point because now it’s like, well, what should I do? And I’ve always said on the show here is you need to know what you’re going to do before you even put the trade on. How are you going to enter? How are you going to exit? And if it’s your style to add to your winners, where specifically do you do that? If you say, well, I’m just going to see how it goes, that’s bullshit. That’s not a trading style. That’s amateur land. So what are you going to do? You’re going to get better results faster in both your behavior and in your trading results if you build your trading model first and then act it out without emotion regardless of how you feel, right? Jocko likes to say “discipline equals freedom,” but it’s what you have to feel while you have to have the discipline, right? That’s the big rub. What is it that you have to feel? We all get up. He and I get up the same time every day. I don’t like it. I want to be comfy in bed. I don’t want to have to go to bed early, but I made the choice to come to California, so that means all the markets around Chicago and New York time, for the most part, that was a conscious decision. Got no one to blame but myself and order to be up and to be prepared, right? Because preparedness is everything, right? The victorious warrior first wins and then seeks battle. My preparation starts the night before, right? I know exactly what I’m going to do the next day. Very, very infrequently do I have a modification to have to make that morning unless there’s a disaster.
If I’m looking to buy something and something happens where there’s a big sell off, I’m just not going to enter the order because it’s two standard deviations away from where I would need it to be, so okay, okay. No big deal. Don’t put the trade on. It’s not in the neighborhood of where I need it to be, but to me, when I hear about people wanting to hedge after the fact, it means to me that they didn’t have the right plan going into the trade in the first place, and now there’s an emotional problem that they’re trying to come to terms with. The money’s gone. If you bought Nvidia at 1150 and it’s down at 1100, it’s not a big deal. Volatile stock, right? It’s 5% or whatever, but trying to hedge at that point. What’s the point though? Obviously you don’t want to lose, but this is something that you should have thought about earlier on before you put the trade on, how to trade it, maybe a quarter of the size so that if it did go down 50 bucks against you, which is kind of a normal day’s work for the stock anymore, it doesn’t hurt you as much.
Then you could add again, go back and watch the replay of the live stream. Think about it. Why can’t I think of it? Progressive exposure. How do you add incrementally by paying more, which is a good thing. At least there’s other buyers buying when you’re buying, which is a good thing. It’s counterintuitive, it’s counter emotional. You don’t like those feelings, but sooner or later, I think you’ll kind of come to see that my ethos, my style is very, very practical. It comes from being a street smart person, probably more than anything, which probably isn’t a shock to me to say it like that as I’m sitting
Here now because I grew up in New York and people in New York tend to be very street smart. They kind of have to be. That’s the culture, that’s the environment. So understand that about yourself. Think about what that’s saying. If you’re in a position and you’re thinking about hedging, are you really trying to avoid the decision of just offsetting the loss? Because to me, when you offset the loss, now the position’s gone. You can stop thinking about it. You could also take the ticker off your screen and now you can think with a clear head. It’s very difficult to be under duress when you are losing money, and now it’s like, okay, well, what do I have to do to handle this position?
You should have known ahead of time know where you’re going to get out. Don’t trade and position size for how much you want to make. Position size for what you’re willing to lose, and whatever volatility measurement you’re looking at, anticipate moving twice what you thought it was going to move because again, the job is to play superior defense. If you’re starting and doing this on your own with no particular set of skills or trading or training, then playing defense is really going to be your best friend as you learn your craft.
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Put yourself as a corollary to yesterday’s episode. Put yourself in the mindset of financial abundance, right? You have to have a financial growth mindset. And so I think if you’re looking at the screen all day, it puts you in a state of fear and a state of shock because the markets can move quickly. And again, the best thing that you can do is to stay out of your own way, especially at the beginning. You can’t really steer stuff. Another comment came in on this video that I did called “What’s Better – Trading the Chart or trading the Crowd,” and he says, when you say you really need just one good trade to make a year, is that the realm of futures? Equities don’t seem to appreciate that much.
I mean, besides Nvidia, I mean, I don’t want to sound like a smart ass, but there’s ETFs, ETPs exchange traded products, there’s all kinds of things that you can get your hands onto, and the way you make money is really one of two ways. You have a small position that makes a big move or a big position that makes a small move. I don’t want to sit there and make nickels and dimes every day trying to day trade. I would much rather have all my winners show up in like say, I don’t know. I didn’t look at the data, but maybe 30 to 60 days of the entire 250 days. So call it 50 days, 20%. There’s 250 trading days in the year, and I could probably look at all my gains and estimate that they probably happen within 50 days. The rest of the time it’s like you’re getting in and you’re getting stopped out.
It’s all this kind of treading water stuff, and that’s just how it goes. We’re all participants within the randomness of insecurities prices in the short run. And so I guess the question is, there’s a big difference between when they say, don’t let a trade become an investment. I disagree with that. I think that’s bullshit. That’s amateur talk. Where it applies is when you’re in a trade, like one of the darlings, like the Bitcoin or Nvidia, for example, and it moves against you when you start adjusting your stop, but we’ve spoken specifically about that emotional error. But if you’re in a winning trade, whether it’s, and I don’t care if you’re a day trader or a scalper, your goal is to hold it for as long as possible. There’s nothing wrong with risk. If you’re in a trade and you’re long and it’s going up, to me, that’s now branded a good risk.
You can’t look at fire and say all fire is bad if it’s left unchecked or if you keep feeding it fuel, it can grow unwieldy. That’s leverage. So your job is to manage your leverage, right? I always said that we make and lose our money from our position sizing. So if you’re not making enough money on the equity runs, you might be not risking enough. It is possible that traders have too little risk. And so why I think that don’t let a trade become an investment. If you held your Nvidia trade for two or three months, there’s nothing wrong with that. That doesn’t necessarily make it an investment. That’s you letting the trend unfold and you staying with your winners for as long as you possibly can, which is what you should do. And in my opinion, those bigger wins, they pay for all the losers and then some, right?
So again, what is your goal? No one should put on. It’s the first thing we do in the coaching is we discuss what’s the goal? And when you ask people that, they’re like, well, wait a minute. It’s like, well, what business is that of yours? And it’s like, well, it’s none of my business really. But if you don’t know and if you can’t articulate it in one freaking sentence, you don’t know what you’re doing because otherwise, why would you even engage in trading? There’s a big aha moment for you. You’re looking for action. You want to call yourself a traitor. Do you want to look like a cop or you don’t want to be a cop?
We deal with deception. We don’t deal with self-deception. So in the goal setting, you kind of have to understand that if intentions equal results, a lot of times your subconscious is going to be really driving the show here. So when you say, I want to make a million dollars, I’m like, no, you don’t. You really don’t know the first thing about that. There’s no emotional connection to it. It’s just the number that you pulled out of your ass. Like, I wanted to quit drinking with my New Year’s resolution. I don’t drink. I’m just saying hypothetical New Year’s resolutions. There’s no emotional connection to that. It looks like an ideal, but you have to put the work in to really understand what that means. What are you willing to do? Most people don’t have it. Most traders don’t have it. Forget people in generally, most traders don’t have what it takes.
That’s why so many fail. They look at it and they’re like, oh yeah, you just have to buy and sell crap. But there’s so much more to it. So in order to have the financial growth mindset, you have to put yourself in the mindset that your capital is going to grow and it doesn’t grow because you’re looking at it, right? I would look at it like gardening. You plant a bunch of seeds, make sure there’s moisture and fertilizer, and then leave it alone. We don’t check it every day for some reason. Some of you feel like success, it comes and it goes too quickly. That’s just not how it works. You can catch some of these bigger moves and stay with them for as long as possible, but you have to be open to it mentally. If you don’t think it exists, then for me, I don’t know what to tell you.
You’ve missed out on some very, very large moves. And if you’ve pulled 50 bucks out of Nvidia, that’s not a winning situation. You can feel good about what you did, but you’ve left the majority of the money on the table. So you have to figure out what are you doing this for? The market isn’t so risky that you have to always remove your risk as fast as you have a gain. Most of you have that hair trigger response. I know guys are a little sensitive to that, but it’s really the same thing. You get a little bit of a game, taking it off, can’t go broke, taking gains. But the truth is, is that you really do go broke because you’re going to lose more money. You’re going to lose more frequently than you’re going to win. So if you take consistent, I actually did a video on this, you can go look it up on the channel. The problem with taking small consistent wins, you’re just never going to grow. So again, financial abundance, financial mindset. What is it that you’re trying to do with your money? Right? I like to tell people, no matter what your account is, you should start to think about having winners that have commas in them.
I know that sounds kind of tongue in cheek, but that’s what you should be looking for because that’s how you really change your life. And even if you want to be a scalper, you can hold onto things longer in the beginning of your career, overnight over the weekend so that you can grow your account so that when you scalp, you’re not scalping with 5K, you’re scalping with a hundred K. That’s a whole different game. It’s a lot easier and probably more fun for you if you’re trading for pleasure to scalp when you have a larger account. But scalping with a small account is going to keep you small. There’s just no way handful of people can do it. Most can’t. And that’s where you have to be brutally honest with yourself, because again, if you don’t have a goal to grow your financial abundance, you’re going to find yourself doing small-minded things. You have to think bigger. You have to envision those bigger gains and then adopt your behavior to stay in harm’s way when things are going good. You see?
Because the more time that you put in the market that way, and the more time you hold the position, the more money you’re going to make, right? It’s a popular delusion to think like, Nope, as soon as I get up X amount, I got to take the risk off. Because the only thing that can happen at that point is it goes away. And I don’t know where that logic comes from because the whole world is full of rich investors who bought McDonald’s in 1998 and held it, and they made a lot of money. And so I think traders, especially those who were trying their hand at the short term of things is study investors. And what did they go through to make their money as investors? What was so hard about what they did about buying quality things and holding it? Are you not going to ever make any more income? And did you do the exercise that I suggested where you actually looked at the moves and the prices and put it on a spreadsheet like I did in the livestream, replay, mark everything to the market and see what would’ve happened to your money. And then ask yourself, how would you have felt that those key inflection points, because I think people have an irrational fear about overnight risk and not letting their money really grow up. They’re kind of constantly truncating their wins,
Which is the majority of the emails that I get from people is like, I don’t know how to do it. I see again, and I panic. What happens there? What happens when you’re up a couple hundred bucks? You put on a trade and very quickly you’re up. What’s so shocking about that? So again, I ask you, what did you think was going to happen and why does making money make you so afraid that you have to cut off the very channel that’s trying to give you abundance?
And why is your work ethic such that you want to recreate yourself every day when you were already in a winning trade the previous day or the previous week, and now you’re watching it continue to go up and you’re not participating it in it? So those are things that you have to conjugate, marry your behavior with your belief, right? The fancy word is praxis, but it’s marrying your belief with your behavior. And so that comes down to me. It comes down to goal setting. How do you want trading to serve you? Do you want to be right or do you want to make money? Because there’s different behavior tied into that. In my experience, the models that have high accuracy have much lower expected values. The ones that have lower winning percentages have higher expected value. And I think your goal as a trader, again, people say, well, if you’re not studying charts, what are you looking at? You’re looking at the data. This is what I’m looking at. Your goal should be to increase the expected value of a trade, which is a weighted average of sorts. What do you make on average every time you put on a trade?
So check out the live stream.
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Someone asked if I would do an episode on trading lessons that I wish I knew earlier, what I wish I knew before I started, right? Because so much of trading is experimentation and that makes people freak out. And so I kind of already covered it already in a little book called The Inner Voice Trading, where I had blind spots, what I had to overcome, what failures I had to endure, how I had to thicken my skin. And I think they’re kind of generational. The things that I had to go through you’ll never be able to experience. And emotionally, you’ll probably find new ways to feel those feelings. So we’ll have that in common. But the actual things that I went through aren’t really possible anymore, especially in equities in that they don’t trade in eighths.
But I think it’s like anything that can catch you off guard that you couldn’t have anticipated just because of, let’s face it, we’re all kind of ignorant, right? Every day something new happens that it’s impossible to anticipate, and that’s where there’s the emotional risk and reward, right? There’s the financial risk and reward. That’s the one payoff. And then there’s the emotional risk and reward and having to deal with the uncertainty. So there was a couple of questions that came in and around this theme. One was from AhaFX for the video, “What’s better – Trading the chart or trading the crowd.” Hi Michael. I’m struggling with taking profit, watching price in profit, and then back to break even. What can I do best in that aspect? Any advice? Yeah. Well, I’ll stop watching your screen. I mean, how would you know that it was profitable and then it came all the way back to breakeven unless you were watching it minute by minute, tick by tick, excited about the outcome of a trade, put it in your protective stop and move on to the next trade.
I mean, I don’t know how to say it anymore clearly, but for some reason people just seem to really like the action, which really tells you a lot about yourself. Are you doing this to make money or are you doing it for the excitement? Because if you’re watching it tick by tick to me, I’m thinking that it’s more, and I don’t want to sound this way, but that’s amateurish in my opinion. What do you think is going to happen by watching? What skillset with no experience do you think you can bring to the trade by watching it tick by tick. This isn’t about Monte Hall stuff either. If you don’t have a good feel for the markets in the short run, in the short run, minute by minute, the data are random so that it would make you a few ticks of profit and then come back to where your entry was. I mean, what’d you think was going to happen? I don’t know what advice I can give you other than to say, stop watching the screen. Stop watching your p and l, especially the newer you are, the more you should be doing that, because watching, it’ll induce you to do stupid things with your money. I can’t convince you to think longer term. So all I can do is kind of stay on message and say, stop focusing on the short term. Another question came in as a response to a response that I had made from a woman who I know named Angela. The video is what again? The same video. “What’s better – Trading the chart or trading the crowd. Hi Michael. Why wouldn’t you take the other side of the trade a countertrend trade if the market shows you that you’re wrong about the sentiment direction in your initial trade, what makes that dangerous? Well, a down day and an uptrend does not signify a reversal. It’s just a down day. Why would I be wrong? I know where my stop is. That’s the amount of space I’m willing to give the instrument in order to protect my cash because I don’t know where it’s going to go. But I wouldn’t say that if I’m long or if I’m trading an uptrend and there’s a down day, I’m guessing Angela’s looking at intraday data, which again, I don’t have any need for. So again, a down day does not mean a reversal, and it’s a quick way to lose a lot of money to try to trade against the prevailing trend that would be based on the weekly or the daily, what you’re doing. Intraday, I can’t help you. I just wish you godspeed. I hope you all do what you all think is best in that regard.
I came up with the “Fab five Rule” as well. Again, what did I do or what would I have wished I knew earlier on? This took me a little bit to put together, but I put together, I was just telling my friend JC Parets about the same thing as we were kind of laughing about it. He of course runs all star charts, great outfit if you haven’t checked them out already. And the Fab Five for me was the S&P 500, crude oil, gold, the yen, and the 30-year bond. I learned the hard way that I really couldn’t trade those five commodities earlier in my career. And you might be saying, well, Mike, you’re biting your nose to spite your face, blah, blah, blah. But what ended up happening was, again, you can’t can have duress and you can have strong emotions in and around your trading, but the way it presented for me was very different from how it would present for you. You have to remember when I started, there was no internet. And the way we would kind of get a lot of our information or how the me, the outside world would get their information was through the C Section of the Wall Street Journal. In those days, it had a fairly, I would say, on a grade, a letter grade in school, at least a B grade section on commodities.
Barron’s had a pretty good one too, but then they really weren’t focusing on commodities. I don’t know why it’s such an important sector of the economy because those are the raw that make their way into almost every company. And you’re like, well, how does crude oil Well think about if you’re trading FedEx or UPS, they’re delivery companies, so they rely on jet fuel a and gasoline minimum. So fuel costs are part of the deal. At any rate, the reason why I precluded and didn’t include those was because if there was a story that could move a market, lemme say it this way, esoteric types of commodities like oats or cocoa or sugar didn’t seem to have the mainstream appeal. So I completely gravitated towards those. I wanted to be in the ones that where professionals were trading IE hedgers and other CTAs like myself, because if a journalist was going to write something, they’re trying to get page views and reach a wider group of people.
So writing, even in the recent chocolate cocoa move, there was one article that I saw, and it was that prices for your Hershey bar are going to go higher. There was really no article or analysis as to what the hell was going on in mainstream media in the physical side of the cocoa markets. So I was like, I’d love those things. I can kind of hide there and I don’t have to worry about waking up in the morning and seeing an article that some Dow Jones Newswire analyst or author journalist would write about any of the commodities that I’m trading. I didn’t want that because most of the time, if they were going to write articles, it was about the Fab Five. It was because people could see that they were popular opinions in society about gold. And at that time, Japan hadn’t completely fallen out of bed and they were a big trading partner for the us.
The yen was much higher. I want to say it was 106. It was very different time for the US Japan relationship from a trade standpoint and a currency, the cross rate, so the dollar yen, s and p 500 gold crude oil and the 30 year bond. And if they talked about the short end of the curve, that was it too. But so I said if I stayed away from those, I wouldn’t have to worry about headline risk where you’d wake up in the morning and the journalist would’ve written a story that could have adversely affected your position. That had happened to me enough times where I was like, you know what? It always happens with these damn commodities in this particular group. So I just made a little sector and said, for where I was at the beginning with my account, I didn’t have enough money. And so gold was trading
That I think gold was under $300. The ounce, it was like $290, but still, you have to remember a $200 move, which was $2. So even a 1% move was $300, which was a 6% move in my tiny little account at the time. So I kind of figured I have to expect the unexpected. And so this is what I started thinking about having a view or an image of the landscape of the world that I was trading at the time. And it was also one of the reasons why I also did the same about foreign exchange. I don’t find it exciting to trade. It doesn’t psych me up. I don’t wake up in the morning and say like, man, I’m really, really excited that the markets are open today because it’s just part of my life. It’s what I do. I am the markets as far as I can see.
And so it’s just a natural order for me to say, okay, I have the markets open. I’m going to enter my orders. It’s going to go where it’s going to go. I know how much I’m willing to risk on any one particular trade, and I’ll put my stops in to add risk. And so if the markets come to me, I’ll add the risk. If I’m in a position and I have my protective stops in and I don’t get stopped, I’ll be like, okay, well, let’s see what happens tomorrow. I don’t look at the p and l and overthink things or try to make decisions based on my p and l. I’ve already done that before. I’ve put the trade on, so I can’t anticipate all the outcomes if I put on my initial risk unit, and this again goes back to the replay of the live stream, which you can see on the channel.
If you hit the live tab, you can see the replay. I still do progressive exposure. So it’s just like, okay, new setup. Add the first risk unit. Let’s see what happens. Add the second one. Let’s see what happens. I am not a risk on risk off type of trader where I put on my optimal piece and then I knock it off. I think some of you might be trading too big if you feel you need to watch the screen all the time, your position size might be too big to me, watching the screen doesn’t come from the excitement of making as much as it does from the anxiety of having the damn position on. So then you have to ask yourself, why the hell are you even doing this? Why don’t you just take all the crap that you don’t need and sell it on eBay and you’ll make a lot of money, buy something new, wear it for six months, sell it, and then go get something else. The good news for me too that I didn’t get distracted by was all the different ways people are trying to get your money. And by that, it’s like subscriptions to newsletters. Private X, formerly known as Twitter streams
Or Slack channels. Of course, the discords, and I’m really happy to hear many of you are writing in saying, my life is at much more peace. I’m not sitting here listening to these, so-called gurus who aren’t really making any money, and after five months I put a thousand bucks into my discord. If I put that money into my account, I’d be able to weather the storm a lot more. So in conclusion, all of this led to me being self-sufficient. The more self-sufficient you can be, the more it speaks to the emotional intelligence to me in the trader psychology area of who you are and what you’re trying to do, that should eventually boost your confidence and the confidence. Like I’ve said before, if you give a person who’s got average intelligence, a lot of confidence, they’re going to go out and they’re going to do great things.
I’ve seen it in every area of my life. I’ve seen people who say stuff like, oh, I should have went and I could care less. They can’t speak English, they can’t put a sentence together, and they’re very, very successful. Why? Because they’re brazen and they’ve got guts and they ask people for the business. And so you can do the same. To me, it’s like the opportunity. This business is so great. It’s such a great opportunity for you if you can get out of your own way. I don’t see what the benefit is to your trading. If you’re watching the trades live and watching them tick by tick, you’ll have to take a time out and write all of that out. What do you think is going to happen? So put in your cost basis and then say, okay, if it goes up five ticks and am at this spot, how do I feel about that?
And why would you feel bad if it goes down ahead of time from your trading strategies? What do you think’s going to happen? You know that if you’re a really, really good trader, you’re probably going to have an accuracy rate of about 40% right now. In shorter windows of time, you can absolutely have winning streaks. I’ve had winning streaks where my accuracy was 60, 70%. That was in like ’05, ’06. That has never happened since, and we’re coming up on almost 20 years. But that wasn’t me. That was me following my rules and the market being phenomenally amenable to my trading style. It will happen for you. But if you can be right 4 out of 10 times or 40 out of 100 times, you’re kind of in the range of where pro traders are. So you have to say to yourself, when you put on a trade, 6 out of 10 times, I’m going to lose money, and I’m emotionally prepared for that. I’m tired of saying, you can still be bothered by that because to me, if you can anticipate what all the outcomes are, then none of them should bother you. You shouldn’t necessarily get excited or related about making money, and you shouldn’t feel discouraged or depressed or do anything to internalize what happens the 60% of the time that you lose money. Those are just the numbers. So everything seems to be going as planned. It’s in model. There was no other reason to look at stuff. Now, some of you like to fade moves. That’s not my style. If you can do it and you have that sense of timing, great. I’ve heard lots of stories of people not believing the power of the market and be like, these people have to be wrong. I’m going to fade the market here. There are a handful of people, and again, I’m not saying handful of all the short-term traders, it’s probably the smallest group of them. And if they’re making money, like I said, I celebrate it all. But you have to know when to fish or cut bait. And if you’ve tried it and you don’t have a field, you’ve got to move on.
I just don’t like doing all the work. I can make more money sitting on my hands. I don’t want to turn trading into blue collar, into the blue collar, despair. Another thing, a trading lesson, I knew I wish I knew when I started because I came in with a blue collar mentality of working hard that meant long hours that didn’t translate to profitability. It made me feel good about myself. And I could tell everybody, yeah, man, I’m working hard, working hard. But look at that in your own life for all the hours that you’re putting in. Remember the little trick I said, and it wasn’t to put a stick in your eye. If you divide your profits by 20 and you get a number, that’s a single digit, that’s the amount of hours you’d have to work at Chick-Fil-A or Habit Burger or Five Guys, because that’s the minimum wage in California for working in a quick service restaurant. So I think in many ways there’s things that you can’t avoid because they’re just going to be experiential. They kind of go with the turf. There are things that are unexpected. The best thing that you can do, as far as I’m concerned about putting on a trade is put in your protective stop and then go do other things.
Like what else could you possibly do? You can’t sit there and manage the trade. You put your stop in. That’s the management of the trade. You kind try to shoot from the hip with no experience. To me, it doesn’t bring the best out of you. If you don’t have proper training, your emotions will induce you to do transactions. And I’ve said kind of jokingly, what does discretion mean? It means pulling some trade out of thin air to put on so that it makes you feel good today. You know what I mean? So that’s where I think there are things that will happen in your career that we can anticipate. There’ll be new evolutions of things. There’ll be data and news that come out. There’ll be mergers. There’ll be surprise announcements from analysts, the companies themselves, legislators, regulators, the markets. It happened in cocoa recently in the last several months where the margin went up from whatever it was, 5K to 30 K. It basically shook out all the small speculators. And a guy like me, I have to anticipate that.
So if something happens because of it, it’s really on me. I don’t really blame anybody. You have to keep the integrity of the marketplace, and I understand why the exchanges would increase the margin. It’s to protect everybody. It’s to protect the smaller speculators from themselves, and also to make sure, again, what is margin. Margin is a good faith deposit on the full notional value, the full value of the contract. So is it fair? Well, on some level, yes and no. In the no sense, I think an individual should be able to determine what it is that they want to put at risk. It’s their money. But I also feel like people should, there is an onus and a responsibility for the people in the know to protect those people as well, protect them from what they don’t know. And then subsequently, when the move in the cocoa, the upside move was over.
You saw a couple of days that had striking volatility that I had really never seen in my entire career in Cocoa, where each tick is $10. And so there were a few days in there on the July’s where the contract was down $16,000 and $17,000 respectively. So for a client who had $50,000 in the market and can afford the $30,000 margin, you could be short and certainly make a high rate of return to your account. But the goal is to, I think from the regulator standpoint, is to first do no harm. So you have to anticipate the unknown, which is very, very, very difficult. But that’s where those trading lessons kind of come from. So then the goal is like, okay, once you’ve learned that insight, how can you apply it going forward?
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Just want to talk about super performance for a minute, because I think it’s totally there. I think if you put your mind to it, you can definitely get there, but make that part of your consciousness, then you have to reverse engineer it and break it down to what is it that you need to do today, right? That’s what I did. I knew who the big traders were. It was basically Soros, Tudor Jones, and Tiger Management, Julian Robertson. In many ways, it was very thin field as to who the really great managers were, especially with the sizeable assets that they had. And so I kept thinking, most folks would think like they have an edge because they have a super, there’s a special tip or there’s a special chart pattern, and it’s not, you can find an edge into any particular pattern. The key is you have to trade it to make it yours, right?
We’re all looking at the same damn chart. And if you’re looking at Bitcoin or nvidia, it’s not like that. There’s 10 classes of the security. We’re all looking at the same chart. So you can uptime and downtime all you want. Ultimately, it’s going to come down to how you execute your trade on top of that chart. Like I said, it’s not the chart. You are the asset. You are what matters. Don’t put pressure on yourself to think like that. It’s something that’s outside of you. You’re what matters. Think about it. When professional allocators allocate money to traders, it’s not because of the tickers that they trade. They could do that already in house. It’s because of the uniqueness that the trader brings to the table.
When Bruce Covner left Commodities Corporation found his own company called Caxton in 1983, Helmut Meyer and the folks at Commodities Corporation, grub staked him with money, not because he had some kind of special insight on the yield curve, but more importantly how he traded that and what results he was able to get over years, and especially he kind of made, I don’t know that he invented it, but he certainly popularized the carry trade in currencies with a decent degree of leverage as well. So I think by all means, I know you can do it. I absolutely know you can become a super performer, but in order to get to that level, you have to do some of the basics first. You have to know how to hold the racket. You don’t have to know how to serve the ball, and it’s very difficult to make that leap right there. And again, I know everyone likes to quote some of these guru style podcasters, and especially guys don’t want to hear this. I tend to think, not to sound sexist, but women are very good at this. They tend to be very, very practical, at least the ones that I’ve
Consulted. And they understand that it’s a progress. Your progression is a progress. How do you like that for alliteration? So be cool with that and don’t put a lot of pressure on yourself because if you listen to the marketers, they could make you feel like you’re an idiot or that you’re some kind of loser. Remember Jerry McGuire? Poor girl, she died. So think about it. Kelly Preston, I think was her name. I know if you apply yourself, people could do amazing things. I’ve seen it with my own eyes, and it was a really great lesson for me when I was in my late teens and early twenties, was to really never second guess anybody or count them out because you just don’t know what someone can do if they put their mind to it. The thing is, and this is why I spent so much time doing is I spent hours and years doing stuff that didn’t matter because I didn’t have, I had the direction, I had the intention, but I didn’t know what was efficacious or not.
So I went down every damn rabbit hole, which sucked because the opportunity cost was large in many ways, not just on a trade over trade basis, but year over year basis. You know what I’m saying? So what I try to do here is to give you some frank discussion without the marketing schlock that helps you understand what it is that you need to focus on. If you want to get to that point where you’re a super performer, because it’s not practical to think that you’ve been on the job for two months and that all of a sudden by month four you’re going to be a super performer, look, if that could happen, I’ll be the first one to retweet it for you or whatever. That’s not the point. It’s not about an ego. It’s about helping you focus on the things that you need to focus on that that would get you there faster.
So it’s not the cup and handle, it’s how you trade it. It’s not the head and shoulders, but it’s how you trade it. And the only way to really get that down is to do it. You see? And have that consistency of becoming a good performer, a consistent performer, then you can optimize it. But I think in many ways, guys can be impractical. They want to get there tomorrow. They want to go from the first date to marriage to living together right away, and that’s a healthy decision. So I never fell in love that way. So I would say keep that in the back of your mind, but realize the first step to your becoming a super performer is to becoming a consistent performer. That’s the best advice I can get you. And then from there, once you’re consistent, honestly, the super performance is actually right around the corner. So you’ll spend, like I did four and a half years to get to the consistency part, and then something clicks and you’re off to the racists. Because really the last part of it in super performance, there’s really two
Parts. It, there’s behavior and then there’s results. The super performance from the results comes from the consistent performance and the monotony of doing it day after day after day. No one tells you that because they can’t sell it, they can’t sell you a box of shit for three K and tell you that this is going to work for you. It’s about doing the same thing day after day after day that actually makes you the super performer. It’s the consistency. Why? Because leveraging up and scaling up is the easy part. You just trade bigger, and hopefully by then you’ve accumulated more gains so that it kind of grows geometrically. But if that’s the key to super performance is super consistency, once you can do the super consistency, the next step is to scale. And that can take you two, three months to figure out. So you spend four years getting the super consistency and then all of a sudden the thing clicks and then you’re off to super performance.
So that’s what I would focus on if that’s what your mindset is and if that’s what your intention is, but just also keep in mind that you don’t want to do stuff out of ego. If you can do this and not tell anybody or not share it in any group or telegram, then you know that you’re not doing it for ego. You’re not doing it for the praise, you’re not doing for the, Hey, nice trade, bro. Because all that stuff too is kind of like news on headlines. It’s here today, gone tomorrow, it doesn’t really mean crap. You have to replicate tomorrow. And oftentimes I can share with you the money that I’ve made, especially like oh 5, 0 6, when China was buying up all the commodities. A lot of that money that I made was being in the right place at the right time. Why?
Because I just did consistent behavior. I didn’t know the markets were going to take off the way they were, and I would do as well as I did. I was just doing the same damn thing that I had been doing 17 years before what have you, and have modified somewhat coming into today’s day and age. So that’s the hard reality is that you can definitely do it. I believe in you. I believe if you’re willing to do the work and you’re looking at yourself and you’re looking at the data, you’re looking at studying your behavior, super performance is absolutely the case and is likely their end result. However, you have to get to do the super consistency part first, and that’s the hardest part. Most people can’t do it because good trading is boring. Anyway, I know you can do it. Keep at it. Any questions, reach out.
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What’s your morning routine? I get that a lot and I’m sure you’re trying to design it yourself. Maybe you have a process. Maybe a lot of it’s even subconscious, right? You shower, shit, shave, you make the coffee, this, that, who knows if you’re working from home, you got to go to the office, you boot up the machine, maybe the machine’s on, who knows? You got real time quotes. You’re looking at seeing what happened overnight. Maybe you check in research reports, you check in social media. So we talk about routine versus ritual, and it’s another way to study yourself, which is what I talked about on Monday and when we talked about where does the frustration come from. It’s kind of built in many ways if you’re not doing the right things. So I think of ritual as something that could be religious or maybe cultural, right?
As part of your belief system, it certainly probably feels good to be part of something. It could be a tradition, whereas routine, when I think of routine, I think of process, right? And that’s really to me, where you make your money. All the other stuff, the ritual feels good. I got to have my desk a certain way. I got to have my mouse, I got my hot keys all done, and I need my shit all together this way or else it makes me nuts, right? I’m not a control freak. I’m speaking hypothetically. That is not me at all. If you saw my desk, you’d x off the video. But anyway, I know it’s one of those things where it’s a disaster, but I know where everything is.
So when you think about studying yourself, take a diary of a time block, whether it’s minute by minute, not just of the calls you have to make or the emails you have to send or whatever, but just think about how you spend your day. Where does your time go? And you’d be surprised to see when you measure all that up, how much time actually goes to stuff that’s feel good doing, feel good things, as opposed to things that actually make you money. And it’s not that it’s bad, but you definitely don’t want to spend a lot of time focused on doing things that are about feeling good necessarily. When you’re avoiding doing the actual work, which is where’s your setup across what particular name, what timeframe are you doing and who, what, where, why, or how are you putting the trade on? That’s all that matters.
Ideation to execution and how can you keep that process as narrow as possible? Again, we get paid to execute not to know stuff. And I know a lot of folks who are like ready, aim, aim, aim, aim, aim, and they never should or get off the pot basically because they’re afraid. They know what they know intellectually and they know probably best is they can spout the stuff as if they’re inventing it on the fly, but they can’t necessarily do it themselves. And my goal with this channel is to help you succeed as fast as possible, knowing what the real issues are for traders and anyone who wants to perform. I can assure you if you want to get to be a high performer, you have to be a normal performer first. And there’s too many people, as far as I’m concerned, who are out talking to you about trying to be a super performer and you can’t do a week of consistent behavior. So that to me is like getting a PhD. When you’re a freshman in high school, it’s something you could do, but it’s a long way away because even doing something for a week, you quit smoking, you drink, quit drinking, you give up carbs. I don’t know what it might be in your life.
You do extra research in the evening. I’m not here to judge anybody, but you can go to school on yourself and see where did those instances come up in your life before and how well did you stick to it? How long did you do before you got bored, frustrated, you didn’t see the results, you lost interest. It became too arduous. So you switched. And this happens in the marketplace too. People want to see immediate results, so they abandon ship and they try something else and that doesn’t work. And then they start trading foreign exchange. And that doesn’t work as it doesn’t work for the majority of people who do it, then it just keeps getting worse. They can’t stick to anything. They’re looking for the dopamine hits and they like the ritual of the studying part because it feels good to learn new stuff. I’ll admit to that myself.
But then you have to break it down and say, okay, well what if this can I actually use to make money? How can this help me with my craft? And so when you think about routine, think of the word routine. You talk about ritual versus routine. Think of routine as the process. And I always like to think like, man, the world is so sophisticated. I got to look at this new sorts and this and that. I got to read this research. There’s too many parts. Again, I mentioned the book that might help you if you’re stuck and you want to understand how shortening the process can help you. The book was called Simple Heuristics that make us Smart. And that’s what you can do is do heuristical studies both on the markets and perhaps even on your own behavior and marry those two together. So that to me, you can go from point A to point B in no time.
It’s the two or three step process. You know how to source your names, you know how to position size, measure the vol, you know how to enter a buy stop order or an alert first into your trading platform and keep it super simple. If you have 95 things to think about or overlays on your screen, it’s too many and that gives you enough data points to shut you down and keep you in that indecision, which might be the goal anyway. If you don’t have a strong enough goal to really motivate you to put on the behavior or to execute the behavior that you need, you need to know what you’re doing it for and that goal should help you understand what your process is. What you don’t want to do is junk up your day with a bunch of ritualistic things that make you look and feel to an outsider like a trader, because I did that for a while too.
I was keeping my charts at night and doing all these fancy stuff and I was like, this is all taken up a lot of time and it’s too comfortable and I’m not getting any results from it. So people like to say, man, I’m brutally honest. Well, that’s awesome. That’s a great trait to have, but be that on yourself and for yourself because you’ll be the best benefactor as opposed to trying to judge other people. Judge yourself with that same magnifying glass and watch your performance jump and go geometric. I have just found that at the end of the day, when you think about making attempts, you’re going to have to live with the uncertainty. That’s the tricky part. Doing ritualistic things feel good and they keep you from having to put on trades. You see what I’m saying? So this could be a great learning exercise for you that you don’t even have to spend any money on.
You just keep track of your own behavior. When I was a kid and starting out on Wall Street, I remember I had a Franklin daily planner and I used to write everything in that book and I used to carry it with me to the damn bathroom. I know too much information, but I would log everything, every idea, everything that I tried and this and that. And I would write notes like, experiment with this or get the data here, go into the spreadsheet. And that’s really what I would do. It was kind of like my playbook, if you will, not from a playbook of like, I want to trade these chart patterns. I always want to look at the data because I understood expected values, I understood how you could count cards, for example. So I knew that there was a way to get an edge.
I wasn’t sure how to do it, but I knew that it was probably possible and I just had to look at the data long enough to try to find something, you see. So that was part of my routine was the research was to break down the data, to look at the nature of prices so that I could become a really good price action trader. Then I could learn how to marry and as over time, learn the fundamentals for sure, kind of not to become Joe CFA analyst, so I can spa all this information on the sugar market or whatever, or stocks, but just so that I could learn how to say like, okay, this is a piece of fundamental data that came out that normally you would think is super bullish, yet the instrument hasn’t gone up at all or barely. That means there’s either big sellers above the market or everybody kind of knew that information, but I’m not going to be like Joe Freshmen jumping into a big position at that moment in time because now I learned over time how to marry the fundamentals with the technicals. That’s something that you can definitely do. But more importantly, I would focus on learning your process. Focus on the process, stay out of the results, realize this is a game of probabilistic outcomes and that the best thing that you can do is find something, an idea or a process that’s very statistically robust that’s not curb fit or the data where the data is data mind, and
Then on every one of those trades that you possibly can. Again, you don’t have to risk a lot, risk five or 10 bucks. The goal is to get to that routine slash process that you can replicate it over and over and over again. And then once you start to see some consistency in your behavior and the thing exhibits a trading edge, IE expected value in real time, then you can scale and that’s the next part. But you don’t have to worry about that upfront. You don’t have to worry about scaling until you can get the bottom line behavior down.
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I get a lot of emails from folks saying, Mike, how do you become a market expert? And I think that’s something that happens over time. It’s not necessary in order to trade. Well, over the years, I’ve picked up an enormous amount of information on the instruments that I trade, especially in the area of sauce, coffee, sugar, cocoa, cotton. And that’s just because it was my thing. I had a knack. I lived and grew up in New York State, which after you get beyond, say, Duchess County, there’s lots of farmland. It’s also a dairy state. So I kind of grew up understanding the seasonality of the world, right? Calendar years versus crop years, you see? So I inherently knew that I witnessed it and I worked in it. So when it came down to starting to trade physical commodities, I really understood the process of the crop year.
So I don’t know that that gave me an edge, but it helped me understand how the physical markets work. Then when I got to school and I kind of helped out with the trading and the hedging stuff as I was studying the data, then I could learned the futures market from the physical side. Again, that helped me understand how the nature of the markets, who the participants were, what they were going to do, what about they say commodities are cyclical, whereas stocks tend to be secular. I got to see the cyclicality of the commodities markets as well as the seasonality, which plays out in the term structure, which you could see if you care to look. So I think over the years, it was something that developed, right? So now I understand the fundamentals. I understand why Coco’s behaving the way it is, and again, I don’t know if it gives me a trading edge, but it helps me better understand the crowd behavior, which to me is really what you would want to study after you study yourself.
That’ll help you understand why and how other people behave at key inflection points on the chart, not this intraday stuff. See what they’re doing when there are materially high prices achieved or when there are significant new lows being made. What are significant probably a year or more, because on any given day, I don’t care about the headlines because all that kind of stuff, you add it all in, it turns to black, all those colors, they just blend into black. Much of it is not necessarily material. So if your goal was to become a market expert, I’ll give you a good example. I’m lucky enough to be able to speak with lots of folks who are CFAs and their experts in specific stuff like sugar or even commodity companies on the equity side. So funny enough, we could have some really good conversations on stuff, but you speak
With them and say, well, how are you trading it? How are you expressing that risk? What’s the optimal way for you to express the risk in your portfolio? And most of the time they tell me that they don’t trade or they can’t trade because analysts and this and that, and that’s okay. Everyone’s got a role to play that can help you evolve. But it reminded me of what I’ve said to you on the show in the past, is that it’s one thing to know a lot of stuff. You can become a market expert, I’m sure, because there’s only a finite amount of information to study. If you want to get the basics, then the rest of it, the 5% of it is what happens each and every year. Is there El Nino or is there some big currency fluctuation or something like that, or is there political unrest in Western Africa, blah, blah, blah.
Or do the Brazilians need lots, a lot of the sugar to stockpile and create ethanol for the cars? So there’s all that kind of nuanced stuff that can happen year over year, but the base of the industry typically stays very much the same. The players largely stay the same. These are big multinational companies. So I wouldn’t put a lot of emphasis on trying to become an expert, and that even goes for designations. I have a lot of friends who have professional designations, and that information is really, really interesting. Again, it makes for good conversation, but I don’t think a person needs to know or have a designation necessarily to become a good chart reader or a financial planner. In fact, most of the folks that I knew who were in the wirehouse environment were really, really good at helping people put together their investment portfolio, but they didn’t have any type of designation.
And in the wirehouse side, it was more a function of marketing. How could you differentiate yourself from your peers? Which is typical, right? Because even on the series seven or the series three, there’s no real testing on how to make money for people or how to be a good hedger. It’s really rules regulation, which is, I would say largely compliance. You need to know about the instruments in order to market them to the public. So you pass this thing not unlike the, it’s like the written test on your driving exam. You might know what all the signs mean and the lines on the road mean, but it doesn’t mean you’re going to be a good driver anytime soon, maybe never. So it might feel good emotionally to approach the market from an intellectual standpoint, because that’s the neighborhood you live in, is you have a strong intellect, but it’s not necessary to make money. You need to have good trading instincts, and that only comes from experiencing the trading and doing what I said yesterday, experimenting with different techniques or different instruments to see where you
Can find an edge. The tricky part is that you have to do it with real money, and you have to do it consistently over and over and over again. If you’re doing 10 different styles on 10 different asset classes, you’re not going to really get any good data to make a good decision. Cheers to you for the experimentation part, for sure. But this is why I think people act out of desperation even though they don’t think they are, because they just want to get on with it already. And that’s the type of attitude that I’ve had plenty of times in my own life. However, it doesn’t always serve me. So they say patience is a virtue, but it takes time to put your craft together and to really own it. You talk about guitar players like Van Halen or Clapton or anybody who’s really, really good, and those folks, they used to sit at home when they’d come home from school, Alex and Edward, and I think Ed was playing piano or drums at the time, and Alex was playing the guitar, the brother, but they would sit in their room and just practice and practice and practice, and then when they got older, they’d have a pack of cigarettes and a case of beer, and they would just play and play and play so that the instrument became an extension of who the person was.
It became second nature. They could use it to speak. It was speaking a language, right? All his own in many ways. And so that’s really where you want to go, is learn how to trade the market so that you can be a person for all seasons, because you can understand and have a great feel for the markets. That’s not going to come from a textbook. It’s going to come from being, as they say, you can be in the stands watching the tennis match, or you can be on the court banging it out. To me, that was the biggest education that I could ever get, was being ready, willing, and able to risk real money and put some trading ideas to work just to see how it felt in many ways, not just if it made money, but how did it feel? Was it something that I could do with my sense of persistence and determination day after day after day, in the face of an enormous amount of uncertainty and really no one to help me and no community either.
So that’s why I’m saying I don’t like saying, if I can do it, you can do it, because I don’t know that that’s true, but you could learn from my experience as a data point, somebody else did do it. So it’s something that’s observable. Now, if you have a good sense of self-confidence, by all means, I think you’re definitely there. If you’re a person who walks around with a lot of self-doubt, but you have a strong intellect, becoming an expert on the market is really what you want to do if you’re going to write research or blog posts on the markets. And that information doesn’t really help people too, because it’s not evergreen.
It’s got a useful life of maybe a day, sometimes two days. In the case of cocoa, it’s on the fundamental side because there’s an extreme shortage of the physical, and if you care to know, it’s not like growing beef steak tomatoes in New York state every summer, which you can do seasonally and get a decent yield. Cocoa plantings don’t really yield anything of material value for up to six or seven years. So even if there isn’t going to be a shortage of the physical, the cocoa pods, doesn’t matter how much they plant this year, it’s not going to pay off maybe until 2028, 2029, or maybe 2030 to give you context. That’s the problem. So I don’t know if prices go back to 12,000, but I wouldn’t guess that they’re going to see three or 4,000 anytime soon either. But again, it’s all shows up in the price.
The price tells you the truth because it’s a voting machine. So to close, think about what it is you’re going to do and where do you want to spend your time. If you really want to trade, I would say learn how to trade and perfect that by doing the trading, right. The same way, if you want to become a pilot, you can have a flight simulator, and that definitely gives you some experience, and you do need to log some hours, but it’s a whole lot different than when you’re up in the air with a big, big strong machine that you could pull a throttle on.
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How did I learn to trade in a word, experimentation, right? In those days, there was no information like you have today where you can go in. Google didn’t exist. The internet didn’t exist. I know I sound like a broken record. There was no mobile technology. Blackberry hadn’t even come into becoming like a two-way pager that it was before it became the smartphone that it was. There were books and there were people, and I could remember there were a few books on stocks, but they were really written for investors more than anything else. They weren’t really great books On Trading. On Future Side, there was, I can remember getting Jack Sch Swagger’s Complete Guide to Futures. I can remember reading Tools and Jones, the Futures game, who wins, who loses, and why. Of course, there’s Market Wizards in there, which was really the most profound book for me because it showed me that these people were human beings and that to a name, they could all be boneheads. And now of course the rest is history. But that taught me that there was a real human element to this and that everybody market Wizard to be or not, you could still do stupid things, but that was part of the tuition, that was part of the hazing process that you had to go to join this fraternity sorority, if you will, of trading.
So I was ready, willing, and able to lose money so you can latch into a certain asset class because it excites you probably intellectually, right? You can learn about options and all those moving parts and that’s great, but ultimately, as I’ve said before, you have to have the right emotional makeup to be able to trade those asset classes. To me, I wanted as few moving parts as possible, so I put options on the side. It was just too much between all the Greeks and then all the IV and the historical values, historical volatility, excuse me, it was too much for me. You got to remember, I was in a wirehouse and I was trying to also trade client accounts. I needed the commissions and fees from what I was doing and making my client’s money in order to learn my own craft as well, and in order to be able to afford my own bills.
And the prop firms were gigantic New York Stock Exchange member firms, and you needed to go with a proven track record as well as some serious political connections, which I didn’t have in order to get seats on those desks. So to me it was like, okay, the only way I’m going to really be able to do this is the same way I kind of learned how to be an artist first with my, I had pastel chalks and I’d steal my mother’s. I wouldn’t steal it, but I’d use her final net hairspray because when you’re using the chalk, you got to pat it down because it’s hard to blend colors. It just kind of blurs, so you kind of have to spray it down. Long story short, and then I got into paints and all that. I was about 14 years old, but all of that too was experimentation right down to mixing and blending colors.
I used to not buy black. I would make my own, right? And if you’re an artist, you would know why. So you need to feel comfortable with experimentation. You can definitely backtest to have an idea, but the real education is going to be from, and this is about me and how it can help you. I had to be ready, willing, and able to lose real money because in that process, you get to calibrate your behavior with what There has to be an element of risk. It’s too safe paper trading, and I know some of you’re like, I don’t give a shit. I’m going to do it this way anyway, and I don’t blame you because it’s too easy to lose. It’s too easy to lose money in good markets, right? Nevermind choppy markets. There are some caveats too. Some of the places, if you want to learn swing trading and day trading, you can learn to do it, but you can only use one instrument at a time, and I think the data only go back for approximately two years.
So I don’t know how robust the rules are. You’d really want to show and try to trade, I don’t know, maybe four or five dozen different names with those same scalping rules to see if it would make sense, because you could sit there and change enough of the parameters in your back testing engine to make anything look good. The proverbial putting lipstick on the pig. I wanted something that was much more robust that had very, very few parameters on it so that it could stand the test of time. So that’s why I kind of designed stuff by myself, which was very hard to do. It was extremely hard to do and was extremely time consuming. I had to do it all by hand, and so I would mark to the market these positions, then add them all together and create my open trade equity. Then what was my collective drawdown?
And it just took hours and hours and hours, but there was really no other way to do it. Then I got good at it and I learned shortcuts and I could run macros and then I could import the data and keep that in a database. I think it was a Fox Pro database because the hard drives at the time, they didn’t even have 10 megabytes, which it’s really amazing that you could get anything done. But I learned my craft from the experimentation, you could call it scrimmage. They were against teams that weren’t in the league, but everyone was going live so that you could run plays with people who didn’t know to see if there was efficacy. You still got tackled, right? You still got hit with pucks, you still got know how to hit if they pitch you backwards, the whole kind of deal.
So it doesn’t matter what sport it is. It was a good environment to really learn your craft. And so for me, I was the center, so I just hid the guy in front of me. For the most part. It was a little difficult if we did shotguns or what have you. I had to look, so I had both my head and my hands between my legs, which is not typically a masculine position, so I had to be super quick. But at any rate, it was through the repetition and the willingness to risk real money that helped me calibrate my behavior. And again, that means learning what to do, but also learning what not to do. My cash was so tight and the commissions were so high, I really had to learn to figure out what the bad habits were really quickly because it became very, very expensive. You have to remember, it cost me 50 cents.
It could cost me almost 1% of my account just on transaction fees because there was no, in the decimalization led to Robinhood where they’ll basically trade against you. You might be losing money and getting collared or being a victim of their high frequency trading, so they’re still making money off you, maybe even more than if they charged commissions, but you don’t see a commission on the bill. That’s the whole thing. So that can seem appealing, even though the people who are clearing your trades aren’t necessarily doing you any favors. No one’s doing anything for free. That’s Milton Friedman, right? There’s no such thing as a free lunch tan staff. So it was the willingness to lose money if you really want to get down, and the feelings of losing money, realizing that I could lose money ongoing for quite some time before I got a damn clue.
That’s very unnerving for a lot of people because again, there’s no one there to validate you as a trader. There’s no one there to tell you you’re doing the right thing, and there were no back testing engines. It was really barren. It’s a miracle in many ways that I even made it. But the thing is, is that if you can find it within yourself, that’s why I always say don’t risk a lot of money, risk 10 bucks, but risk real money and learn your craft. Learn to take risk home overnight over the weekend because when markets are really moving in your favor, you can definitely make more money for not doing any work, which to me is the ultimate. That was my ethos, is I wanted to come in and leave blue collar despair behind me. I had only known day player kind of jobs where I’d go to work and I’d get paid. I wanted to learn intellectual property where I could figure out a math model. There’s that, and that comes from being just a super dweeby, nerdy kind of kid where I would keep track of temperature, humidity, batting averages, records, Yankees and Mets, red Sox. I’d keep all a LE statistics because yeah, I’m from New York, but I just also appreciated really good baseball. So I’d keep track of what
Pitchers through, did they pitch a guy backwards? Did they start him off with a curve ball? Did they pitch around certain people and what pitches did they throw? And I’d keep all that inner game to kind of think of the model. How could I learn from other people’s behavior who, especially if they were very, very successful. So I think it’s like being creative. It wasn’t being locked into any one particular chart pattern. Again, I showed you the rules or the exact stuff that I did. If you go back and look at the live replay of the live stream, that was exactly how I was thinking. And so when people say, well, you keep talking about looking at the data and not looking at charts, what’s the example? Well, that’s the example. I was looking at the data, seeing how I could maximize my efforts because I knew if I made 500 bucks or $500, then that was 10% rate of return on my account.
And that seemed like all the world to me because then I kept thinking about, wow, what did I have to do when I was working as a golf caddy or as a waiter to make that money? But those were important lessons to learn because then it helped me learn good habits, especially learning how to sit on my hands. And I’m saying that it was easy taking a drag on my smoke, but I can remember going to bed being really nervous. I can remember having sleepless nights. I mean, I never threw up or anything, but I can remember it being very, very challenging because the level of uncertainty was ginormous. Plus, you have to remember, if you watch the live stream, I was using 5K and breaking up my money so that I was trading somewhere between 40 and $50,000 worth of notional value. And I go over why I was thinking that way and why I was doing what I was doing. So there weren’t books I didn’t run to kind of suck on mommy’s nipple. I just said, this is something that I got to do on my own.
It is really something that I have to do on my own. I have to learn how to think for myself. And that made all the difference because I learned to be self-sufficient and not rely on other people. So some of you might be in some of these online programs and this and that, more power to you. My whole thought process with those though is that if you haven’t learned everything that you need to learn within two to three months, there’s probably not a whole lot of new stuff you’re going to learn going forward. So take what you need and then leave the rest. But again, I feel like as if I do any coaching or mentoring, if I’m doing a good job, I make myself obsolete. I don’t want to have people ongoing. There’s may be one or two people who run over nine figures that like the accountability. That’s a different story. They’re very well advanced, so to speak, or at least career wise. But for the most part, for those of you, you have to learn how to push
The birds out of the nest. I don’t want to be talking to people every day if they’re within five years of trading experience, because ultimately the answer to all their questions are try it, see if it feels good, see if it makes money back, test it. See if it has positive expected value. And if you’re looking for super performance, A, it’s usually going to take a whole lot of leverage. And two, you have to get basic consistency first before you can start thinking about super performance. So I think it’s kind of disingenuous to start talking to rookies who have no experience, who don’t know their asses from a hole in the ground, and you’re trying to talk to them about becoming Bruce Covner in two months. It’s not practical. If it works, great, but I don’t know anybody in 36 years who just stepped out of mom’s womb, so to speak, on Wall Street and just killed it from day one. It doesn’t typically work that way. You have to find your way and enjoy the process. So if you’re impatient, this might not be a good fit. If you’re stuck though, you know how to reach out to me, reach out through the blog and I’ll try to point you in the right direction.
The post How I learned to trade first appeared on MartinKronicle.
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I think the number one feeling that traders feel when things aren’t going as well as they had hoped they would go is frustration. And I know it right? Because I came from a good school, I knew how to put the work in academically. I knew I had a good intellect and I knew how to put the pieces together. I thought systematically, I had a lot of experience in math modeling. I was very comfortable working with spreadsheets and manipulating numbers, and sometimes I’m just sitting there with my hands up going, what the hell’s going on here? And so I want to talk about that. I kind of tapped into it a week or so ago when I talked about hesitation.
When you don’t use alerts, which are easy enough to figure out, I don’t have to do a how to video on how to put on alerts. You go into whatever platform, you pick a price where you think it’s going to go before you would actually want to enter your stop order. To me, this is kind of like, it’s a bit of a bandaid. You could really just put in your buys stops above the market and let the market go there. If you’re a little bit jittery and you don’t like doing it that way, then you can put your alerts in ahead of time first. But that type of hesitation where you’re not surefooted and you have have that moment of hesitation, some of the times, not all of the time, the market can move quickly before you were ready to take action. Even though you had been watching the chart.
Has that happened to you? Drop a note in the comments. So here’s the model, because we all run emotional models as we might be trying to run trading models, you lack confidence. You don’t have a lot of money to lose. So that causes hesitation in fear. You’re not thinking abundantly. That could be because why You don’t have a clear vision about what you want trading to do for you. Maybe you don’t have a clear goal on how much money you want to grow percentage terms over the course of the year, or you don’t have a strong emotional connection to that goal. So all of that can give you hesitation or a moment of pause. And in this business, a moment of pause. Sometimes it can work for you if you have really good instincts to say something doesn’t seem right here, I’m going to sit on my hands for another few minutes, but for the untrained eye hesitation will always keep you second guessing yourself.
Then you become frustrated. Sometimes you could become despondent, but that could also end up bleeding to revenge trading or going on tilt. So when you string all those feelings together, you got a heck of a model going there and it’s very, very difficult. I know the first thing that you’re going to want to do. That’s right. You’re going to sign up for a discord. You’re going to take a class, you’re going to go try to read a book, and you’re going to try to intellect your way through this and it doesn’t work. You don’t need more courses, you don’t need more books. What you need to do is learn about yourself and your level of emotional intelligence.
If you come in with high expectations of this business where you’re used to being a good student, you’re going to fail because this is not an intellectual business. It’s an experiential one, and 75% of it is psychological and emotional despite the promises that were made to you about buying somebody’s course or joining someone’s monthly discord, this and that. I don’t begrudge anybody who’s trying to make a living. But my take on all of that is like I’ll speak for myself. If I’m doing my job, I make myself obsolete as a consultant or a coach because you should be able to take exactly what I’m sharing with you and put it to work immediately. And in the group mastermind and the one-on-one, there’s no place to hide because I’m asking about the results. I’m not just teaching lessons and saying, oh, okay, that’s great. Let’s move on to the next lesson. You have to show me what you’re doing. How are you incorporating this information? Because it’s a hundred percent customized to you.
So that’s why I don’t just sell a box of crap to people because I don’t feel like it’s ethical and as much that I have no idea how any of it would resonate with the people emotionally or psychologically. They can get it intellectually for sure, but you end up finding out the hard way that this is a, it’s not an intellectual game to some degree. You need to have some intellect. You need to have one technique that you can master and execute over and over and over again, but the hesitation can lead to frustration. And then you start in this loop because you’re like, well, I’m just going to study more. I’m going to try another method. I’m going to try this chart pattern. I’m going to try this type of candlesticks. I’m going to try this type of divergence. I’m going to add macd and this and that.
And to me, it’s an act of desperation because most of the time, the breakthroughs that you want are the breakthroughs on your own behavior. So I read a statistic somewhere, I’m going to find the study so that I can actually quote it, but it showed me that it was the one that showed 95% of day traders fail. This had ’em down an average of 36% within the first two years. And so that can be very, very disco. I actually thought it would be worse to be honest with you, but that can be very, very discouraging for you. And if you’re in that window of time and it’s not working for you and you’re trading super short term like you’re trying to scalp or day trade, take a time out and learn over longer periods of time, learn swing trading, learn intermediate trend following, learn how to build positions, and then study investing, I guess. But first thing you have to do is stop what you’re doing. You got to stop the bleeding. My best advice for you is to learn about yourself and spend some time learning about what’s your own personal psychology and your level of emotional intelligence. How have you behaved before? When you’ve come into certain circumstances in your
Life, you had become frustrated, what was the end result? Because chances are that’s a system. That’s a pattern that’s playing out for you in your life. And if it’s coming from your subconscious, you don’t even know why you’re doing what you’re doing. So at least you’re ahead of the game. Take a time out, reach out to me. I’ll point you in the right direction if I can’t help you directly, but this is what I’m trying to say is you can’t buy your way out of your discomfort if there’s something going on in your trading that doesn’t feel right for you. You have to address that from an emotional standpoint. There is no magic chart, pattern or trading system that you can buy that’s going to solve those feelings for you, especially if you lack confidence. It’s going to recur. It’s going to be a recurring theme, and it might be in other areas of your life.
The big hint is to start with a very strong goal that you’re aligned with that’s very, very meaningful for you, that can help you govern your behavior. Because that’ll include not just the things that you have to do, but not doing stupid things like taking flyers or if you lose money, trying to come back and bet bigger so that you can earn that money all the way back and get back to break even. That’s typically a recipe for a disaster. Some of you might’ve found that out the hard way, but to me, this falls in line with the chapter of the book that talks about self-knowledge being more important than anything else. If you don’t know who you are, it doesn’t matter what you know might always be your own worst enemy, right on the edge of the potential for you to becoming a great success.
This is the majority of the feedback that I get from people when they’re struggling, is that they want to read a book. They want to take a course, they want someone to tell ’em it’s going to be okay. They want to be validated, and they want some sense of security that things are going to work out. Unfortunately, there is no one person, there’s no market wizard, there’s no anybody. There’s no one chart pattern. Because I can show you chart patterns and show you 50 different traders, and you’re going to get 50 different results from that same chart pattern, even though it’s marketed to be a bullish pattern. Because your edge, right? The expected value of say, cup and handle or a hidden shoulders type of pattern, doesn’t matter to me what the patterns are. It’s not the pattern, but it’s how you trade it. It’s what’s the uniqueness that you bring to the table, and that’s going to be unique to your experiences in life.
How do you handle losing? Were you a sore loser? Did you blame other people? Right? When things got difficult, did you seek political solutions because you had clout? You can’t do that in the marketplace. That’s not a system that’s workable because the market doesn’t care. So I would say before you start dropping big Bitcoin, you need to stop worrying about the academic side. So much of that’s available for free on YouTube. Learn about yourself. You’re the biggest asset to your trading, not the instrument. It’s not Bitcoin, it’s not ai, it’s you. What can you bring to the table? You can learn it for sure, but can you execute? Drop your comments down below. I’ll answer all the questions.
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I got a comment from a long time watcher and subscriber, Gary Portugal 8035, which means he was probably born in August of 1935. That’s the only thing I can conclude. Thank you for being here, old timer. And the question regards, how does intuition play into your trading? Well, for me it’s huge, but again, it comes with aging. The wine in the oak caskets, right? So it’s like you can’t really get that early on. I had good instincts, but it was only from actually putting on trades in real time with real money holding positions overnight over the weekend and looking at the overall process that I was able to hone those instincts. So they can be a big part, but I don’t think it’s going to happen over a week. And then two, you have to figure out where do your instincts kick in? I was always good at knowing, and Jared Dian always kind of teases me on this is like I knew when I was a kid and in college when to leave the party.
It was always when the first beer bottle hit the wall because it typically doesn’t get better after that. So you can do it, but you have to really keep good records too, because your instincts might, I have a good sense of when to get into something, but I might really suck at knowing when the party’s over. So therefore I have to be purely systematic on the exit. Or I could be in a winner and then kind of notice that the market looks like it wants to turn or rollover. Again, I’m not looking at VIX, market breath, I don’t use any of those inputs. If I see something’s moving along, I don’t care about what the overall market’s doing. Your style might be different, more power to you, but I don’t really care about those broader data points. They’re not inputs that I use to make better decisions about trading.
I look at every instrument. It is its own market. So you might have great instincts. I want to get out of something, but be very poor about knowing when to get in. So you might rely on buying a five day breakout, something like that. And then using your instincts or your intuition to say, I think it’s either going to retrace a little bit here, which is nothing to necessarily fear. It doesn’t mean drawdown, right draw downs or measured from month over month. Two trades in a row doesn’t mean necessarily losing streak and three trades, losing doesn’t mean drawdown. So you have to be careful with the language that you use because the language that I hear oftentimes, at least the way I think is well in a nice way of saying it, it’s wrong. So you need to keep also good records, not just of the trades, but what was the intuitive aspect of the trade that you were using? Is it entry exit? Is it position sizing? Typically, I would be very systematic on position sizing because that’s where you make and lose your money to me more than exits and entries.
So I don’t really care about sniper like entries. They’re super accurate using indicators for hyper accuracy. I think that’s overrated. I think you can be like Jimmy Page if great solos be entirely sloppy and execution. So you can do that in your trading too. If your position sizing is right, you don’t have to be so crazy anal about your entries or your exits because if you’re trading, again, from my perspective and letting these things building into position so that you could walk away with a 5 to a 10R win, 20 cent move isn’t part of the equation. It’s not something that I freak out about. It’s much more, for me, it’s small potatoes, right? So I feel like can you systematize that? Well, yes, because you are the system. So it’s already part of you. The question is, do you want to turn that spigot on or not?
And then trust it because if you think you have intuition, you could also get into the mind effing part now and start overthinking like, did I do that right? Did I do this and that? And again, intentions, equal results, maybe the whole goal is to just continue to beat the living crap out of yourself. So you have to be, think of it from a micro and a macro standpoint. What is it that you want out of the situation? For me, the goal should be that you’re growing your account multifold, not 15%. You can buy and hold for that. Hire a financial advisor or buy the 0% fee S&P 500 fund and then go do something that you’re going to be really good at. So you want to use this as a vehicle trading meaning so that you can change your life and make outsized gains. So I think there’s a few ways to look at it. Where does it creep in, right? There’s three parts to the trade. There’s the entry, there’s the exit, there’s the position sizing. Once you’re in the trade, it’s like, okay, I have intuition. Maybe now is when I move my protective stop higher. When I’m long, I’m not one to use sell limits above the markets to take profits too soon. I don’t want to limit wins. That’s why I don’t sell calls.
So how do you take when it right, because then on the sell side you have protective stops to help you protect your capital. But then once you have unrealized gains, I don’t really look at that as my money until I lock it in. So then what’s your intuition and your scope on handling those trades when you’re in them? Again, it’s so easy to overthink stuff, especially when you want to go to something that’s going to make you feel safe. So don’t confuse intuition with the use of discretion, which I operationally define as you putting on a trade that’s going to make you feel good because you can’t deal with the discomfort at the current level. It’s why you go on tilt. It’s why you chase trades after you’ve missed them, right? You have to go back and say, okay, how did this happen in the first place? Why did I miss the damn trade when I shouldn’t? Why am I in this trade when I have no business being in the trade? So that’s all part of the education, and you really can’t learn that in a book. It comes from kind of doing it. You know what I’m saying? So you can do it. It takes time. The marketers want to tell you that you can learn it overnight. You really can’t. And you should really start to think about where does it kick in for you? Where do your instincts work or not? And document it in great detail. I had a hunch that X, Y, Z was happening when I was in the trade. Again, you’re watching in one minute bars. My gut is you’re going to see what you want to see so that you can feel good. Just to reiterate, based on a million years of evolution, we have a fight or flight mechanism.
Trading puts us in harm’s way. We’re inviting risk into our world. It’s a very unnatural thing when most people are heading the other way. So you don’t want to start looking at the chart in one minute bars and start to think that you can intuit stuff when your ultimate goal is to just try to feel good because you can’t take the burden of the abundance and the upside that you could have in the trade. You start to think this has to be a top. Then you can talk yourself into it. So you want to be super mindful of not only what you’re thinking, but what you’re feeling. What are the emotions that are running through your body? And realize that those feelings could be driving, they could be pilot and navigator, and if you don’t understand why, then you got to get some coaching. It doesn’t have to be with me because it could be coming from your subconscious. You could have this whole, I want to be very reasonable. I just want to be a reasonable guy. I don’t want anyone to love me, don’t want anyone to hate me. I just want to be the reasonable guy. Those people are liked, and I was like, I don’t care about being liked. You know what I’m saying?
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You trade long enough, you typically are going to come out finding that your bigger winners are really what make your whole year. If you’re izing everything at like 2 or 3R, you’re never going to give yourself the gift of those big gains. So what ends up happening is if you look at a pro trader, the 10, the 15, the 20 R, which don’t happen again, intraday unless you’re using 2 cents as your R, right? Because then you say, okay, 2 cents versus 40 cents. I’m not talking about that. I’m talking bigger gains. And again, everyone has their own style, no problem. So I’m not calling your girlfriend ugly. What I’m saying is that if you look at the barometer of your returns at the end of the year, you’ll find that probably 75 to 90% of your gains are going to come from those outsized moves, those positions that you had on that you let them run.
The smaller losses and the smaller gains and the breakeven trades wash, and I talked about in the live stream how I very cleverly tried to bump up my protective stops to break even as fast as I possibly could because I knew I was too new to really improve my accuracy. I knew that I couldn’t read books and learn stuff because trading was experiential. So I came up with an idea that if I could somehow minimize my losses both in size and in frequency, magnitude and frequency, then my trading would be better off. I’d be keeping my losses smaller or eliminating them, even though I wasn’t making any money getting knocked out at breakeven. Again, in your emotional hierarchy, look at Tuesday’s episode, I thought overall I was better off if I would get knocked out at breakeven and deal with that frustration than to stay in something and have it lose me money and get knocked out that way that was favorable, right?
Get knocked out of a trade for a loss or get knocked out of a trade for a break even. Look at both scenarios and compare it from both the psychological and the financial make sense. So you can go to work and look at your own trading and see how many times did you get into a trade where it was up a little bit, but you didn’t move your protective stop and you eventually got knocked out. This is a place where you could look and learn to maybe add a times stop, which depending on your holding period, could be a couple of days, could be a couple of hours. I don’t know. It’s really up to you. So I always figured this is the way I was going to grow my account was to not deliberately come out and try to hit grand slams on the day, but with Monday’s episode of progressive exposure add into my winners, not Pyramiding, because that would be more excessive leverage, and I wasn’t ready for that. I eventually got there, but at the beginning I was very, very aware that the leverage could kill you. Plus I knew with stock trading, the Reg T margin was like 8% interest, meaning broker call money or what have you. And I didn’t want to have to pay any more than my friends in Canada who have to pay for overnight positions in CFDs. Like, man, they’re just the worst instruments ever. I wouldn’t trade them if you paid me. So when you clustered like your gains, you really see the opportunity cost of what happens, of taking small gains and not letting them grow up to be bigger gains. And so if you want to know the math and you look at your end year results, you can see that the larger gains are really what carry the year and give you the net returns that you want.
Again, you have to figure out what you’re doing it for. If you like the feelings that are sitting at your desk and you got all your shit set up and your hotkeys and your monitors, and it makes you feel good to ring the register every day. Again, I celebrate that you’re making money and it feels good, but that still doesn’t mean that it’s an optimal situation. If you’re not giving yourself the chance to let your winners grow up and really grow old, so to speak, you can’t say with any after the fact or a poster I knowledge that you know what you’re talking about. Because to me, even that’s how you get into this kind of what I call a productive rut, right? You’re taking consistent small gains, but you’re not really killing it. And so to me, trading shouldn’t be. It’s like the UFC: it’s not a career – it’s an opportunity. You should look at trading as something that could really change your life, and so don’t get into these ruts where you’re making money cashing in every day and not letting your winners run because you could be doing much better and you don’t even have to take on, you’re not taking on any more risk. You’re already in the winning trades, and that to me is how you really start to grow your account and go geometric or parabolic, right? You have geometric growth and start earning many, many multiples on your account because then that’s a process that you can replicate over and over and over. You see what I’m saying?
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The question came up on the channel, a comment on one of the videos, like, if a security is up 12, 15% and you’re coming into earnings, what do you do with the position? Again, for me, 12, 15%, I like to think, lemme take a step back. It depends whose money it is. If it’s my money or if it’s client funds. I have client funds where they’re using insane amounts of leverage. And so in that case, you’re in a situation where if you smell smoke, you have to presume it’s a five alarm fire. You see, if it’s in a different quality of money with different degrees of leverage, you can give it more room. But again, I’m lucky enough to know what the math is, right? Ultimately leverage is a sword that cuts both ways, and usually when things work against you, it can be very, very painful.
But typically, I’ll say generally speaking, if this is a coaching tip, my advice would be if the trade’s winning, you have to really look at your equity curve because I don’t know what 12 or 15% means, right? If you have a 1% risk unit and it’s up 10%, how does that move the needle on your account? Because that should be what is dictating your behavior. I don’t agree with a lot of people who are micromanaging everything at the individual name, and I know where it comes from. Your accounts are small and you’re only trading one name, but the goal is to grow your account, right? The goal is rate of return on your account, not rate of return on a name. At least that’s the way I always looked at it. You might feel differently and more power to you, but look and say, okay, well, I’m doing it my way.
Am I getting the results that I want? Because I think you could psyche yourself out of otherwise really, really good trades and offset winners at the end of the day, just because you have this predetermined notion that somehow only bad things can happen to you overnight over the weekend, that is absolutely not my experience at all. And so when I see people offsetting trades too early, it’s probably because their goals are not associated with a process or they’re kind of too locked into, I want to be a day trader. That’s an interesting goal. I want to have red hair next year. But what’s the process? You see what I’m saying To me? What is the process around what your goal is? To me, the goal should be to grow your money in order with a high order of magnitude and make it life-changing money. Otherwise, if you’re looking again, and we talked about this in the livestream, you can find yourself looking at trades where you have 50 to $90 of expected value on a trade. Now, I couldn’t do that when I was younger.
The commissions would eat that up, even though if the system was profitable, the cost of doing business was so high that the expected value would be negative or breakeven meaning zero. So even though, and that was the frustrating part, is that you could find a model that worked, but it was so expensive to trade, especially with stocks, and I’ve told the story a million times, so I won’t repeat it here, but the last thing you want to do is find yourself in a trade where you have to offset the winner because of your emotion. So my goal was very, very clear is that I was going from blue collar working jobs where the opportunity cost was very high. I’d go to work and I’d get paid for the day. I’d cut someone’s lawn, I’d get paid, I’d wait tables, I’d get paid, go home with a pocket full of cash, go to work at the golf course, go home with a pocket full of cash.
And it was great. I was a hustler. I made a lot of money. I was making thousands of dollars, like a lot of money, but I knew that was as good it was going to get, and I knew the opportunity cost was high. It is much that if I didn’t go to work, I wasn’t getting paid. There wasn’t sick days, there wasn’t benefits, there wasn’t personal days. So the cash flowed when I hustled, but then that became physically and emotionally exhausting because I was always robbing from Peter to pay Paul, and I really couldn’t get ahead. But the good news is that I didn’t fall behind. I didn’t take debts. I didn’t use credit cards. I didn’t screw up my credit history. And so I needed to find a way to have intellectual property. That was really what I wanted to do. I remember it hit me, I was working as a waiter. I remember it was a Sunday. It was setting up for brunch. I’m in a tuxedo kind of outfit. I’m polishing silverware, which really meant use a wet rag to take off soap stains that’s polishing so that the client doesn’t, “this is dirty.”
And I heard the dentist office kind of muzak version of yesterday by the Beatles coming through the music, the house music that was playing, and it hit me. I knew the song. I had played it a million times, I’m sure we played it live. I auditioned for things with it. So I knew the song cold, but it hit me as like, man, Bob McCartney’s getting paid for this, and I don’t care if it’s nickel, 2 cents, 10 cents a quarter. I don’t know what royalty rates are for this type of a deal, but I knew he’s getting paid. And I was in New York, he was probably in England at the time, the uk, and I was just thinking, man, if this is happening, how many thousand times a day where he’s just collecting these types of royalties, that’s pretty amazing. I need to find a way to create my own version of intellectual property for myself. And I didn’t even know what that was going to be. I wasn’t even finished with college at the time, but I knew in my brain, I had already seen I’m at work, right? I’m putting in all these hours and I don’t mind doing it because I needed the money, but I needed to find a way to create something that was going to help me grow my cash because either you work for your money or your money works for your money. So I didn’t know if I was going to be a songwriter. I didn’t know if I was going to even write a book. This is 20 years before “Inner Voice of Trading,” probably, for example. So it’s funny how intentions equal results in a longer term timeframe. The point being is that you can do the same thing. You can put yourself in a spot where you can make life-changing money. So instead of saying something like terribly flad like I’m trying to make money in the marketplace. I think if that’s where your consciousness is, that’s really what you’re going to focus on all the time, and you’re going to get those kinds of results where you’re constantly trying, I’m trying to make money.
Market doesn’t care what you’re trying to do. What you need to learn to do is to stay out of your own way and start thinking in the present tense and that I can’t get into the coaching session here. It would be 45 minute lecture. The point being is that sometimes we are not our own worst enemy, but we need to get out of our own way. And a lot of that times it’s because of the emotions that you’re unwilling to feel. And the quickest way you can make a lot more money is to stop thinking that you’re going to scalp with a tiny, tiny account and think about holding onto your winners longer because when the moves are underway, so what if it’s choppy? You’re saying a truism, but Mike, the volatility’s high.
So what does that mean? You need volatility to make money, right? So again, divide, look at the expected value of a trade and then figure out what are you making every day in terms of where the minimum wage is. Where you live in California, it’s $15. If you work at a quick service restaurant, it’s $20. And so what you don’t want to do is turn your trading career into making minimum wage, because yes, it’s probably better to be sitting in front of a screen trading your own money doing it that way from a quality of life standpoint. But you’re not going to make life changing money making minimum wage, and that should hit you right here, right between the eyes right here. So you have to get out of that small minded way of thinking, even if your account is small, because your goal at that point is to not scale up your trading size so much, but to grow your equity in your account, you have to trade your equity curve. So if trades are working out for you, stick with them. Let them grow. They kind of want to imagine sun is shining on them and it’s trying to pull the flowers and the leaves closer to the sun. Let it go. Let the thing run for you so that you can grow your account.
I knew I had no breathing room with $5k, so making tiny gains, it felt good for about five seconds on the dopamine hit side, but I was always shoveling sand against the tide to have it washed back up against me, and I couldn’t make any ground. So if you look at and watch the replay of the live stream as well as Monday’s episode where I talk about progressive exposure, I knew I had to endure and learn to live with those strong feelings of the uncertainty of what could happen to me overnight over the weekend. And the truth is nothing happened. There weren’t these cataclysmic moves. I never got locked in limit moves. I had them happen to me, but we’re talking two times over 36 years. You have to feel very foolish if that’s what you’re worried about and if you’re position sizing the right way.
I wrote about this in “The Inner Voice of Trading,” by the way, you can get the free audio book. The link is in the description. I was in cattle and mad cow hit the tape, and it was locked against me, I think four or five days. I can’t remember. That’s how insignificant it was. And it was limit move against me. But position sizing was set up in such a way that it never really hurt me. I probably gave up two 3% on my overall equity. So you need to put things into perspective and stop overthinking things. Trading should be simple. It should be easy. It should become effortless. You add risk, you remove risk. Stop thinking when you’re inside the trade because you’re too new when you’re starting out to really know how to bring any additional value to the trade. Once you’re in it, that’s when you turn off the screen. You put in your protective stop and you walk away. Let the market do the work, the market, your stops will get hit. The brokers are incented to get paid, right?
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Following up on yesterday’s video, you might see, or you might’ve seen how I was placing my protective stops in the livestream for progressive exposure, and I said there was a caveat to the model, just in all honesty in that because your stops are tight and we’re not talking ATR, I wasn’t even thinking then, I was just picking a number based on the percentage of my capital that I was willing to lose in order to capture the wins that you could invite frustration, because it’s like imagine trying to trade the E-mini with a one or a two point stop. You might get knocked out because of noise, but my goal, I think is the same goal that you should consider when you’re starting out and you have a small account, is that you do need to play superior defense. Obviously, you have to earn money.
You have to make money with what you have, but the problem is that you really don’t have enough to go around and you have to get out of the habit of trying to feel good most of the time when people start doing discretion. Let’s face it, what does discretion mean? It means that I am in a trade right now and I feel uncomfortable, and I’m going to affect something in the market right now so that I could feel better. That’s really what discretion means. When I hear people talk about discretion, it takes years to develop your instincts so that you can actually trade with discretion and use it to your advantage. Most people, when I hear the term discretion in today’s day and age, I really like, man, I’m up in a position. It’s up 10, 15%. I don’t know. I don’t want to give it back, and so they enact something so that they can feel better.
Just generally remember, well, remember I should say generally speaking, that when you’re starting out, if it feels good, it’s probably not a good financial decision. You need to find a way to calibrate your system and create what I call like an emotional hierarchy. There’s two payoffs to every trade. You’ve heard me say that there’s the emotional and psychological, and then there’s the financial. Over time, when you get to my level, the emotional and psychological kind of goes away, but there’s so much expectation when you’re starting to make it. You see, you put a lot of pressure on yourself. You have lots of expectations. You’re trying to anticipate what’s going to happen, and so you have to think about what kind of trade-offs you’re willing to make. On the financial side, I was willing to risk two or 3 cents on one particular corn contract because I needed to preserve my capital. I didn’t want to put myself in a spot. The math, if you’re down, what? 20%, then you need a 25% rate of return to come back to break. Even if you lose a third of your capital, you need 50% rate of return to get back. So I wanted to avoid that at all costs, but I was willing to take the frustration of getting stopped out much more frequently for papercuts than otherwise. I didn’t want to suffer big financial hits because I knew if I did this strategy I had done, and you’ll see in the video, in the livestream replay how I would look at a chart and then market everything to the market and kind of calibrate my emotional system with the very trades that I wanted to anticipate putting on. There weren’t trading simulators that I know of that existed back then. You had to do it all by hand. So I went into Lotus 123 which was the prevailing spreadsheet, and worked out the math ahead of time and looked at previous charts and said, okay, this is obviously a chart that went up, right? I don’t know. Yeah, this way is up. This way is down for you and see, okay, if I was in this trade, what would I have to live through?
What would my equity look like? And I would actually, and you’ve heard me say this, this is where I came up with it. You have to trade your equity curve. If a trade is up 10 or 15%, I’m going to handle this tomorrow. I don’t care about that because to me, that’s the appetizer part of the dinner. We’re just getting started. I can’t make up in my mind that even if I’m looking at a chart and the thing’s gone up 10 or 15%, that that’s the absolute near term high. I don’t care about near term highs. I care about the succession of near term highs because I want to see follow through. I don’t freak out if something stalls for two or three days and then resumes. You end up doing too much work for too little money and just when you think it’s safe to take your winner off, it keeps going. Why? Well, because humans really suck at predicting the future and more of you could make more money if you would just quiet your brain, turn off your screen, turn off social media, get off the discord, and learn to trust your own instincts.
It’s the saddest thing that I ever hear is that people are being too reliant on other people for their risk management. It’s not going to work, just not going to, I haven’t heard a single instance where it’s worked, same as I’ve never heard anybody try to pay their bills out of their trading account in 36 years. I don’t know a single person who’s done that, but I created a hierarchy of emotions of magnitude ones. Which ones did I want to feel? Which ones did I not want to feel? And then I put them in order, like a barometer, if you will, and then I said, okay, well look, these feelings are probably not going to go away. They’re going to come up a lot, so you might as well try to make friends with them because if you don’t want to feel them, they’re likely to interfere with your trading or just like that nagging pain in the ass person that you have in your life who’s always pushing your buttons.
It’s same thing. It’s not going to go away. So I realized that very, very early on, and so I built my model so that I could learn how to feel those feelings because it was the feelings that were going to make me hijack my own system so that I would bite my nose to spite my face. My goal was to grow my capital by many multiples. I didn’t care about 20%. It wasn’t going to do anything for me. I woke up every month being $2,500 in the hole between rent, paying back student loans, and then dry cleaning and upkeep of my professional appearance to go to work.
I spent a lot of time to make sure that I had all the resources that I need, but you can do that with your own training right now and think about what feelings do you feel a lot. Then you could reverse engineer it and say, okay, where does it happen on the chart that I feel those feelings? Is it in your preparation because you’re not getting the tips, right? That’s why I like to rely on myself and I really always have in terms of ideation and be self-sufficient and go through that discomfort of saying, I don’t know what I’m doing. I’m in a screener. I don’t know what to pick. To me, you’re a thousand times better off going through that, making your mistakes and figuring it out for yourself than to try to rely on somebody who’s going to be sending you text alerts on your phone of when they’re getting into the E-mini.
You can’t rely on, so-called gurus to delegate your risk management. It’s going to leave you very unfulfilled, and again, I don’t know any situation where that’s really worked for people anyway, when you create your emotional hierarchy, because it’s going to be different for everybody, you’ll be able to ascertain what is the behavior that you’re doing or the behavior that you’re not doing that’s causing these feelings to come up. Then you could learn to change your behavior, and usually that’s going to come down to position size. On some level, the entries and the exits matter, but we really make and lose our money by position size.
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Thanks everybody for coming to the live stream last week. There’s a recording of it at the YouTube channel. I wanted to talk about my style of trading back in those days because it can help you learn how to grow a very, very small account, which is what I had when I started. It’s called a concept of progressive exposure. And in the video that you can see, I discussed how I started with a very, very small piece of risk with one contract in the account and kind of grew it from there. Now, I didn’t just wait for the contract if I was long to appreciate and price, I knew that I had to do something that’s kind of a baseball expression. I had to try to steal second base without really taking my foot off first. What does that mean? Well, I didn’t have the money to lose. You Trade $5k and trade one corn contract.
If you had, in those circumstances, you have 5,000 bushels, $5,000. So it just coincidentally worked out that every one penny move in corn, for example, was a 1% move in my account. Now, corn was a sleepy little contract. I think it was trading at like a $1.80 at the time in terms of the bushels, but there were the seasonality to commodities that you can figure out. It’s not like it’s private information. So my goal was to say if I put on one contract to get started, I would risk as much as 3 cents. Whoa, imagine that. 3 cents, but that’s $150. And as a percentage of my overall account, that was 3%. So I had to work on the math. You’ll see in the replay if you watch the live stream, how I did the math and how I progressively built into the position. So I don’t need to repeat it all here.
But the benefit of doing that was that effectively I put myself in a spot where I had a free call option, meaning I would add and adjust my protective stop so that if it turned around and went against me, I wouldn’t still get hit for more than that 3 cents. So I was never really risking more than $150 all the way up. And I would add 3, 4, 5 times. You can go see the math. I did the math on a calculator and show you in the video. At any rate, what that eventually did was across all the instruments, commodity futures and stocks that I was trading, is that it led me to have these situations where if I just sat on my hands and let my winners grow, you could find yourself in having 5 to 10R style wins because you’re letting the market do the work.
Now, that model would give you maybe some level of frustration in that you could get knocked out because you’re trading with tight stops. But I think what ends up happening is because people have small accounts, you’re so afraid to lose money. The counter emotional trade is that you take your winners too soon because you’re so afraid that they’re go away. And I wasn’t afraid of losing money. I was afraid of taking a destabilizing loss financially, emotionally, it never bothered me because I had already been in business. I had built a company and sold it. By the time I got to Wall Street, I had people skip out on me, people not pay me. I had gone through almost everything that you could possibly go through emotionally. So that was how I grew my small account was progressive exposure. It does mean you’re going to have to take trades home overnight and over the weekend to let those gains grow.
Now, it is true if you’re a scalper and you’ve had training as a scalper that you can have risk 20 cents to make a dollar, right? So that’s your five to one. But for me, with $5,000, you can’t really do that. You don’t qualify for day trading buying power in stock. So you’re really looking at mini and micro contracts or penny stocks, and that was never my style. I didn’t have time to do that because those contracts didn’t exist. And two, my firm wouldn’t even let us put penny stock trades on, not for clients and not for ourselves. And that was actually a good thing. So we couldn’t even go there. Two, the commissions were too expensive. So I really needed to find something that was a little bit longer term, 5 to 20 day holds that kind of a deal where the moves were pronounced and I could hold onto my winners, let my winners grow my account, because then if it moved 10 cents and I had four or five contracts on, that could really move the needle of my account, say by 20%.
If I could make $500 to a $1,000 on average of trade and risk $150, though it’s a great risk reward. My sense of timing was very strong. But this is a way that you can grow your account as opposed to what I think most of you are doing, which I’m not going to say that it’s wrong, but if you cauterize your wins too soon, you bite your nose to spite your face, and it makes it much harder and much longer for you to grow your account. And again, I explained that all in the live stream, like why did I do it the way I did? It was about, I think it’s an 1 hour and 20 minutes long. I wanted to keep it to an hour, but I also wanted to address some of the questions that came up in the livestream chat. But check that out, because progressive exposure is a great way to kind of build positions that are working for you and let the winners run and then make a lot of money at the same time, risking a very small bit of capital. Now, it’s important to know that this is not pyramiding pyramiding and adding to winners are not necessarily the same. They can be the same in that you’re buying more of something that’s working. But in pyramiding, in the traditional sense, you’re using the excess equity that you’re creating from the winning position to actually acquire more contracts. I had enough cash. The margin was only, say, $200, two $300 a contract that I could buy 4 or 5 contracts that say $200 each and still have your margin to equity ratio would be higher. But that’s not a risk management tool. It’s just kind of a for instance of where you need to be in the event that you get a maintenance margin call.
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I got a great email from a longtime viewer. He asked that I don’t use his name. He said, can you give me a list of the five things that you think that are required in order to make it long-term? And I was like, man, I probably can’t. I know that there’s a lot of things because everybody’s so unique. The five things that I might say might not be relevant to you. But anyway, the things that come off the top of my head are mental fortitude. I don’t think enough has spoken about this. We talk about trader mindset here, obviously all the time, which is kind of like another saying, the inner voice of trading, mental fortitude at the beginning of where if you’re just starting out, you might see trading as a bit of a grind. Once you do know how to make money, you might see it as monotony, right?
So I don’t want to call it grind because once you figure it out, it’s not a grind, but there is something monotonous about it, and you have to have the ability to do the same thing over and over and over again. It takes a special type of discipline to be able to do that. That comes with number two, having a good attitude. Things are going to happen in your life that are outside of trading. That could very well play into your trading. If you want to see what that’s like, go read Victor Sperandeo’s book “Methods of a Wall Street Master,” where he talks about a $4,000 hairdryer. You have to be in the right type of attitude to stay positive because the minute you start to turn sour, that’s going to find its way into your trading as well. Three, however you do it, whether you’re trading and scalping in two minute bars, or whether you’re a position trader or whether you’re even an investor, you do need to have a strong sense of risk management.
Entries and exits matter position sizing and the use of leverage to me are probably 98% and entries and exits are each 1%. That’s how much important it is. You need to understand risk management. You need to know where you’re wrong. You need to think in terms of percentages, not dollars. Retail, small timers think in terms of dollars. So don’t be that way. Think in terms of percentages, because then I think your upside is unlimited. Four, I’m going to put this in there, could be controversial. I think you need a good sense of timing. If you don’t run a full mechanized system where you’re buying 20 day breakouts, for example. You do have to have a good sense of when to add the risk or when to remove whatever risk is that’s appropriate for where you are in your life. That’s especially true the shorter term that you trade, that’s scalping, like I said, 1, 2, 3 minute bars.
I don’t know what you might be looking at. I don’t know if, could you go to ticks? I suppose you could. So if you’re scalper to say, I would say up to like a two or a three day swing trader, you need to have a good sense of timing. The rules are the rules, but in my experience, if you can’t find a way to get good timing around that and develop a good sense for the markets, it’s going to be hard to make money on the short end of it. And then five, this isn’t spoken about enough either, is that you actually have to have the intention of making money. You can’t come in and say, I’m going to try to wing it. You can, but you’re going to get wing it style results. You’ll make a little money. You’ll probably lose a little bit of money. But at the end of the day, what’s it all going to add up to? It’s going to look a lot like whatever your goal is. So before you start and intentions equal results, start to think about what is it that you want out of trading? How do you want trading to serve you in your life? I was very clear about that. It was for me, it was like, you ever see someone do the 800 meter relay where they passed the baton? Remember watching Flo Jo, those Americans were amazing, man. They were so fast, and I was kind of passing the baton on careers. I left from doing waiting tables, caddy and golf bags, having a landscaping company to going to a white collar job, and I knew that that was going to help me go parabolic and go geometric.
Once I figured it out. It was a grind at the beginning. Like I said earlier in this video, I didn’t know what I was doing. I didn’t have any reassurance. I couldn’t get any validation, and that was part of it. The struggle is what builds the character, because as you get on and on in your career, you’re going to end up being tested. So you have to have the intention of making money no matter what. You have to make up in your mind that you’re here to win and that you’re going to use trading as a vehicle to change your life. Doesn’t matter where you live, doesn’t matter your tax bracket, doesn’t matter your timeframe. Doesn’t matter what instruments you trade, it does matter. Leverage for sure, that’s a big part of it, but you need to have a very clear goal. I am surprised how many people I say, okay, well Mike, can you look at this trade and tell me if it’s good or bad?
And whether it makes or loses money doesn’t make it good or bad. The question is, well, what’s the goal? How can I say, here we are at point A and we’re looking out at point B. How can I say that this is a good or bad trade? If I don’t know what it is that you’re trying to do with your trading, it might very well be a good trade even though you lost money. But I don’t know enough about the risk management and your position sizing to know whether this will help you hit your goals or not, right? You might not know the math, so you need to know in and around your goal setting, you’re going to need to know how to calculate expected values. You’re going to need to know how to use bay in statistics. How do conditional probabilities? You should probably know Kelly formula and then be able to calculate if you’d have a certain expected value of a trade, how many trades were you going to need to hit your goal, and then kind of reposition yourself because you might not be taking enough risk. Some of you might not be. If you’re looking at one instrument, you might not have enough ammo to really hit your goal because there won’t be enough setups in that particular instrument for you to put those trades on even at X, Y, Z, expected value. So those are the five that I think can help you. There’s probably a million more, I admit, and certainly if you have a certain asset class or holding period, there might be five others that are much more relevant for you. But just generally speaking, I think no matter your asset class, your use of leverage or not, and your holding period, these seem to be come up for a lot of people. Strong mind mental fortitude, having a good attitude about the process and not getting stuck up in the results even when you’re in a losing streak. A very strong sense of risk management, because as I like to say, if you don’t define your risk, it defines you a good sense of timing and also clear intentions and very, very solid goals. They don’t even have to be realistic. Make them ridiculously fantastic and go from there.
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Another silent killer for traders in the carbon monoxide that’s out there is people tweaking their rules on the fly. I can’t tell you how many emails I get from folks who are like, my first two trades were a loser, and then I tweaked my rules and I’m like, how would you know to tweak your rules just based on two data points? And even if you have 50:50 odds or 50/50 win to lose ratio, half the time you win, half the time you lose, you know, can calculate the frequency where you’re going to have say, four losers in a row. So why would that be a material data point for you to want to change your rules, right? It comes down to the statistics. You can figure out if you know what the expected value of a trade is, that’s technically what you make on average every time that you trade. So it incorporates and takes into account the fact that you’re going to lose money from time to time. I’m going to say this, if you’re upset about taking two losers in a row, you don’t have thick enough skin to be a traitor. All this is just straight up.
It says nothing about you as a human being unless of course you traded too big and now you’re down 50%. That’s something I’m not going to know the criteria, but if you’re doing, like we spoke about Monday, and you’re using same consistent bed sizes, you don’t care from one trade to the next because you know what the expected value is of your trade and you take solace in the process, not the result of any one particular trade or several of them against you, it doesn’t mean anything. You are putting importance on something that you don’t have to put importance to on losing trades. F*ck, do I care about losing money? Honestly, I’m just giving you context and perspective here because in order to obviously make the money that you want to make to change your life, which is the whole point of doing this, no one cares about 20%. You obviously have to add the risk, but you’re on a strict diet, so you know what risk is affordable. You know what risks you can digest, so to speak.
Now, if you’re learning this the hard way, you don’t have a back test and you’ve been winging it all along, now might be a good time to, again cut your bed size. Your bed size is determined by how much you can afford to lose, afford to lose financially, but also how much can you afford to lose mentally because you might not get to that loss all at once. It might come in stages. For me, someone asked, well, do you have different rated bed sizes based on the setup? And my answer was no. Not even today. I don’t have a favorite setup. They’re all my favorite setup. They all work, so that’s my favorite one. Yeah. Mike, what’s your favorite setup? The one that makes 5R, 4R, 3R, 2R, or 1R? The answer is “Yes,” they’re all my favorite because the R payoff is something that’s random.
There’s no guarantee that any of them are going to pay off. There’s no guarantee. Yes, they don’t turn on a dime, but things that I made big money on last month might not work the same way this month. That’s why I’m largely indifferent when I put the trades on. Two, my style is also very different in that I start super small. So today I lost like $200 bucks or whatever. It wasn’t even a rounding error. What do I care? I spent more on sushi dinner in as much that I pretty much got knocked out at break even. And so that’s like slippage and skid and commissions and everything like that. So to me it’s just like it’s not even aggravating. You have to put the trades on to be them. And in terms of what I thought was going to happen, the exact, it was basically two trades and both went completely opposite the way that they normally would have both trades, basically very strong countertrend reversals, and that’s going to happen from time to time.
It’s happened before. Been doing this for 36 years. It’s going to happen a million times. The dollar value, like I said, it doesn’t even matter. It could have been $2K and it doesn’t matter because I did the right thing, I followed my process. The fact that the trade didn’t work out is nothing I can control. So I don’t get emotionally invested in that because I know if I come back and do that next week, the week after, if I do it this summer, if I do it in Q4, the odds are in my favor that it’s going to pay off. So that’s what I take solace in is that I did the right thing, I kept my losses small and I moved like that. It’s even the dollar value. I shouldn’t even said anything so insignificant in the grand scheme of things.
My style would be, so again, this ties into don’t tweak your strategy on the fly. I’m not afraid to add 7, 8, 9, 10 times to a position, but I’ve got the math already worked out. That’s not me shooting from the fly saying this thing’s going to the moon, Alice, I’m going to sit here and just keep ramping up. I know how to do it. I know how to adjust. My protective stops along the way. And again, if I get knocked out, I don’t care. I want to be at my biggest by the time I get knocked out. Sometimes it doesn’t work out that way. It’s just the way it goes at the beginning. I have very small risk on maybe one 10th of 1%, but I’m quickly adding. People be like, yeah, but you can’t make any money with that. Well, of course if you’re just putting on one 10%, no, you’re not going to make any money.
But that’s not the end all. That’s the beginning. So this way, if I get whipped around, it’s not even paper cuts, it’s tiny. And that’s what happened today. It was just like, okay, I put a few pieces on. I had my other orders ready to go in the system. When the market worked against me, I got stopped. So all the other successive buy order entries that I had in above the market, by the end of the day, they were canceled because they were only good for the day. So they didn’t get filled. And I had four or five other orders on the same instrument, all staggered in at different levels. And it wasn’t meant to be nothing to fall to pieces on, I’ll get to come back tomorrow. Why? Well, I didn’t take a destabilizing loss and figure that out. Some of you might be feeling a lot of burn because you’re putting your cannon balling as I would say. It’s like you’re risking 1% and you put that 1% risk unit on right away, and when it doesn’t work out, you take it as an affront. And so I would say uhuh, again, I’m not looking to day trade, so this probably wouldn’t work for a good number of you. I understand that. But that’s something you have to figure out. What is your time worth?
For me, again, I would much rather do it my way. If you have an idea and you can backtest ahead of time, you should also be able to calculate therefore what’s the expected value of that trade that you’re trying to put on. The problem with most simulators admittedly, is that it doesn’t allow you to test at the portfolio level. So you’re relegated to have to do one instrument at a time. And I know a lot of day traders ought to just focus on doing one instrument and that’s it. But it is a different conversation. I don’t want to get too far off topic here, but if you have a goal to take X amount of money and to grow it to a certain amount of money, you can calculate the number of trades that you’re going to need to put on if you know what your expected value is.
And in “9 times out of 10,” when I speak with people, I know there’s that generalization, again, they don’t, there aren’t enough setups for that particular instrument for them to put on the number of trades that they need to put on because the setups just don’t show up that much. And that’s what runs into, that’s how people run into a lot of trouble is that they’re like, well, I need to put on more trades. My margin is low. I don’t have a big enough account. I can really only trade these tiny little mini micro contracts, so I have to find 45 different ways to put a trade on. The problem is that there’s probably only one, maybe two that you’re actually with. And this is again, the beginning of the end. And this is what brings on the struggle is that you’re trying to do too much, as opposed to saying, my account’s unfunded.
I need to grow my account. I need to add money from the outside. I’m not going to be able to grow it organically enough with the level that I have. And so then you get into, again, the topic today is tweaking your strategy where you’re like, I got to trade because if I don’t trade, I’m not making any money. And you’re not thinking about preserving your capital. You’re not thinking about the fact that so many of these trades are actually suboptimal to begin with. So if you know that all ahead of time, then you can have the solace of knowing what to do. That might show up only once or twice a week, but at least it’s your trade the rest of the time. You got to sit on your hands and wait. And if you don’t have enough money, I’m sorry that you’re the small banana, but if you have books in your house, sell ’em on eBay and add that money to your trading account. You have 17 pairs of designer sneakers. You need 2, a dark and a light one, sell the rest. You see what I’m saying? Like find the money. If it’s that important to you, you’ll do it. Otherwise, you’re just bitching all the time because that’s what you’re used to doing, but that is not going to get you the results that you want.
And I’ve just found that when I hear people talk about trading and trying new things on the fly when they’re in trader mode, not when they’re in, I’m back testing mode or I’m in experimentation mode, in which case it is legit. But when you’re in full on trader mode and you start tweaking things on the fly because you lost money on two or three trades, to me, that’s you’re destined for failure. And at that point, don’t be hard on yourself. Just stop. Save your cash, preserve your cash and say, I got to go back to the drawing board. And if that’s not working for you, email me. Some of the comments are too long for me. It’s TL;DR. They’re too long. Did not read. I can’t create a whole episode over a person’s situation, but if you email me, I can put a little thought into it.
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I get a lot of emails from people who are very unsure of themselves and it’s part of the process. It’s how you thicken your skin. The emails speak around one or two things like I keep missing trades or I have massive amounts of hesitation and I get it. You’re not surefooted. You have lack of confidence. It, it’s part of the process of learning. There is something that you can do though to overcome that hesitation, right? Because that hesitation really isn’t, it’s like patience. It’s really something that you have to feel. What do you feel when you have hesitation? It’s probably anxiety about losing money or I’m going to guess it’s that as you’re about to add the risk, you realize just how little and how you really don’t have confidence in what you’re doing. How do I know that? I’ve always said there’s nothing that you’re feeling now or that you are going to feel that good old Michael Martin hasn’t already gotten a PhD in. It all comes down to your feelings. It’s not about scalping at two minute bars and it’s not about trying to make outsized gains with other systems and this and that. It’s do you have self-knowledge and can you control yourself in the heat of the moment?
So how to not miss trades and how to overcome hesitation. If you’re afraid of losing money, you have to cut your bed size because not taking the setups that in your heart of heart are the ones that you should be taking is a form of self-sabotage. Now, I’ll say this, you have the ability to change your life with this business. It’s practically in the constitution of trading that you could be born like me into working class situation and be a complete broke ass bitch and become something of a major figure in the industry. This is what you can do. You can do that right now. If you’re not thinking that way, then you might have limiting beliefs or you just don’t believe that you can do it. Deep down, and that just keeps coming up is that you think that you want to do it, but you really just don’t have it in you. That’s okay too. If you keep your bet size small, you won’t lose any real money, which is good because it’s better to start with $20K, lose a thousand and quit and say Trading’s not for me and walk away with $19K. That’s a huge win, right? No big deal. It’s not for everybody, but with hesitation, you also have self-esteem, right? And if you’re a person who doesn’t have a lot of self-esteem or confidence in yourself, you may deliberately or subconsciously not be putting on those trades because you just don’t really think you deserve the upside that goes with trading. The independence to being able to come and go as you please the eventual ability to buy whatever it is that you want to buy or make other investments, the ability to be your own boss.
You might be really caught up in your current situation and you’re used to that, so you really deep down you like the comfort of that because it’s very, very predictable In trading. It’s not a lot that’s predictable at all. You are on your own, you’re doing your own thing, and where the chips fall is really up to God or randomness, whatever your belief system is. So how to not miss trades. If you are really frustrated about missing trades and you really want a solution, you’re not just missing trades because you really don’t want this deep down, there’s a few things that you can do to not miss trades and to overcome that hesitation is that, again, trade it smaller if you have to, but then make the commitment to the market that you’re going to participate and advertise. What do I mean by that? Well, anytime you put up a stop or a limit order, you’re on the books, you’ve made that commitment. You’re saying with a sell stop that, here’s where I’m moving my inventory. If you’re interested, it doesn’t cost you anything either. Don’t got to pay Google or Meta or whoever these platforms are. And if you put your buys stop in above the market, you’re advertising that. That’s where you’re looking to acquire inventory. Here’s the quantity I want at around this price if you happen to be selling. Otherwise, I’m going to sit here and wait. Here’s me waiting. Did you ever have the feeling that someone’s looking over your shoulder?
So it’s not that complicated. When you really break down the process of trading, it’s like sending an email. So use your, I’m not big on limit orders because limits put a different type of qualifier on the price, and if I’m looking to add or remove risk, I’m not that anal about the price. In other words, I can take all the slippage and skid that I possibly can have because I want to remove the risk, not remove the risk at a certain price, or if I want to even add risk limit, say this price or better. And if it comes time to sell and I bought something at $20 and I want to sell at$ 18, or excuse me, $19, and I put in my stop, I don’t really care if I get filled all the way down to $18.90 cents or whatever it might be because if the trade’s going against me and I have the appropriate amount of risk on, then I want to get the hell out of the trade.
I’m not going to sit there and worry if I can do the calculations after. But when you make that commitment, you’re saying to the market intentionally like I’m a participant, my voice matters. I’m taking a stand. I’m going to change my life. That should be empowering, right? Because you’re doing, that’s what I mean when I say you’re doing the work, you’re feeling your feelings. You’re saying, okay, I got to have to put my orders in and if you looked over my shoulder, is it this way at my red dalmatian who’s always watching over me? That’s Sam, Son of Sam.
That’s intentional work right there. If you’re sitting there looking at the screen saying if this is a good time or whatever, stop, take the day off, give yourself a break. You don’t know what you’re doing. It’s very hard to make those types of decisions on the fly. Now, if you’re in some kind of a training program and there’s a million what ifs, yeah, but Mike, if you’re doing this and you’re working for some kind of trade funding account, you can still use stop orders and you should be able to see what those levels are before the market opens. Those material levels already exist. They don’t just show up that particular day. The intraday stuff is all random anyway, so you can put in an alert if you do want to heads up, but then you’re going to have to feel the feelings of what happens in between.
You get the alert and then what happens when you have to put in your order? I don’t do anything at the market. I don’t know if I’ve said that or if it means anything to you, but I never enter or exit at the market. I always have stops. My whole day is about babysitting a book of shopping orders. I want to add risk here. I want to remove it or add more if I’m adding to my winners, but ultimately I’m either adding or removing risk via stop orders. I’ve got a big book of orders and as the alerts hit, I move the stops up. If I’m in winning trades and that’s about it, just let the market come to me. I never have to think, here’s the time to get out. I let the market tell me where it’s time to get out. I don’t want to catch the very top because what I think could be the top oftentimes is not the right number, and if you’re up $4 on a trade, you don’t know that it can’t go up $6.
So I don’t all of a sudden get crazy and say, okay, I’m up 3R, I have to take my win now. I just adjust my stop. If I get taken out at 2R, so be it. If it moves up to 5R and I adjust my stop accordingly, then I let it happen. That way you’re too emotionally invested in the outcome of a trade. If you need to see 3R every time, I don’t know if that means you’re anal, but to me you’re too caught up in that. That means something because where’d you pick that number from? Why does that mean something to you? Why didn’t you pick 4R? Aren’t you worth it? Maybe you’re only worth 3R. I don’t know. I don’t know who you are, but since you just picked that number randomly, why didn’t you pick 10R? Because you don’t know the frequency with which they show up. And if you’re like me, 9 times out of 10, they pull back, you’re talking shit now, you don’t know the numbers. So stop you’re talking to a pro, do the back testing and send it to me. Otherwise, I don’t want to hear about it.
So that’s the cure. Put your stops in, you won’t miss anything. And the good news is this, when I put stops in and they don’t get filled, I’m like, perfect. I didn’t chase, which is that other little demon that’s running through your brain. You don’t want to put yourself in that spot because that’s always an emotional reaction. You know what I’m saying? So when you put your stops in to add or remove risk, you can trust that your clearing member, whoever’s going to ultimately do the trade, has a vested interest in doing that. They’re probably getting paid a commission, so in some level, they’re already working for you. So delegate that to them. You can put that on them. You don’t have to worry about doing it yourself. So this, again, if that process scares you, right? Because there’s a lot of metadata that goes around entering your stops. Mike, I haven’t done it before, therefore I’m afraid. Okay, well, if you’re trading 10 minis, do trade one to see how it feels. There’s a comment on YouTube where a guy stopped looking at his p and l and he practically described it as the best day of his life. Actually, I’m going to read it to you since you can see it yourself. I got too many screens open. Sorry. 3KingsMedia was the contributor and the video where you can see the comment is, which do you prefer? The pain of discipline or the pain of regret? And three King’s Media says, thank you so much. Today was the first day I promised to trade without looking at the P&L at all and just follow my rules. And it was great in all caps also. Well, it’s a misspelling here, but I was given a new sense of relief, right? Because you’re not all caught up in the trade at that point. The market’s going to go where it’s going to go, whether you’re looking at it or not, right? Again, this is an important lesson. So I said keep it up, but that’s where you can kind of see it. So I know that it’s possible for you to make the change. And again, the feelings that you want to feel might be on the other side of the ones that you don’t want to feel.
So it might mean that you pull back and you trust the process. I’ve been using stops for over 30 years and they work. If there was any caveat, I would’ve already explained it, which I did. And the one caveat is, is that your stop is at the price. When the trade goes at or through your stop price, it becomes a market order. So then you’re filled in line. There may be some slight slippage, your skid, but if your trading to make the bigger money, you don’t have to worry about that. There’s not like there’ll be times when the slippage and skid works in your favor and there’ll be times when it doesn’t. So I can’t say that it’s going to even out because that’s a generalization. But the point being is that when it comes time, especially to take your losses and you have say your position size suggests that your protective stop is, say, a dollar below your entry price.
You don’t know when you get stopped out at $1, and then the last piece might be at a $1.05 below. So you have 5 cents slippage on a fraction of the position. You don’t know that the thing’s not going to go against you $3. Look at what happened with Tesla recently, right? How far that thing has fallen. Do you think those people who got stopped out $60 ago cared about an extra 50 cents slippage or skid? No, because they removed the risk at the right time. So save your life, save your capital, overcome the hesitation and how to not miss trades by putting in your orders ahead of time. It shows your intention to be a market participant. You’re going to lose some money, but as long as those stops are already there, then you don’t have to worry about reacting to something and then getting all psyched out at exactly the wrong time. The order is already there. Once you get your fill, you know would already have it written out. Know what your protective stop is and then you enter that accordingly. Don’t look back, don’t change it. Double check it. I do that every day. I have a whole process.
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How to control your mind when trading Well, if you listen to yesterday’s or watch yesterday’s episode, we talked about constant beds, size, people don’t get it. They think they need this kind of zen, Yoda Buddhism thing going on beforehand, and then they can come to trading. The big hint, the big secret to everything is that if you used constant be sizing, you actually trained your mind to quiet itself down, which is a huge advantage because it’s hard not to get hung up. If you get hung up on the dollar swings, you can very much destabilize yourself or get yourself off base, and that can cause you right now because the churning of your account has been delegated to you. You used to be able to do it at a wirehouse, but now they’ve delegated the execution to the end user, which I don’t necessarily know is a good thing.
There’s a reason why they never publish what percent of their client base is actually succeeding. They have to replace two thirds of their client base every five months. I have friends on the inside so I know what the numbers are. Remember folks, features aren’t benefits. Hotkeys clicking your ticker symbol and then seeing it over multiple timeframes, that doesn’t mean anything if you don’t know how to trade and if it did matter and it’s been in existence for 25 years, how come there aren’t more people succeeding? Why is it there are only 5% of the folks actually doing this and making some money? So I would argue that having all that stuff actually works against you because you’re a 19:1 favorite to fail. By controlling your mind, you control your behavior. Right now, folks like to read stoicism and talk about stoicism, and I think it’s good.
Certainly very interesting some of the career paths the folks who are writing about stoicism have done. Nonetheless. This is going to take years though. You can’t just read a book on stoicism and have it affect you immediately. It certainly can resonate with you intellectually, but again, you’re going to have to put it into practice and get used to doing it, and I guarantee you, you’re still going to have very, very strong feeling when someone pushes your buttons, and that can happen when you’re trading as well. You can get emotionally invested in the outcome of a big trade and all of a sudden gets smashed and you’re like, wow, that wasn’t supposed to happen. Everyone’s so bullish. This is supposed to be a can’t lose situation. I put all my money too big of a bed size and now I’m all over the place and now you’re angry.
Now you’re pissed. You’re all over the place. So the best way to control your mind again is to start with a constant bed size and to say, your goal then is to get through the entire week, maybe the entire month doing the same thing. That in and of itself is going to quiet your mind, the practice of doing that, right? People say, oh, Mike, I can’t sit as an analogy. I can’t sit, I can’t meditate, I can’t quiet your mind. Well, I don’t think we’re born knowing how to do that. Only a handful of maybe His Holiness the Dalai Lama is like one in 6 billion people. The point is, is that if you do it, do it for 15 seconds, try it for 30 seconds, then try it for a minute. You don’t have to go zero to a hundred all at once, and I think, I don’t know if it’s people are too anxious or they don’t have the patience because they don’t like what they have to feel when they have to be patient and realize that it’s life on life’s terms, that their mind is already out of control before they even start to trade. They have no discipline, they have no mental discipline. This is a game of mental discipline. The more you think about it, and if you’ve listened to this show, it’s not about entries or exits. It does come down to position size for sure, because if you have too big of a position on even a small move against, you can hurt.
And I always think about this, and this is shame on me for not saying it. If you can’t make money trading the SPY, I don’t think you have any business trading the EINs or the Nqs. There’s no point in trying to use leverage, even if the point size is two, it just isn’t. But people just make up their mind and they go, yeah, screw it. I’m just going to try it. It’s only money. But to me, when I think about what gave me solace when I was trying to figure it out, it was that I could commit to a process and not worry about what it looked like today because I knew it was going to be ugly. And I remember they say, fake it till you make it. I remember going early in my career, going to work dressed to the nines and putting on really good clothes and feeling like I was a phony because I didn’t have any experience.
I didn’t even know the language that you would use to speak to other people about money. I had no idea what I was doing, and I certainly looked the part, right? Which when you hear other people say that, well, he looks the part, but you don’t have anything to show for it. It’s humiliating, right? I know that I’ve been there, but the minute you start doing these crazy things is really the beginning of the failure or a long period of failure. I know that too. I practically invented it, I think so what eventually gave me solace in myself despite all the noise, because don’t forget every quarter you’re going to have a new wave of favorites out there because the media needs something to sell. They need to keep your eyeballs focused on the screen or in the magazines. Why? Well, because they’re in the advertisement business. They don’t care what you do with your money. That’s just incidental. It’s just a hook to commit your attention so that you’ll buy things from their advertisers. Perhaps you’ll support the patronage. But that kept me. If there was one secret to what kept me going over the years when I was collecting the data, which is really what you’re doing for the first years, you’re panning for gold and saying, okay, where are the places where I can raise or find the best spots? Was that I was able to do the same thing over and over and over again until I could see the results. And then I would go to my spreadsheet and I’d put in the open, high, low, close look at my position and say, okay, if this was a big move that went from say $20 to $32, what would I had to have lived through to feel my feelings in and around those ebbs and flows? Those little pullbacks, you can call them a drawdown. Drawdowns are really not what happened on any one particular trade. Mind you, I think people are misusing the term. A drawdown is what happens between months of trading. So if you are up X amount of percent in a month and you start losing money, that’s not a drawdown until the month is over, at least in terms of building your track record.
So you lost a few bucks on a couple of trades, even if it’s two or three in a row. To me, it’s not a drawdown until you book it at the end of the month. That’s technically how it’s done. I think people fall to pieces far too quickly about losing, again, control your mind. You put importance on things that don’t really have to be that important. So you cause yourself all the duress that you have in your life because no one else is looking at it the same way. You need perspective. But again, like me, when you started, there was no one there to help give you that reassurance to give you that perspective. Maybe you’re getting some from this channel, hopefully you are, but controlling your mind is the most important thing so that you don’t act out of emotion. You don’t act and go into revenge trading.
You don’t go on tilt. You don’t say automatically because something that you’re in is up $10 and you don’t have enough, and then you come in at the end and start buying more without knowing how that strategy would’ve worked out ahead of time. You see then you have no discipline. You can’t be trusted with the loaded gun, so to speak. So how would anyone want to ever give you money? You have no mental control, and this is a business of knowing how to control yourself. It’s too easy to put the trades on anymore. One of the reasons why I stuck with phone executions on the future side is because I had another human being on the other side of the phone who could say, what are you crazy? Or what would happen frequently would be like, okay, I got your order. You want to buy 50 March sugar, this and that, but next week is First Notice, so you could get delivered against. And I’d be like, oh, damn, I forgot first notice. Let me think about the May case or something like that. And so I had to build that into my discipline. I had to build that into how to control, how to quiet my mind, how to not get caught up in the hype. And I say, I don’t care who’s on the tv. I don’t care who’s saying what. I don’t care what big broker in the office is saying what, because they’re all just talking shit. At the end of the day, they have no skin in the game as to what happens with me. They already know what’s in it for them, good for them, but they don’t have any idea what’s going on in my world, and I can’t take their word for it. I have to do this on my own. So quieting your mind also means in order to control your mind, I think you need to quiet your mind in that. I mean, you need to focus on one thing. Then everything that’s outside of those parameters, anything that you stay in your lane you think you don’t have enough risk on, there’s no trade there. How would you know it’s a good time to add? Now, if you’re in experiment mode and you’re buying one contract and you’re trying to know when to add a second, that’s different because you know ahead of time that that’s what you’re trying to figure out.
What you don’t want to do is put in on a trade and then all of a sudden out of the blue star taking flyers. If you’re in experiment mode, then stay with experiment mode. You see? And then this way, you don’t end up falling into those bad habits because once you build them, they’re very, very hard to break, and there’s no one there who’s going to crack your knuckles if you just start taking flyers. The only thing that ever happens is that people get blasted. They lose a lot of money, then they’re pissed or they’re scared. Then they can’t come back to the market. And it’s not even like they blew up now, but they’re head shy. And you don’t want to put yourself in that spot because you want to find yourself in a spot where you have total control of your mind, therefore total control of your behavior, and every day you can follow your same setup so that when you see your setup, it doesn’t matter what the ticker is, right?
Because you’re not going to be sitting there trading just one ticker forcing trades. You can put your trade on knowing that even if you lost on the last two, the fact that you were in consistent position sizing saved you and you expect to lose from time to time. What you don’t want to do is put on too big of a position, get destabilized, get knocked out, and then have your mind go crazy. Then it puts you on the sideline when the very next trade that you see that you could put on could bring you back to break even or help you recoup some of that money that you’ve lost, but you’ve lost your nerve.
It’s one thing to lose your nerve. It’s another thing to lose your confidence, but this is what it all ties into. It’s a very deep conversation. Some of you might be sitting here saying, what the hell is this episode about? But in many ways, this is really what trading is about. It’s like, what do you do in between the time when you’re not getting signals? You have to sit on your hands. You have to wait it out and wait for there to be one, because unless you have a specific rule that says, here’s the setup, there’s no reason to put on a trade. Doesn’t matter what anyone else is saying. Doesn’t matter if you’re someone you look up to is trading that it might be appropriate for where they are. You see?
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If you’re just starting out, you should keep a consistent bet size. Consistent bet size leads to consistent behavior, and that leads to consistent results. I know you probably have strong feelings about whatever your favorite names are out there from the cryptos to the magnificent seven, even in my world in commodities in coffee and cocoa, but that’s how you let your bias creep in. If you’re sitting there saying, oh, I’m really bullish on AI and so I’m going to lean towards doing that, this is what leads to regrets, right? If you vary your bet size and try to have too many trading strategies when you don’t have one consistent strategy that you know could nail every time you’re setting yourself for years, look at the comments of the videos that I’ve put out there. There’s one guy just wrote and he’s been struggling for five years, and it doesn’t make me happy.
I know what that’s like. It didn’t take me quite that long, but the feelings are the same. That’s what I can identify with. So this way, if you have constant bet size, it doesn’t matter how screaming bullish you think you are on something that you might not even know a lot about but are excited about AI, for example, or crypto. And then what happens is this, by having a constant bet size, you’ll always have enough on because if something really tears and you don’t have enough, you’re going to have regret. If you put too much on and the thing goes against you, you’re going to have regret. So we talked about discipline versus regret. I’d say feel the feelings of having the discipline right now because they’re trying to teach you something and they’re trying to save you two with that. If you’re struggling, it makes no sense to try to trade five different setups.
I know some of these online journal places are like, have your overnight set up. Here’s your morning pre-market setup up. Here’s your lunchtime set up, here’s your earnings trade set up. It’s too much. You’re trying to be a hero, and that’s a typical guy thing. Try to focus on one thing with one bet size and do that consistently for six months and see what your results are. Markets are always going to be there if you’re trying to be too many things, right? There’s that saying, don’t try to be everything to everybody. The same thing in your trading, you’re going to be one style of trader, so pick the one that feels best and go with it. Stick to consistent bet sizing and watch your trading improve. When I started, I was all over the place and I told you the story a million times. I’m not going to repeat it here just for the purpose of saving time, but man, everything I did was wrong. I didn’t have someone to give me the reassurance though that I was on the right track. I’ve talked about that too, which was a little discouraging at time. I couldn’t get the validation, nor could I get reassurance from people, so I just had to kind of go by the seat of my pants. But the one thing that saved me, the one thing that kept me hopeful and the one piece of data that led me to believe that I was onto something was that I had consistent bet sizing.
And if something went against me, I was like, okay, I didn’t sabotage myself by trying to be a hero, and then if I made money, I’d say, okay, I made some money with this. Was it enough? And then I have to calibrate that with what happens when it doesn’t work, which is typically how I did it. I always calibrated my position sizing to what I was willing to lose. I don’t care about the winners. The winners will eventually show up if you do the same thing consistently over and over and over again. But I never really varied my be size and try to go back and forth or trade larger in certain circumstances. And I have the track record. So even to this day, I don’t encroach and let my biases take over because I have a really good feel for the markets, especially in the softs, for example. But I do notice that as soon as you start to feel the hubris and then that becomes like, well, look at my results. Therefore, I must be really, really bright, therefore I should trade bigger.
And for those of you who are smart enough to look at Kelly criteria, Kelly formula, no one can really use that as a bet size because it’s impractical and the equity drawdowns with that are usually too much for people to stomach. So more about that perhaps in another lesson. But my thing here, for those of you who are struggling, and if look, you’re making money trading already, this channel is probably not for you, so thanks for coming by, but there’s the door for the folks who this channel is for the folks who are struggling and who are enjoying the process of learning their craft, it’s going to come down to consistent behavior. As much as you want the results tomorrow, it’s going to take time and the way that you get the results that you think you want today is going to come from you doing the same damn boring thing every day.
And that’s why the pros folks like me, and then the guys who are a generation above me say, good trading is boring. Why? Because there’s nothing to think about. You do the same damn thing. You see your setup, you know what your risk unit is, you put the orders in. That’s all there is to it. There is not a lot of sex appeal to it. Folks who are purely systematized and use mechanized trading rules have it programmed in their trading engines to calculate what their bet size is. And so that consistency is built in you as a discretionary trader because I think 99% of you are discretionary chart readers can learn so much from that process by just sticking to the same damn thing all the time. Make the trading uneventful. Don’t look at your p and l and just follow your process day after day.
The results will show up. They might not show up immediately. The results that you get might not give you the emotional rewards that you want, but that’s not the point that you think that is, but that’s not the point. What you take solace in is your ability to do the same thing every day. That’s the struggle. P and l is a function of leverage. It always has been entries and exits. People make a bigger deal of them. Here’s my rule on entries. If it’s going up, buy it. If it’s going down, either liquidate your lungs or short, and it doesn’t get more sophisticated than that. You can look at all the bells and the whistles and divergences and whatever, but it’s overkill when you backtest it like I do against the simplest rules, like if the slope is positive, buy it. If the slope is going down, sell it short. You’d be surprised how close to getting good better results you can get by keeping it very, very simple. But that’s a little bit of a tangent. I want to keep pounding this in your head because it seems that a lot of you are kind of finally catching on that it’s not about looking at your p and l, getting upset and then tweaking your rules, right? You can’t do that on the fly. You don’t know enough.
Two, no one cares. What can you execute? Can you make money? That’s why I don’t like going up for these meetups and talk about stocks. I don’t care about anyone else’s opinion. It’s not that they’re not good people. They’re all really fun people. It’s nice to meet new people and all, but even the CFAs that I teach don’t fully understand how the companies are run compared to the people who are on the inside. They are highly skilled people, but they can only see it from the outside looking in. And so their analysis has limitations. Your analysis is going to have a much greater limitation, your source of information, the internet, some discord. When you think about it, when you really look at your behavior, where’s your source of information and what you think? So that’s what I mean, become enthusiastic about ai, but you can’t sell your soul to it already because it’s unproven.
And don’t forget, things do change, right? Cramer’s four horsemen, they’re basically dead. And the stuff that made people money in ’95 to 2000, those companies have been renamed and hidden. They change their tickers. The companies bury the bad performance. They get regurgitated and get married up with somebody else. The only thing that’s going to save you over decades and decades and decades is your position sizing you make, and you lose your money by your position size. So start small, use a consistent size, and then get good at your process. Once you have that down, scaling up is the easy part. Right now, you’re just changing your quantity. And by the way, when you think about R, we’re going to talk about that this week. Think of it in terms of a percentage of your overall account balance. Don’t think of it in terms of 50 cents or $2.
You have to think about it in terms of a percentage of your overall capital. What percent are you willing to risk on any one particular trade? This will further help you understand and conjugate your actions with your feelings and your emotions, and then your behavior, because they all, it’s like an anchored vwp of you. You have to know how you feel. You have to know what you think, and then you need to be able to execute. So you need those three things in alignment. When you have constant bet sizing, you’re playing it safe in that you’re not letting your emotions get the best of you, and you’re not letting your biases creep into your behavior, which scuttles all your results. I’ve seen a million stories. I get emails every day about someone who said they thought that this was a sure thing, and they bet bigger with no particular skill, with no particular track record of being able to act consistently. They got caught up in the hype. Leave that for your relationships.
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So this is the secret of trading that no one tells you about. They try to say, here’s the secret hack of proven eight number traders, blah, blah, blah, blah, blah. Here’s this little known thing, blah, blah, blah, and that’s all to hook you in to try to sell you something in my humble opinion, and look, if they’re successful at it, more power to ’em. I’m happy when people, it’s good for the industry. Pensions, endowments, foundations. They need talented people to run the money because there’s millions of people who are counting on our ability to manage the risk. So get out of the retail mindset of like you’re just trading your money. Think about developing a skill that you can use, trade other people’s money and further enrich everybody, including yourself. You’re the asset here. If you can’t control yourself, you can’t control the risk, right?
As I like to say, if you don’t manage the risk it manages you. You need to have a plan first. You can’t shoot from the hip if you have no experience. Everything looks good because the flashing lights make you triggered and induce you to do stupid things with your money. If you use a price-based strategy just to start, you can start to have discipline. That discipline can give you confidence. That confidence can lead to your p and l, and you are making money over time. And then the behavior supports, right? The results. The results support the behavior. The behavior supports the results. There are only a finite amount of tools out there or trading rules that for you to follow. The goal is to find the combination that works best for you. But at the beginning, don’t worry about making a lot of money. In fact, in my experience, you don’t want to make a lot of money fast.
Then you fall into this full sense of confidence that you actually know what you’re doing, and then you start to overtrade or trade too big. I’ve seen it happen so many times. I know people who did buy Bitcoin at 10 bucks and lost it all. It’s the way it goes. It’s the natural order of things. If you don’t like the feelings around discipline, you’re going to certainly start to feel feelings around regrets, and once the money’s gone, you can’t really get it back. It’s not the same. So the secret is learn yourself. What makes you tick? Why do you do what you do? You can’t sell that because no one says that, right? If I put that in a trading headline or on a blog post or what have you, no one would click it because it doesn’t talk about what the opportunity is. And that’s where people’s intentions and energies go is they want, show me opportunities. Why do you think they sign up for these alerts? Here’s what we’re buying this week. Here’s Jim Cramer’s action alerts. If he even still has it. I’m not making fun of Jim. But that’s what people do, is they don’t want to go through the hard work that you have to do to culture the Pearl, to calibrate your system with what you know how to do as a market overlay. That’s the rub. There aren’t hot tips. They don’t exist. And even if you came across something, use or
Dissemination of material, non-public information will get you in jail. So that’s not even worth it either. So the key to doing this very, very well is to study yourself. Once you know who you are, what feelings you want to feel, what feelings you don’t want to feel coming up with the trading strategy is easy. So many of you start wrongly, and I’m sorry about that. I know how you’re marketed to what else. You’re supposed to think that you need to go out and study all these strategies. I’ve said it before on the show. If you’re new to the show, thanks for being here. If you don’t know who you are, it doesn’t really matter what you know, because that’s going to affect you in your relationships. It’s going to affect you in your nine to five or whatever. If you’re a professional, those emotional models show up everywhere.
I was willing to take chances. I feel the fear. I don’t let it get in the way of my decision making though. How do I do that? Well, I have to temper the amount of risk that I take. So in that case, being impulsive actually helps me to the extent that I can keep my position sizes small. When I was starting, I’m not impulsive now, but I was willing to try everything Baskin. Robin has 31 flavors. I’m going to try every one to figure out. I know I like chocolate, so that’s easy. I could always come back to that, right? I remember when Pian and Cream, one of their flavors had come out. It’s probably early to mid eighties, and I was like, well, I know I’m going to go have chocolate, but lemme try something new. Turns out I liked it. You got to try new things. Learn about yourself. It’s the quickest way to get to success Trader mindset, which includes psychology, situational intelligence, emotional intelligence, knowing when to sit on your hands, knowing when to avoid being in the market, because it doesn’t require you to be in the market every day, even if you’re a scalper, even if you’re a day trader, you’ll learn these things the hard way. The secret is you need to be a master at knowing yourself. The trading stuff is absolutely easy.
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Which would you rather have? The pain of discipline or the pain of regret, right? Because if you don’t have a plan that you’re executing day after day after day, if you don’t have the patience to sit on your hands and wait for that one setup, chances are you’re going to have one or the other. The fear might keep you out of winning trades, in which case you’re going to lead to regret. So now you can connect those two emotions. I have fear, and when I don’t take the actions that I know I should take, I end up with regrets. How do you win with that model? What’s the next feeling for you that might be the payoff? Do you get to bond with other people and connect? They get to hear you out. You get to talk so you feel understood. Because if intentions equal results, then I would say your job in life is to feel understood.
Why risk money to get to that feeling when you can go join a men’s or a women’s group, go join a book club wine tasting group, and you can talk all your deepest thoughts and make those important personal connections with other people. You don’t need to use the market as that mechanism. You see what I’m saying? So it gets kind of deep and if you don’t have the discipline, you’re going to get the results that look like they’re undisciplined. It’s like the person who’s eating 4,000 calories every day and go into the gym thinking that that’s going to lead. You ever watch that person overeat and then they’d go and they’d do sit-ups thinking that’s what’s going to get you your abs when everybody, including my dead grandmother, know that your abs are created in the kitchen. So I think discipline’s important. I think attitude and having a good attitude is also very important.
That’s not the first time I’ve said that, but look, if you want to dance one sooner or later you got to pay the fiddler. And at the end of the day, if you don’t have a set trading strategy that you can replicate day after day consistently, you’re going to live in the world of either regrets or the pain of the discipline. For me, I was lucky. I had great discipline. Why? Like we talked about earlier this week, I had been working since I was 12, and I knew I didn’t like the feeling of not having money in my pocket to go do stuff with my friends or whatever it was at the time. I was really into fishing. I would go the lake that I had and some of the reservoirs and the ponds around. So again, what does this have to do with trading? Nothing, but it has everything. So I used to like to fish because I had a fishing license.
There might’ve been a window where I was exempt, but nonetheless, I was able to go to the reservoir and fish for rainbows and brownies in the lake at the bottom of the hill, they were stocked with everything from perch to crappies to large mouth bass, and then some of the other, there were ponds and little lakes in upstate New York that you had to climb over trees and stuff to get to. They were stocked with fish, but they were hard to get to and they weren’t really, it’s not like they were unknown. Somebody knew that they were there, but they weren’t fished. So you could go in there and find 14, 15 inch large mouth bass. So I really loved that. But in order to do that, I needed a tackle box. I needed those long pliers where you could reach into the fish’s mouth and get the hook out. I would use lures and spoons, real worms. We could dig up our own worms and bring our own bait.
I eventually had a rowboat with oars, with a life jacket, all that stuff cost money, not necessarily a lot of money, but those are the things that I wanted and if I wanted them and to kind of continue that stuff, then I wanted a car, right? I knew I was the baby in my neighborhood. Everybody that was in my neighborhood that I was friends with were between two and five years older than me. So I started becoming a teenager. They had their own cars, and it was fun because they could come pick me out. All of a sudden we got pocket full of cash. We can go wherever we want. And it’s just fun to have liquidity at that point. Whether you’re playing Mrs. PackMan or getting a slice of pizza, doing whatever it is that you were doing. You could just afford to go see a film, blah, blah, blah. I had to fund that all myself for the most part. Not to say my parents didn’t help me, sure they did, but I just always felt like it was on me to provide for myself something that I still feel to this day. I don’t want to rely on anybody else. I carve it out of stone. I do it all myself. And then I kept scaling up the story, eventually built out the landscaping, then I went to school and did this and that.
And I remember thinking like, man, I don’t really want to go to work. I don’t like that feeling. I’d much rather go with my girlfriend to Jones Beach or something like that in Long Island or the Jersey Shore to Lake, spring Lake. But I also knew that there were decisions to make. And so the way I looked at making the decisions, I would look at the emotional intelligence of it. And again, like I said, I was born this way, so I’m damn lucky I know it. But I would say, okay, what do I want to do? Do I want to miss a day or perhaps the weekend at the golf course knowing that the caddy master knows I’m not there, knowing that that’s going to affect whether I go out during the week because he takes care of the people that take care of him, especially on the weekends.
Do I want that type of retribution? So I thought about, okay, what about the pleasure of going and doing this thing versus all the other feelings that I know I’m going to have to feel afterwards? And then that became part of my equation. So when I came to trade, I would say, okay, I could do the undisciplined thing right now because it feels good now, which is say take a winning trade off just because it’s Friday and for some reason only bad things happen over the weekend. It’s the truth. Only bad things can happen. It can never close Friday and open up stronger on Monday, which I don’t know why people think what they think, but again, it’s this Johnny Cochrane logic. And so I would look at the feelings that I wanted to feel based on the results that I knew that were possible, and then that’s how I made my decision. If I went out with my friends and had a couple more guinnesses than I should have, I still said like, I can’t miss work the next day. I can’t miss my commitments the next day. Then it makes it even worse.
And again, I was lucky I had good parents. They taught me the art of follow up. How do you follow up with people? How do you communicate? How do you manage other people’s expectations? That’s a huge part of being in business, letting people know what to expect by when. And if you said you’re going to get something to me by Wednesday and you need an extra day, don’t call me Wednesday afternoon when it’s already few hours passed. When I’m looking for it, I understand shit happens, but don’t put me in a bad spot. So for everybody who works for the channel that does a lot of the production things, the thumbnails or what have you, there’s some very clear boundaries about what’s expected of them, and we spend a lot of time going over that so that they understand what they need to do by when. There’s a lot of talented people out there. So the communication is key. So what are the feelings that you want to feel if you go for the instant gratification? You’re like, yeah, I’m going to just take this chance. I can’t afford to miss another one. I’m in a drawdown. I’m losing money. I got to earn it all back. I got to do it. Now,
Is that really practical? So when I speak about this as a lesson, what you can kind of do is don’t write out a business plan and don’t even necessarily write out a trading plan. And this is number one bullshit. Think about if you’re going to look at your journal, I don’t care about the setup and the position sizing and your entry and then how you adjusted all this and that or what have you. That’s the iceberg part that we can see. What I like to journal about is the stuff you can’t see. Write down what were the feelings that you were feeling when you were at each of those inflection points? Why did you do what you did? Why did you put the trade on in the first place? Did it meet the price-based breakout or criteria that I told you about a day or two ago? And if it didn’t and you put the trade on anyway, why did you do that? What feelings were you expecting to feel or what feelings were you hoping to feel? When you can get into this type of calculus, you can start to be your own best coach and break down your behavior. What is it that you’re chasing? What feeling is it that you’re in right now that you just can’t possibly live with anymore? That’s forcing you to do really stupid shit with your money?
Trading isn’t about getting a sniper like entry, but it is about laying in wait and waiting for the exact best time to put the trade on. And at the beginning, if you don’t have a purely mechanized, purely 100% systematic set of trading rules, what you can do is sit on your hands and just wait for that one setup. Look across dozens of instruments. I don’t care if you’re buying five shares, it doesn’t matter to me. Don’t pigeonhole yourself into thinking that because you have less than 10 K in the market that all you can trade are the micro contracts. They all look the same anyway. So what edge do you think you’re going to get by going, okay, it’s not in the MQs. Let me look at the einy. Okay, it’s not there. Let me look at Russell 2K. Like you should know. You should know better in many ways. So expand your thinking. And if you don’t want to do that, write down in your journal why. What is the feeling of that? Why can’t you be open-minded? Where else are you doing that in your life? Because this could be habitual, and in this case, you could be your own worst enemy.
And the goal here is personal growth and to have a good life within which trading is just one part of it, and it becomes a funding source where you’re like tab a slot beat trades on. I put my stops. I can walk away. That’s what my day looks like. Someone asked me on the channel, Hey, how many trades have you done on average per month over the last four years? I’m like, it’s not a stupid question, but it doesn’t mean anything. The data point, it’s a curiosity. I’m not really into the voyeurism, so chances are I don’t answer it anyway, but it’s not a data point that I would keep because it has nothing to do with profitability. Your job is to find your setup and put the trade on. If it shows up once a month across a hundred different instruments, then you put the trade on knowing that it’s a probabilistic outcome. If you have 45 setups, hopefully you have 45 entries. Again, prob probabilistic outcomes. What does it look like? Hard to predict. You can only just talk about it on average. But if that setup for you has positive expected value there at the beginning of your career is your trading edge, and it’s up for you to kind of come up with that.
So you don’t need a coach, sure, we can help you accelerate that. We can help you make better decisions, but to me, it’s not necessarily rocket science. You can do that on your own. And those types of setups, if they work, they don’t typically work Monday and not Tuesday. It takes a long time for them to not necessarily work or even to have the expected value of the trade changed so much that it might be not worth your while depending on what your goals are. We do goal setting in week number one. Why else would you trade if you don’t know what the hell you’re doing it for? It would make no sense to me. And the answer is not to become a millionaire. This is empty. This is not the goal. There has to be something about the money that you need or that you want something that you could do with it. Maybe it’s make other investments. Maybe it’s the feelings that you think you want to have of financial independence, feelings that you don’t have now, feelings that you can anticipate that might be good feelings.
It’s all very personal, but sooner or later, you’re going to have to come down to deal with doing things out of discipline, even if they don’t feel good in the moment of now, because the payoff in the future is going to be giving you the emotions that you want. Even if you lost money last month in the month of March, even if you’re down a little bit in April, you take solace in the fact that you followed your rules day after day after day. They have positive expected value. Yes, you’re going to have drawdowns from time to time. That’s the way it goes. You roll with the punches. The best you can do is follow your setups and put those trades on. You’re powerless over the results, so get over it. It’s not up to you. The best you can do is put the trade on and manage the risk. Honor your protective stops, because even if you’re down 5% and you might eventually be down 7%, so what? It’s only money. What the hell do you care? You are judged on your consistent behavior. Get out of the p and l land. All right? That’s going to help you grow enormously. It did me.
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I think you can see now that mindset in many ways is more important than strategy because look, there’s so many ways that you could blend colors, right? At the end of the day, if you don’t have any impulse control, oh, look at this. Here’s a comment. First of all, corruption V one who’s a subscriber. Thank you very much for writing in, has written two comments. One, I just found your channel, and I can already see that you are a complete legend. Of course. Thank you so much for your guidance. If I’m a legend, oh my gosh, thank you so much. I don’t feel like one that was for how to build confidence in your trading. Second comment, just moments ago came in when discomfort is the more beneficial choice. Again, that was last Friday’s episode. I know this sounds crazy, but following my rules is actually my discomfort.
That’s what I’ve been saying for the last whatever, five, six years. It is so hard not to take an impulse trade. So you have to think in that moment. Mindset is more important than strategy. This is a situation where without the strategy, perhaps everything looks really, really good. You know what I’m saying? And you need the impulse control. We talk about gratification. If you’re struggling with this, one of the things that you could do is start to look at price now as the indicator. Why do you get into a trade? What’s your entry signal? If you’re struggling to fight the impulses, set a rule that says, I need to enter If I’m bullish, a trade on a breakout that has a five period high. I have mixed emotions about this, admittedly, because I think when you’re looking at short-term data, it’s very, very random. And I know this type of strategy works in longer type frames, especially daily.
Typically, the longer the better, but you need to set up a rule around your entries so that it stops you, or at least gives you an intellectual understanding of how to stop taking flyers. Because if you have bad impulse control, you could be buying and selling anything on a whim. But if you put in a barrier to entry a speed bump, if you will, that says, okay, whatever it is that you’re looking at that you need to have right now, it needs to make a 10 bar high, 15 bar high, a three day high, something like that. Put some kind of governor on the price because again, we know that lower prices don’t mean better value, right? You’re not a CFA and after diversification momentum is your best friend. If you’re trying to buy momentum stalls because you’re trying to look smart or you think that lower prices bring in more value, you’re probably learning that the hard way, and
It’s not funny. There was a time where I thought that too. I had to test it and it didn’t work for me. But again, the feedback that I get via email and the comments on the site, it leads you to think that mindset is more important than strategy. Because if you had a strategy, here’s the thing, you know that somewhere out there, there’s an equation that has positive expected value. It already exists. The goal for you is to experiment to find which one, so that every day that you come into work and you boot up your machine and all your monitors, whatever you got going lights up. There’s only one trade, and that’s your setup.
Many of you go, I’m just going to go straight to the damn instrument like EINs, MNQ, Russell 2K, because that’s what I trade. I personally think that’s a mistake. If you’re just starting out, I think you need to be much more flexible and much more pluralistic in your universe of instruments because when you can isolate just one setup, whatever that setup may be, head and shoulders, up or down, cupping handles, I don’t care what the hell it is, pick one that resonates with you and then look to find that one setup across as many instruments as you can because there’s a reason why it shows up a lot.
If you go in to find just one instrument, like any of these Dow Mini’s, ES’s MNQ’s, this and that, you could put yourself into a spot where you’re forcing trades because you have the fear of missing out, especially if your buddy was short Nvidia on Friday or long puts and you missed out, and so now you’re pissed. You don’t even know why you’re pissed. You know how you get over that? Go make a big deal over that person. Congratulate them. Take ’em out for beer. Buy ’em lunch, because the goodness that you put out is going to come back to you. If you have animosity around somebody else’s success is a problem, right? It’s not coming from a place of abundance, and that’s a mode of thinking. And in my humble opinion, I had to learn this too, like envy kills. You have to celebrate the success in other people so that you can see it in yourself. It might not necessarily be one for one, but it’s pretty damn close in my book. So I always make a point of saying, man, you nailed that trade. I could be in a 4% drawdown, whatever it might be at some point in my career, and instead of, because it’s hard to be in a bad mood when you’re trying to celebrate somebody else’s success.
So mindset is more important than strategy. You need to be able to keep yourself on a leash. Want another perspective? Okay. Say you had a lot of money and you were looking for someone to help you manage risk in the markets, whether they were investors, investment fee for service, portfolio managers, or whether they were particular traders. If you looked at your behavior as a third party, would you hire yourself? And if you put in a rule, a speed bump on your buying, then you don’t start taking flight. You think too much. This is the problem with people who are super intellectual. They start bringing in new data every day, and that causes them to have reconsideration. Well, yesterday it wasn’t a trade, but this happened. And with no training, no CFA, no CMT, no degree in finance, no proprietary desk training, they’re going to try to incorporate that data on the fly and make a really important decision on it when they’re ill-equipped, they don’t have the training.
They don’t have a feel worse. Their risk management is all over the place. They one trade, they’re risking 5%. Another trade, they’re risking 1%, then the 5%, which they fell in love with because AI is going to the moon, it’s going to change the world. It’s down 7%, and they were reluctant to take the laws. They were so emotionally invested in the outcome of what that trade was going to mean for them, not just emotionally. So this is the model. When you get emotionally invested in the outcome of any particular trade, it’s a poster girl.
It becomes someone that you become infatuated with. So then what happens is the financial risk management side set sale, it’s going away. It doesn’t exist anymore, and your goal is to make sure that the emotional and psychological, and the financial risk management in and of itself is a unit. They’re spouses, they go together like peas and carrots. Forest gum said it’s pizza and coke, and one can’t become detached from the other. They are conjoined twins. So when you get emotionally invested, that’s why I say risk only, small bits of capital, so that when you become a bonehead or continue to be the bonehead that you always want it to be, and I’ve been there, you don’t do any lasting damage to your portfolio. What happens then? You’re down in a spot. You didn’t honor your stop. You might’ve done even worse and negotiated with your stop and lowered it, and you can’t kind of come to sell it because you know Monday it’s going to rally back up and be above where you got in the first place. And this is a strategy that’s going to kill people. Honestly, it’s worse than the worst disease that’s out there. This is what kills people financially, is they don’t have it in them. They don’t put the thought process in. So again, mindset is more important than strategy. If you’re following one particular setup and you use a price-based entry, that criteria has to exist before you want to put on that trade, despite how you feel, you might not want to put on the trade in fear of losing. You might want to put on the trade because you think it’s going to 10x your account. But if you use a consistent bed size and a price-based entry mechanism, it’ll save you, but you have to have the will to do it. I’m not saying don’t feel your feelings. That’s impossible to do. Just know that they sabotage your account and then what the hell it is that you’re doing. What are you doing this for? Is your goal to accelerate your cash and multiply it? Or is it to bitch and bellyache and be a victim? No one needs those people. There’s too many of ’em.
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The number one rule in trading is to keep your losses small. Once you do everything we spoke about yesterday and you find a set of rules or a trading system or a setup, one setup, you don’t need 85 of them with which you’re compatible, then by all means keep your losses small because what you don’t lose, you don’t have to earn back. That was always the way I looked at it is I thought about it like a competition and I’m in a sports game. If I’m down by four runs and I’ve got one more at bat in the bottom of the ninth inning, it’s like the score is against me, but time is also against me. When you start losing into 15 to 20% of your capital, you put a lot of pressure on your money to perform because if I take $1 to 80 cents, now I’m trading 80 cent dollars and I need to take 25% to get back to breakeven.
The money isn’t the real problem. It’s the pressure that you put on yourself to in turn put the pressure on the money. So what happens? You abandon your trading style. You try something new, you do flyers. Sounds sound familiar. I’ve been there. I’ve been there. I’m not selling you a system to cure it. Guess what? Because you are the system. Listen to this channel. Think of every episode as a little lesson to work on yourself. That’s what’s going to help you the most. There’s a finite amount of trading rules out there. The trick for you is to find the combination of them for your entries, your protective stops as your exits. Obviously your position sizing, which is subjective. Do you add to your winners yes or no? If so, how? And then how do you adjust your protective stops without using price targets knowing that the market is omnipotent and if you catch a wave, you should let it run for as long as possible because your goal is to make money not feel good about yourself by posting up a winning trade that gets old quickly.
Now, some of you, depending on where you are in your trading evolution, might have a different number one, but ultimately I know this and everyone in Market Wizards or whomever has said this till they’re blue in the face, and that is you need to keep your losses small. Man, I can’t tell you suppose your offense is struggling, but you’re keeping your losses small. Look, imagine trading one 10th of 1%. Again, I’m talking to beginners and I’m not talking to the folks who are already doing it. If that’s you, go away. This is not the channel for you. This channel is written and composed of content that’s helping the 19 out of the 20 people that are struggling. I don’t care how well you’re doing it, if you’re already doing it well, this channel’s not for you, so don’t be smug because I just delete that bullshit anyway. I don’t care. This is for the people who are struggling.
Say you’re wrong 20 times in a row, you still have 98% of your capital. You could sleep at night and say, hey, I can take confidence and solace in the fact and build confidence in myself that I’m in the game. I’m doing it. I’m risking real money. I’m not paper trading. I have real risk here. This is real money that I had to earn, and that’s going to do more for you in terms of calibrating your makeup, your system, you as the system with your trading rules and your relationship with the uncertainty that comes with trading and the probabilistic outcomes from the markets. It’s really that easy. People tend to make it more complicated. So at that stage, again, you can always scale up. I know you’re not going to get anywhere, but the point of trading is to not lose. Eventually, yes, you have to make money, but that’s at a different stage. That’s junior and senior year of high school. When you’re a freshman and sophomore, your goal is to try to figure out what the hell works, what’s compatible, what you think.
What do you think you can execute day after day after day after day without thinking about it, even if you had very, very strong feelings, you put your bis stop orders in accordingly because you know it’s probabilistic and you know that six times out of 10 you’re going to lose. That might suck, but you still put your orders in. That’s where you’re trying to get because if you’re a person who’s insecure, every entry is going to feel bad for you. It’s going to give you trepidation. Doesn’t matter if it’s a pullback to a certain moving average or down to support. Doesn’t matter if it’s a two day breakout, a two bar breakout or a 55 day breakout. You’re going to have that same, I lacks a sense of security. If you have moving averages, you’ll find a reason to not trust those.
Now, if you’re on the other side and you’re a risk lover, you have to tone it down a bit because everything’s going to look great. Every person’s going to look attractive. Every stock is going to look like there’s an opportunity, and that’s just not practical. So to me, it’s like if you’re just starting out, keep your losses small so that this way you don’t blow up your account and find yourself in a 30, 40% drawdown where it makes a tough situation worse when you’re despondent because you have no confidence at that point, then you have regrets, and you might even have animosity. Why? Because you bought some guy’s AI bullshit and you trusted them thinking that you could buy your way out of your emotional discomfort. Shake your head this way folks a couple times. Feel the feelings because you cannot, cannot buy your way out of discomfort. There is no set of trading rules that you can buy from another person that’s going to allay or ask wage any of these bad feelings that you have in your body. Then ask yourself this question.
Why do you have bad feelings or feelings that you think you don’t like? Is it because you don’t know your ass from a hole in the ground about what you’re doing? So what do you think you’re supposed to be born with knowing how to trade? It’s an acquired skill and it’s experiential. It’s not intellectual. You have to do it. It’s going to take time as long as you stick with it. Persistence and determination has made more millionaires than some of these day trading rules. I’ll tell you that right now, that there was an overlap in that is probably the reason for success. But in any endeavor in life, someone left a nice comment too. I might as well give him a shout out.
It’s from headwind on a video called The Most Powerful Mindset for success. Gheadwind said, Mike, your speeches go far beyond trading. Man, great episode. Thank your headwind. And that’s true, but so much of this stuff is about life. If you’ve listened to this show, if you’re new here, first of all, thank you for being here. I’ve struggled quite a bit. I wrote about that in the book called The Inner Voice of Trading. You can get the audio book version for free. The link is in the description of this very video in every damn video. Exactly because you get it for free and you find that since we are emotional beings, doesn’t mean we’re acting out of emotion. But if you’re not catatonic like Robert De Niro was in the movie awakenings as a human being, you are an emotional being. You might be born with the ability to keep everything in control like I was, and it’s just dumb ass luck. Good for you. But for a lot of people, especially if they’re highly intellectual, they take losing money as a personal failure and they see it as that they are failures. It’s not just that the trading setup lost money, which could be just dumb randomness, right? If you do a thousand trades, 600 of them are going to lose. It’s hard for intellectual people to understand the difference between accuracy versus mathematical expectation, but I’ve seen more people who had really a lot of talent just have a very reckless understanding of risk management, and they had a lot of promise, but they lost so much money, they became discouraged and they quit. And those people are walking around like drones now in careers they don’t want to be in because they have to be in them. They got to make money and they blew their chance, and whatever trading capital or corpus they had for their account came and went because they didn’t measure twice and cut once. So yes, I think there are probably several factors that might be number one in terms of rules for success in trading, but I think the one that comes down, two affecting everybody, people who have a billion in assets to someone who’s got $10K trying to figure it out, it’s to keep your losses small because when you do that, you can dig out of your drawdown faster. And two, the losses are so insubstantial, unsubstantial that you don’t freak yourself out emotionally and you have to manage both your emotional drawdown as well as your financial drawdown. Remember, again, at the beginning, don’t tell me stuff I already know. You’re risking one 10th of 1%. I understand that there’s not a lot of money to be made, but at the beginning you’re not doing it. You’re doing it to test the waters. You as a tryout, you’re trying to make the team so that you can determine what’s best for you. The p and l is incidental. What you’re trying to do is find a way to behave consistently so that over a longer period of time, hundreds of trades, you can see that you have a certain type of an edge.
You have positive expected value when you do a certain set of rules or take a certain amount of steps in conjunction with one another, and that leads to net of all your losers more money than you had when you started. That’s your trading edge. Once you’ve isolated that, then by all means you can scale and get back or go to a point once and for all where you’re at the threshold of your tolerance for risk at the beginning. You don’t have to worry about making or losing money. And as much as that, you’re trying to get the data to find out what works for you. What can you do all the time? One thing, don’t worry about, I have my opening range trade, then I have my lunch hour trade, and then I have my closing range trade. It’s too much to try to get good at, and you could be discouraged. And again, going back to yesterday, you want the mental edge focus. Focus on one thing and just realize like it’s going to take time. You’re not going to get there tomorrow. I wish you could, but I do these videos to help you understand the mental game of it.
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So the mental edge of trading, as I’ve said before, I think you are the asset. For whatever reason, the marketers want to sell you that there’s some kind of magic formula to trading, and there’s really not. In a very general way, there’s three ways to enter. You can buy pullbacks or momentum stalls. Not my favorite style, but for some reason people think that there’s better value in lower prices. There’s not. You can buy breakouts, which is more my style, or you can use moving average crossovers or this and that, right? So there’s several ways to figure that out and you conjugate that with your temperament and your personality. That’s why I say typically your trading style is your personality. So what happens when you can’t make money? If trading is 80% psychological and emotional, you can say that you’re a four to one favorite in being the problem, meaning the individual.
Now, someone left a comment. I did a video the other day and someone left a great comment. It was on Friday’s episode, so the last one that you saw when discomfort is the more beneficial choice, and it spoke about instant gratification or delayed gratification. If you want to again go back and read it, there’s something called the marshmallow study, and it talked about what happened to the people who wanted instant gratification versus the group of people who wanted delayed gratification. And they studied those. They did what’s called a longitudinal study and stayed with those folks over the next 40 years and the results were really, really amazing.
Anyway, someone left a comment saying, this is really good. Actually, you’re making it clear how the trader can be the edge, not just the strategy. Thank you for leaving the comment. I would absolutely say that you’re the asset to the strategy. It’s just like saying, for example, if you can envision a carpenter and you think of a Phillips head screw a flathead screw, is it the screwdriver that helps make the house or is it the vision of the architect and the carpenter? When you’re a trader, you’re the architect of your own plan really, because it’s up to you. You can be a discretionary trader, you can shoot from the hip, you can do something that’s completely systematized and do it that way. My take is to find something that works really, really good for your personality and stick with it and don’t be afraid to lose the mental edge of it in terms of the trading is really what you bring to the table.
How do you deal with adversity? I know a lot of smart folks, both from the school that I went to and from other top 20 colleges and they had trust accounts their families came from means they really knew how to play the student game pretty well, and they lived very, very comfortable lives. And I saw the head guy from Nvidia talking about this. I think he was mentioning Stanford grads. He talked about character. Now, I’m not going to make any big sweeping judgements. I don’t have the study in front of me, but you have to remember, by the time I got to Wall Street, I had been working for other people for 10 years, and you might say, yay, but you were 12. You were pushing a lawnmower in your hometown when the roads were dirt roads and because of the tire tracks, there was a strip of grass growing down the middle of the street.
It was definitely Tom Sawyer, Huck Finn, kind of podunk stuff. But those people were salt of the earth and they helped shape me to become who I am today. But going up and knocking on the door and saying, hi, Mrs. Edwards, hi Mrs. Albrecht. Hi Mrs. So-and-So would you like me to cut your grass and having them look you in the eye and say, no, thank you. I have somebody already. My son’s going to do it. That builds character. I have to get the strength to ask them for the business, and that’s something that you’re going to do in life.
You’re going to have to ask the employer if you’re in an interview, you have to ask for the job. You just can’t be sitting back saying, I have all these offers. You’re going to come to me, show me what you have shows. No humility. I would never hire somebody like that who wasn’t interested, right? We’re not hiring. So that’s not the issue. But in those moments when I did, I always was looking for somebody who had an edge, and that edge is character. They showed me that they wanted it more. So when you think about the mental legend and around trading, it comes around character and how much can you deal with adversity? Where in your life did you have to deal with adversity? And I don’t necessarily mean like you’re looking for a date this coming Saturday night and someone cancels Friday morning. That’s a drag.
It’s not terrible adversity though, right? Big deal. Find somebody else. You know what I’m saying? So where did you really have to struggle in your life when the outcome was uncertain and you couldn’t use family connections or other types of resources that heretofore had been your go-to type of ethos and way of doing things? For me, I had to carve it all out of stone because I didn’t have any of that traditional family connections. I’m not a nepo baby. I had to do it all by myself and it sucked. There’s no other way to say it. It sucked, which is the reason why I do this show is because it sucked so bad. I remember literally being on my knees saying, God help me because if I have the chance and if I do ever get successful at this, I’ll reciprocate and pay it forward and help people who I’ll never even meet for free.
So I’m not a retail trader, but I do have some similarities and there’s enough overlap that we share a similar struggle in that we all are playing a game of probabilistic outcomes and we have to go about our day each way despite how different our clients might be. For the majority of you watching, you’re probably your own client. And again, if you have like a hundred K or whatever, that’s just where you’re at, it’s okay, you’ll grow it. But your needs, your emotional needs and your financial needs are very, very different from someone who’s running money who can grow his own money as well as get a two and 20 in sfi. Give you an example real quick about the mental edge. If you’re just growing your own money, you want to make a thousand percent a year, maybe a thousand percent a month because you’re tired of being broke like I was.
But when you use other people’s money and you can garner incentive fees, and you even have like say you have 5 million and you did 20% rate of return over the course of the year, 20% might not excite you. I don’t know because I don’t know you, but that would be a million dollars of growth. Say you had a hundred thousand dollars of your own account and you traded 5 million at client funds, you made 20%, you made a million dollars. If you’re working with two in 20 20% incentive fee, you just made $200,000 for yourself. So now your own trading account was a hundred thousand and you brought in $200,000 in incentive fees, which you could really use however you want. For me, it went into my trading account. So the idea, when you look at the folks who have made billions and billions of dollars, whether it’s Paul Tudor Jones or Bruce Kaner, good examples, Ken Griffin, they weren’t just trading their own accounts going hell bent for election again, that to me is a retail trader mindset.
On the institutional side, you’re using other people’s money and that takes the pressure off you to make money. For sure. If you don’t make money, you’re not really getting paid, but you don’t have to shoot for a thousand percent rates of return at that point. And the way Bruce Kaner traded at Commodities Corporation and what he did at Caxton starting in 1983, were worlds apart because at that point, when you’re trading other people’s money and you’re trading 5 0 1 C money, not prop trading money, and in terms of endowments and foundations, the risk profile is very, very different. And so the folks who are allocating look at you and say, okay, if you’re making a hundred percent plus a year, there’s two things that are going on. You were extremely lucky and being in the right place at the right time or you’re trading too big. And that’s why today if you try to seek allocations, the bigger allocators want to see your daily equity. They want to calculate what’s the volatility on your equity. And if it’s too big, this isn’t 1984.
So you have to think about where is your mental edge and what is it that you bring to the table when you’re trading? Because it really comes down to you. There’s only a couple of types of screwdrivers, there’s a couple of hammers, there’s a couple of saws, and it’s your job to mix and match the tools that you need so that you can execute. The screwdriver isn’t going to use itself. You have to figure out how to use it just like a trading tactic. What I find and why I find that retail traders are struggling so much is they’re all over the place. They have monkey mind. They fall victim to watching several of their heroes who are doing it and they’re like, okay, I’m going to try this one this way. Oh, that didn’t work, so lemme go try this guys this way. And they have no discipline yet.
They’re watching all the Jocko willing stuff. Again, you get paid to execute, not know stuff. Sloganeering isn’t going to help you in your darkest moment, right? That’s the thing that I have with stoicism. I love reading that stuff. It’s great, it’s very valuable, but it really takes years to be able to use it because you have to infiltrate the habitual things that come, the habits that you’ve developed around managing money that could be triggered right from your subconscious. So I’d love to read Marcus Aurelius or tell you to go do that and you’ll fix yourself. And I think it eventually, it could definitely add to part of your mental trading edge. But in the moment of knowing when to add and remove risk, it’s just you and your higher power and you need to know what you’re doing it for.
Are you doing it for instant gratification or are you doing it for delayed gratification and bigger sums of money? Because you have to remember, people who buy and hold the s and p, this is going to hit you across the face. It’s not meant to. But think about it. If 19 out of 20 short-term traders fail, that could be folks who are trading two minute bars swing trading, and I know people who could do it well up to say, three day swing trades. Anything in that short term period of time, you need to have a feel. It’s not just the tactics at that point. You need to have something that you bring from you as a person that has nothing to do with trading almost where you have a feel and you can use your instincts if you don’t have those instincts or if you can’t develop those instincts, it’d be very hard for you to trade the short term.
I know because I’ve tried everything under the sun, every different combination that’s out there. And it’s disingenuous for anyone to tell you that you can buy a short term day trading system and make it work because if it doesn’t feel good, you are not going to do it. You’re not going to do it. You don’t have it in you. And it doesn’t mean you’re a bad person. It just means you need to think about it. Folks, what really differentiates trading anymore, it’s your holding period. Because if you think that there are fractals and you believe in that, you could trade breakouts with ticks, one minute bars, five minute bars, 30 minute bars, day trading bars, swing trading bars, whatever those timeframes are for you. So really when you think about differentiating between traders, it really comes down to their holding periods. And that really comes down to one decision is can you take some risk home overnight or over the weekend? And that’s emotional because you could always find a way to represent that risk in your portfolio. So when I say to you, develop your trading mental edge, I’m not saying buy more books, right? And I’ve had Sean McLaughlin on the show, he’s a friend of mine. I really kind of just have my friends on. I’ve had Brian Shannon twice, another good guy and good friend of mine. I know they’re legit and I know they’re not selling schlock.
The trading success comes down to you as the person you need to make your mind up that you’re going to do it despite how you might feel. And if you’re sucking wind in the short end of the duration and the short end of the holding period, trade smaller and hold it longer. Because as I was going to say before, I didn’t get to it. I know people who buy and hold the s and p 500 mutual fund and they outperform people who try to day trade the SPY, and that’s got to be humiliating. So you have to close that emotional gap. Now, granted, those are what’s an investor, a trader, without an exit strategy, it doesn’t mean they’re any better than you, but ultimately they get results. So you can make that comparison between investors because at the end of the day, we’re talking about growing your capital.
So how do you do that? You have to make up in your mind that you’re going to take the actions that are necessary for you to create the alpha, despite how you feel, Mike, I’m scared, okay? I’ve been there too, even as a pro, because I don’t want to do anything to harm the client. They’re trusting me, and I’ve always thought trader portfolio manager, whatever role I was playing, I am a fiduciary. At least that was my mindset. And that their capital, which was very hard to accumulate, is going to be treated like a newborn child.
So you have to understand that if you’re struggling, it’s not about taking a new class, it’s not joining a new discord. It’s not buying more books or going to wherever you’re going to go to learn the how to game. The hardest part of this business is mastering yourself, and that could have been because you have a shitty attitude. It could be because you have bad discipline. It could be because you’re a victim. It might be tied into, like I said, from the Nvidia guys, that you have to go through arduous times to develop more character so that you’ll have the staying power and what I call the sticktoitiveness to be in this business. Because for everything that you may like or not like about me, I’ve paid my dues. I got kicked in the face for four, four and a half years to try to figure it out.
No one could take that away from me. I did the damn work. You see what I’m saying? I didn’t let the failure and the losing of the money, money that I didn’t really have lose psych me out. I had very, very strong feelings. Remember, a 500 point dollars move was a 10% hit to my account, but I figured out how to make it work so that I could make my account grow one day. I’ll tell you the story, it’s too long for here, but I had to make up in my mind, basically, I knew I needed to give myself some breathing room, even if I was up 20% from five to six K, that’s a good number. A thousand dollars was monthly rent. So I wasn’t really looking at it that way, but I really needed to get, I figured 50 K. If I could get to 50 K, then I could have 25,000 for equity trading.
I have another 25,000 for futures margin, and I didn’t have to put on all the risk all at once. I could kind of piecemeal, plus I was using Reg T. They didn’t really have day trading, buying power. So I had the notional value and the implied leverage on the future side. Plus, I could really trade the 20 5K, like 50 K on the equity side. But I was smart to not use leverage on equity until I knew what I was doing and I could make my money. So I didn’t go, okay, 5K, 50 K, that’s a 10 x. I always looked at mathematics properties and said, well, what is the number 10? What are the factors? Well, it’s two times five. It’s two and a half times four. It’s 3.3, three times three. So what could I look at those in terms of the two, if that was the doubling of the account, what could I do to get there and think of it that way and take smaller steps?
Because then otherwise the 10 X was too overwhelming. If I took five to 10, then I could take 10 to 20 and then I could take 20 to 40. You see where I’m going with that? Because that was easier for me to digest and understand, but I had to take my temperament and take a big step back because if you think about trying to make 10 x, you put yourself in a spot where you have to swing for grand slams, and that puts you in a bad spot because then you lose money because of overtrading and you lose money from over-leverage. Anyway, this is an extension of Friday’s episode, which is called When Discomfort is the more Beneficial Choice. I would challenge you if you want to have exponential growth in your trading, then you need to go to the list up the feelings that you don’t want to feel and find a way to learn to live with them and be with those feelings. Like if you’re afraid to take risks, come overnight. Write out why. And I’m not asking you what you think about risk intellectually. I’m asking you to write your feelings down. You don’t have to share it with anybody. Why are you afraid to take risk home from Monday night to Tuesday morning? Why are you afraid to take risk home Friday night to Monday morning? If you know how to manage risk, what does that fear? Where’s that fear come from?
And if you’re honest with yourself, the answer to those questions could shed light onto your behavior. Behavior predicts where you end up, but you’re not going to be able to behave a certain way if you have all these feelings in the way that you’re unwilling to feel. I presume here, if you’re listening, the goal is to overcome this so that you can become a consistently profitable trader. If you can first do that on a very, very small scale, scaling up is the easy part, so you don’t have to do it for big money. Don’t trade for profits at the beginning to build your track record. Do it so that you can get your behavior down consistently. Once you can execute that, scaling up is the easy part. You see what I’m saying? Anyway, if you like this video, there’s more like it just right here.
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Things to learn before trading, man. I mean, this is where the rub is, right? I came to Wall Street thinking I had all these preconceived notions about how money was made, and they were all wrong, so it was a crack upside the head. What you learn from making money and being able to manage risk, add risk, good risks, hopefully remove the bad risks from your portfolio, is that sometimes discomfort is the more beneficial choice, and that’s how you kind of calibrate your system. What do I mean by that? Well, it’s hard to buy higher prices because of anchoring, right? “You’re like, well, it was here. It’s already here. I’ve missed the move. Nvidia broke out at $505, it went to $600. I can’t possibly buy it at $600 because in my mind, it’s already moved up 20 something percent, so I’ve missed the move.” The thing is, you can’t make that determination. You have to be unreasonable. There’s no evidence that moves go to 20% and then they stop.
So there’s all that going on, and what you need to think about is, is there really winning tickers and losing tickers, or is it winning behavior and losing behavior? For me, I live in a paradigm of personal responsibility, so whatever happens is on me. I never blame the market. I never blame an analyst because no one’s holding a gun to my head, telling me to add risk or remove risk. Those are all, at the end of the day, even though it’s systematized, the whole process is very subjective. There’s very little objectivity. So that’s why you need to be brutally honest with yourself because there are outside forces of supply and demand, for example, but whether you have to acknowledge them, ultimately it’s up to you to say, yes, I understand that that’s a data point, but it’s not relevant to my trading style. I can’t give it any weight.
When we think about trading and your trading style, because ultimately it comes in many ways, I think it comes down to your personality as a human being, and we think about two things, instant gratification or delayed gratification. What’s your temperament? How are you in life? Because so much of that can play into your trading decisions, right? Do you want to try to think about having a very, very accurate system that’s scalps or does something intraday where you make your money and you go home? Or if we go back to that famous marshmallow test, that was pretty fascinating. Anyway, I’ll put some links into the description. Were you able to say, okay, look, the kids were given a choice of taking a marshmallow today or getting to the next day, and it wasn’t just that they were judging the people, good or bad, it was they followed those. I think the study was done, I want to say in 1970. It’s been a while since I’ve read it, but as a longitudinal study, they followed those same people for 40 years and they found out that they struggled. They had impulse control, and so they had impulse control issues. And so when I think about the whole thing around trading and how we get paid to execute, we don’t get paid to know things. I’m always thinking about what’s the harder choice and how can I take pleasure in that? And I’m not a masochist, it’s not my thing, but what’s the winning behavior For Kobe? It was getting up at three o’clock and then finding the way to the gym. Even though we live in basically a city where it’s summer all year round, it is cold at three in the morning. It’s comfy to stay in bed, but he built a model that worked for him. So how can you find comfort in the discomfort and what is the discomfort for you? That’s something that you should think about because it’s not financial. It’s emotional. It’s just money.
And I think about…I’m friends with Bas Rutten – MMA guy, and he has a shirt. It has a saying that he’s kind of known for saying he’s like, “It’s only pain. It can’t hurt you.”… And so when I think about trading, I think people look at the money and they put too much importance on it. It’s really just the way you keep score because what you do with your money, what I do with my money, who cares? You know what I mean? Your goals are personal, and I can’t say that they’re good or bad financially, whatever your financial goals are. I do know that in trading, going back to yesterday’s lesson, you need to have an edge edges expressed in a very simple sense of having positive expected value based on one simple setup that you can repeat over and over and over again without making any adjustment to that particular rule.
Again, discomfort might be the beneficial choice. Is your goal to feel good or do you want to make money? Do you want instant gratification or can you live with delayed gratification? Because I can see in an armchair quarterback kind of a way, a correlation between trading styles and certainly holding periods. It might feel good to make a small bit of money today, so you want the emotional win. I always knew I had to grow my account. Why? Because I was a broke-ass-bitch. That’s why, and I didn’t want to. It’s not that I didn’t think there was anything good. I didn’t have any judgment about being that it was just life was a struggle, and by the time I had gotten to Wall Street, I had already been working like half my life, grinding to make running money. There was no other place the money was going to come from, so I had to do it myself. So I brought all that blue collar baggage with me about putting in long hours and this and that, making your boss look good. At the end of the day, none of that mattered because it wasn’t anything I could translate into a trading model. So every bit of data that you come to, you have to ask yourself the question, can I incorporate this into my trading, into my trading model? Yes or no, it’s black or white, and you can’t think of intuition when you’re starting because you don’t have any.
You can develop it. I’ll give you that, but you’re better off sticking to rigid rules and then getting fancy after when is after, I don’t know, six months, again, delayed gratification. Can you put the time in day after day after day and act consistently? It’s the consistency that’s going to get you the results that you want, and that result in the beginning might be just find the trading rules that have positive expected value. IE edge. If you’re impulsive and you need the dopamine hits, you might need to trade short term. What happens though when you can’t develop a feel? You’re going to have to find a way to get those dopamine hits from another spot. It’s not going to come from trading.
Now, I wish I knew all of this because it would’ve helped me figure out a better trading style for me early on. Remember what I said, if you don’t know who you are, it doesn’t matter what you know about really trading or anything in life because you’re going to look to get your emotional needs fed. It’s just a natural order of things. We’re pleasure seekers, and it’s in through a million years of evolution. That fight or flight mechanism is in there. What are you doing it for? And I’ve mentioned on the show in the training, we talk about this a great deal. There’s two payoffs for every trade. There’s the emotional and the psychological, and then there’s the financial. You need to know which one you’re doing it for. Maybe there’s a blend of both. For me, I take away the emotional part of the payoff of the trade because I take my pleasure in the fact that I can execute the same discipline day after day, so it’s really the pre-trade where I get my emotional win.
Can I do my postmortem? Can I do my pre-reading set up regimen to know what my wishlist is and where my orders are? Which ones am I going to enter by myself? Which ones do I call to the floor? And having that model down, that’s what gives me solace is in my preparation, so that’s where I get my emotional win. I’m powerless over the results of the trade. The best I can do is put on the trades where I know I’ve had an edge. That’s the financial side, so I do get the emotional and the financial, but they’re in two stages. I don’t get them
From the payoff, the winner loss of the trade, so steal from that. Think about it. How are you built? Do you need instant gratification? Do you need the dopamine hit or do you need the financial reward? And which one on a scale of one to 10 is more important to you? Because if you know that, again, self-knowledge is key, you can kind of go and determine what a better trading model might be for you. Even an asset class, if you know that you don’t mind striking out a lot, but you like to hit home runs, you might be able to think about maybe trading options because you can define your loss and you have lots of upside. If you buy calls, if you have puts, the thing can only go to zero, but that can kind of help you make the decision when you kind of know what emotional feedback that you need because it’s going to be there, especially when you’re starting out.
Over time, you can become numb to it because then it’s just a business. It’s like, okay, here’s the setup. Oh, there’s that one over there. In a particular ticker, I’ll just put the trade on over thousands of trades. I know I’m going to make money. I don’t necessarily care about the outcome of this particular trade. If the faster you can get to that spot, the better off you’re going to be because then you could shrug your shoulders of the weight of the world. Don’t look at your p and l because if you’re doing something that has positive expected value over time, that’s mathematically proven that you’ll make money. Expected values don’t go from plus five to minus five overnight. They can change a little bit, but they don’t waver that much anyway.
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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 best way to build confidence in your process is to do the same thing every day. If you try to come in and be scalper one day swing trader, another day long-term trend follower another day, you’re really all over the place. And I really look at those trading strategies, those potential setups as really religions, and so you can imagine trying to be Monday through Friday, a different religious person every day. It’s too confusing. You say the same thing about politics, right? So at the end of the day, your confidence is what’s going to carry the day and it’s going to help you with your belief system and your confidence and your entitlement, right? Again, and we’re not talking about entitlement issues, we’re talking about you doing the work. You playing Kobe Bryant in your own respective way, for example, putting in the hours and hours of practice because at that point when you’re doing more work than your peers, and we’re not just talking the quantity of work, we’re talking about the quality of work.
So we don’t want to sit there and spend 18 hour days bringing blue collar despair into a white collar job. You have to be efficient, right? And that might mean letting go of some closely held beliefs. Here’s one that makes a lot of sense to let go of. It’s always been a market of stocks for me more than a stock market, so I don’t care at the general direction of the overall market. Each instrument for me has always been its own market, whether it be Microsoft or long or short or Intel back in the day or A OLN, didn’t matter what the ticker was per se. I just never cared about the overall direction. Two, I didn’t come up with a thesis first, right? That’s investing. Traders don’t have the thesis. What you’re looking for is price, volume. You can look at open interest and start there.
It’s too much to go through here, and this is not a channel on how to trade as much as it is you looking at yourself and why do you do what you do? Because that’s 95 trading is, like I said, 75, 80% psychological and emotional, and I think 99% of it is your temperament and your personality. So the 1% is really the tactical. You all think like, well, I don’t know what I’m doing, so let me go the intellectual route. Where to me, and I’ve said it before, I’ll say it again, I’ll keep saying it, is that if you don’t know who you are, it doesn’t matter what you know about trading, it doesn’t matter what you know about anything for that matter, because who cares? Those are all data points and the ability or the prestige of being or having an encyclopedic mind or memory doesn’t matter anymore because anything that I need is a Google search away.
So I don’t care about what you know or what you can remember or what you can recall. It’s a circus trick at this point. It meant something back in the day before the internet. I think maybe having an understanding of history certainly can help you create models, but trading knowledge in and of itself really comes down to you being able to replicate the same thing day after day after day, and that’s what you take solace in. That’s what gives you the reassured, the reassured that you need. That’s what can validate you as a person is can you do the same basic boring bullshit every day? Most people cannot. They keep seeing big ticker moves like, oh, MSTR is moving. I got to find a way to be in that SCI is doing this. I got to be in that. And then you’ve got the fanboy in the AI space or crypto, and as an aside, the way you build your confidence is not sticking or going to those mummified names because if you ask anybody who’s been around the memes can change from 82 to 87 in that bull market, there were a group of names that were burgeoning.
Then you look at what happened from 95 to 2000 in the.com era, and it was like vertical net Siebel systems, CMGI, global crossing. Of course, we can’t forget JDS, Uniphase and everyone would talk about those names and these are the top 10 names that you need to have. They were on the magazine covers and a lot of people made a lot of money. But what they don’t tell you is that those same names are the ones where people lost the most amount of money to
Because without a trading plan, you’re being the moth to the flame. So the consistency comes from your confidence, which comes from you’re being consistent. They’re so closely related, it’s tough to see which one comes first, but if you can do the same boring thing day after day after day and not take flyers and just stay in your damn lane, that will build you your confidence. When you practice that and you replicate that day after day, then you can start to see, this is why I’m entitled to the richest. I have an other worldly sense of discipline, and when I lose, I keep a good attitude. I don’t get into all pissiness because I’ve had five losers in a row because ultimately going back to Monday’s episode, I believe I can do it. It’s just a matter of time. I’m not quite sure right now. But what I’m going to do is follow my process.
My process has positive expected value. The best thing I can do is follow every single trade. When the setup shows up, I can feel my feelings around fear. I’m speaking about you now and still take the right action. But Mike, what happens when I’m up a thousand percent perfect? Stick to your same position size. That’s how you control fear and greed is trade the same bed size risk unit, whatever you want to call it. There’s a million names for the same thing that will help you build your confidence in that. You don’t say, well, I really love this AI stuff, so I’m going to buy Nvidia on a pullback. Or I think just because it’s sold under eight 50, it’s not going to go down anymore. Or just because it’s in the pinch from anchored v Wap, I can make up my old ruse on the fly.
Sure experiment, but do it with a minimal size, trade it with one share because the point at that point isn’t to make or lose money, it’s to try it on for size to see if the idea works absent a back tester. You can do it a lot quickly, more quickly and cheaper with a back tester. You could also do it when markets are closed so you can make good use of your time. So the thing for me about confidence came from I was unrelenting in my work ethic and what I needed to do is stop worrying about learning stuff and start to think about the execution in the application. That’s why I say, and it might make sense now that we don’t get paid to know things. We get paid to execute. Can you create alpha? It’s yes or no. It’s not. Maybe it’s not. Sometimes it’s net net of all your trades. Can you create alpha?
And if you can’t, I would suggest extending your holding period. Most of you are probably trying to trade on the short side of things, not short selling, but on the short term timeframes. And that’s where the struggle is because the data are more random and no one tells you despite selling you telegrams and discords and other trading systems and this and that, that that’s the hardest thing to do when you don’t have any discipline because you don’t have any experience, which comes from putting a lot of time in and they don’t tell you that you need to have a phenomenal feel. Doesn’t matter if they’re saying this is the biggest traders at X, Y, Z companies are scalpers. Well, it’s very difficult to scalp with $10 million because of depth of market. If you want to try it, good luck. But at the end of the day, if you’re a newer person in the game and you hear these stories in an unregulated market, there’s no one consumer report that stands up and says you’re making a misleading statement or you’re leaving some material information out.
What’s material information? Well, I always think about the prudent man rule as it’s called an investing. Is the information material enough that a prudent person would use that to make a better decision? And the answer is yes, meaning that I can’t sell you a trading system if the caveat is you need to be born with a phenomenal sense of timing or you need to put so many years in because it’s not going to come in two months after you’ve bought the fucking system that you need to develop a feel, which only a small of the people can do. If I said that as a disclaimer, guess what? No one’s going to join my telegram. No one’s going to join my private Twitter feed because I can’t sell it.
So part of developing your confidence is to not fall victim to kons because I’m not saying that it’s snake oil, but in an unregulated market, people will tell you anything and everything doesn’t matter what trading style it is. I’ve seen it from scalping through Trent following stuff. The claims are rather outrageous. Even still, if you went up and got up at four in the morning and shot 300 free throws, free throws like Kobe did and then came back and did another shoot around, it still doesn’t mean that you’re going to be able to do it, but it will infuse you with confidence to it. Even go out and try. Who knows how good you can be? All you can do is try. That’s my humble opinion on things like that. You won’t know until you try. These people were motivated, these athletes to be the best, so they figured they had to put in the work. But again, there’s a qualitative aspect to it as well. It’s not just grunt work.
And so when I was thinking about how did I build my confidence and how did I know I didn’t look at my p and l? I know that’s probably crazy. How else are you keeping score? The thing is, day after day after day, an individual day, so say I was trading and trying to develop my craft over four years, there’s a thousand trading days that’s much more reasonable to look at that much data. I can’t look at five days and draw any conclusions because there’s so much going on in the world, and I wasn’t smart enough even having gone to an Ivy League school to be able to wrap my arms around some global macro themes or nevermind the themes themselves, but which one was in play on that particular day or week.
When you don’t have the experience, it’s very hard for you to draw those conclusions. And so what happens is you become very hard on yourself and you become discouraged because you’re digging too deep into stuff. You’re looking at random data, intraday data, random news headlines, and trying to draw big conclusions about your ability. The people that suffer the most are the people who already come to the market with an enormous amount of self-doubt, and that typically comes from, again, your household where you grew up. So for me, I would say do everything you can to build your confidence, because even if you have average intelligence, a confident person is someone who I know is going to hit their goals. I’ve seen it happen. When I went to Wall Street, there were people who came from enormous family wealth and all they did was lose money, and they had a great advantage in that they had assets to manage. They didn’t have to worry about that part, but they were also very, very comfortable. They were already rich, so they didn’t have the drive and everyone’s like, oh, put my arm on. He’s going to be a huge star, which was politics again, which why I hate politics because you don’t want that person to leave and go to another firm.
So I could see that very, very clearly early on. That was the level of ass kissing was just disgusting.
And then you take the person, I think it was Gordon Gecko who said, give the people who are poor broke starving, this and that. They have a good work ethic, they’ll figure it out. And so I knew people who I knew a guy, I won’t mention his name. He was a paper salesman at a time. Again, when there was, you did a door to door and he’d put a ream of paper like reams, what is it? 500 sheets he’d put. Then they come in a box, there’s probably four or five reams in the box. He’d put it up on his shoulder in East New York, which is a very tough section in Brooklyn and walk from business to business and sell paper. And I was like, that guy’s going to kill it, because he knows his work ethic. He knows how hard it was.
I cadd golf bags. I had a bag on each shoulder, which was different from Cadian for a PGA pro where there was a club minimum. Some of these people had 21 clubs in their bag. They had sometimes two or three dozen balls plus a pair of shoes. I’d rather carry you on my back for 18 holes than some of these golfers who mind you weren’t that good. Some of them we used to say, well, you see the whole course because they’d be left rough, right? Rough, left, rough, right, rough. And so if the course was par 72, if you counted all the lost balls, they’d shoot one 40. Anyway, the point being is that you can do a lot to build your own confidence by not being your own or your own worst enemy or even a bad enemy. It doesn’t have to be the worst enemy.
You just have to type a think about, be mindful, be mindful of the things that you’re actually practicing. And if what you’re doing is trying to look and see random data, intraday, but you’re not getting the results, why don’t you change? You have to have the courage. Chapter two of my book is surrender. There’s nothing wrong with making a pivot. It doesn’t mean that you’ve lost because the idiot who doesn’t know what he or she is doing, and I include myself at the top of that list, at least when I was starting, if the best you can do is just learn to keep your losses small, your way ahead of 90% of the people, most new traders don’t have any sense of risk management. And so my whole thing is not to sound sarcastic or snarky is just be a philanthropist because you’re giving your money away. You might as well direct it to a place that is meaningful for you. There’s nothing wrong with surrender. That’s part of the pivot. And if you’re not seeing what other people are seeing in the short term and you still want to struggle, answer me that question. What is it that you think is going to be different, right? Thursday or Friday? Tomorrow or Friday,
What is it that you’re not getting? What is it? How come you’re not developing the field that you were promised that you would get if you followed somebody else’s rules or you were part of their discord? So in order to build self-confidence in that regard, you have to step away and try something different. It might be different from what you want to do, but if you’re not showing any skill in that space, then you have to pivot If you want to be a trader, otherwise, you’re feeding some kind of emotional need and being a martyr.
Martyrs go down in history, but not for the reasons that you want, right? If that’s what your goal is, if your goal is to be a martyr because you want the attention, there’s plenty of those people, plenty of failed traders, you won’t see ’em show up in social media, but they’ve littered the streets for ages. You’re stepping over the bodies. They can’t peacock on it, certainly can’t sell your courses, but at the end of the day, be mindful of your own behavior because that’s what you’re in control of, and you have to be very suspicious of everything that you see and hear.
I try to speak with a lot of candle here because I don’t like to see people getting taken advantage of because I know they have the best intentions, but ultimately, it is eventually up to you. If someone got the best of you once, okay, burn me once, burn me twice, kind of a deal. But you have to pivot. If your goal is to actually make it and things are not working for you, you’re going to be that much further from building any confidence because you’re listening to too many gurus. You see, you are the guru, you are the asset. It’s not the trading pattern, it’s not the timeframe within which you speak. Some people have a way with words, some people don’t like me, but at any rate, I wish you the best. The whole channel here is to get you to think introspectively about why you do what you do.
Sometimes it comes from your subconscious. Maybe you’re trying to prove something to somebody. All that matters is what is it to you? And I know I told you the story about keeping the rejection letters. I actually think they were thrown out. I don’t have them, but I remember getting them, and that just was fuel for that stage of my life. Now, I don’t have any regrets because everything worked out. God has a plan for everybody. And so I feel like if you can build your confidence, then that’s when you can actually become unstoppable. It doesn’t even really matter what you want to do in life at that point, because a confident person’s going to at least have the faith in themselves to go out and try and iterate. And that’s when things get exciting because that’s when you begin to go into your little Petri dish of trading experimentation to figure out what’s going to work.
And that’s what I mean by there has to be a certain level of promiscuity in your approach. Because until you really know who you are, you don’t know what’s going to be best for you. I do know that if you’re struggling in the short run, you can invite a lot of success by extending your holding period, perhaps even trading smaller. Why do I say that? Well, on a simple back of the napkin methodology, I know people who have bought the s and p and held it without having any exit strategy. They have an open-ended strategy and they make money.
So when you start to think about adding risk, but then saying, I need to offset that risk within a super short period of time, you see the exit strategy becomes the problem on some level. To me, that would be common sense. Now, I was immune from that because it was too expensive for me to scalp or day trade when I was starting out. Given that bid esque spreads were 25 cents and that stocks traded in eighths, I was looking at if I was trading Wendy’s quick service restaurant at $20 and I had 50 cents, what’s 50 cents as part of $20? What is that? 2.5%? Just as a break even. So it made it too punitive for me. I don’t want to go through all that, but when you can build your confidence, to me, that’s when you get to the point where then, well, I’m doing the work. I’m acting consistently. The consistency is going to get me the results that I want. And that stems from my belief that I’m entitled to all the abundance in the world, which is not greed, it’s just financial abundance. And I believe that I can do anything because I can act consistently. If you like this video, check out this one.
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So today I want to follow along from yesterday’s episode. We talked about belief, right? You have to believe that you can actually achieve your goal. Goal setting’s important to me, it’s the beacon. It’s both what pushes you and pulls you to where your point B is, right? If you want your life to be different from where it is today, it’s behavioral. But in order to execute that behavior, because behavior predicts where you end up, you first need to come up with the idea. To me, that’s a goal. And the goal should scare the shit out of you. There’s no point in saying, I need to get a new Ferrari, or I need to buy another monitor, you know, can do that. The goal is to change your life. The goal is to utilize all your skills that starts your belief system, that it has to be possible.
Then you have to think willingness and ableness are, you probably have all the ability that need. The question then becomes are you willing to do the work? And that’s important. It’s really, really important. Were you the type of student that just said, fuck it, I’m going to go to class and wing it, or did you actually care? Right? Because that’ll tell you a lot about your temperament and your makeup, and I’m not judging you per se, but if I was an allocator, which I’m not, that type of person wouldn’t turn me on. There’s nothing exciting about that person who wants to just bullshit their way through life. I’m looking for overachievers because that excites me to be around them. It doesn’t matter what field they’re in at all.
So here’s the thing, while I don’t like entitlement issues, people who think that they deserve shit just because of who they are intentionally, if you are doing the work, then you are entitled to the rewards that go with it. So that’s why the coaching that I do is I think invaluable because it puts you in that mindset that this isn’t something where you have to live in blue collar despair or you have to be a starving artist in order to deserve it by virtue of the fact that the resources that are out in the world that you might want to acquire or bring into your own sphere are out. There is enough of a magnet for me to tell you that you deserve it. You’re entitled to it. You don’t need to ask anyone’s permission.
And this follows in with the belief, right? If you follow sports, right? The majority of this crowd is male. So I don’t want to just talk about sports because the women tune out. But if you look at the folks who were like legends in their space, they all talk about having a work ethic that was otherworldly, which is me, because that’s all I knew how to do. So when I hear about the late Kobe Bryant going to shoot 300 free throws at three, four o’clock in the morning, then at six o’clock doing the ice bath, having breakfast, going out and doing more, and then having four hours of practice in, I’m like, yeah, that’s what I’ve been doing for the last 36 years. So while it’s impressive to hear that I’ve been living that myself because I was too stupid to know anything else, I knew I had to put the time in.
Nothing was going to come to me just because I thought I deserved it. I had to do the work. So when Kobe was out playing, when Michael Jordan was playing, when Wayne Gretzky was playing, when a younger Mike Tyson was preparing, he’s up at four o’clock in Catskill, New York, running 10, 20 miles at four in the morning. You have to be willing to do the thing that the other people aren’t doing. While they’re focused and looking at short-term timeframes, thinking that they’re going to find their edge there, you’re probably looking at the data. You’re understanding because you’re doing your research and understanding that you don’t want to buy weakness. You don’t want to get trapped by or sell short inside trading zones. To me, you’re doing the work and once you put in those hours, it should build your confidence because now you have something to fall back on when you know that there’s winning and losing streaks. You don’t have to internalize that because you know what the numbers are. You know what your data is, and if you don’t, well, you have to wing it because if you don’t take the chances, you’re not going to get anywhere. There’s no sense of certainty that I can give you. We live in a probabilistic world.
If you are a person who needs reassurance, there’s going to be tough business for you. You’re going to have to work on where that feeling comes from. Why do you have self-doubt? Did you have an overbearing parent? And I don’t mean to bring that up. I don’t know your parents, I can’t judge them, but we’re products of our environment, and that typically comes down to whoever was in your nuclear family, which is usually a mom, your father, brother, sister. Some cultures, it might be a grandparent aunt or an uncle too. So I don’t have any judgment, but you need to go back and find out where Adam met Eve and where did you get that? Could you never do anything right? Are all these people full of conventional wisdom? So you’re entitled to that money. You need to change your mindset around money because the financial abundance isn’t going to come and kick you square in the ass just because you’re looking at chart books or you’re part of a Discord.
Again, take what you want, feed your brain, but then you need to move on. Just had a long conversation with someone who’s in the mastermind but was having a little bit of, not a struggle, but needed a breakthrough. So I said, look, I’ll just send you the zoom. We’ll get on a call. We’ll go outside the boundaries. I’ll do it for free and we’ll talk about it like you overthink things. At the end of the day, when you put the work in, it should build the confidence that you are entitled to the work, to the abundance that you’re seeking, right? If you practice hard, you get to go play in the game. If you win or lose, you get to reevaluate shore up some things. I don’t like to focus on improving weaknesses, though. If you have a weakness, let it go. Focus on building your strengths. You need to change your mindset around money. You don’t have to go through living hell in order to get to some nirvana in your trading. You’re entitled to it right now. If you follow smart rules around managing risk, you have to also understand that the expected value, if you stick with what your trading rules are, the expected value of a trade isn’t going to change. And that each trade that you put on is like that independent coin toss. It’s not predictive of what’s going to happen next. So you have to let go of resulting and saying to yourself, well, I put this trade on.
I lost money. I put three trades on. They all lost money. That has nothing to do with what the fourth trade is going to do because on each trade, the expected value is the same thing. So if that’s your setup, it’s in your best interest to put that trade on. Now, you might be able to build your confidence if you spend time back testing, because then you can see over the last 10 or 20 years how that would’ve worked. What did the losing streaks look like? Then you might be able to say, okay, well maybe if my instrument is below a three or a five day simple moving average, I don’t put the trade on. I use that as a filter for risk on risk off. Allah, my good friend Brian Shannon, he uses anchored vwp for a lot of things. However, if the instrument is below the five day, that’s a go no go model for him. You can steal from that and see if it works for you. But make no mistake, the belief system that we spoke about yesterday and your mindset that you’re entitled to win.
You can’t be a victim in this business. It will chew you up and spit you out. It’s like a great white shark. The first bite is the kill to bleed out the prey. The next one, they just come back and feed after they watch the body of the seal floating in the water. That’s what you are. You don’t want to be the body of that seal just sitting there. You have to do the work. And of course the work is the work on yourself. The trading rules are not that sophisticated. On some level, you could say, if it’s not going up, don’t buy it in the first place. If you stick to some basic tenants, you can improve your p and l. Mind you, I don’t advocate looking at your p and l to internalize if you’re doing well or not. You judge yourself by, are you following your discipline? Focus on your process, not the results. Because over time, you’re going to have streaks that are winning. You’re going to have streaks that are losing, and it says nothing about your intelligence. You don’t to be above average intelligence. Part of the conversation with my friend yesterday, I’ll call him Thomas, it’s not his name, was that when you’re too smart, you can find 45 different reasons to put the trade on and adjust as many to not put the trade on because you can see all the possibilities and what happens is that actually shuts you down. So you have to actually simplify things to several steps. A good book for this, if you like, I’m almost reluctant to mention books though, because you could spend your life reading books. The key is to learn and put the information to use. I don’t like the idea of reading books to fill your brain with stuff that’s not necessary for trading. The book is called “Simple Heuristics that Make Us Smart,” and in the book, I think it’s the book, I haven’t read it several times.
They talked about when someone would come to the hospital complaining of shortness of breath and chest pains, they had to figure out was the person in or about to go into cardiac arrest. And I think they had, again, I might have the story, I have the story, but I don’t know if it’s the book, but it’s the tenet of the book that matters. And it’s to simplify. They used to go through, I think the story goes like 12 different measurements to see if the person was in fact either in cardiac arrest or having heart attack. Now, when you’re in that space, and I know a little bit about it, the time is of the essence.
And so in order to administer these 12 tests, it would take more time. That was very valuable time that could help the person survive it or avoid it by using blood thinners or this and that. So what they did was is they said, okay, well what of these measurements can we use that actually have high predictive value for this illness? And I think they reduced it to two or three measurements that they could get done within 90 seconds, saving an enormous amount of time and getting the sick person the treatment that they needed much quicker. And the accuracy rate was amazing. So whereas you had 12 measurements, they might’ve had 95% efficacy. They were able to cut it down to three measurements and have similar results. So when you think about your trading, if you’re super intellectual, you need to let go and let God. There’s too much information out there that doesn’t necessarily help you with signal. You see? But you want reassurance because you’re used to that. That’s your culture. That’s the culture of you, is to probably be the smartest person at whatever table that you’re sitting at. But that doesn’t help you with
Trading. We no longer need to have an encyclopedic knowledge. Sure, if you want to go on TV and tell stories and impress people because you’re an asset gatherer, that’s one thing, but that’s part of the currency of being a marketer. A trader doesn’t care about that. They don’t care about nosebleed valuations. It’s bullshit price, earnings, multiple. No one cares. That’s investor language. We don’t use that in trading. You need to understand that when you put that work in. Your job is to minimize and make your model as simple as possible. And if you can’t describe it in three sentences, it’s probably too sophisticated. And if you’re just starting out, you don’t need to have seven different setups. Pick one and excel at it, own it. Reduce it to as few steps as possible. This way you don’t anyway. You’re entitled to all the abundance that you seek. You don’t need to ask permission. You don’t need to put in a certain amount of time as a grunt. There is no bootcamp. That’s all language that you’re bringing in from other cultures. That’s not necessary here. We’ll talk more about it this week.
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The most powerful mindset for your success is your belief and you can achieve your goals. If you think you want to start trading by reading a bunch of books or doing this and that we all know what your options are to learn charts or the craft of trading, which will never end, there’ll never be a lack of sights for you to look up or charts to follow or this and that. The single most important thing that you need is your belief in yourself that you can achieve a goal. That’s why when we do in the coaching program, in the program goal setting is job number one. You have to know what the target is. If you think that I’m going to acquire information first and then I’ll figure it out, not going to work even before that. You have to see from the periphery like, okay, I’m interested in trading.
I might have a certain proclivity, which I will find when I start risking real money. My interest might be in position trading. It might even be in investing. It might be in short term stuff like day trading or scalping or swing trading. It’s all legit, but high performance people that I work with and the person that I’ve become, the only reason my success ever came was because I believed I could do it. Because when you’re in your darkest hour, and excuse me, when nothing else seems like it’s going to work, if you don’t have belief in yourself, what else is going to carry the day? You might think that this is a game of accuracy. I think you’re going to learn the hard way that it’s a game about conditional probabilities, expected values and probabilistic outcomes. So a smart trader is going to know that ahead of time, and we’re going to talk about all that this week about mindset because I feel like on many levels, and the more of you that I get to speak with, which thank you very much for being here.
By the way, I wrote about my struggles in “The Inner Voice of Trading,” which was published by FT Press in 2011. If you’re new the channel, you can get the free audio book download. The link is in the description, and when you read through that book and you think about how I was getting my head kicked in, even though I was making a lot of money, I didn’t write about the gloating part. I wrote about the failures because I think that’s what everyone could identify with. Even if you are a fan of a certain trader, it could be anybody from the market wizards or the legends that are out there to people that you might know personally, everyone’s going to lose money. Doesn’t matter. Your status doesn’t matter. Your assets under management doesn’t matter your trading style or your holding period. So when people say, well, what are the qualities and the characteristics that you need?
There’s a lot of them. I think having a good attitude is one discipline. Yes, true from work ethic standpoint, but if you have a pissy attitude, even if you have a good work ethic, it’s tough to grind on yourself. The grind of trading is going to be enough. If you beat the hell out of yourself, you’re going to find that trading is the perfect vehicle for you to continue to beat the live shit out of yourself is like having 10 devouring moms. So the most important mindset to me for success was my belief that I could do anything. Oh, Michael, you’re amazing. You can be president one day. I never believed that bullshit. And to be honest, I hate politics. I don’t really get along with people either who were too far one way or the other. I’d find it really obnoxious. But do what you think is best.
The point being is if you don’t have, because I think belief, right? Think about any type of, whether it’s politics or religion, the key word there is belief. It’s what are you but for your faith, right? So that comes down on belief. So in trading, because it’s such an entrepreneurial activity where you have to be both a leader and a follower, and you’re a team of one, no matter who else is out there, even if you are listening and you are or you currently are, you were, or you think you’re going to be a coaching client, you’re still on your own. I can help you shorten your learning curve and help you go geometric in terms of your ability for sure. But if you don’t believe that you can do it, there’s nothing that I can do at any price point to help you. You have to have this unwavering ability to believe in yourself that you can get the job done no matter what, even if you don’t have a clue about what it is that you’re going to trade, because in that regard, it shouldn’t matter.
And that I think is really good advice for life. I mean, if I look at the things that I’ve done in my professional career, I’ve certainly lost a lot of money. I’ve definitely made some boneheaded moves, but if I look at some of the major achievements that I had that I’ve achieved and not be prideful, most of it came about because I believed I could do it. Even in getting, I would call it the book deal when I was reaching out to publishers and I was doing it via cold email. I didn’t have any relationships. I just thought I had a memoir in me in the form of a book that would be informative and entertaining different from all these how-to books. Because my whole take was that if the how-to books, this goes back and I’ve got every how-to book out there, and I’ve got the collector items because sometimes I too need to be reminded, but most of the time I’ll say 90, they say trading is 75, 80% psychological. I’ll go as far as to say that I think 99% of your success is going to come from your belief in yourself and your ability to pull it off. Doesn’t matter how you’re going to do it, don’t focus on that. I would say focus on yourself. That’s why I spend all the time here talking about you because you are the asset here, not the chart pattern, not your trading style. It comes down to you.
And anyway, I was calling these, there’s really two big publishers. I mean, there’s a couple of publishers, but I went to the two that everybody knew. I cold emailed, I won’t mention, well, fuck it. I emailed Wiley and I emailed FT Press. I made two emails. I don’t believe Wiley even got back to me. And FT Press was just like, yeah, tell me more about this idea. I had sent them a treatment, a three-page treatment. They loved the idea. It was unique. It’s the differences that sell. And I got on the phone, I had a successive group of chats with the executive editor who was very, very helpful in the whole process, not just getting the deal, but through the building of the book. I didn’t know anything about the book business and I got the deal, and that’s to God’s honest truth. I sent out two mails, two emails.
Like I said, one never got back to me, but I believed that I could do it. And was I in the right place at the right time? Could be was I lucky? Could be. The book has four and a half out of five stars, so it seems to have resonated with folks who are fans of that type of book. There are other good books out there that can help you, but that’s not my concern. I’m looking to fill up my Karma Bank. Why? Because you, I’m a one person shop who has to believe in himself, who has to be a follower and a leader. I have to be entrepreneurial and I’m going to have good luck and bad luck, good timing and bad timing. And I’ll probably have mostly good analysis because after 36 years, it’s not to say that I can’t be an idiot, but I’ve come past the point of worrying about what’s my trading edge.
I don’t worry about that anymore. So in that case, I’m lucky, but I’m still going to lose money. I still have to keep my losses small. I still have to use my protective stops. So in that regard, we’re equal. So what’s the difference then? If you think I have any type of success that you want to emulate? I’ll tell you what the key is. The key is that you have to believe that you can do it If you have any insecurity about it, I tell you, they say bees and dogs can smell fear. So can the market, any ticker symbol can smell fear. And fear doesn’t have to be like I’m afraid. It could be trepidation, it could be insecurity. It could be that you’re not any of that stuff that would take you away from the middle line. That would make me say he needs a little more time.
She needs a little bit more time to ripen on the vine before we’d give them an allocation. They don’t seem sure of themselves. People will their way into success. So I don’t want to come up with a cheesy title like the Secrets of Proven eight Figure Scalping, day Traders, whatever, because I’m not trying to sell you something. And those people can still make mistakes and they can still lose money. Now, I hope they don’t because I just don’t care about most other people because I’m in this alone. There is no frater. Yes, you can kind of cohort with people behind the scenes and I’ve got a lot of really great friends and they’re good people and I’m grateful to have them as friends because meaningful for me and my life. But at the end of the day, when I go to trade, it’s just me and my higher power. And so that higher power has to stem from a belief first and foremostly that you have will do it. You will get it done. And if you don’t have what resources you’ll need, you’ll create the ones that you need.
The world is trippy, man. When you think about how things come together, I can remember when I was looking to kind of go pro and associate with a bigger firm, the funding account style stuff wasn’t around. So you were looking at where inside Wall Street were there firms that took proprietary risk. There were really two places there were real, because proprietary trading today is a bastardized version of the word proprietary trading. To me, it was best represented inside of Bear Stearns, for example, where they gave you a desk and your resources and they gave you the money to trade. You didn’t have to pay for an education and you didn’t have to put up any of your own money. They just said, here’s a person who could create alpha. Let’s give them the tools that they need and then we’ll give ’em a certain amount of time with which to get it done.
Since then, it’s evolved into include a whole bunch of other stuff that in my mind, because I’m a purist, probably conservative too, and I’m grouchy old man that I don’t really see it as proprietary trading the way, and I’m talking about all the firms that I don’t really think of them as prop trading, but at any rate, we can disagree or agree to disagree. And I sent out resume and cover letter mostly by fax because there weren’t emails at the time. And I was like, I can show them I have a track record. I had assets under management. I had proven documents that showed that I could make money, and it showed drawdowns. What did I lose portrayed? I had all that worked out. I had to do it by hand because the resources that you have today don’t really exist or didn’t exist then. And I mean one after the other, I got thank you, but no thank you. I had a lot of you’re overqualified, which I couldn’t quite understand because I thought if you give somebody money, wouldn’t you want people to have mostly, which is your track record, to try to go out and make money but also not have the massive drawdown? And my ratios were good. My ratios were like five to one, which means my best month was five times the size of my losing month. So I made a point to know that not losing is just as important as having the ability to make because if I have a million bucks to give you to trade, I don’t want to see you having plus 500 minus 500 months. They might happen coincidentally, but normally you want to see drawdowns that are much smaller too because of the emotional aspect of trading and that you don’t want to have to dig yourself out of a deep hole of what it does to you.
It could put you in a make or break kind of a situation. Plus some places they don’t necessarily have the 50% puke point. It might be a much tighter leash when you’re starting out. And I remember keeping those letters, not because I was proud of ’em, but because I knew that these were people who discounted my ability. And of course, not from an ego standpoint, but from my own self-esteem, which is different from ego. I wanted to prove them wrong. And like George Bernard Shaw said, if you can’t find the resources that you need at David Shaw’s house or Renaissance, I don’t know if they were around at the time, maybe they were mostly programmatic anyway, which wasn’t my deal. But Bear Lehman, this and that. And it’s interesting because now if I look back to those names, they don’t even exist anymore. Now, who knows, maybe I could have been there for a few years and then moved on or scaled up.
Who knows how it would’ve worked is myriad combinations. But the point is, is that I always believed in myself that I could get it done. So I went to the place where I thought would be the lowest hanging fruit. Go to a place where there’s a desk, a computer, there’s capital. They’ll give you a line of credit, you could meet with other like-minded people, share resources, give and take maybe obviously get an education in that process and everyone’s better off. And that wasn’t the path that God picked for me. So I kind of had to do it myself. Now again, I had someone hand, I caddied for John Merriweather at Wingfoot, great guy. And I’m sure I had a friend of mine hand deliver a cover letter and resume to the hiring person at Long-term Capital Management. Now, that didn’t work out for me. They weren’t interested.
But look what happened to the company. So I think the universe had a way of saying, this guy’s for real. He’s true in his aim. He’s probably what they would consider a good guy. So let’s not put him, let’s save him from himself and let’s not put him in harm’s way because of the two or three dozen firms that I went to. Again, bear Gone, Lehman Gone Long-Term, capital gone, and the list goes on. I won’t bore you with the details, you might not have heard even of the names, but they were big for the day. And so I got saved from all of that. There would be nothing worse than going to work and saying, Hey, we can’t meet a margin call. We have to scuttle our firm. You are out of a job. And now there’s you and 200 other people who are highly qualified, who have really good track record track records, all now looking for five open seats.
And I was never put in that situation. I got shut out. I was “0-for” in trying to get a job on a desk, and so I just went out and started my own company and I haven’t worked for someone else ever since in that type of space. And that came down to my belief in myself. It was like, okay, I’m going to try to walk through the front door. I’m even going to try to jump through the bathroom window. Sorry, ma’am. Didn’t know you were sitting here. That’s seat taken at the end of the day. So then I said, I’m just going to find my own way. Can’t cut a hole in the roof. I don’t want to do some obnoxious things. I did try, I won’t talk about it now, but I did try some clever things to try to get people’s attention, which I’ll talk about another time on maybe an episode that really, who knows, it’ll be a little bit more of background of my life more than trading stuff, but I’m not sure that those stories are actually even interesting for you.
So I’ll spare you the details. But when you’re thinking about it, if you’re trying to, and you’re several years into your practice and you’re trying to figure it out and you think you’re close, honestly, just keep believing in yourself. I don’t want to sound like some kind of bong, smashing, granola bar, California guy, but even for the rough edges on my New York personality, it was really my unwavering and unlimited belief in myself that I’m a guy who hits his goals. I went to a public high school. I got into Columbia when I didn’t even know how hell I was. I going to pay for it. So there was enough things in my life that I could go back and reference and say, huh, when you do put your mind to something, you find a way to manifest all the resources that you need. Why? Well, they already exist.
Everything that you need to make money and to succeed as a trader is already in existence. What you probably have to do is some emotional portfolio management and cut away the bullshit that doesn’t serve you. That’s where the coaching could come in. I don’t know, but I’m telling you, don’t keep looking for external solutions. The internal solution is your belief in yourself. It’s the single most important thing. Tap into it when you look back in your life and see, look at the other things that you had to achieve. Well, how did that go down? Try to create a model out of that and then replicate that model and overlay that into your trading.
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The most important time of the day for you as a trader is not the time that you’re spending in front of the screen. Trying to get your executions in your mindset is the biggest asset. If you’ve been following this channel, thank you for coming back. If you’re new here, welcome. If it’s your new first time here, I give away the audiobook version of my book, the Inner Voice of Trading. You can get the link in the description. The most important time of the day is how you do your preparation. Now, I want to talk about that because again, we know there’s two outcomes to every trade. There’s the emotional and the psychological, and there is the financial.
You are being able to process your feelings around. All of that is really what your goal is each and every day. It’s to follow your discipline and without getting emotionally invested in the outcome of anyone particular trade. Your goal is to say if you want to win the day regardless of your P&L, and you’re following a set of rules that have positive expected value, which means you have a trading edge, the outcome of any one particular day doesn’t matter. Emotionally, you might make it matter to me. That’s wrong. I don’t think you need to see a green day every day, but that’s my emotional constitution. When I hear people say, have green days, just book a green day, I think they’re anal. I think they’re too uptight about shit, but I have a cast iron stomach. My emotional constitution is subject to wanting to just win over the longer haul. I tend to make more money when I think that way also. Anyway, so the most important part of the day might not necessarily between 9:30 AM and 4:00 PM Eastern, which is the stock market. It might not be 8 am to 1:30 pm when the Cocoa market is open or in eastern time. It’s the time that you are getting prepared to me. When you set yourself up to win “the victorious warrior, first wins then seeks battle.”
I practice jiujitsu. I go to MMA fights where my friends who are both pro and amateur at the pro and amateur level compete. We talk about camp. Well, camp is very brutal, and I train with these guys. They want me to go hard with them and put them in really bad spots to fight out of it. Why? Well, because you really want to bleed in practice, not in the octagon, right? So your preparation is key. You’re powerless over the outcome. All you can do is control your behavior. So to me, the most important time of the day is what are the ritualistic things that you do, right? What’s your routine? You can have a little bit of both. It’s not bad to feel, to feel good. I think it’s important to understand the difference between ritual versus routine, but in terms of your preparation, this is kind of where you’re putting your shopping list together.
What is it that you’re going to try to do? And if you’re beginning, you don’t have to worry about saying, I’m going to scalp here. I’m going to day trade this one. I’m going to trend follow here. That’s not part of your dialogue. You need to get good at one thing. First, you have to attain the skill. Then you can expand from there. So your preparation should be, I’m not just going to wake up and go look at the MNQs in the morning. You’re going to do your preparation beforehand and say, here’s where I see my cup and handle. For example, if that’s what you trade across, any number of these names. So when the day starts, I’m going to look to see how those markets unfold. I’ll put my buy stop orders at a certain point, so if the market trades through that level, I’ll get executed.
I’ll add length to my portfolio. That’s the best that you can do, and that to me at the beginning is all you should be doing in terms of trying to interpret charts because you don’t get paid to interpret charts. You get paid to put in orders and have them get executed and then manage the risk. The other thing you have to do, because again, there’s two trade-offs. There’s two not trade-offs, but there’s two outcomes to any given trade is to mentally prepare yourself for the fact that if you have five trade ideas and you put them on, there is a probability that all five might lose. But if you know what your risk unit is, you can mentally prepare for that happening long before you even enter the orders. If you know what your win-loss percentage is, you can calculate the frequency of winning and losing streets of any particular magnitude. The math is easy.
So again, mental preparation, be ready for the day, be ready for the possibility of anything. If you’re in winning trades, practice adjusting your protective stop in lockstep. When I’m scalping in the cocoa market, the damn market’s moving can move 200 points in a 5 to 10 minute window. This is coming from a period of time 3 months ago when the 20 day ATR was like 60 or $600 because it’s 10 metric tons, it’s $10 per tick. Now you could see a 200 point move in a 5 to 10 minute window and a daily ATR of $4,300. So with that type of volatility, it requires you because again, the goal isn’t just to go hellbent for election to make a lot of money. That’s part of it. You have to be in it to win it, but even when you’re a hellbent for election speculator, your #1 job is to protect your capital.
And so over past month, I can share with you, there were times where I was setting in alerts to know when to add to my winners, call those orders in, but at the same time that that alert goes off where it looks like I’m going to add, it also tells me because of the way I think I’m going to be adjusting my protective stop higher accordingly, and there were days when I was doing that five, six times during the day. So you can’t be in a trade where you buy a stock at $20, your protective stop is at $19 and it goes to $25 and you protective stop is still at $19. That’s bad trading and I’m not making fun of you. Maybe you’d never heard that before, but your job as far as I see it isn’t to sit there and try to read one minute bars.
It’s to adjust your protective stops accordingly all day long if need be. Now, I’m not talking about scalping for one or two minute bars where things like 10 or 20 cents might be meaningful for the position size that you’re on because you don’t really have to do that because you’re scalping. I’m more position trading looking to hold things to see how much unrealized gain I can build up, add to my winners, adjust my protective stops accordingly so that I could stay with the trade for as long as possible, evaluate how it’s coming into the close, and do I offset the risk because I don’t retain stuff I don’t have. When I think of people scaling out and keeping a peace for posterity, I immediately start thinking that they have trouble feeling feelings around regrets because if the getting is good and it’s time to get out, it’s time to get out of all of it.
I know people have strong opinions, that’s mine. I don’t care how you think, but that’s how I do it. Learn from it or make a better rule for yourself. It’s fine with me. So that’s kind of how I look at the markets is all that preparation work is done before the opening bell for any particular market, whether it’s a stock or a futures contract, is I know what the plan is long before I have to execute it, and then I don’t waiver from that. On Monday, we talked about limiting distraction. I don’t pick things up on the fly and if I miss something, then that’s my penalty to teach me to change my behavior. That’s the negative reinforcement. It serves me, right? But I’m not too liberal to say, oh, I’m just going to take this one on the fly. It looks like it’s set up. I don’t do that. That’s how, to me, especially when you’re starting, you could end up losing money for reasons that you don’t fully understand. Again, where’s your discipline? Because it’s better to go back and say, okay, how did that happen? How did I miss it? Was it an intraday upgrade? Okay, well, how can anyone fault you on that? But that’s when you go back and you do your preparation and say, I need to build up a system element or variable that doesn’t allow that to happen anymore. What could I screen for so that I don’t miss those opportunities and then systematize it? Because if it’s a one-off, it’s nothing to be concerned about. It’s very difficult to look into find any of those one-offs as they’re aberrations by definition.
So figure out what that is for you. For me, the most important time of the day is typically, well, I’ll tell you definitively, it’s in the evening. Usually when I come back from class, get cleaned up, I eat something pretty healthy. I don’t like eating a heavy meal at the end of the day and somewhere between, depending on the evening because the classes can run later into the evening. It might be somewhere between 8:00 pm and 10:00 pm Pacific time. That’s the time where I’m doing a clearheaded postmortem on the day and also preparation for what I’m anticipating the next day or where certain instruments are in the neighborhood of my needing to put in an alert and or an order. If I already have an order that was, I don’t use good till cancel. I’ll use good for the day if the price never is achieved, of course, the day orders are canceled.
So now I have a list, okay, I’m still kind of in the neighborhood, but I might be 20 points off for this and that I’m still going to reenter that order the next day and this way. You might find that on any given day, you’re just babysitting a book of buy stop and sell stop orders, buy stop to add length to your portfolio. Sell stops could be protective, sell stops, or they could be, I’m up 5R in a trade and I’m going to invest my gains into my protective stop and walk away with nothing worse than 4R. If I’m going to go short, then I’m going to put in sell stop orders to enter the market short, and I’m going to put in buy stop protective buy stops to make sure the market doesn’t run away in my face and blast me on the upside.
But all of that is managing risk. I’m adding risk and or removing risk, either taking profits or taking small losses, and that’s largely all I do all day is adjust those stops. I’m never going in and saying, okay, I’m going to try to lift the offer here, or I’m going to try to do all that. I’m just adjusting stops and I’m letting the market come to me. It’s a much more peaceful way of doing it where I’m not invested emotionally in having to do something right now. I always live by life on life’s terms, so I’ll let the market come to me, and if the market determines the move is over, then so be it. I’m powerless over the market. I don’t want to be in a spot at any given time where I’m trying to impose my will on the market and I need to see a certain price in order for in order to execute.
I’ll say this one thing and then I’ll be done. That’s why I don’t use sell stop limits because if the job is to protect my capital, I’m trying to unwind the position and get the hell out of it. If I use a limit, now all of a sudden I’m in a spot where not only do I have to see the price on the stop side to get triggered, but then once that’s elected, I have a limit order which says I need this price or better. And if the thing could be going against me and I’m below my limit, I’m not going to get filled, and now I could either be giving back gains or otherwise, and the goal is to move the inventory to manage the risk, specifically to get the risk out of my portfolio, because after that point, it’s not a good risk. Good risks are when you’re long in the market’s going up. If the market reverses, then that length in your portfolio to me is no longer a good length. Again, depending on how you’ve calibrated your position sizing. So I’m saying for whatever your position size is, my position sizing is set up a certain way, so I know at what price point if the market looks like it wants to roll over or there’s a two be reversal or whatever have you, that’s what I would look at more than a swing low to.
And before you ask, the answer is no. This is what we do in the coaching program, but it’s a much lengthier conversation. It’s not a five minute discussion that you can do on YouTube. Some people can do it and they say the link to the course is in the description. I’m not selling shit because mindset includes everything. Your trading system and then how you behave, and it’s too long of a conversation for me to do here. I’m giving away the most valuable stuff for free every day on YouTube. You have to make of it what you want. You could take any one of these lessons and make it homework for yourself, but at any rate, the preparation for me is what lays down the game plan. Then there’s no wavering in that game plan because that’s the best that I can do for that particular day. Every night I do a postmortem and say, how did I do? Did I win the day? Did I execute the way I wanted to execute? Because I know I have positive expected value in my system. Just because I didn’t show p and l for that particular day doesn’t invalidate who I am as a person. It doesn’t invalidate my trading strategy. It’s life on life’s terms and the data in the short run, intraday and even daily data, and oftentimes they’re just random.
So all I can do is come back and put the orders in and follow those rules the next day. Where the market goes is where it’s going to go. I’m not trying to predict things. I’m just trying to anticipate where does it make sense for me to have certain risks in the portfolio and minimize and or eliminate risks on the other side? And when I say minimize, I’m not saying scale out. I’m saying minimize. Like for example, if I’m up 5, 6, or 7R in a trade, how much of those gains am I willing to risk in order to stay in the trade to invite the 10R trades? Because again, for me, there’s no difference between 6R and 7R except for your ego, right? I’m open to the possibilities. I’m very open-minded, that way. I don’t process the P&L. I don’t look at the P&L. You shouldn’t either.
The post The most important time of the trading day first appeared on MartinKronicle.
The post The most important time of the trading day appeared first on MartinKronicle.
Subscribe to the show Click here to get your free copy of The Inner Voice of Trading audiobook. This is an automated transcript
The post MMS #28 – Self Knowledge first appeared on MartinKronicle.
The post MMS #28 – Self Knowledge appeared first on MartinKronicle.
Do I have a hum dinger for you today? So I was talking with a client who admittedly had gotten really comfortable, and this is something that happens in life and this happens also. If you look at any wirehouse, you walk into any financial advisory firm, I don’t want to mention any names, I […]
The post How The Fear Of Failure Creeps Into Your Trading And Your Life first appeared on MartinKronicle.
The post How The Fear Of Failure Creeps Into Your Trading And Your Life appeared first on MartinKronicle.
Everybody, it’s Michael Martin, thanks for being here. Happy Monday. Hope you had a great trading week. A lot of volatility out there. So that might help some of you. It might hurt some of you, but either way, I hope you’re weathering it. I get a lot of great feedback from folks, and I […]
The post How To Measure Your Trading Progress first appeared on MartinKronicle.
The post How To Measure Your Trading Progress appeared first on MartinKronicle.
Hey everybody. Happy Friday. Hope you have had a good week and you have exciting plans for the weekend. I know I’m going to see, lemme just check the date here. Yeah, I think I have good plans. Lemme see. Yeah, none other than my good friend Sean McLaughlin, Chicago Show is going to be in town, so we’re going to have a bite to eat, a bite to drink that we go hard on Saturday night. So I’m looking forward to seeing him. Great guy. And there you have it. So I want to talk to you today again and kind of summarize some things we talked about this week, especially from Tuesday and yesterday’s episode in that as far as your career goes and your aspirations for trading, even if you’ve been in the business 10 years and you want to expand, you are both at the same time, the pilot and the navigator of that process.
We live in a paradigm of personal responsibility. If something’s not working, you haven’t put focus on it and it’s kind of your fault, and I’m not putting a stick in your eye, but as soon as you start to accept responsibility for what is either working or not working in your life, in your career, the sooner you can say, I am the solution. Right? I am the solution and I need to ask better questions of myself. Open-ended questions and find those answers. And it’s okay to feel stonewalled. It’s okay to feel like you’re not making any progress if you can’t push through this barrier. But if you’re persistent and you ask yourself good, open-ended questions, I believe that you can take a little personal inventory and figure it out. And I use that analogy because it’s something that’s very, very important to me. It doesn’t allow me to become a victim ever.
I don’t get the poor me because I’m insulated from that bullshit just not going to happen. If there’s something I want in my life or there’s something that I don’t have, I haven’t dreamed a big enough dream, you see? And so I always say to myself, I’m always sitting at the head of the table no matter what seat I’m in, and I am the pilot and the navigator, and I have to make it happen. And if I’m lazy, it’s probably not going to happen. If I don’t put the work in, it’s not going to happen. If I’m not motivated, it’s not going to happen. But ultimately it’s on me. If I act intentionally, typically good things will come my way. Now, the way I get to be pilot and navigator is with the stuff that I spoke about this week, especially yesterday, and asking people who are very successful, maybe even more successful than me about how to achieve certain things. So I get additional insight because I’ll try anything once. I’m not afraid of failure. And if someone comes up with an idea that seems completely out of left field, it might actually be the gem of gold that I’m looking for and what it cost me, $200 bottle of Joseph Phelps Insignia wine or whatever it might be, that could end up meaning a couple hundred thousand dollars to me over the years. You see? So again, you get what
You pay for, you get people to appreciate you. It also keeps you in a good mindset that you’re absolutely in control, and there is no chance in me becoming a victim. I think it was George Bernard Shaw who said, successful people look for the right circumstances, forgetting in what they want in life, forgetting what they want in their life, and if they can’t find them, they create ’em. So this would be very, very empowering for you. You can do it. Someone had to think about an online marketplace in an ideation that we now know as Amazon. Then they had to go fill in the pieces, right? Didn’t it start as an online bookstore or something like that? I remember watching Amazon and books, A million come up around a similar time, so I might be a little bit off, but again, it starts with the idea and then it was the evolution.
And so as far as I’m concerned, if we’re not evolving, it’s not like we’re dying, but there is a stagnation. So I always like to have some goals. I went to that art class on Thursday nights. It’s a graduate class and some very, very talented people who do things very, very differently from me. And at first blush, it’s a little intimidating. Some of these people are doing portraits. They look like Rembrandts stuff from the Renaissance period. It’s almost like they took a four K camera and took a picture. And I’m like, I don’t even know how long it take you to do that. And one of the young women said, oh, it took me about three, four weeks. And I was like, wow, that’s pretty remarkable to have that much detail with a brush, an oil paint. It’s quite remarkable. So we started sharing ideas and she’d look at some of my stuff and said, I’m very intimidated by your stuff.
It seems very aggressive and very, the term she used was B D E, which I’m not going to discuss here. It was a bigger canvas, it seemed. The gestural marks were kind of aggressive and it was very, very different. So we could learn from one another. And so I’m going to try my hand at doing things very, very differently just as an exercise, just to grow my brain. And we’re going to share some ideas. We actually did an exercise in class where she put up three pieces of her work. I put up three of mine, and we each picked one, and we tried to paint in each other’s style, talk about grabbing a brick. It was very intimidating, and I was probably the oldest one there. I mean, I was invited in as a guest. It’s a graduate course, but these people have serious chops sitting there. I’m not a big brush guy. I’m mostly pallet knives and oil sticks, which I do kind of by hand. So a brush doesn’t feel natural in my hand as trying to move color on canvas or make gestural marks. And so I’m like, okay, if that’s the weakest link in my game, I can either continue to say that out loud and own it, or I can actually try and
Practice it and make a change. Whether or not it makes a difference isn’t necessarily important. It’s that I get to grow as a person. You see, I’m challenging myself with something that seems very foreign. It seems a little intimidating. Of course, there’s not really any money on the line, but I’m always interested in going after the things that feel weird and feel awkward. Then everyone’s looking at the work and they’re looking at the original and they’re like, that’s what you think this looks like. You know what I’m saying? So it’s intimidating in its own way. The same way you might feel if you’re talking to a very well established trader about your trading style, same energy. Doesn’t matter how we get to the feeling, the feeling is the same, and we can share that feeling, right? That’s how we can connect with one another. So when you think about life in those terms, it’s true for your personal life.
It’s one of the reasons why I think folks who do some of the one-on-one stuff, they feel like not only did their trading improve, but their lives improved. Why is because we apply the same technology to the things in your life that are important, as is your trading. And all of a sudden everything gets better. And a big part of that is ownership. And I like to say that to myself a lot. And I’m driving in the car, things aren’t going my way. I’m like, look, throw, don’t start pouting about stuff. Doesn’t get you anywhere. Stay in the solution. How can you try things differently? Who can you email? Who can you call? What’s another way? Because life is probabilistic. What’s another possible outcome of this? What’s another approach to help you get to the same point B? So I constantly say in the solution, knowing that there might be five or six attempts at something that don’t work out.
Either they need more time or there was just no interest or it never got any lift. But the main thing is that I say like, okay, I’m still the pilot and the navigator. I need to ideate more, meditate more. Maybe pick up the phone and ask people what they think and then just keep moving forward. The key part to the success though is the ownership and knowing that you’re actually in control, even though you feel like you’re out of control, even when you don’t have any evidence that what you’re working on is coming to fruition, I promise you, if you keep taking the steps sooner or later, you’re going to start panning for gold and you’re going to see some gold flakes in the bottom of your pan. So stick with that and evolve it further. Then that when that stalls, you can pivot and use that as a resource and then build upon it. Now you’re onto step two. You didn’t even know it, but it’s about ownership and it’s about saying, I own the process. For better or for worse, I own the process and the results are going to come from my sweat equity. I am going to write up the flight plan and then I’m going to steer the ship. Anyway, I hope that helps. I hope you have a great weekend. I’ll let you know how things go with Sean next week, and I will see you Monday. Take care.
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The post What Is Your Flight Plan? first appeared on MartinKronicle.
The post What Is Your Flight Plan? appeared first on MartinKronicle.
Yo. Yo, yo, what do you know? Happy Thursday, folks. So today I want to continue the conversation about environment and talk about the two environments that you have. You have an outside environment, which we touched upon Tuesday, but we also have the internal environment. I mentioned that one thing that you can do is eliminate the noise literally and figuratively from that of which you can see or that you can hear, but also it’s also your consciousness and what’s your self-talk like? How do you speak to yourself when you’re talking to yourself through your conscious, your conscience, right? And my self-talk is actually very, very strong. I didn’t know it when I was starting out. I was also very hard on myself, perhaps like you are too, because I wanted good things for myself and I didn’t know how to calibrate how quickly I should be achieving success for the work that I was putting in.
I thought it would be much more immediate. That seems like it’s a typical guy thing. So I don’t think that I’m terribly unique in that regard. But I’ve come to learn and to understand and hope, share with you here that it’s life on life’s terms. Sometimes it comes in moments and you’ll get some breakthrough and then you’ll plateau, and then things will be like coasting at I’m not making any progress. And then boom, you get a new aha moment and you go up and it looks like your equity curve. So one thing you can work on, aside from building a community of like-minded people who may or may not even be traitors, it doesn’t matter. It’s better if it is. If they are, is what does your internal dialogue look like? And so I was lucky again, and I was born that way, and that I had a strong sense of self.
I could envision a different life than the one I had been born into and one that I wanted to aspire to. And it’s kind of like be, do, have. I had to act apart. You had to take the initiative and behave the way you think that person would behave. And let’s face it, it feels ridiculous a little bit at the beginning. You don’t even know what you’re doing, but what you can say is, if I don’t change, things will be the same tomorrow. That’s guaranteed. Very rarely are you going to just step in shit, and all of a sudden things just happen for you. Can’t happen once in a blue moon. My experience, it happens to the folks who aren’t even necessarily hard chargers, but they’re persistent and they’re relentless. And I’m not talking about going hell bent for election or running at a blue streak. I’m just saying that every day they act intentionally with respect to their goals. A big part of that is what is going on inside between your ears and how do you talk to yourself in those moments when you do have the quiet time? Because you realize that you can’t get good trading ideas off the TV screen during the day.
So I used to write out on index cards, not motivating quotes that was very popular. Read all these books
And find motivational quotes. The thing is, is that if I couldn’t act on them, they seemed empty. They seemed invite, they go, oh, that one’s deep. But that’s usually as far as it goes, and the next day it’s gone. So I would try to think of something that was actionable, right? Something like they say, you are the average of the five people that you spend your time with. And so when I needed, I don’t know if that’s true or not, but it seems to be said, it seems like it’s a reasonable thing to kind of study and it speaks to the episode on Tuesday. And so I would say, okay, if I wanted to reach out to these other people and kind of expand my zone, maybe there’s a 10 year time difference between my, I found myself in that situation a lot where the people that I aspired to be with or emulate were older than me, sometimes a generation older than me.
So what do I do at 24, 25 years of age when I’m calling on a 50 year old? What do you do with that person? So you have to be a little creative. What do they like to do? Do they like to walk a cigar? You can’t do that anymore. Do they like to walk a cigar in Central Park? Do they like to go to, it used to be top of the sixes now. I think it’s like a macado kind of cigar bar at 6 6 6 fifth Avenue across from St. Patrick’s Cathedral, near Rockefeller Center. Do they like to golf? Are they big fans of a sporting team? And so you would say, okay, look, maybe they’re Yankee fans. So then you’d go out and pick up two tickets and say, Hey, I got an extra ticket. You don’t even have to be like, I bought you a ticket.
You get three or four tickets. You have two of your buddies come and you had the extra. And now you start to prospect into that group of people that you want to associate with that can help expand your thinking and help, not necessarily mentor you, but expose you to a different level of success than your peer group is used to. And I used to do that all the time. That’s where all my disposable income kind of went to is not necessarily prospecting these people, but just going out, seeing how they acted, seeing how they behaved, what was their mindset? How did they approach the work week? You know what I mean? And ask them not upfront and overwhelm them like they’re on the marathon, man, is it safe?
What could you do to pick their brain and say, Hey, look, I’m working on this business plan. Can you take a look at it? Sometimes they’d say, no, this was before the age of email. So I’d have to print it out and bind it and say, Hey, here’s a business plan that I’m working on. I was wondering if you just, and I’ll give you 50 bucks, or I’ll take you to dinner and I’ll pick your brain on it. It would be important to me. My peer group, they’re not business owners yet. They haven’t gone out on their own. I don’t really have anyone else to go out to. Now there’s all these mentoring places and score and this and that. It wasn’t really available to me either it didn’t exist or I was ignorant and didn’t know it existed.
So in either way, it wasn’t there. So maybe it’s a round of golf somewhere, or maybe it’s like I used to work at golf courses, so I would say, Hey, Jim McLean is a famous teacher and I can get us on for a lesson on a particular Monday after work. Can you get out a little bit early? I can make that happen. And the guy would be like, wow, you can do that. So I would do that and I’d pay a little cash under the table, this kind of deal. So you can be creative and try to invite those people into your world on the outside, and that affects your inner game. Now that you’ve pulled that off, it should fill you with confidence. It’s not because you landed a million dollar account, but it shows that you can go out, set your mind on doing something, execute it, get it done, and boost your confidence a little bit.
Now those people can also give you some very honest feedback. What I used to hear a lot is like, I’ve never had a person of your age group call me to pick my brain on these types of things. And quite frankly, I’m surprised because I feel successful and I want to give back to the community. So you’d be surprised what people will tell you if you just ask them Right now, I’ve already jumped the gun and I’m doing these damn daily videos to give back to the community for free. We might put a course together on it and take it a step further in the future. I’m talking to Ganja about it, not sure how that would work, but apparently there’s something we can do through YouTube and have a membership aspect to it and turn some of this into a more premium kind of a deal. But that helps your self-talk. It’s like, wow, I called this person. It was intimidating to do so it was effectively, maybe it wasn’t a complete cold call, but I was asking something and I was facing rejection. And so when I found, and this is part of my own self-talk, is the more I put myself in those uncomfortable situations where I had to ask people open-ended questions or yes, no questions where they could say, go forth and procreate with yourself in a manner of speaking.
More times than not, people would say yes in one way, shape, or form. They say, look, I’m awfully busy. I got young kids, or I got crap going on with work, but if you call me Friday at three, I got 15, 20 minutes for you on the phone. And that’s a win. It goes right to your mental game because now achieving a goal, you’re, excuse me, you’re executing on a task that goes towards your goal and you get some very, very valuable feedback from people like, this idea seems good, but this one’s not practical. You can change this one a little bit. Or Here’s how I would do this one even better. And it’s like, wow. Then what do you do? I don’t know. Send the person a bottle of scotch, send them one of their favorite long filler cigars. I dunno. You can get creative, do something nice, send ’em a bottle of whiskey
Or a bottle of wine, buy ’em a $200 gift certificate at a restaurant that you think is good. Say, Hey, thanks. I appreciate the effort. It means a lot to me, more than wanted to send you a little something. That stuff goes a long way people remember, and that’s a very Mike Martin way of going about stuff. The Trading Tribe was a little bit different. I lived in Los Angeles, I had to fly on a plane. That was obviously a huge commitment. So that’s kind of how I paid my tuition on some level, is making a gigantic effort to be part of that. And it’s not a subway train. A few stops down on the four train. It was a much more intense deal. Plus there was time away from the desk and the markets. So this is something that you can think about. I think it’s super valuable.
Anything that you can do to improve your sense of self-awareness, your self-confidence, it goes right into your inner dialogue and your inner chatter. And that’s something that you can focus on and you get to do so by asking people for help. Because more times than not, I mean, heck, I get emails all the time from people, what do you think of this? And sometimes I’ll say, Hey, it doesn’t matter. Here’s where I would go do further research. Or Here’s what I know in my own experience, it takes me five minutes not even to respond politely to an email, especially the ones that are clear and concise. I don’t want four paragraphs that are all blurred into one. It’s T L D R. I don’t have the time for that. I don’t need the context to just the question and then I can help. So think about that on how you can improve that in your own life.
Even here, I don’t really have time to go out because I’m busy, but if you send over an email, I’m absolutely happy to respond, point you in the right direction for this moment in time. I am looking forward to, I got a few friends coming into town this weekend. I’m going to see ’em and spend some time with them too. They’re very, very successful. And that’s all good. So that’s all I have for you today, folks. I appreciate you very much being in here. Please like and subscribe. Also, I should say this at the top of the thing, at the top of the show, but forever in a day, I’ve been given away the audiobook version of the Inner Voice Trading, which I own the rights to. So if you go to martin chronicle.com proper, look in the top right corner and you’ll see a link where you can go and get the download for the audiobook version of the Inner Voice or trading. Thanks so much for being here, folks. I’ll see you tomorrow.
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This is an automated transcript
The post Your Own Inner Voice first appeared on MartinKronicle.
The post Your Own Inner Voice appeared first on MartinKronicle.
Yo. Yo, yo, what do you know? Happy Thursday, folks. So today I want to continue the conversation about environment and talk about the two environments that you have. You have an outside environment, which we touched upon Tuesday, but we also have the internal environment. I mentioned that one thing that you can do is eliminate the noise literally and figuratively from that of which you can see or that you can hear, but also it’s also your consciousness and what’s your self-talk like? How do you speak to yourself when you’re talking to yourself through your conscious, your conscience, right? And my self-talk is actually very, very strong. I didn’t know it when I was starting out. I was also very hard on myself, perhaps like you are too, because I wanted good things for myself and I didn’t know how to calibrate how quickly I should be achieving success for the work that I was putting in.
I thought it would be much more immediate. That seems like it’s a typical guy thing. So I don’t think that I’m terribly unique in that regard. But I’ve come to learn and to understand and hope, share with you here that it’s life on life’s terms. Sometimes it comes in moments and you’ll get some breakthrough and then you’ll plateau, and then things will be like coasting at I’m not making any progress. And then boom, you get a new aha moment and you go up and it looks like your equity curve. So one thing you can work on, aside from building a community of like-minded people who may or may not even be traitors, it doesn’t matter. It’s better if it is. If they are, is what does your internal dialogue look like? And so I was lucky again, and I was born that way, and that I had a strong sense of self.
I could envision a different life than the one I had been born into and one that I wanted to aspire to. And it’s kind of like be, do, have. I had to act apart. You had to take the initiative and behave the way you think that person would behave. And let’s face it, it feels ridiculous a little bit at the beginning. You don’t even know what you’re doing, but what you can say is, if I don’t change, things will be the same tomorrow. That’s guaranteed. Very rarely are you going to just step in shit, and all of a sudden things just happen for you. Can’t happen once in a blue moon. My experience, it happens to the folks who aren’t even necessarily hard chargers, but they’re persistent and they’re relentless. And I’m not talking about going hell bent for election or running at a blue streak. I’m just saying that every day they act intentionally with respect to their goals. A big part of that is what is going on inside between your ears and how do you talk to yourself in those moments when you do have the quiet time? Because you realize that you can’t get good trading ideas off the TV screen during the day.
So I used to write out on index cards, not motivating quotes that was very popular. Read all these books
And find motivational quotes. The thing is, is that if I couldn’t act on them, they seemed empty. They seemed invite, they go, oh, that one’s deep. But that’s usually as far as it goes, and the next day it’s gone. So I would try to think of something that was actionable, right? Something like they say, you are the average of the five people that you spend your time with. And so when I needed, I don’t know if that’s true or not, but it seems to be said, it seems like it’s a reasonable thing to kind of study and it speaks to the episode on Tuesday. And so I would say, okay, if I wanted to reach out to these other people and kind of expand my zone, maybe there’s a 10 year time difference between my, I found myself in that situation a lot where the people that I aspired to be with or emulate were older than me, sometimes a generation older than me.
So what do I do at 24, 25 years of age when I’m calling on a 50 year old? What do you do with that person? So you have to be a little creative. What do they like to do? Do they like to walk a cigar? You can’t do that anymore. Do they like to walk a cigar in Central Park? Do they like to go to, it used to be top of the sixes now. I think it’s like a macado kind of cigar bar at 6 6 6 fifth Avenue across from St. Patrick’s Cathedral, near Rockefeller Center. Do they like to golf? Are they big fans of a sporting team? And so you would say, okay, look, maybe they’re Yankee fans. So then you’d go out and pick up two tickets and say, Hey, I got an extra ticket. You don’t even have to be like, I bought you a ticket.
You get three or four tickets. You have two of your buddies come and you had the extra. And now you start to prospect into that group of people that you want to associate with that can help expand your thinking and help, not necessarily mentor you, but expose you to a different level of success than your peer group is used to. And I used to do that all the time. That’s where all my disposable income kind of went to is not necessarily prospecting these people, but just going out, seeing how they acted, seeing how they behaved, what was their mindset? How did they approach the work week? You know what I mean? And ask them not upfront and overwhelm them like they’re on the marathon, man, is it safe?
What could you do to pick their brain and say, Hey, look, I’m working on this business plan. Can you take a look at it? Sometimes they’d say, no, this was before the age of email. So I’d have to print it out and bind it and say, Hey, here’s a business plan that I’m working on. I was wondering if you just, and I’ll give you 50 bucks, or I’ll take you to dinner and I’ll pick your brain on it. It would be important to me. My peer group, they’re not business owners yet. They haven’t gone out on their own. I don’t really have anyone else to go out to. Now there’s all these mentoring places and score and this and that. It wasn’t really available to me either it didn’t exist or I was ignorant and didn’t know it existed.
So in either way, it wasn’t there. So maybe it’s a round of golf somewhere, or maybe it’s like I used to work at golf courses, so I would say, Hey, Jim McLean is a famous teacher and I can get us on for a lesson on a particular Monday after work. Can you get out a little bit early? I can make that happen. And the guy would be like, wow, you can do that. So I would do that and I’d pay a little cash under the table, this kind of deal. So you can be creative and try to invite those people into your world on the outside, and that affects your inner game. Now that you’ve pulled that off, it should fill you with confidence. It’s not because you landed a million dollar account, but it shows that you can go out, set your mind on doing something, execute it, get it done, and boost your confidence a little bit.
Now those people can also give you some very honest feedback. What I used to hear a lot is like, I’ve never had a person of your age group call me to pick my brain on these types of things. And quite frankly, I’m surprised because I feel successful and I want to give back to the community. So you’d be surprised what people will tell you if you just ask them Right now, I’ve already jumped the gun and I’m doing these damn daily videos to give back to the community for free. We might put a course together on it and take it a step further in the future. I’m talking to Ganja about it, not sure how that would work, but apparently there’s something we can do through YouTube and have a membership aspect to it and turn some of this into a more premium kind of a deal. But that helps your self-talk. It’s like, wow, I called this person. It was intimidating to do so it was effectively, maybe it wasn’t a complete cold call, but I was asking something and I was facing rejection. And so when I found, and this is part of my own self-talk, is the more I put myself in those uncomfortable situations where I had to ask people open-ended questions or yes, no questions where they could say, go forth and procreate with yourself in a manner of speaking.
More times than not, people would say yes in one way, shape, or form. They say, look, I’m awfully busy. I got young kids, or I got crap going on with work, but if you call me Friday at three, I got 15, 20 minutes for you on the phone. And that’s a win. It goes right to your mental game because now achieving a goal, you’re, excuse me, you’re executing on a task that goes towards your goal and you get some very, very valuable feedback from people like, this idea seems good, but this one’s not practical. You can change this one a little bit. Or Here’s how I would do this one even better. And it’s like, wow. Then what do you do? I don’t know. Send the person a bottle of scotch, send them one of their favorite long filler cigars. I dunno. You can get creative, do something nice, send ’em a bottle of whiskey
Or a bottle of wine, buy ’em a $200 gift certificate at a restaurant that you think is good. Say, Hey, thanks. I appreciate the effort. It means a lot to me, more than wanted to send you a little something. That stuff goes a long way people remember, and that’s a very Mike Martin way of going about stuff. The Trading Tribe was a little bit different. I lived in Los Angeles, I had to fly on a plane. That was obviously a huge commitment. So that’s kind of how I paid my tuition on some level, is making a gigantic effort to be part of that. And it’s not a subway train. A few stops down on the four train. It was a much more intense deal. Plus there was time away from the desk and the markets. So this is something that you can think about. I think it’s super valuable.
Anything that you can do to improve your sense of self-awareness, your self-confidence, it goes right into your inner dialogue and your inner chatter. And that’s something that you can focus on and you get to do so by asking people for help. Because more times than not, I mean, heck, I get emails all the time from people, what do you think of this? And sometimes I’ll say, Hey, it doesn’t matter. Here’s where I would go do further research. Or Here’s what I know in my own experience, it takes me five minutes not even to respond politely to an email, especially the ones that are clear and concise. I don’t want four paragraphs that are all blurred into one. It’s T L D R. I don’t have the time for that. I don’t need the context to just the question and then I can help. So think about that on how you can improve that in your own life.
Even here, I don’t really have time to go out because I’m busy, but if you send over an email, I’m absolutely happy to respond, point you in the right direction for this moment in time. I am looking forward to, I got a few friends coming into town this weekend. I’m going to see ’em and spend some time with them too. They’re very, very successful. And that’s all good. So that’s all I have for you today, folks. I appreciate you very much being in here. Please like and subscribe. Also, I should say this at the top of the thing, at the top of the show, but forever in a day, I’ve been given away the audiobook version of the Inner Voice Trading, which I own the rights to. So if you go to martin chronicle.com proper, look in the top right corner and you’ll see a link where you can go and get the download for the audiobook version of the Inner Voice or trading. Thanks so much for being here, folks. I’ll see you tomorrow.
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The post MMS #27 – When To Stop first appeared on MartinKronicle.
The post MMS #27 – When To Stop appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. Happy Tuesday. Didn’t have an episode yesterday because markets were closed. It was Labor Day. I hope you enjoyed the three day weekend. Summer was like two weeks, right? It just flew it. Can’t even remember. It just seemed like it came and went two weeks long. Anyway, I want to follow up. Oh, ganja always gets angry. Please like and subscribe. If this is a channel you dig and you like what we say, we get to see the data and it certainly helps us. As he says it, it helps the algorithm. And God knows when you run a YouTube channel, that’s your ethos. You have to feed the algorithm.
So I want to talk about the mental game, of course, and it’s really important stuff because you never know, man, as life happens, things kind of creep into your life. You have to be hypervigilant about who and what you let into your world. For example, I don’t run the TV and listen to the news because everything is polarized and it’s either trying to push you or pull you, right? So if you look at any particular story and you look at it through that lens, it’s hard to debate me that that’s not the case. You think it’s in the information business. But now, again, since the abolition of the fairness doctrine, I think in 91, everything is very polarized now, and it’s one camp against the other. And I don’t typically need anyone to try to steer my thinking. I like to do my own thinking. You just give me the who, what, when, where, why, and how, and I’ll make my own decision. That’s the last thing any of these networks want. They want you to become emotionally invested, put a stick in someone’s eye. Then have you go to social media, especially when you get angry because anger is the number one emotion that’s shared in social media.
But I want to talk to you about, I can remember growing up my dad saying to me, show me your friends. I’ll tell you a little bit about yourself. There’s probably a few ways to say the expression, and I didn’t fully understand what he meant, but it’s a reflection of what’s going on in your head. So I want you to think, starting today and tomorrow, I’ll have ganja Thursday, Friday. We’ll talk more about it. Who do you have around you? What’s your current environment? If they’d say that we are products of our environments, what are you doing to control your environment? Because if we’re going to set goals and have plans and take actions so that we’re not reacting to things, we’re responding to things with a clear ethos and a fundamental understanding of what it is that we’re trying to achieve. What are you doing in your physical environment that speaks to the people around you? Who are your coaches? Who do you listen to? What do you let inside you? What do you surround yourself so that if they emit any type of stimulus that you’re picking up with any of your senses, you see it. You hear it
Especially right? Because you can touch, you can taste, you can smell, but it’s mostly mental. So it’s based on what you see and what you hear. And so you can go on a diet of the mind and start to cut some of that stuff out. That’s why I don’t even know why some of these places have TVs on with the mute button on. It’s just all noise, basically. Their data points, I suppose. But the noise to signal ratio seems to be extremely high. So I just don’t even let that into my day because shame on me. If I don’t know what it is that I’m trading, I have to get a trade signal from the TV screen. There’s no thing that I would need to know and shoot from the hip on any particular day. Everything would already have been on my radar. So success rubs off from other people to you.
And also if you have people who aren’t striving to make better improvement, that’s redundant to make improvement on themselves, they could actually be inadvertently holding you back subconsciously just because they’re not striving. Now, you can find yourself in these situations too. When you need a boost of confidence and you realize that you might be the hard charger or the crowd or the person who’s has goals, who’s pushing and everyone else, it can fill you with self-esteem and maybe that you’re better than them. That’s probably not the case in that you’re better than them. You just have a different sensibility of different motivation, but nothing can help you grow faster than when you surround yourself with other like-minded people like you, right? That’s what I mean by like-minded. This way. Everyone’s striving for something and they don’t even necessarily have to be in some of the masterminds.
There’s non traitors, but they’re successful business people. And then when you start to hear about their success, you start to say like, oh, I want to succeed too. Here’s how I can succeed in my own way. Sometimes I can borrow an idea or a certain approach, incorporate it, try it out, see what works, keep some that’s valuable and leave the rest as they say. So think about when you look at your day, and I do this a lot in any number of my journals, is I look and see like, okay, what activities am I putting on my calendar? What do I want to achieve? What are for fun and what are experimental? And especially what are those that add up to the goals that I’m trying to achieve? There’s no sense in junking up my day to appear busy without activities if they don’t somehow resonate or rhyme or conjugate with the goals that I’m trying to hit.
Want personal goals, business goals? And so you can look at your environment and say, how can you give yourself a little shot of human growth hormone on a little h d h by finding other like-minded folks who are highly motivated? Even if they’re not traders, if they’re successful business people, you can still be inspired by them to go out and be a better version of yourself. Now, I’m not saying that everyone that’s around you, if they don’t have a goal, they’re a losers, a loser. Now, I’m not saying that. I’m saying that you might find extra motivation, right? Because ultimately this, it starts with having a good attitude. You can have all the discipline in the world, but you have pissy attitude. It’s hard to succeed. We talked about that a couple months ago. So think about the people that are around you every day.
What kind of activities are they doing? Are they nine to fivers who are just going through the motions? Because ultimately that can have an impact on you. Even if you don’t talk about it, they’re not hurting anyone, but it’s not necessarily motivating to just, it’s like going to gym class in high school. As long as you show up in shorts and breathe, you’ll get credit for it because it’s all about attendance. So are you actually trying to push through and are your colleagues, your peers, your friends, whoever you associate with very, very frequently, are they actually in a similar mindset? Are they learning about their weakest link so they’re doing the same type of introspection that you’re doing and looking to make small changes? We talked Friday like one quarter percent, one half percent better every day, right? All you need is a little, it matters, folks.
I liken it to golf. If any of you have ever played golf and you’re on the tee driving with whatever club you use to drive, if you don’t hit the ball squarely and it’s not going to go in its intended direction. In fact, if you open the face just a half a degree on the club, you can find yourself 30, 40 yards from where your intended destination was. So small degree changes can make a huge impact on where you end up. So don’t underestimate how important that can be to you. You don’t necessarily have to do it. That can be your intention, intentions, equal results. So make it your goal to surround yourself with really, really good people, even if they aren’t necessarily in your field as you try to build your own community. Obviously, we have online communities because it’s important to have a group of successful people share their ideas as they say, their experience, strength, and hope.
But anyway, this is really, really good stuff. You can find inspiration anywhere if you’re struggling. They don’t necessarily have to be with traders because I know some of you live in remote areas where there isn’t a community of traders in person, but you can still find a group of people who are succeeding. They might be in a Chamber of Commerce, they might be in like a Toastmasters, I don’t know. They could be in one of these meetup groups. You can look, find them if you look hard enough, and then ask them about how they have you become so successful at a young age. Because if you ask people, that’s their favorite subject, right? Is ask them the open-ended questions about themselves. They’ll talk and you’ll be able to get a lot. I used to say to myself, do 2% of the talking to generate 98% of the conversation.
And so that can go a long way. It can also help you in business. It might also, for those of you who are a little further along in your career where you’re trying to think about running outside money, when you go do that, those people could become, they may already be prospective clients, you just don’t know it yet because you haven’t gone and met with them. Anyway, I appreciate y’all being here. I’ll see you tomorrow with Ganja, and then I’ll have episodes again Thursday and Friday to kick off September. Thanks for being here, folks. I’ll see you tomorrow.
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The post Success Rubs Off first appeared on MartinKronicle.
The post Success Rubs Off appeared first on MartinKronicle.
Everybody, it’s Michael Martin, happy Friday. How’s it going? Hope you’re doing well. So I know the volume on one of the mics was a little low on Wednesday’s episode, so we’ll get on that. We’ll fix it. Just growing pains, but we’re on top of it. Appreciate it. Today I want to talk about […]
The post The Quest For Perfection first appeared on MartinKronicle.
The post The Quest For Perfection appeared first on MartinKronicle.
Everybody. Happy Thursday. Hope you’re doing well. I wanted to address a question that came in on Michael Martin show, episode number 25, how to win more Consistently. It looks to me that if most people ask for trading advice, they’re really asking for happiness advice, would you say to have found fulfillment in your career as a trader? Right? Then there’s, hang on, there’s some punctuation stuff here. The process itself, things like developing a trading plan routine, the execution preparation, the ever-changing markets and adaption to it. I’m currently asking myself if it’s really worth it, especially under the pressure of not making any money even after years. It’s very frustrating and hard to cope with, but I know there are only two choices giving up or keep on trying. Yeah, I mean, welcome to my world because every day that you wake up, the market has evolved. I have evolved. So you have two independent entities, the markets right, which could be you could interpret markets to be anything. There’s a market for an nvidia, there’s market for corn. Then there’s just the markets at large, right? When people say the markets, I think that’s what they’re referring to. But I do know people that just make a living trading a handful of things or one or two instruments.
I shouldn’t say this, but I’m going to, if you’re trying to day trade like any of the many other stock index futures, you should probably move away for that and expand. It’s the best way if you’re struggling and not making any money doing it to kind of immediately improve. You could also consider increasing trading smaller and increasing your holding period. There’s some psychological tricks that you can do as well, which I’ll get into at some point, but fulfillment doesn’t come from the money. Everyone who doesn’t have any money or isn’t at a place financially where they’re comfortable and want to grow their current income, their net worths, any of that stuff, it’s all legitimate, and I don’t think it’s greed. I think seeking abundance is good. The fulfillment comes from being able to execute a plan every day and sticking to one’s discipline. That’s what the addiction would be.
I guess if you were going to say that trading is gambling, it’s like you want to wake up and be somewhat present. You want to be willing to feel of your feelings, interpret them, understand them, listen to them, see what they’re trying to teach you, and despite your strong feelings that you have in your body, even if you’re a purely systematic trader, the goal is to follow your rules every day. That’s the process. All you can do is follow the process. You’re powerless over the results, which is the p and l part. Most people come and think they can steer their p and l, and they find out the hard way that they can’t. When I let go of that, because when you’re starting out, you hear a million different things from a million different people. You don’t know which to believe. You don’t know who’s telling you the truth.
It all might be true at the same time. That’s the thing is that everyone has their own truth, but it might not necessarily mean anything to you because it all comes down to behavior. Behavior predicts where you end up and if you can’t pull it off, if you can’t follow the same rules over and over and over again, you’re not going to get the results. If you’re all over the place, as I like to say, you get all over the place kind of results, and that’s hard to look back. So when I study my own behavior or I’m working with a client or two here and there, or even in the mastermind or the group coaching, a person has to learn how to be accountable to him or herself. You see what I mean? And if they don’t have good boundaries with their own behavior, it’s very hard that kind of leaks into other areas of their life.
I’m not saying it always does, but I haven’t seen people who were huge drinkers or overeaters or were chain smokers or people who lacked discipline in other areas of their lives come and make it over the long haul. Everyone can have their moment in the sun, but I haven’t seen people who have lasted as long as I have exhibiting that kind of behavior because sooner or later you think the rules don’t apply to you, and you start doing that and living those lifestyle choices inside your trading, and a couple of things happen. The luckiest thing that could happen at that point is you blow up and then you can go find something else to do because you don’t have any money left. You’ve lost all your confidence before you kind of blame it on the market or somebody else because the market did you wrong. Even though you’ve been exhibiting reckless behavior for a long period of time, I feel like if you want to develop the right type of mindset, you have to find the process with which you’re compatible and be able to stick with that in the face of uncertainty and the fact that your trading deals with probabilistic outcomes. That takes a certain type of temperament, right? People do stuff. They want to see, okay, if I put tab A, I want to see it fit in slide B and I need to have that emotional response.
But there’s so much uncertainty on things. I think people who live and come out of a world of accuracy, especially in student like academia, it’s very difficult for them to get used to, at least at the beginning, the aspect of trading and that it’s probabilistic. And there might be losing streaks, there might be drawdowns, and all of that is kind of probabilistic too, because you don’t know if you’ve had two losing trades in a row, you don’t know that it’s not going to be 10. It’s very difficult to know. And then what happens is you have the emotional response, which can give you any number of feelings. So all of that has to come and be part of your fulfillment process, which sounds weird because why do you want to be fulfilled feeling frustration? Well, it’s because if you want to get the results that expert traders get, they feel those feelings too, but they persist. They’re determined. They know intentions, equal results. They know they’re going to win. It’s just a matter of time, even when the world isn’t giving them evidence that they’re winning or that they’re going to win, they have to have that belief in themselves that no matter what happens, they’re going to come out ahead and reach their goal.
So that becomes a real test because most folks, I don’t want to say that it’s hard for anyone to really know in their life when they’re coming, when they’ve tested their metal, and trading can certainly be one of the first instances in life when you’re really going to have to see what you’re made of. And so as I like to say, you have results or you have excuses when people haven’t felt failure and had to persist through that, if they didn’t have to try out for a sports team and run the risk of getting cut, which is very public, if they hadn’t had to compete in some type of any aspect of life where the results were public or at least well known, it can be very challenging for them. And it can put you in a spot where you really never go for it because if you go for it, as I mentioned once, some people deliberately sabotage good trades because the outcome is predictable.
Whereas sitting on winners or taking risks home overnight deals with a certain level of emotional intelligence that’s necessary for the unpredictable aspect of taking trades home overnight or over the weekend, for example. And they’d rather no failure because it’s predictable than deal with the uncertainty. It doesn’t feel good in their bodies. They don’t like feeling like they’re not in control. So one of the best things that I ever did was surrender to that. I don’t necessarily need to be in control the way a shorter term trader would need control. Now, admittedly, in markets like this that are make it and take it markets, the people who are short term and have that skill or have that ability can do very, very well. Where I have lots of false starts because of my trading style and for the fact that there’s not a lot of follow through.
There’s these sharp moves, but I’m deliberately much smaller on my entry. I don’t put my optimum position size on all at once. So when people were catching short squeezes in Carvana, I wasn’t fully loaded as the markets moved too fast, we made money, we did that with Crocs. If you look at the Brian Shannon video, any of that stuff, but that’s life on life’s terms. I don’t get to sit in Bellyache because there are plenty of other trades where I got in with my position size and I got knocked out with small losses, paper cuts. So to wrap it up, I think fulfillment for me just means that I’m comfortable being me. I’m comfortable feeling all my feelings. I know that my feelings aren’t going to sabotage my trading and cause me to adjust my stops or get frustrated and trade bigger when I have no business doing so or doing all those things that most traders would consider pratfalls.
I did them in varying degrees when I was just starting out. And then you just learn that trying to do that doesn’t really pay and you have to go through it yourself. But again, at least I’m consistent. There is no course that’s going to teach you that it’s experiential. Another problem with trying to become a successful trader is that you can’t paper trade your way to financial freedom. You actually have to do it. So if you think you can kind of jump the gun or cut the corner or do something in a gray area or lose your discipline or adjust your stop lower or not put on a trade that you know should be in, you get to see the results of that after the fact, and then you can conjugate your behavior with how you feel about missing out or doing something that you know is not in your best interest.
So the fulfillment for me these days is more just saying I know who I am, which is the asset. Number one is personal knowledge, self-awareness, emotional intelligence, knowing what I can execute and sticking with that. And then yes, as necessary, making modifications. But I’m at a different stage than many of you, so I get to experiment and understand that it’s experimentation. I already have several things that I know how to do very, very well, and I wish all that for you too. But again, the best teacher is you actually doing it. There’s really no way around it. You can’t read it in a book and try to understand it intellectually. Anyway, folks, as always, I appreciate you. Thanks for all the comments and the emails, and I know a few of you have written it about the mastermind and the group, and what’s the difference in all of that. I’m like the world’s worst marketer. I’m not necessarily looking to grow that stuff because I don’t find that I don’t necessarily need the money. I like the group the way it is. If someone can join it and add to it, then that’s a good thing.
And so I’ll talk a little bit more about that tomorrow, but I don’t want to blather on about it because that doesn’t necessarily help those of you who are here for looking more for the self-awareness stuff around trading that we talk about all the time. But anyway, I appreciate y’all being here, and I’ll see you tomorrow. I.
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The post Trading: Consistency, And Fulfillment first appeared on MartinKronicle.
The post Trading: Consistency, And Fulfillment appeared first on MartinKronicle.
Subscribe to the show Click here to get your free copy of The Inner Voice of Trading audiobook. This is an automated transcript
The post MMS EP #26 – Changing Trading Styles first appeared on MartinKronicle.
The post MMS EP #26 – Changing Trading Styles appeared first on MartinKronicle.
Hey everybody, happy Tuesday. Thanks for being here. I’ll have ganja on tomorrow. We have a really good episode planned and he’s really great. He’s making great strides in his own endeavors and we have big plans for the show here. I appreciate everyone and their feedback. I it’s really quite remarkable to build a […]
The post Following Your Hunches & Trusting Your Instincts first appeared on MartinKronicle.
The post Following Your Hunches & Trusting Your Instincts appeared first on MartinKronicle.
Everybody. Happy Monday. Hope you’re doing well. Heck of a week, right? You’re watching Nvidia. I’m sure everyone in the world’s been watching. I wanted to, I’ll talk about that at some part. This week I want to talk about, I’m a little bit behind in viewer comments on the YouTube channel, so I want […]
The post Small Losses And Stopping The Bleeding first appeared on MartinKronicle.
The post Small Losses And Stopping The Bleeding appeared first on MartinKronicle.
Hey everybody. Michael Martin here. Thanks for joining the show today. As always, I hope you’ve gotten a lot out of it this week. I know I’ve gotten a lot of comments and emails from folks. Appreciate it. Always trying to be of service to you because it’s good for me too. I also want […]
The post Your Evolution As A Trader Will Take Time first appeared on MartinKronicle.
The post Your Evolution As A Trader Will Take Time appeared first on MartinKronicle.
So you can tell now from the conversation we’ve been having this week, the level of uncertainty that any of us have to feel at any given time is really all relative to our environment. Like the environment that I was raised in as a trader, very different from the one that you all might […]
The post How My Early Environment Affected Me And Shaped My Trading Style first appeared on MartinKronicle.
The post How My Early Environment Affected Me And Shaped My Trading Style appeared first on MartinKronicle.
Did you have any people that emailed you that were from the YouTube channel? Did they tell you if they were from the YouTube channel or not?I’m sure they all are. Really? Yeah. I’m sure they’re all because I’m only doing my marketing. Wow. It’s either that or they’re listening, soThat’s crazy. That’s good.Otherwise, I […]
The post MMS EP #25 – How To Win More Consistently first appeared on MartinKronicle.
The post MMS EP #25 – How To Win More Consistently appeared first on MartinKronicle.
Hey everybody. Happy Tuesday. Thanks for being here. As Ganja would say in tomorrow’s episode, please like and subscribe helps the algorithm. It feeds the algorithm. I don’t even know what the hell algorithm he’s talking about, but he knows I trust him. And then if you click the bell thing, you can apparently get […]
The post How I Embraced The Uncertainty Around Trading Early In My Career first appeared on MartinKronicle.
The post How I Embraced The Uncertainty Around Trading Early In My Career appeared first on MartinKronicle.
Hey everybody. Happy Monday. Hope you’re doing well. Obviously we’re excited we’re in new digs and making a few changes cosmetically to the show. Hope you like it so far. It has so much potential. A few of you have written in privately and said, I wonder why you didn’t just wait to build it […]
The post Would You Be A Good Guest On The Show? first appeared on MartinKronicle.
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Subscribe to the show Click here to get your free copy of The Inner Voice of Trading audiobook.
The post MMS EP #24 – Everything Is Going To Change first appeared on MartinKronicle.
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Hey everybody, it’s Michael Martin. Thanks again for all the comments and your feedback. Please like and subscribe. We get to see what episodes really resonate with you. We can see the views. We kind of look at the views as well as the hours watched and also the comments, right? Because not just one […]
The post Best Way To Deal With The Grind first appeared on MartinKronicle.
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Hey everybody, it’s Michael Martin. Thanks for being here. Happy Tuesday. I have ganja tomorrow. So another question and a bunch of comments came up about taking winners and this and that. And so what I thought I would talk about today is that practice and modify, right? I’m not a big believer in mental […]
The post Taking Winners: Practice And Modify first appeared on MartinKronicle.
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Hey everybody, it’s Michael Martin. Hope you’re doing well. Sorry if I sound a little froggy. This week was in New York City most of last week, and I think I picked something up on the way home on the plane, but it was good to be home. See everybody. I did a lot of […]
The post Your R Can Change Over Time first appeared on MartinKronicle.
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What’s up ma? It’s Michael Martin, thanks for being here, folks. Happy Friday. Hope you had a great week and then you have fun plans for the weekend. So the coaching tip and what we might handle in the coaching program deals with your ability to embrace uncertainty. Right? Now, you’re all here probably because […]
The post Embracing Uncertainty For Greater Gains first appeared on MartinKronicle.
The post Embracing Uncertainty For Greater Gains appeared first on MartinKronicle.
Hi, everybody. Happy Thursday. Hope you’re doing very, very well and your week is shaping up quite handsomely in that you’re making fun plans for the weekend. So I wanted to talk to you about the philosophy of being right and being wrong, right? Because you have this whole argument, and it’s not really an […]
The post It’s Ok To Be Wrong, But You Can’t Stay Wrong.. first appeared on MartinKronicle.
The post It’s Ok To Be Wrong, But You Can’t Stay Wrong.. appeared first on MartinKronicle.
Hi guys. Welcome back to another weekly segment that Mike and I do where we go over you guys’ topics, comments and questions. Today, we had a really fun topic. Before we get into that, I wanted to mention make sure you guys like and subscribe, all comments, help the algorithm. We really appreciate all […]
The post MMS EP #23 – Coaching And Big Plans first appeared on MartinKronicle.
The post MMS EP #23 – Coaching And Big Plans appeared first on MartinKronicle.
Hi everybody. Happy Tuesday. I hope you’re doing well. So today I want to talk about willingness, right? Willingness is huge in trading, and I think it’s probably true for a lot of things in life.So when I was coming up, I realized how do I have to differentiate myself from the pack? Because the […]
The post Do What The Other Guy Is Unwilling To Do first appeared on MartinKronicle.
The post Do What The Other Guy Is Unwilling To Do appeared first on MartinKronicle.
Hey everybody. Happy Monday. Thanks for being here Today. I want to discuss the thing on delayed gratification that I spoke with ganja last week. I found the study it’s, it was at the website, psychology Today, and the article was written by Alex Lierman, md, the power of delaying gratification, how to develop impulse […]
The post Delaying Gratification For Greater Gains first appeared on MartinKronicle.
The post Delaying Gratification For Greater Gains appeared first on MartinKronicle.
Hi everybody. Happy Friday. Hope you’re doing well. Don’t forget, if you’re interested in studying with myself and say Victor sio, email me at editor and martin chronicle.com. We’re putting together a group, be limited to a handful of folks, less than 10, and a lot of personalized attention and cover trader psychology, emotional intelligence, […]
The post Thinking Big And Making It Worth It first appeared on MartinKronicle.
The post Thinking Big And Making It Worth It appeared first on MartinKronicle.
Hey folks. Happy Thursday. Hope you’re doing well. Again, I’m teaching a class on trader mindset, which would include trader psychology, emotional intelligence, and how to apply trading tactics so that you can develop your trading edge. My good buddy Victor Sperandeo, is going to teach part of it on day trading and swing trading. […]
The post You Should Expect To Win first appeared on MartinKronicle.
The post You Should Expect To Win appeared first on MartinKronicle.
Hi guys. Welcome back to another weekly segment that Mike and I do where we go over your guys’ topics, comments and questions. Today, we have a really fun episode and a nice topic, but before we get into any of that, I wanted to mention the usual stuff. Make sure you guys like to […]
The post MMS EP #22 – Trading The Equity Curve first appeared on MartinKronicle.
The post MMS EP #22 – Trading The Equity Curve appeared first on MartinKronicle.
What’s up folks? Happy Tuesday. Good to see you. If you didn’t catch yesterday’s episode, I mentioned the group that we’re putting together. It’s going to run for about 12 weeks about trading tactics, trader psychology, emotional intelligence, all the stuff that we talk about on the show here, and my good friend and business […]
The post Time Stops: Minutes Or Days? first appeared on MartinKronicle.
The post Time Stops: Minutes Or Days? appeared first on MartinKronicle.
Hey everybody. Michael Martin. Happy Monday. Hope you’re doing well and you had a restful time. I’m happy to announce I’ll be teaching a class on trader psychology and the emotional intelligence trader tactics, everything that you need to have a winning trader mindset. Everything that I know reduced into 12 weeks, you can email […]
The post Seeing Asymmetry In Trades first appeared on MartinKronicle.
The post Seeing Asymmetry In Trades appeared first on MartinKronicle.
Subscribe to the show Click here to get your free copy of The Inner Voice of Trading audiobook. This is an automated transcript
The post Defining Your Overnight Risk first appeared on MartinKronicle.
The post Defining Your Overnight Risk appeared first on MartinKronicle.
Important lesson today that I think is going to open some eyes. You have to trade your equity curve for day traders who are trading like the EIN or the nqs in the or the R two Ks. I get it. That is your equity curve. So I can understand how you can become emotionally […]
The post Trading Your Equity Curve first appeared on MartinKronicle.
The post Trading Your Equity Curve appeared first on MartinKronicle.
Hi guys. Welcome back to another weekly segment where Mike and I go over your guys topics, comments, and questions. Today’s episode is going to be really good, but before we get into that, I want to do my weekly mention. If you haven’t already, make sure you guys like and subscribe. All comments, help […]
The post MMS EP #21 – Forcing Trades And Prop Firms first appeared on MartinKronicle.
The post MMS EP #21 – Forcing Trades And Prop Firms appeared first on MartinKronicle.
Hi everybody. It’s Michael of course. Why else would you be here? Unless you like the episode with ganja to which we do on Wednesdays better, which is fine with me if you do. I love the guy. Very close with him. So today I want to talk about how a little bit of my […]
The post Understanding How Other Traders Behave first appeared on MartinKronicle.
The post Understanding How Other Traders Behave appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. Happy Monday. Hope you had a great week. Certainly a lot of volatility last week in the markets. We got a lot to catch up on. I’ve been getting a lot of great feedback from folks about a lot of the things that we spoke, we’ve […]
The post Markets Evolve And You Do Too first appeared on MartinKronicle.
The post Markets Evolve And You Do Too appeared first on MartinKronicle.
Hi everybody. Happy Friday. So I want to keep the conversation going with, based on the video that I did a while back, and the title of that video was Recognizing self-Imposed Limitations. Your belief system has a lot to do with the things that you’re going to try to achieve in your life. Do […]
The post Are Funding Accounts Worth It? first appeared on MartinKronicle.
The post Are Funding Accounts Worth It? appeared first on MartinKronicle.
What’s Kraken ma? Hope everyone’s doing well. So today’s Thursday and I wanted to talk to you about what I had mentioned at the close on Tuesday’s episode, and that was focusing on one thing. I’m bombarded with all the bullshit in the marketing, and if you listen to all of it, you’ll be like, […]
The post Focus To Improve Your Ability first appeared on MartinKronicle.
The post Focus To Improve Your Ability appeared first on MartinKronicle.
Hi guys. Welcome back to another episode where Mike and I go over you guys topics, comments and questions, and see if we can add anything onto it. Today we had an interesting topic, but what I wanted to say before that is Mike and I are going to be moving soon to a studio […]
The post MMS EP #20 – AMD And Protocols first appeared on MartinKronicle.
The post MMS EP #20 – AMD And Protocols appeared first on MartinKronicle.
Hello. Hello everybody. Happy Tuesday. So I got some emails of course on the QT from some folks asking why I’m day trading options, or at least I had been. And so you have to think about my mindset. My mindset is if I don’t make money, I’m not getting paid. So if the market […]
The post Adapting To Market Conditions first appeared on MartinKronicle.
The post Adapting To Market Conditions appeared first on MartinKronicle.
Hey everybody, how are ya? It’s Michael Martin. Happy Monday. It’s not Monday right now, but it is Monday. When you’re watching this, wanted to get right to it. We got a lot of viewer mail sent in from the home office in Peoria. Kudos, if you know where that’s from. So outside world versus […]
The post Jiu Jitsu And Trading first appeared on MartinKronicle.
The post Jiu Jitsu And Trading appeared first on MartinKronicle.
Hey folks. Happy Friday. Thanks for being here. I want to finish the question with something that kind of ties into yesterday for folks who might even be starting out, and that is, in your experience, is it more consistent to have one black and white entry around your area of value? I think S […]
The post Being Decisive And Getting Good At One Thing first appeared on MartinKronicle.
The post Being Decisive And Getting Good At One Thing appeared first on MartinKronicle.
Well, it’s Kraken Ma. Thanks everybody for being here. So today I just want to take a minute and thank everybody. I realize I don’t believe necessarily in tough love. It works for certain people, but it doesn’t work for everybody. So I’m very mindful of how I appear to you and what I say […]
The post Freeing Yourself Up To Experiment first appeared on MartinKronicle.
The post Freeing Yourself Up To Experiment appeared first on MartinKronicle.
Hey guys, welcome back to another weekly episode where Mike and I go over you guys topics, comments and questions, and see if we can add anything on Toit today. I wanted to mention before we start the episode, if you guys haven’t already, go down in the description and get your free copy of […]
The post MMS EP #19 – Deviating From Consistency first appeared on MartinKronicle.
The post MMS EP #19 – Deviating From Consistency appeared first on MartinKronicle.
Everybody happy Tuesday. Thanks for being here. I give another comment from QV 36, and this was also on your trading style, reflects your willingness to deal with uncertainty. Man, if I can tell you like that was the biggest thing for me, the more that I was willing to feel uncomfortable and whatever that […]
The post Outside World V. Your Inside World first appeared on MartinKronicle.
The post Outside World V. Your Inside World appeared first on MartinKronicle.
Hey everybody. Welcome back. Thanks for being here. So I got a lot of great feedback on the episode that I did with Ganja last week, and so some of you commented on the video itself. Some of you wrote me via the blog or just emailed straight out. So I’m going to condense a […]
The post Recognizing Self-Imposed Limitations first appeared on MartinKronicle.
The post Recognizing Self-Imposed Limitations appeared first on MartinKronicle.
Hey everybody. Happy Friday. Hope you had a great week and you have fun plans for the weekend. It’s all vacation time. So folks are kind of in and out. Markets typically get slower from a volume standpoint in July and August. So today I want to finish the week by talking about discipline. If […]
The post Interpreting Your Levels Of Discipline Throughout A Trade first appeared on MartinKronicle.
The post Interpreting Your Levels Of Discipline Throughout A Trade appeared first on MartinKronicle.
Hey everybody. Happy Thursday. Hope you had a good Wednesday and you enjoyed yesterday’s episode with Ganja. So again, again, I want to come back to some of the comments, and that is what it is that you can control. You really can control your downside. That’s the key here, right? So you’re dealing with […]
The post Your Trading Style Reflects Your Willingness To Deal With Uncertainty first appeared on MartinKronicle.
The post Your Trading Style Reflects Your Willingness To Deal With Uncertainty appeared first on MartinKronicle.
Hi guys. Welcome back to another weekly segment where Mike and I go over your guys’ comments and questions. Give our 2 cents on the topic and just see what’s kind of going on today. We had a really interesting episode, but before we go over that, I wanted to talk about making sure that […]
The post Your Trading Style Is A Reflection Of Yourself first appeared on MartinKronicle.
The post Your Trading Style Is A Reflection Of Yourself appeared first on MartinKronicle.
Everybody happy Monday. Hope you have good plans for the fourth. I’m going to do his videos this week. I’ll probably won’t have anything for tomorrow being the fourth and you’ll be here Wednesday and then I’ll have something Thursday and Friday. Maybe just do a couple of short ones cause I think everyone’s away. […]
The post Your Trading Style Is A Reflection Of Yourself first appeared on MartinKronicle.
The post Your Trading Style Is A Reflection Of Yourself appeared first on MartinKronicle.
Hey everybody. Happy Friday. Appreciate everyone’s comments and sending me emails and this and that, reaching out through Twitter. I’m really not on Twitter. I’m mostly on listen only mode. Anyway, I thought what I would do today is be a bit reflective because I know we have some time coming up for the holidays […]
The post The Difference Between Trading Stocks And Commodities first appeared on MartinKronicle.
The post The Difference Between Trading Stocks And Commodities appeared first on MartinKronicle.
Hey everybody. Happy Thursday. Hope you’re doing well. I want to go to read some of the comments and do some shoutouts. I just think it’s healthy for the community. Henry, you know, who I know personally says lately your content has been very impactful for me. It could be that processing it all very […]
The post Answering Audience Comments first appeared on MartinKronicle.
The post Answering Audience Comments appeared first on MartinKronicle.
Hi guys. Welcome back to another episode where Mike and I kind of go over your guys’ topics, comments and questions and see if we can see, okay, I’m just going to redo that just all right. Totally lost what I was trying, I was trying to do a new intro and I just got […]
The post MMS EP #17 – How My Trading Strategy Has Evolved first appeared on MartinKronicle.
The post MMS EP #17 – How My Trading Strategy Has Evolved appeared first on MartinKronicle.
Hi everybody, it’s Tuesday. Thanks for being here. So someone left a comment, creative advance, and it was on the video how your report card changes over time. And so I thought what I would do is give another a little bit of more 2 cents on this part of it in that when you’re […]
The post Are You Good Or Lucky? first appeared on MartinKronicle.
The post Are You Good Or Lucky? appeared first on MartinKronicle.
Everybody, it’s Michael Martin. Hope you’re doing well. Happy Monday. So I’ve been getting a lot of pings privately cause I think folks don’t want to talk about this and put their name on it publicly, like in social media or in on the YouTube channel, and that’s with all the AI bots and stuff […]
The post AI Bots Are The New Newsletter first appeared on MartinKronicle.
The post AI Bots Are The New Newsletter appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. I’ve had a great week. I’m going to do see some artwork this weekend. I hope you have some fun plans. Get your minds off the market, give some space, put some space between you and the marketplace. Today, I want to ask you all a […]
The post How Your Report Card Changes Over Time first appeared on MartinKronicle.
The post How Your Report Card Changes Over Time appeared first on MartinKronicle.
Hey everybody. Hope you’re doing well. Hope you enjoyed yesterday’s episode with Ganja. Now, a question came in from somebody who I’ve been texting with about things, and the question was, how can you help? How can I build my confidence around my trading? And I think the answer lies inconsistency. If you act consistently, […]
The post How You Can Build Your Confidence Around Your Trading first appeared on MartinKronicle.
The post How You Can Build Your Confidence Around Your Trading appeared first on MartinKronicle.
Hi everybody. Welcome back to the weekly segment that Mike and I do where we go over you guys comments and questions and give our 2 cents on that and see if we can add to it, maybe expanding upon it and give you guys some feedback. With that said, thank you guys so much […]
The post MMS EP #16 – What Type Of Market Are We In Now? first appeared on MartinKronicle.
The post MMS EP #16 – What Type Of Market Are We In Now? appeared first on MartinKronicle.
Hey folks, welcome back. So I want to pick up where we left off yesterday and talk about when do you know to bail and when do you know how to be persistent and determined and not quit? Because there’s a fine line there. I think if you’re trying to wing it and you’re not […]
The post When Do You Know To Quit Or To Pivot? first appeared on MartinKronicle.
The post When Do You Know To Quit Or To Pivot? appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Hope you’re doing well. So I kind of can piece together some questions from lots of different angles. So this isn’t a specific question that came in, but it’s one that I kind of thought might make sense to talk about, and that is what is effectively the best trading […]
The post How To Develop The Best Trading Rules first appeared on MartinKronicle.
The post How To Develop The Best Trading Rules appeared first on MartinKronicle.
Hey folks. Happy Friday, last show of the week. I hope you have had a good week and you have fun plans for the weekend and you don’t do anything related to the markets, and you go live your life and be happy. So as we speak about designing a system, when you’re just starting […]
The post What To Risk On A Per Trade Basis first appeared on MartinKronicle.
The post What To Risk On A Per Trade Basis appeared first on MartinKronicle.
Everybody, it’s Michael Martin. So I got a comment from Rock in the comment section. That’s where comments go. Typically, not all the time, sometimes they’re spray painted on the wall about how do you go about designing a process that’s good for you.So I think of it like shopping for a suit. There are […]
The post Designing The Best Set Of Rules For You To Trade first appeared on MartinKronicle.
The post Designing The Best Set Of Rules For You To Trade appeared first on MartinKronicle.
Hi guys. Welcome back to the weekly segment that Mike and I do where we talk about your guys comments and questions and give our 2 cents and just talk a little bit more about it in depth. Today we had a really interesting topic and I’m excited to get into it. But before we […]
The post MMS EP #15 – What Is The Best Asset Class To Trade? first appeared on MartinKronicle.
The post MMS EP #15 – What Is The Best Asset Class To Trade? appeared first on MartinKronicle.
So I’ve seen a few of, when I scroll through the Instagram, there are people who have probably no experience in trading talking about how you can use AI to create for yourself a trading model. And I would just like to show you, if I had an ima, I know everyone’s in love with […]
The post What’s Below The Surface On Trading Rules & Systems first appeared on MartinKronicle.
The post What’s Below The Surface On Trading Rules & Systems appeared first on MartinKronicle.
Everybody happy Monday. Thanks very much for being here. Had a good weekend. Hope you had a relaxing time. I try to get the hell out of the house and go do fun stuff. I’m not much a beach person, much of a be a beach person, but I like to be outside. Very active […]
The post Following Analysts V. Doing Your Own Homework first appeared on MartinKronicle.
The post Following Analysts V. Doing Your Own Homework appeared first on MartinKronicle.
Hey everybody. Happy Friday. I hope you had a great week and you have fun plans for the weekend. I try to do stuff that’s far from where I live. Take a couple weekend trip, go away for a couple days. Sometimes I take off Friday just because I can. Last week I saw Keith […]
The post Trick Yourself Into Having More Discipline And Watch What Happens first appeared on MartinKronicle.
The post Trick Yourself Into Having More Discipline And Watch What Happens appeared first on MartinKronicle.
What’s up party people. So I want to follow up on Tuesday because it hit me of course after I hit stop recording about something else that I had that I didn’t know I had at the time that I realized after the fact several years later after that four and a half year kind […]
The post Being Self Sufficient Leads To Having Greater Confidence first appeared on MartinKronicle.
The post Being Self Sufficient Leads To Having Greater Confidence appeared first on MartinKronicle.
Hi guys. Welcome back to the series that Mike and I do where we go over comments and questions and kind of talk about it, see if we can add on to what you guys have to say. And yeah, today’s a really good episode. I am always excited to respond to some of the […]
The post MMS EP #14 – Being Accountable Affects Your Behavior first appeared on MartinKronicle.
The post MMS EP #14 – Being Accountable Affects Your Behavior appeared first on MartinKronicle.
Welcome back folks. Happy Tuesday. So I had a good question that came in from, I think it was Roman. I’m going to read it here, and it is a comment under the video where Gaja puts up M M S E P, which would be Michael Martin Show, episode 12, the biggest misconception about trading. I think we got to work on that title for our Wednesday shows, but who knows? Good video. Again, maybe you could talk about setting goals again. What qualifies as a good goal in trading, if not a financial one, how you managed to find set goals for yourself when you started out, and how they might have changed over time. Thanks in advance. So there’s a couple questions in here.
So I always knew that I needed a process. I was obviously in a very different financial situation when I started and I didn’t know anything. I was also, I didn’t know anything really about the business in many ways. I knew I had great instincts as a trader, and those instincts served me well. What I needed to do was to find the process. So although I know I needed to have more wins or no more net income from the wins i e more credits, quantity of credits than losses, right? Net income, I didn’t know what that was going to look like. At first. I thought it was an accuracy game then since I was a kind of bit of a math, whereas I understood expected values and Bay Theorem. So I was like, oh, that makes much better sense. That takes the pressure off me of not needing to be right.
And then you can use Kelly criteria to figure out all the stuff that you need to do to hit your goals. It’s a little bit too much to do without being able to diagram it and illustrate it. That’s the way I say diagram and sign lang. Michael Martin. Sign language could also mean when there’s a crazy driver on the streets of la. So my goals weren’t necessarily about making the money because I knew if I made money on a trader, I’d be like, well, great, but how the hell did I get here? So I didn’t want to feel that feeling. So I knew I had to focus on the process. That’s just probably dumb ass luck. I knew that I had to focus on the process. I also knew how to manipulate data. My nose was always modeling stuff. I looked at, I’d look at the box scores of baseball games and look and see if Ron Gire went deep into a game, what was the likelihood of the Yankees winning?
So in the Probabil base, the right, what’s the probability of gire went seven innings, or if Gire had X amount of strikeouts, what was the outcome of the game win or lose? So I’d look at things like that. Now, these days you can go to different gambling sites and bet on the outcome of everything that I wasn’t betting, but I wanted to understand the math. I also looked at humidity levels and temperatures of New York City in the month of August to see if it had any predictive value in having a longer summer. That would go into the September, october. I don’t think I could draw any conclusions, but I used to look at the data like that to see if there was stuff. It’s like a crossword puzzle because the data’s right under your nose. Everyone could see the data. So I would get that data and put it together in spreadsheets and just try to come up with macros to see if it would show me anything. Just as a test to myself. I didn’t actually care if the summer went long. I actually liked the fall in New York much better than almost any other deal. So it wasn’t like I had an interest in the outcome. I didn’t care. I just wanted to see if there was any way to look at the data.
So the goal for me was to find, and I didn’t say it as articulately then, but I needed to know a process. What’s my trading model? What is it that I’m going to do every day? I was quick to get into it almost impulsively, but then I was also impulsive in cutting and being decisive like a trader, a good trader should be. I cut away into bank foreign exchange. I let go of options. I even put equity trading on the side because I had to focus on where I had skill, which at the beginning you don’t even really know, but you do have some evidence you got to haunt, you have to go with it. So that’s what I would focus on today if I could talk to my younger self, is to focus on the process more on the outcome. Because too many people get emotionally invested in the outcome of something and they don’t really have the process down.
Then they get all mad or angry or frustrated or despondent. Doesn’t matter what the feeling is. But intentions equal results. So I would in other to understand that, go back in your life and see where you’re winging it or maybe you’re acting impulsively or maybe you have unrealistic expectations where you think you’re putting in a lot of work. Remember, because thinking is actually procrastination. Maybe you’re actually procrastinating by thinking too much, doing not enough work on the modeling, putting trades on, getting angry at the results and then bitching and belly aching to everybody. That’s a fucked up emotional model. But you see it all the time. People, they buy into the marketing hype of various things.
I also didn’t look at the pros that I had access to and resent them or nor did I admire them because I had a very sober way of looking at the fact that they had experience and they developed a model with which they were compatible and they were able to execute that over and over and over again because I knew there wasn’t any good stock picking gurus. There was never about hot tips. They didn’t exist. Hot tips exist in the mind of the unsophisticated, and I would never let anyone rent my brain that way. My brain is too good. So I would think, okay, well what did they have to do to get where they were? How did they think about the markets? Were they in the right place at the right time? The folks who made their first investments in technology in the mid nineties and for five years think that they were like hot shots.
In reality, when the tide goes up, all the boats go to again, no, no, no dig on them, but you know, need to know what your model is. If you’d started trading from 68 to 70 like Victor did, it was a bear market. So if you didn’t know how to short sell, it was a hard place to try to make money on the long side. You could interpret that you’re an idiot if you’re looking at the results of buying long in a bear market, might be something that we have to think about now, given the environment that we’re in now, I did need the money. That was the point, that was the end goal. But I didn’t say like, oh, I need to make money right now. What I need to do is I need to find a process that works for me. What’s my, how do I ideate, right?
My trades, is it from reading the newspaper? Is it because financial TV didn’t really exist at the time? It was kind of just starting, but it was still at a very nation stage. It wasn’t what you see today. So it was, and I don’t find it for me as a human being, I don’t find it particularly useful. I don’t care to see Paul Tu Jones interviewed about stuff, interesting guy, but it doesn’t help me trade better, good human being. F Robin Hood’s given away over 2 billion. But that’s not, again, any information that I could use to help me be a better trader. It can help me certainly have a role as a role model for Humana, humanitarian stuff. And I have a lot of nonprofits that I’m involved with in one that’s very important to me.
I’ll talk about another time. It involves kids who live in the favelas in parts of Rio de Janeiro that we sponsor and train and bring to America that just competed in the world championship. They do very well, but they train eight hours a day. So you get what you get out of it, what you put in. And so my goals actually didn’t change over time. That was the second part of it or the third part of it. There’s a few moving parts to Roman’s question because the goal is always to try to stick to your process. The amount of net worth changes and the market environment changes. But the thing that you should focus on all the time is your process, because the markets are going to change, right? They’re going to morph because they respond to the economy, not just the American economy, but they’ll change to global economy.
Interest rates have a lot to do with how stocks perform. Interest rates also affect the US dollar. Higher interest rates tend to support in a bullish way, the dollar not all the time because there’s lots of factors. So what happens if the dollar goes up compared to what happens with foreign investment, for example. So you need to know all these things and be mindful because what worked in 21 didn’t necessarily work in 22. See, and that’s particularly harder for the shorter term traders because the shorter term models can get out of whack a lot sooner than the longer term models. If I’m testing things over 10 or 20 years, those models don’t just all of a sudden not work. But if I’m trading one minute bars, it literally might not work next week. And so that’s the choice that you make deliberately to fulfill your financial and emotional needs if you’re doing it that way.
And I’m sure if you ask or if even I asked my friends who are in the shorter term space, they’ve had to evolve and they have to evolve quickly because like I said, the markets are going to change in what works in the shorter term space one period of time. They can change very, very quickly. But I think one of the benefits of longer term holding periods, I suspect is probably the best way to call it. I have found in back testing models, again, not predictive, but what I have found is that if you ran data on 60 different commodities or a thousand certain capitalized stocks and you modeled that they don’t work up to a certain point and then they don’t work anymore, they do ebb and flow, and you can certainly isolate periods of time within that back test and see that there were certain losing periods that if you had isolated then by themselves, you’d be like, well, this system doesn’t make money.
But when you back it out and you look over a longer period of time. So I could give you an example. You might run a trading strategy that worked for the last 20 years, going back to 2003, but in 2017 it lost money. So if you look at some of the shorter term simulators where they only let you test one idea, you might come to the wrong conclusion, right? Because you’re only looking at a smaller data set now a year, I guess to some people, if you’re looking at one minute bars, a year’s worth of data could be a lot of data points. But if you’re running something that’s a little bit more robust, that’s going to work across more than just say, the Russell two K, the emen and the nqs, and you’re more promiscuous in that. You have metals, you have the grains, you have the softs, you might have interest rates, you might have currency, you might have large cap growth up to 500, whatever the number might be, and how you segregate capitalization.
You might have a model that just looks at in index components and you want to be objective and look at that data. So I also looked at longer term data, which saved me a lot of the duress of having to figure out and what I would say, reinvent myself every day. That to me was exhausting. I didn’t want to have to come in every day and think, what am I going to do? I wanted to know exactly what I was going to do, although the instrument might change. A lot of people come to the market again, especially the short term folks who look at, and this is probably some ad trading advice too. If you’re struggling and you’re trying to day trade or look at short term timeframes on just the indices, those indices are strongly correlated. Admittedly, you can look at spreads between NASDAQ and s and p for sure and see some differences, especially in this environment.
But this is a unique, unique in circumstance. Most of the time, those markets are highly correlated, and if one goes up, they kind of all go up. So if you don’t see something in the emen, I think I’ll debate you on it, but you might be forcing trades, right was the point. And I didn’t want to come in and have to force myself into trades because I had a financial goal. I wanted to have a process goal where I knew what the process was going to be every day. It might be a different vehicle to help me get there. So that was something that I was lucky to strike upon early, and then that’s carried forward over the years. So that really doesn’t change. I think when you have a financial goal, your goals will tend to change more frequently, but if your goal is to have a process that’s going to pay you handsomely over periods of time, then I think you’ll have to do less work.
And it’s more about editing the model and making smaller adjustments than having to come up with a whole other model, right? Again, maybe I was lucky to fall into it that way. Again, I was physically trained, so I kind of understood how the hedging business works, where most commodity traders are straight out just speculators. So I did maybe have a bit of an edge, and then I later kind of came to understanding, speaking about edge, that if you don’t have an edge and there isn’t a vehicle for you to express that edge, giving your trading style on any particular day, then you got to take the day off, go take a blanket and a radio in the newspaper and a cup of coffee and do the crossword puzzle in the great lawn, or go walk through a museum or go do something else, as opposed to trying to reinvent something right on the fly, especially if you’re newer, because you don’t have the right instincts, instincts to kind of do that, and you could be looking to fulfill an emotional need for that particular day more than a financial one. It’s okay to miss a day. It’s okay to take a day off. But anyway, there’s all different shapes and sizes you might feel differently. As always, I appreciate the feedback. Any rebuttals or comments or disagreements, it’s all good because it helps
Move the conversation forward and everything has to be in context. It’s hard to do that in such a short window of time here. But please consider liking and subscribing. Send all your comments over. I see them. I’ll be here tomorrow with Ganja and look forward to seeing you then. Take care.
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The post How Goals Lead To Profits first appeared on MartinKronicle.
The post How Goals Lead To Profits appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Happy Wednesday. I mean, Wednesday is Monday. What am I talking about? See how disorienting trading could be even for pros. I have a great topic today. It came in from Limitless on the video. How can you benefit from trading with detachment? And the question or the comment would be, I’d love to hear your thoughts about addiction versus passion. It feels like a fine line between the two, suppose. So before I get there though, I want to give a couple of shout outs because I see all the comments. I do all my own homework here and I want to thank a few folks. Second entry long. Thank you very much again for commenting. Derek, if you can’t get the audio book, chances are you had already subscribed and when you try to fill in the form, the system already sees you as a subscriber.
So you’d have to email me through the website. Okay, Jo G. Thank you, Mike Shaea. W worth watching more than Once. Words to Live by. Thank you very much, Roman. Always appreciate you Bruno. Thank you Mohammed. Matt stole, really appreciate you Michael Walstad, it’s a bunch of folks who have written in. I appreciate you taking the time. It’s probably a lot of other choices that you have during the day to consume content that you might feel valuable. So I appreciate you being here. I get good feedback. This is the kind of stuff I’m talking about when I do content. It helps me understand who the audience is because in many ways it’s a one way conversation. By inviting your comments, we can kind of have a bit of an ongoing dialogue For those of you who care about this type of content, which in my humble opinion I could be wrong, this is all about trading.
People can sit and diagram charts all they want, but after a while it just gets to be too much, right? And I remember my uncle, Steve Martin, the comedian when he did Wild, wild and Crazy guy, he said when he went to college, he studied philosophy and he said, the problem in studying philosophy is you remember everybody else’s to f yours up for the rest of your life. And that’s kind of what happens when you’re sitting in watching people go over charts. Plus they oftentimes aren’t really good teachers, so they go over and they move things so quickly and they’re changing timeframes and you don’t know the context. So although it might work for them very, very, very well, it’s also very, very difficult to be a good teacher. I’ve been teaching for over 30 years and it’s a skill unto itself. But I teach Jiujitsu.
I used to teach the series seven way back when I started on Wall Street almost as soon as I was done with my own two year apprenticeship kind of because once you pass the test, you still have a lot of time before you’re actually considered a solid citizen in the business. So anyway, I want to get to the question though. Don’t want to blather on. But anyway, I appreciate you. Thank you for being here. Please like and subscribe and hit the alert belly thing that Gaja tells you about. He’ll be here Wednesday. So again, coming from Limitless is a comment on the video that we did. How can you be benefit from trading with detachment? You just want to kind of be in the zone. Trading is who you are. It’s what you do. It’s your nature managing risk. And the reason you do that is because you’re probably better at doing that than other people are, right?
I’ve mentioned this analogy before where people say, oh, you’re a commodity guy. You’re a risk lover. You love the action. And that’s just not anywhere near being true. It never really was the same way. You can’t say that a fireman is an arsonist. They love fire. That’s not true either. They’re just really built and trained to deal with that type of risk and help it, help remove it for you. They’re not removing it for themselves. I’m sure in Maslow’s hierarchy, in serving the community. I know a lot of folks on the job from New York, A lot of my friends from my hometown became police officers with N Y P D was one of my best buddy. His father was a detective.
And a lot of my friends, Kevin’s dad was a lieutenant with the fire department. Peter Man’s dad was a captain. He eventually became a captain. Lot of great lot of g, lot of great guys. Salt to the earth. So first of all, I want to say I’m not an addiction specialist. Someone like Dr. Drew Pinsky, who some of you might know, he’s pretty famous. He used to run a show, maybe he still does, called Loveline. So he talks about mostly love and sex addiction, but he also knows enough because I think he’s an md, which means a psychiatrist probably where he can speak to addiction much better than I can. However, what I can speak to is what I’ve witnessed and observed in my experience from offices and trading desks and this and that. And so when I think of addiction and I versus passion or a professional commitment to one’s craft, because in my humble opinion, you can be tradings SPS on one minute bars.
You could be a soft commodity trader who wants to buy and hold futures like an investment. So you can capitalize on these monster moves as opposed to kind of getting it right and getting lucky, frankly, that a big move is going to happen intra day for you. So again, different shapes, different sizes. One’s not better than the other. You just have to find what’s best for you. Some of my good friends are very good, Steve and Mike at smb. I’ve known ’em for 20 years. We don’t do things the same way, but we don’t hate each other, right? They’re good guys. So when I think of a trade, so I’ll answer the question in this context. I’ve said before that I think there are two payoffs to any trade. There’s the financial payoff and then there’s the emotional payoff. Right now for professionals, the emotional payoff isn’t necessarily on a per trade basis in as much as it is a more of a macro emotional payoff that they can stick to their system over long periods of time regardless of what type of market environment you’re in.
So I don’t sit here and click my heels when I make money, and I also don’t want to go drink myself with my single malt scotches or whatever. Very, very rarely drink only count on one hand the amount of times I usually get them as gifts. But so for the emotional benefit is in that when I go to bed at night and I say, okay, did I do what I intended to execute? Right? Because the behavior predicts where you end up, you win some, you lose some. So on any given day, to be frank, and I’ll say this to Victor and I’ve said it to his face, I don’t give a shit about any particular day and just don’t care about it. I’ve been around long enough to know I’m going to get liver kicks, but I’m going to get a boss Rutin liver, liver kick. I know boss Rutin very well.
And so I don’t care about that. Also as a circuit breaker, I know that there’s not any one particular day that’s ever going to put me in a bus out a business. And I’ve been caught offer limit down in cattle when mad cow hit the tape. So I’ve survived, I’ve survived nine 11, I’ve survived everything. So that gives me solace in knowing that tomorrow’s another day, I know what I’m doing. I have phenomenal instincts, good systematic rules. I just got to follow those rules powerless over the outcome. The way I kind of intentionally work too is by doing this show a given back to the community because I didn’t have something like this when I needed it most. And so my promise to the universe was, I’m going to do a show like this or before, listen, this is before YouTube I, I said to myself, I’m going to try to find a way to give back to the community to help the people that might be like-minded with me, for example, and needed that type of help on the trader psychology, emotional intelligence, that angle of it, which to me is 80% of the game.
So with those two different payoffs on the trade, you have the financial payoff and then you have the emotional payoff. The pros learn to kind of wain themselves off of the need for that emotional feedback. It’s true if you really nail a trade, it can feel good, but you also know that pride’s a big banana peel. And sooner or later, if that’s where you live, you’re going to be looking at the sky from your back. You see? And it’s not fun. It does feel good to know that when you follow your discipline, you do get the results and that reinforces you following the damn process in the first place. But you have to take the thick with the thin. You’re going to have drawdowns. Even the best traders have big drawdowns. I’ve mentioned Bill Dunn who’s now retired as a legend, I think if he’s been trading or he had traded by the time he retired since 19 71, 74.
And again, no dig against him, purely systematic. I think he had three years in a row down 15%. And the guy’s unequivocally a legend. He was also chairman of the recent foundation and this and that. I have a video, if you look on the channel, a 30 minute interview with Bill Dunn, one of my favorite guys, no nonsense kind of guy. So the addiction part to finally get to it is where I think the emotional payoff is more important than the financial payoff in my way of looking at things. There’s probably many ways to do it. And so the potential for financial gainer loss is really just the vehicle to get to the feeling of the emotional win and that emotional or that need for that emotional win or the emotional lo loss. Because there’s ways to kind of win by being a victim. You get a lot of attention and this and that. It gets super deep. But that’s why I say you got to study your psychology.
So to me, an addict needs to be in the market to feel the emotional feelings that they want to feel regardless of whether they win or lose. You see, they want the action. That’s why people go to Vegas and play games of negative expected value because it’s entertainment. It’s called economic utility in specific economist language. When you do something for pleasure, it’s typically falls into that category of economic utility. I get pleasure from it. So I don’t care about winning. I’m going to throw dice, I’m going to pull the slot machines. Again, game of negative expected value. So there’s other games. So then you want to try to focus. If you do gamble, obviously you want to focus on games of where you have, you can exhibit some skill probably like Texas hold them or some type of form of poker where there’s not a gigantic rake or of course blackjack.
But that would be the way I would understand things like if you felt like you needed to feel the emotional win more than what was actually happening with the money, then I would say that it could be exhibiting addictive behavior. Again, I’m not, there’s plenty of places where you can go if you feel you have gambling addiction, which is probably the category it falls under. Obviously it’s not a sex addiction, so it’s probably a gambling addiction and it’s very easy to set up. You could bet on anything. Right now I look, I scroll through cause I practice jiujitsu. So when I scroll through my Instagram, my personal one, I’ll probably set up a business one for some reels. Maybe I’ll take some of the clips that I do with ganja and isolate those as just me and feed ’em through YouTube shorts or Instagram reels. I don’t know, just to test. There might be an audience there. If not, I’ll just kill it. You just don’t know until you test.
I’ve seen it. I’ve seen people bet big. I know guys, guys that who had been hired by one of the guys’ partners actually hired me because they were whipping around weekly options and throwing size around and they couldn’t stop themselves. I couldn’t stop them either because again, it’s a strong emotional pull to want to be in that space. I’m not judging anybody either. I’m just saying that it can be too easy to get sucked into. I found that there were people who were super smart and they went on tilt because they needed the emotional feedback, right? Because they didn’t see the financial one and they equated their intelligence with making money. And when that didn’t manifest, at least with the frequency or the size that they wanted, the emotional size became overwhelming. The meaning, the emotional payoff for that particular trade, or a string of trades within a certain window.
And that P makes people go nuts. And even if they’re not addicts, they can go on tilt, which to me is like a short term addiction infatuation, if you will. And obviously it’s not healthy. But again, I’m not a doctor or a professional psychologist. I’m just a guy who studies his own behavior and witnesses that of other like-minded folks. So I wish everybody the best. But I think that’s when you want to take some time out and reflect upon your behavior, what is it that you’re trying to do with your money on the consulting side of the practice, that’s always job number one to try to really get down to the nitty gritty. Because in many ways it’s not always about the money, it’s about what lifestyle it can afford you or things that you want to achieve in your personal life or maybe with your family and your kids if you’re married.
So that’s pretty much the way I would look at it. If you wanted to understand, as this might relate to you, the addiction could be that you just want the emotional payoff, but where can you get that emotional payoff in another area of life where you don’t have to put hundreds or tens of thousands of dollars at risk? Are there other places in your life where you can get that emotional reward that won’t be so costly, which might be hard to delink, right? Because it might mean something to you to print a big number, have a big month, have a big trade, but for why? So you can tell other people because that would speak to ego or some kind of inferiority complex or some type of insecurity just from the outside looking in. Most people don’t really care what you do for a living.
Doesn’t matter to them. Why? Because most people are self-centered, right? They’re just concerned, can I pay my own bills and not become a burden to society? So that’s what I would look at is if you’re doing things for the emotional payoff more than the financial one in the short run, it could be you kind of going towards going on tilt. But if you find yourself doing this all the time and you’ve had to reload many, many accounts, you might want that emotional victory that comes with the big win. And so you risking too much. I could tell you an easy fix obviously is cut your position sizing, but that’s not going to help you meet the emotional win. Cause if you’re running an account and you’re looking for, you don’t want to try to double your account in a day or more than double your account in a day or make 50% in a month investigate.
Why do you want that? Cause it’s not about the money you see. That’s why I feel like this work that we’re doing here collectively as a team, as our own little group here, is really, really important. Because the more you can understand your behavior, the better way you can find what trading strategy is good for you. As I’ve said before, if you don’t know who you are, it doesn’t matter what you know about trading because you will constantly find yourself in a spot where your subconscious is really driving you to meet your emotional needs. And that’s a deep statement. That’s a heavy thing to have to live with. So when you don’t know who you are, you really don’t know at least consciously why you’re doing things sub subconsciously. Your subconscious knows exactly why it’s doing it. And that’s why when we do the work on the consulting side, when I have the time for the hedge fund folks, they’re usually fairly balanced, but it’s to really get to the bottom of their behavior.
Where has this shown up in the past? So you look for patterns because I believe we all run emotion, we have emotional systems that we’re running. And a lot of it can be explained when you look for how do you seek pleasure and how do you avoid pain? And then for those of you who like pain, how does that serve you? Right? Because there’s masochism and all that kind of masochistic behavior. Anyway, folks, please like and subscribe. Send me all your feedback. Helps me think about myself. Remember experiences in my own life. Lucky for me, I never really went on tilt because I had a strong understanding as I mentioned last week, that my behavior was going to predict where I was going to end up and it was in the doing right. That’s why I was a little impulsive cause I just wanted to start, right? And that helped me get into the game and start learning and start making my mistakes quicker. I want it to fail fast and fail forward. So that was the upside. Anyway, thanks very much for being here folks. I’ll see you tomorrow.
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The post The Difference Between Addiction And Passion first appeared on MartinKronicle.
The post The Difference Between Addiction And Passion appeared first on MartinKronicle.
Everybody happy Friday. Thanks for being here. I kind of got behind on some of these emails and these comments when I get back. For one, I don’t plan on having plants or anything on the wall. I’ve made too much money in this chair, and I like baseball players. I eat chicken on game […]
The post Are You Trading For Financial Gain Or Emotional Gain? first appeared on MartinKronicle.
The post Are You Trading For Financial Gain Or Emotional Gain? appeared first on MartinKronicle.
Hey everybody. Happy Thursday. I hope you’re doing well. I want to read you a comment that was posted under a video. So I’m going to look at the screen here on the monitor and read it. It’s under the video performance coaching and sticking to your Game Plan. And it’s second entry long, I guess, is the name of the person who made this comment. So thanks again for commenting. I have read your book, the Inner Voice Trading and has become one of my favorite ones. Thank you so much. I have been trying to find my inner voice and keep my losses small, but I have a recurring problem while I do place protective stops. Every time I enter a trade, I find myself time and again moving the stops wherever it probably means. Whenever they are close to getting hit. Worse, I average losers and keep moving stops.
And this has caused me to blow accounts time after time. What are your thoughts on possible reasons? I do this. I am despondent and your videos are about the only thing that give me hope. I know I have to find it within me. There are no external solutions to my internal problems. Someone smart said that, but maybe you can provide some guidance so I can get started with self-discovery on this. So in the consulting side of my practice here, which is kind of a function of how much time I actually have to work with people, we start thinking about goals. What is it that you want your money to do for you? Because typically having a goal in trading, if people say, yeah, I want to make a million dollars, I get it. If you don’t have a million, it’s probably a big goal for you. I understand. Depends on your upbringing too. So it could be good, but typically it’s a very vapid and empty kind of goal to have because what the hell does that even mean? And why pick a million? Why not just pick 50 K because it’s 20 times below, right? It’s easier goal to hit. Yes, you have to get to 50 before you get to a million. So I’d set the goal for 50.
But I think in understand, in order to understand who you are, you have to understand what your money means to you. And in the beginning of your career, the money, if it’s your money, right, it’s really tuition. It’s not even your trading. Yes, you can call it your trading. And yes, it’s your money. You can zip it up and take it out and withdraw it and transfer it to a savings account. It’s your money for sure. But when you’re honing your craft, those are it’s points in the game. And yeah, I’ve been there, man, I’ve been in drawdowns cause I didn’t know what I was doing. And like I said, there was so many things where I’d make money in futures but then give it back in foreign exchange. Or I’d make it in stocks and futures and then I’d lose it in options because I had one loser and I bought a big debit balance, put her a call, and I let the thing go to expiration, which was stupid, but I didn’t know any better and it would wipe out the gains that I’d have in Deutsche marks or cotton.
And so you kind of have to carve your behavior and figure out how does it serve you to move your stops? What’s the emotion? What is the emotion that you’re unwilling to feel? Because those have as much power over you as the ones that you do want to feel. And so when you move your stop, I’m guessing it’s because you don’t want to feel the rejection or the humiliation or the frustration of having put in all this work. I don’t know what quality of work you’re putting in, but if you’re putting in a lot of work, you might feel that you’re owed some kind of due. I’m here to tell you that that’s a fallacy that doesn’t work. No one cares how hard you’re working. No one cares how hard I work either, by the way. The market is there to morph and to steal from you and to kill you and to take your money.
That’s why playing defense is job number one. I don’t care if you’re hell Ben for election balls to the wall speculator job number one, even for the commodities corporation guys job number, if they lost their money, they were out. They had to actually reapply to get more money if they blew out their allocation. And it wasn’t a fun process because I know the guys who, well, one since passed away Frank Fanon, but I know the three guys who were part of the management committee and if they blew out of their allocation and had to reapply, it was a very arduous process and it was humiliating. So no one has a free ride no matter how the trade or their trading style or their asset class. So how much of your money are you willing to lose in order to learn your craft? Because you can’t do it on paper, right?
There’s no burn. And I suspect when you want to move your protective stops, it’s because you’re unwilling to feel the feelings that go around losing money. But to me, you have to fall in love with that feeling because it’s going to be the most frequent feeling that you feel, right? Most people don’t have a high winning percent for small gains. They have a smaller winning percent, like 30 to 50% for bigger gains. We talk about the expected value of a trade. Now there are a handful of people who have a high accuracy rate and high numbers. The problem is with day trading, there’s not enough real unless you catch a move because some last week some name was upgraded, it was up 15 bucks. It’s just being in the right place at the right time. So most of the time though, you’re going to find yourself being in trades and if they get close to your stop, what I used to do, I don’t mean to jump all around here, but my mind’s going a million miles an hour.
Cause I’m trying to think back over 35 years in experience so I can be valuable to you. So let’s just say I bought a stock at 25 and for whatever reason my stop is at 24. And if it wasn’t making me money or it started to leak and my timing was off and it was 24 75, and then because again, this was in eighths, so 24 5 eights, five eights a half, right? Then three eights a half, I would sell it at three eights because I’m not going to let the thing come all the way down and stop me at 24 when I’m clearly my timing’s off because the better
Trades typically have a lot of slippage in skid and they start making money with you for you right away because you’re buying when there’s other buyers there. So if I put in an order to get it, a big 2000 shares at 25 on a stop and I get filled on all 25, on all 2000 shares at 25, my first reaction is uhoh because that’s not a good sign. I want to see at least half of the fills go into an eighth to a quarter because now I’m on the right side. There’s people who have enormous amount of size pushing the market, higher people are reluctant to sell. And there you have it. But I also used very, very early on, not at the very beginning, but very early on within my first two years, I also learned the importance of what we call time stops.
And that would be where I look at the same name by 2000 at X, Y, Z at 25 and over the next say that’s a Monday. If Wednesday ish Thursday I’m like 24, 7 5 25, 25 and a quarter and I’m not really seeing any movement. I unwind the trade, I don’t care about the price because something stalled or the momentum never showed up that I thought was going to be there. And after diversification, we all need some level of momentum, even if you’re not a momentum trader, you see? So part of this problem might be you don’t know who you are as a person yet when it comes to money in general, I don’t know what asset class and I don’t know what kind of timeframe you’re trading, but you might be looking at this as opposed to saying, okay, I have 10 trades and I’m going to lose six, seven times out of 10 and I’m going to take that failure very emotionally and I’m unwilling to, I want to change that ratio.
So I want to stay in the trade longer. So what do you do? You’re coming down again, you’re longer at 25, it’s 24 and 30 eights. I know I’m using old language, but this is what I was going in my head when I was younger and I would just basically say to myself, it’s not wrong. I’m going to preserve my cash because that’s job number one. Sometimes I’d even blow it out at 24 and a half because money was hard to come by. Plus, don’t forget, the spreads were an eighth to a quarter. So it was like the thing was going 24 bid, I was going to get stopped. So I figured if it was three eights to five eights the market, in other words 24 3 eights bid offered at five eights, I would sometimes call the market maker and say, I have 2000 shares to sell it a half. Can we do it? And he’d say, yeah. And I’d be like, okay, I took my 50 cent loss again, plus the commissions which were astronomic compared to what you’re paying today. So I learned the importance of playing superior defense. If you’re frustrated with the frequency with which you’re losing, then you have to trade smaller and get into some kind of a groove and do it with a small amount of capital because anyone can scale. Once you figure out what works and who you are and what works for you,
Then that’s easy to scale. But I wouldn’t be trading your optimal size at the beginning if you don’t know what your edge is. And again, if you don’t know what your edge is, then there’s no reason to trade at all. We only want to trade when there’s an edge. But Mike, I’m just starting. I don’t know what my edge is. All the more reasons to trade smaller risk 10 bucks. One of my buddies who runs a prop firm, I don’t know cause I haven’t spoken with ’em in a bit, probably owe my call. I think they only let their traders lose 10 bucks at the very beginning. And only, this is brilliant smart idea because it doesn’t say anything about the person. If you’re looking to print wins where there’s a comma, you’ll get there. But not if you blow up, unless again you make enough money where you can just roll the dice and bet half your account because you make 400 K a year, then it really doesn’t matter.
You don’t need to trade, right? That’s just like an ego win. So I would trade small and really evaluate your process, keep good records as to what kind of trades you’re putting on while you’re putting them on. And also understand what does money mean to you? Who taught you the rules around money, right? Because unless those people were Ray Dalio, you might not know anything about money. And that’s not a, if you come from a working class background and those folks will live and check to check to check, they might not have even had an investment account. Their biggest investment was probably their house. You see? So you inadvertently learn these rules around money and how to take chances. You could be super academic where you think of losing money as a failure because you live in an or you come from and have been reinforced.
Look, by the time you graduate high school for 12 years, you’ve been conditioned to think that being correct is good and being wrong is failure. So if you lose money on trades, you associate that with failure, which it’s not. That’s how the game works. So get clear on what your money means to you and what you want your money to do for you. And it’s typically not a dollar value. It’s usually associated with what you can do with that money. Does it give you liberty? Do you want to be a philanthropist and give it away? Do you want to convert it to a different asset class and create passive income that might have more favorable tax treatment than buying and selling securities on a listed exchange? I don’t have enough information here. Let me just go back.
Yeah, I don’t have enough information to know about the asset class or whatever. I appreciate all the compliments, but again, you’re despondent because you’re breaking your own rules when you probably know better, and I don’t mean to sound that way, but this is what you wrote. Don’t change your stop trade smaller and give it more room. Cause if you’re trading 2000 shares, risking a dollar right trade, that would be the same equivalent of trading a 10th of the size 200 chairs and giving it al that much more room. So do the math and figure it out. Give yourself more room to breathe, right? Or even and then cut it in half, right? Isn’t that what Bruce Kaner said in market Wizards, whatever you think your right position size is, cut it in half and then cut it in half. Again, this is probably the smartest thing written in any of those books, right?
Trade small at the beginning because until you can define your edge, there’s really no reason to trade If you’re panhandling for the gold because you’re just getting started, yes, it’s true. You have to be in the business. I’ll leave you with this. I don’t know enough about these funding accounts. They come across as terribly slippery. I’ll give you that much. And I don’t think it’s a Ponzi scheme. I did an episode on it. Chances are you’re getting, if the winners, they’re getting paid out on other people who are paying their monthly fees, right? Cause I don’t think there’s actually any trading going on. It’s all paper trading and somehow they’re netting out the books. Sometimes you have to wait, sometimes you need a bunch of green days in a row of a hundred bucks, five of them before you get paid from this one outfit.
I was going to say racket, but I’m not being condescending. I don’t know who many of these people are, but it might make sense for some of you. And again, I don’t have any financial stake, I don’t have any affiliate commissions. So truth is I just don’t even care if the funding companies exist or not, to be frank with you. But if you don’t have money and if it bothers you to lose your own money, it might make sense for you to investigate one of these funding accounts traded super small and super conservatively, right? Again, there’s a lot of rules that I don’t like about them. You make 9,000, you can’t have more than a $3,000 drawdown. Well, I would never make it even today, I would never pass with those rules because if I have nine K in gains, I might be willing to risk 4,500 of that to stay in a winning trade might not work for you. I get it. It’s different emotional constitution. So imagine I come out, I’m super lucky. I buy a bunch of nqs, I’m up 13 K and I want to ride my winners, but I draw it down to nine. Guess what? I got to reset because I lost 4K and I was only allowed three K in the program. That’s a bad rule.
I think that’s apex by the way, but I’m, I’m not a hundred percent sure. I think that’s a bad rule. If you’re making money and it’s especially, it’s on paper, but it might make sense for you to look at having a small monthly fee. Don’t go after the big three, 400, half a million dollar account sizes because it makes you feel bigger. Trade the smallest one possible and learn your craft. Pay the smallest amount of month that you possibly can because that’s like a call option or a put option. It was a call option, right? Because it’s a set monthly fee, it’s paper trading. You’re not really losing any of your money and you’re able to learn your craft. I do think
It’s not exactly the same though because you’re not feeling the burn of losing money. The benefit of what you’re going through right now of actually losing your own money and being despondent goes to the quote from Anaya N. And then the day came when the painter took to remain tighten up ball was greater than the painter took to flourish. Sooner or later, all this Deon is going to motivate you to stop making bad decisions and moving your stops. And I say that not to be sarcastic or snarky because I’ve been there. There’s no feeling that you’re going to have to feel or will feel or have felt that I haven’t felt for one reason or another. We might not have come. The orientation to those feelings might from our behavior might not be the same, but I know what it feels like to be despondent.
So the key is to lose less. How do you do that? Trade, smaller trade. Not frequently trade one of these funding accounts. Again, I don’t endorse any of ’em cause I don’t know, but at least you’re not really losing your money at that point. Then if you can determine that you have a small edge, go to the cash market where you’re using your own money and start there. But identify your edge. And if you don’t have an edge, just understand that you’re going to roll the dice and you’re going to crap out. It’s the way it works. No one’s immune from it. Okay? Anyway, please like and subscribe and click the little bell thingy so that you get notified. I appreciate you didn’t hear, keep all your comments coming because it’s really good. It kind of keeps this conversation going and I appreciate you all being here very much and I’ll see you tomorrow.
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The post Only Adjust Your Stops In One Direction first appeared on MartinKronicle.
The post Only Adjust Your Stops In One Direction appeared first on MartinKronicle.
Hey guys, welcome back to the weekly segment that Mike and I do where we go over topics, comments, and questions, and see if we have any feedback to add on. I wanted to start off by saying thank you guys so much for all the support. We really appreciate it. And if you haven’t already, make sure you guys like and subscribe all comments, help the algorithm and make sure you press the notifications bill so you don’t miss any time that Mike uploads a video and given the content that’s coming. You don’t want to do that. Don’t miss, don’t miss anything here. That’s right. Again, yeah, we really appreciate all the feedback that you guys are giving us and we have gotten a lot of insight as to how you guys feel about the content and we really appreciate that. Keep it coming. The more we get to do topics that you guys send in, the better it is for us because we get, it’s like a direct line, you know, get to communicate with us, with Mike, and it’s just beneficial for the whole ecosystem here.
So let’s keep those comments coming. Let’s keep those questions rolling in and make sure you guys check out the links in the description. And with that said, let’s get into today’s topic, which I wanted to bring up because I had a trip recently to Italy. I just got back from Italy, went to visit family, a little vacation, and I learned a really important lesson and it’s what a proper work-life balance really is. I had I’ve, I’ve always been the guy who just kind of bangs his head against the door to open the door instead of turning the knob kind of thing. I’ve always been a really hard worker and sometimes I get kind of blinded, a little tunnel vision from that. But on this trip I had a lot of really important downtime and lessons and it was a reset for me before I left, I felt like everything was really repetitive.
I was getting dragged down and in a not positive way in everything I did, I couldn’t be happy with the single thing that I did. And it really started to affect me mentally and how I was doing work. I felt like I wasn’t putting out good quality stuff. Felt like when I was doing the eSport stuff, I wasn’t doing as well. And I had this brilliant vacation. I had a great, great time. I got to see some amazing people. And as every day went on, it was two weeks I was gone. I felt so refreshed every day. I kept feeling better and better and better. I was drinking wine, I was hanging out in the Amalfi, had a couple gin and tonics next to the Italian Lakes. It was fantastic stuff. And as a wise friend of mine once said, sometimes you just got to go golfing in Puerto Rico. So I figured my Puerto Rico might be Italy. And I just wanted to see what you had to say about that.
Yeah, I think it says something on a whole bunch of things about planning for one, for everyone watching the show seemed seamless. Ganja was gone for two weeks, right? Because we planned ahead, we recorded a bunch of stuff, we got it uploaded, we did the episodes on Wednesdays, and I totally support if he went away for a month or two. I have no problem with that. Everybody needs to know themselves. This is a game of being completely autonomous and you have to be a governor of all your own actions. So when Gja said, I got to go take a break, I’m going to go do some traveling with the family member, I was a hundred percent supportive of it. I just said, what can I do and what can we do to prepare and we work well as a team like that. So that’s the front end.
The back end is how many times did I call or tweet or bug or bug you or ping you or whatever while you were away? Zero pretty much exactly right. When someone says they need space, leave them the fuck alone. That’s it. I trust him emphatically with everything. And if he said he needs space and he has to go away and he wants to go away, last thing he does is he wants to think about California and me. And we have a great relationship. People need their space. So if someone says, Hey, I need a break, give him the break, stay away. They’ll come back just like ganja did he come back? He’s refreshed, he’s happy, and he had a great trip. It’s good for you as a human being as it relates to trading.
I think there’s, the more time you spend in front of the screen, I think you would probably need more time away. I don’t spend a lot of time, cause I’m old school, I’m og. I still call in my Otis to the trading desk. So I have the luxury of not having to sit in front of the screen. So I don’t have that same sense of urgency to have to travel or get away because every day I’m kind of away. I’m not watching things. I, in fact was telling someone, a consulting client today who’s trading indices, which is a whole other thing. And I showed him some of my best years in terms of the returns. And we reviewed a few of the trades and I said this interesting thing, and I don’t talk about it a lot, I was getting my quotes. I cleared my business through Ed and F Man and I would literally go to man financial.com and get end of day data.
And through that whole year, catching the sugar move from nine to 19, I never had real time quotes. I didn’t have a C Q G, I didn’t have a Bloomberg. And they’re all really great tools. So I conditioned myself to give myself a great amount of distance because earlier on in my career after books and knowing people, you did want to spend a little time in front of the screen because there were only really those three avenues. And so you could very easily burn yourself out. And what I have found out and what Ganja was just talking about is that when you’re at that place where you’re grinding, grinding, ver is a bad investment on yourself, pay off. And two, don’t be a martyr because nobody cares, you see? So you have to have some balance in there where I like to do it every day because then it doesn’t accumulate.
If you grind and grind and grind, that stuff compounds just like anything else in life. You have compounding interest and you have the discounting process. And so I have just built, I said this when I was earlier in my career, I said, my pace of play is not sustainable. I’m going to burn out. And it happens to a lot of people. And when you’re burnt out and you’re grinding, you can find yourself pushing. And that means you can end up being in trades that you otherwise have no business being in because now you’re more focused on the emotional payoff of the trade, not so much the financial one. So I do think you need both balance in between your personal life, your business life, but you also need to keep the balance between the financial payoff and the emotional payoff. And if either of those get out of whack, they both could subvert your efforts as a trader. Is that the kind of answer you were looking for?
Yeah, no, totally. Just to add on to that a little bit, I felt like before I was grinding a lot because I’m trying to be the best eSports player in the world. That’s my end goal. And I always thought, oh, when I was a cyclist, what I was really good at was grinding and putting in the effort and doing more training than anyone else would do. And it paid off for races like a lot. But in this case, because this is a more, I would argue, cerebrally, taxing sport, there’s so much more thought that goes into it. It’s basically playing chess with physical mechanics involved. It’s a lot of work and it’s a lot on your brain. And I’m doing this every day and I’m doing it for four hours a day. I’m doing coaching on top of that and just trying to get a new insight into the sport.
But I realized when I got back a couple days before, actually my friend was like, Hey, do you want to play in a tournament? It’s Sunday, which was two days after I got back and I was like, yeah, it might be jet lagged, I might be. He’s like, yeah, it doesn’t matter. We need a sub. He’s like, so let’s just play in the tournament if you’re okay with it. I’m like, sure. So I was pretty nervous. So Saturday I did my practice routine and I noticed I was having fun with it. I was listening to music, I was enjoying myself. And then the next day comes, the tournament happens, and I match m d mvp. So I was the best person out of 10 people in this match, and they went on to go to playoffs. They didn’t need me as a sub anymore, but I got an offer for the team.
I just didn’t want to play on that team. And it had nothing to do with the players. It’s just not the atmosphere that I wanted, wasn’t the position I wanted. But yeah, it was funny. I always thought in order to stay at the top level, I have to be playing every day and doing all this. And I did maybe three training exercises while I was gone. I brought a laptop and my mouse, but nothing like what I was doing before. And it’s funny because I was still on top or pretty close to being on top, and that was a good feeling, that refreshment and then having that positive reinforcement like, Hey, you got to take a break sometimes, dude,
Well, I don’t want to mention any names because I know who they are, but the team that you were on, the head guy, his, let’s call him Thomas, he’s in Canada, he basically said, I can’t sustain what’s going on. I’ve got too much going on. I’m going to disintegrate the team. They pay you out your equity. And that was that. So you saw even in the high level of eSports on the team that you were on, people are having good boundaries where they’re like, Hey, what we’re doing, or at least for me, isn’t sustainable.
Yeah, for sure. And I also found out that there was a little bit of a different reasoning behind it, but oh, apparently that still held true. I guess he did feel like he was being overworked, but one of the players basically said, Hey, I’m looking at trialing for other teams right now. And that was kind of the rules the last, yeah, yeah. That was the last thing that made him decide, all right, this is a little too much for me and it’s a lot of work, so let’s just move on kind of thing. And it sucked. It was bad timing, but it’s like it doesn’t matter too much. I’m doing really well now. I’m coaching a team and I’m going to move on to playing for a team. I got a lot of credentials too, so things are looking up. I’m excited. Yeah,
You’re a free agent who’s not going to be a free agent for too long, as soon as the word, it’s difficult because there’s no centralized meeting place for this industry. So as the word gets out that you’re not affiliated, that you’re going to start to see and get smashed with pings of like, Hey, let’s talk, we could work together and you could play because you can play several roles.
Yeah, technically I could play all of them. The only thing I don’t really want to do is be an in-game leader. I think that while I can be really strong at it, and I can definitely put myself in that five steps ahead mentality, I really like to rely on my mechanics and what’s going on in that moment kind of thing. Because one is definitely going to suffer if you’re in game leading and you’re playing for four other people and telling them what to do, directing them, trying to read the whole map, and it gets complicated. And so then you’re not as focused. You’re not as aware when you have to basically use your mechanics. And so that’s why I really like to avoid that. I think my mechanics are something to show off. I’ve always been really flashy, but a very unique style of aim for sure.
And we’re talking about valant as an eSports team, competition tournament style eSports game. So I want to talk about this because I think a lot of people get confused. I mentioned this on the other parts of the show during the week where people can fool themselves into part of the grind would be the thinking aspect. They’re reading books, they’re checking out blogs, they’re looking at charts, they’re doing this and that, and they put in a lot of time. I do think people should measure how much time they’re putting in every day time. Block your day, allocate time. But then just like anything that where you would create a budget, you don’t want to run on a deficit. So time block the amount of time that you put in for practice or what you think is work, and then you have to turn off, you have to have balance.
People talk about yoga and meditation and I get it. I mean, not everyone can meditate. Some people can’t quiet their mind, they can’t sit still. Frankly, I think anyone can do it. You just have to force yourself to do it. You can do it for 15 seconds and build from there. And if 15 seconds is too long, do it for five seconds, right? Learn to quiet your mind. You can make anything. Meditation by the way, you could zone whatever you do to zone out, because to me, zoning out is a form of meditation. Put your headset on, listen to Miles Davis kind of blue. You’ll have 45 minutes of downtime. You’ll hear some of the best jazz that’s ever been recorded. Put on some symphonic music, put on white noise, just do whatever and let go and release and just zone out. Forget looking at the clock, don’t look at your phone.
Just close your eyes, quiet your mind. It’ll do some amazing things for you. People are afraid of doing that because they’re afraid of missing out, especially the short-term players. So I would think set a budget for yourself, because ultimately you can’t be on your A game all the time, even when the markets aren’t open. You have to put some time between yourself and the markets. And that’s a very healthy thing. In Market Wizards, there was a story about a particular trader who was going on a date and taken out his chart book. Again, this is long before remote wireless technology and this and that. And they’d bring out, there was a big c r t chart book that you would get and it was gigantic, and they’d bring it out and start looking at charts in the middle of trying to be on a date, a romantic date.
Obviously it’s a, takes a special kind of partner to want to have to tolerate that because how could you be doing work? Well, you’re supposed to be out with a potential partner. But the benefits to me are so powerful. It guarantees to me success when you can detach from the marketplace because your brain needs time to process things. And you could speak to that. What happens when you ask yourself a lot of open-ended questions and then you go to sleep, your brain’s working behind the scenes, even if it’s in your subconscious. So that’s really, really important stuff to do for your long-term success because trading is a marathon. It’s not a sprint, even though you think you need to put points on the board every day, you have to last and go the distance. The what’s compelling here, right? So how do you handle your downtime?
I mean, generally before I had set downtime where I could do stuff, but it wasn’t disconnected enough, if that makes sense. Yeah. I would have some time where it’s like, okay, you know, can hang out in your room downstairs, hang out with your dogs, go have some fun. I had friends and stuff, but I didn’t really enjoy going out and drinking and stuff. So I didn’t really do any of that. But what I used to do, which was really good, was go like 45 minutes an hour away from my house, whether it was at the beach or the forest or whatever. I’d go to the national park, I’d walk around there and I, I’d set time like, okay, you got to be back by four o’clock. And sometimes, obviously time doesn’t always, it’s not the most best thing to model off of sometimes, depending on if what you do is inconsistent. So what I would do is I’d be like, all right, what are the things I need to get done today after this or before this or whatever. And I just said it on a schedule. I’d be like, okay, I got a couple hours to go wander. Now I’m going to come back and now I have this stuff to get done. So it was definitely time blocking, but I realized that more recently in the last three months, it wasn’t disconnected enough from what was causing the stress and that stuff.
So that brings up a good point that’s kind of related, and that is when you set a budget, because first of all, what is work? What is work? For me? I did everything the day before because that was the environment that I grew up in. There was no other way to really prepare. The day of stocks traded in eighths, and there was no wireless technology. So a lot of the stuff, you know, had to be ready to be very fast on your feet. But the key was to be prepared for almost anything. And the only way that you could do that in that day and age, because of how information was disseminated, which was by facts on many occasions, you had to work through almost every potential scenario ahead of time and then have it written out, plan, what would you do if X, Y, Z happened?
So I got in the habit again, because we’re all function and we’re both, I don’t want to say victims, but we’re all products of our environment. And so the environment where I learned how to do things, it paid to be hyper prepared. And the only way that you could do that was the day before, there wasn’t enough time in the morning to be prepared for everything that could possibly go down, because again, there weren’t all these different channels for the dissemination of information. And if you waited till the morning, you were behind the eight ball. Nowadays it might be a little different because of how fast information can be disseminated. Information is a data point, but you have to be able to separate noise from signal. My humble opinion, especially if you’re a short-term trader, there’s a lot of noise. I wanted to do my preparation.
So my preparation oftentimes was from seven to nine o’clock. If I had a lot to do, I’d start at five and have a working dinner and get whatever I needed to get done between 7, 8, 9, sometimes 10 o’clock at night, depending. And so I’d have a game plan for every instrument because on any instrument, I could have four or five different scenarios. So I wanted to work out the game plan. The good news is that most of it could have been relegated to just knowing where I was going to place my protective stop, where was I going to add? Because I didn’t just put on a risk unit and take it off. It was always nibble, not at the very beginning, but very quickly I started to nibble. Cause when I was wrong, I was early, so that was frustrating and I was having bigger drawdowns than I wanted, so I cut my position size, blah, blah, blah. So then I did that. But then I would say, okay, well here’s where I’m going to get stopped. Here’s where I’ll take profits here. I’ll take small losses. And if I was in a winning trade, I’d say, okay, here’s my protective stop if it comes against me, but if it goes up, here’s where I’m going to add more.
And then you work through all these other things where if it goes against you, you’re like, well, maybe I should buy more. But then you realize that’s what we call the moron strategy. When it goes against you, you put moron. So we call it the moron strategy because it never works. You always just end up losing more money rather than if you were just willing to take the small loss when you should have. So I found my preparation was the key to my success, and I like to get that done the night before because then I could ask myself a lot of open-ended questions about how great the next day it could be, and why am I making so much money? Because the answer was my preparation was unbeatable. Now I want to talk about that because you hang out with professional athletes. Everybody knows about the work ethics of some of the greatest athletes, Wayne Gretzky and ice hockey.
Before him, it was Gela floor, who was the leading score of the Montreal Canadians, the most storied team in all of professional ice hockey. They’d have a game at the Montreal Forum, a place where I’ve been now they play at the Molson Center by, I was at the forum. I’ve seen him play there. And he’d be in his uniform skates laced up and tied tight, ready to go at three o’clock in the afternoon for a seven o’clock game, and he’d be the first one on the ice just hitting buckets of pucks working on his hand-eye coordination and his execution. Kobe Bryant used to go to the gym at four in the morning and work out from four to six, have a light breakfast, go back and work out more, take a bit of a break, go into the hot tub, go into the steam room.
Then he’d go to practice and meet everybody else at 10 o’clock. Now, he’s already gotten four hours of quality jump shots and foul shots before his own teammates, Michael Jordan, same type of a thing. These people had God-given talent. But what did they also do? They outworked everybody, but they set budgets and they put their downtime in their calendar in a moment that was good for them. So I think what ends up happening and that you want to think about this, cause people are like, Hey, it’s, I’m willing to do anything that’s the bad. That’s a bad approach. You can’t say you’d be willing to do anything. You need to have boundaries just like in your relationships. So what happened for me was when I said, okay, I’m going to start at five and go to 10, working an extra five hours at night after having put in a full day already.
Again, those are New York hours. Market closed at four, do some exercise till about five or so, take a working dinner, then put your work in. When you set a budget for yourself, what ends up happening inadvertently is you get to say, or you create for yourself a window. And in that window you have to, it’s not quantity at that point. The quantity is in the hours. So that forces you to put in higher quality work. If you say, Hey, I’ve got all night, or I’ve got all day, well, guess what? They say, work will expand to Phil idle time. And there’s nothing, there’s no valor in that. There’s nothing heroic about putting in a 15 hour day if you’re not getting any results. My challenge to you would be to cut that in half and improve the quality of your work. Also operationally define what the hell do you think work is? Is it looking at charts as it talk? Is it scouring through social media? And I don’t know if that’s work. Remember thinking is a form of procrastination. We get paid to execute. So how do you that? Because you actually have special tools that can work on your aim and your precision. They’re separate tools. It’s an amazing industry when you think about it. Folks don’t even know this, but you’ve got the thing with the mouse where you can work on just your aim.
Yeah, and that’s what I was doing on vacation a couple of times. I think I did it three times in total. But yeah, it’s, I guess I separate work from downtime when it’s basically kind of what you’re saying where it’s, as long as it’s in front of a screen, I know I’m working. It’s not really downtime. It’s something I need to separate from eventually. Because most of, even when I work out now, even when I go outside, I work out, go on a bike ride or whatever because I still have my bikes from when I used to race it. It’s totally different for me, it’s actually more of a refresher, going for a three hour tempo cardio ride because I’m outside, I’m away from everything. I don’t have to worry about all the stuff. I got people messaging me all the time. That’s another thing with being in this industry is you have people messaging you like crazy all the time.
They’re like, Hey, we should play. I have a friends list of 500 people, and I have a lot of them messaging me quite often to play. And people ask me for tips all the time because I got in a really good spot in a short amount of time. But yeah, I guess it’s really kind of hard for me to recognize that sometimes as long as I’m in front of a screen, even if I’m listening to a podcast or whatever in my room doing laundry, I still feel like I’m working because the screen’s involved. And that’s really draining for me to be in front of a screen all day.
So now we’re talking about quantity of working, the quality of work. It feels like, man, I want to show the universe that I’m willing to do anything. But you also have to draw boundaries and say, I have to work hard, but I have to work smartly. And this puts a budget, a time constraint. You’ll find you, you’ll force yourself to do better work if you put yourself on a diet of the mind. Otherwise you can just piss so much time away and think you’re doing work and be grinding. And this is the beginning of it, and you don’t even know it because you’re like, you’re desperate when you say, I’ll be, I’m willing to do anything. This is not a powerful proposition to the universe. Right? Yeah.
And I definitely improved the quality of my work, taking a break and going away for two weeks. Not that I recommend that for everyone, but I hadn’t had a vacation in over five years. So it was crazy to go that far away and just enjoy myself and really just deal with some of the questions that I had. Where am I going to be? What am I going to do when I get back? All that stuff. I had a good plan going into it. And then the quality of my work just improved drastically as a result. Everything that I was doing when I got back just felt like top tier work that I’ve put out. And a lot of the plays that I’ve made in valent in the game, some of the tournaments I’ve played, it all just feels like next level compared to what it was. And it’s also funny because I did basically cut my time in half. I cut my working time on valor basically in half since I got back. And I’m doing a lot less of the fooling around work that doesn’t necessarily get as much done. And I’m really just focusing on the stuff that I know is targeted and strategic and is going to get me where I want to be.
Yeah. How did you come to that conclusion? Was it the time of the way, or were you analyzing the production in your performance versus what the grind, if you will?
I don’t know. It’s kind of a tough thing. It kind of popped in my head. It was almost like a shower thought while I was on vacation. I was just like, man, I’m putting in so much time and I feel like I’ve been progressing a lot less than I have been historically. And when I got back, it was almost like a clarity, it was a clairvoyance kind of thing where I would have these opportunities to do that lesser quality work, playing a game with somebody who wouldn’t really be able to teach me anything or whatever it was. These things just pop up, people want to play with you. And I’d be like, nah, I shouldn’t really do that. I should should be focused and I should. It was, I had a better common sense about what I was doing and what I was spending my time on. It wasn’t even, I drew the conclusion, it was just a thing that popped up in my head while I was gone. I was like, Hey, I’m not doing as well as I was. And that’s really uncharacteristic of me. And it’s funny, it was the time away really just gave me a much better vision of what I needed to be doing.
So changing your environment seemed to help then?
Oh yeah. Yeah. I guess it could have been changing the environment. It was also just having a break from everything. I had a lot of stress going on the last two or three weeks before the trip, and so that had all kind of been distracting and everything. If you have a thousand things coming at you, it’s hard to deal with them all effectively. So taking a break and going away and dealing with that made it much easier for when I was coming back to figure out the stuff that I really needed to do.
So folks we’re talking obviously about a pro gamer here in eSports with a specific game, but the analogies are pretty much true for any type of an industry. You get out of stuff what you put into it, but there has to be a quantity of work, and there also has to be a quality of work. And outworking the competition is important, I suspect, because when you think about trading, who makes it long term? Because the long term takes away the randomness in the short run, randomness is all over the place, so you really can’t tell if somebody’s good or if they’re lucky or if they’re bad and unlucky. So you can’t interpret. I was talking with somebody and it was the same client. He said, well, I lost on the last two trades, so I totally sucked. And I was like, whoa, whoa, whoa. The hell you talking about?
You don’t know shit after two trades. You don’t know what the outcome of that was. And the loss parameters were within the guidelines that you set up for yourself, and that’s that you can’t make any determination. It’s like going and taking a speck of sand from the beach and saying, okay, tell me about the beach. What beach is this from? Is it from Zuma? Is it from Rancho? Palos Verdes, anywhere in the Santa Monica Bay? We know, can you tell me, are there sharks in the water? Can you swim with the PPOs? Is it littered with homeless people? Like it is in Santa Monica? You can’t make any determination and go back to the process, you see?
Yeah.
So people have a way of internalizing this, and we spent a good chunk of time looking at that because people, they are results oriented as opposed to looking at the process. And I think you did when you stepped away and you went to Italy, plus you probably ate some really, really good food. You actually ran into a friend of ours, which was completely trippy,
Which is wild. That was so weird. It was just randomly by chance. I was walking in a town square in Florence, and he, he’s like, Hey, is that you? And I’m like, huh, I didn’t know you were in Italy.
Right? So that’s awesome. And when you change your situation like that, it gives you context to kind of look back, because sometimes when you’re sitting on top of the fire, you don’t know where the smoke’s coming from. So everyone talks about having a 30,000 foot view. One of the best ways to do that is to take some time away. People are like, oh, I can’t possibly do that. I might miss something. Really, you’re only going to, if you’re a day trader, missing one day’s not going to mean shit. What is that? I don’t understand that missing one day markets aren’t going anywhere. There’s billions of dollars that are tied into the secondary market trading of equities, and more so in the futures markets. There are complete industry. There are huge, when you think about commodities, very different business. And if industries couldn’t hedge their basis risk, some of those industries wouldn’t even exist anymore.
So it’s a very different mindset. Futures markets aren’t going anywhere. Yes, there are certain things that would delist because they lose volume or blah, blah, blah, but for the most part, the secondary market trading of stocks and futures aren’t going anywhere, which also means the derivative trading on set underlying instruments isn’t going anywhere either. So you could easily miss a couple of days or some weeks and do yourself a whole bit of good in terms of preparing and refreshing your brains so that you come back with a new outlook on stuff. Because when you’re not doing the same thing day after day, you can look back and say, okay, last week this time, last week I was sitting in front of the screen, or this time last week I was in the damn discord, which isn’t getting me anywhere. So you have to be your own judge and jury and look at that stuff and become a mediator. An arbitrator, so to speak, of where are you putting your time, money, and your effort.
Yeah. And it was a really good tool, just being away for that amount of time, and look, by every metric, two weeks is a good amount of time that theoretically you should be missing quite a bit if you’re gone two weeks and you know, don’t have access to a whole lot. I didn’t miss a whole lot. All the stuff that I missed wasn’t that time sensitive. And I know obviously some things are, but it’s from what I got out of it, I don’t care if I missed time sensitive stuff. It remodeled my subconscious in a way that I was aware of, and I was doing it on purpose. I wasn’t just going mindlessly on a vacation. I was like, look, I know something’s going on. I feel like I’m in a funk. Let’s try and figure this out. I’m going to go to enjoy myself because I haven’t done that in a while.
And I did that, and it felt like the whole time I was there, I was slowly picking apart stuff that I was doing and kind of chewing on it and thinking it over while I was having a gin and tonic at the Italian Lakes. And it was just fantastic stuff. I was having a bini in Venice. I mean, who does that shut up? No, no, I, it’s just fantastic. No, seriously. So I was at a restaurant in Barran, which is a Venetian island, and there it was this beautiful fish place, you know, had to put your order in the day before so they could catch your fish in the morning. And I’m sitting there having a bini eating this beautiful seafood risotto, and I started thinking, I’m like, man, I really got to figure this out. I got to change things around how I’m doing stuff.
And I just sat on that and it ended up working out great when I came back. It’s just so funny to me. Like I feel like I got to do that once a year now because I was still getting work done before as a person who’s very process oriented. We’ve talked about it quite a bit. I’m very focused on the process. I do definitely get blindsided by my ability to grind, and it definitely wears on my mentality quite a bit, and I kind of forget that sometimes. So being away helped me dissect some of the things that I was having trouble with and put it together in a really, really effective way when I came back.
So I think folks, some of the key takeaways are is that quantity doesn’t, is not better than quality. You have to have a balance between both. You also have to have a balance of the quantity and the quality of work that you put in for your profession and what you put into your personal life. Because as they say in The Shining, the movie, the Shining all work and no play make Jack doll boy, if you know what I mean. Yeah. So plan in time have deliberately plan in time away from the marketplace because you can study charts, you can study fundamentals, you can be engaged with a support group, which I don’t know why anyone would do that, because trading is a solitary thing. You don’t need that. You need some time off from the whole process that you can go back and reflect on your own behavior because behavior predicts where you end up.
You can’t do that during the day when you’re watching your levels or what have you, especially if you don’t put your orders in ahead of time like I do. So again, under the chapter of studying yourself, this might be a good way to actually refresh the system, so to speak, reboot control, alt delete, so to speak on your system and come back with a clear head because then you could better evaluate your own behavior. The changes, what ends up happening is don’t be afraid to take one step backwards. It’s because it’s not really a step backwards. You probably see it that way, but I’ll use the analogy anyway, take a step back to take two steps forward. Right, because the goal here is about performance. It’s not worried about any one particular day.
Most definitely. And also for me specifically, I had downtime before I left. It’s not like I just worked super hotter all the time, even though I kind of did, but I still had planned downtime, but I kind of didn’t realize that that downtime became stale. It wasn’t the same thing that it used to be, and I didn’t get as much refreshment out of it. So if you’re feeling like that, then maybe try and reassess what your downtime really is going to look like and make sure that you have it allocated in a time slot that works for what you do. Yes. And yeah, I think those are all really good takeaways for today. Do you have anything else to add, Mike?
Nope. Thanks very much for being here, folks. I always appreciate the feedback. Every time I speak about a lesson, I jot down the notes. Obviously I read the transcript and I kind of go to school on myself. So there’s never done right. The work is never done.
Yeah, for sure. Yeah. Thank you guys again for watching this episode. We really appreciate it. Make sure you guys subscribe. All comments, help the algorithm. Make sure you click the notifications bell so you get notified every time that Mike uploads a video. And we will see you guys in the next one. Thanks
Everyone. See you tomorrow.
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The post MMS EP #13 – Stepping Back For Big Gains first appeared on MartinKronicle.
The post MMS EP #13 – Stepping Back For Big Gains appeared first on MartinKronicle.
Welcome back party people. So one thing that I want to talk about is some things that you hear coming out of people’s mouths. You wonder if they put any thought into what they say at all. Like these truisms conventional wisdom, you’re only as strong as your weak, weakest link. And you should always […]
The post Focus On Increasing Your Strengths first appeared on MartinKronicle.
The post Focus On Increasing Your Strengths appeared first on MartinKronicle.
Everybody, how are you today? Hope you’re doing well. Happy Monday. So question came in. I’m going to read it. Actually, I’m not going to read it, it’s too long. But what I’m going to do is paraphrase it and it had to do with Mike. Basically I make it sound like it’s super easy. I don’t think the person read the book. How do you develop your style eventually, right? That’s ultimately the question. How come I’m not a day trader as to opposed to doing what I’m doing and this and that? Well, I’m not here to promote the book. I’m giving the damn audiobook away for free, so there’s no money in that. I guess I’ll make it up in volume.
It took me over four years to figure it out. So I don’t really, I think you got the wrong impression of me. I did try day trading. As you know, I tried four different asset classes. I went to Wall Street thinking that I could trade interbank, foreign exchange options, buying and selling, puts and calls, buying and selling stocks and buying, selling commodity futures. And through lots of trial and error, I kind of came to some conclusions that I had certain skills that were better than others. We’re going to talk about that this week. Foreign exchange didn’t work for me because it was 24 7 and I knew I needed downtime, I needed time to go inward, yoga, meditation, that kind of thing. So I said, okay, I don’t want to be doing this 24 7. I’m going to be constantly burn out. I’m not going to have any type of personal life and I want to have balance.
I know when you’re really starting out, you’re like, it’s great. I got all this information, I got my community and this and that, and it’s like I sleep, I eat and drink and sleep the markets, and in my opinion, it’s not terribly healthy. Then everyone knows the story. I don’t want to rehash it. So how did I develop my style? Well, a big part of the discussion on holding periods. At the time, there weren’t discount brokers. The way you know them today, and certainly nothing like Robinhood or what have you. The discount brokers were like Kennedy, Cabot, what was then called Waterhouse, Charles Schwab, and they had flat ticket prices where a wirehouse would charge, say as much as $150 or maybe 3% for a 5K investment in a security. Again, as an investment, not a trade. Charles Schwab would charge $30 flat rate, and they were all kind of similar. All the discount brokerage services were trying to undercut and gather assets by offering virtually no commissions compared to what the wirehouses were charging. Again, you didn’t get the service either, so you always get what you pay for, relatively speaking. You can’t say the lower numbers better, but you have to remember stocks traded in eighths and so the bid ask was at least an eighth, if not more. So that’s 12 and a half cents. So
If you were trading some of the NASDAQ related stocks, anything with four or five letters and its ticker, those things often had 25 to sometimes 50 cents as a spread, and on top of that, you might have to pay an eighth or a quarter. So you can imagine if you’re trading something that’s trading 25 bid offered at 25 50 and there’s an eighth or a quarter markup, you needed to do five, five eights just to get back to breakeven. So it’s fantastically expensive. Now, if you were a hedge fund and you could negotiate with market makers and what have you, and eventually I got to the point where I was trading size, I think they started negotiating at like 2000 shares of stock. If it was trading, say 25 bid offered at 25 and a quarter, you know, might be able to call the market maker and say, could you do it in the middle and save an eighth?
But you’re still looking at 25 cents as a break even now. So again, it was very, very expensive to the point where it was almost prohibitive to try to be a very active day trader. The one benefit you had is that if you had a level two, since everything traded in eights and we weren’t quote stuffing and all this kind of stuff, I think Sal Och was telling me that there’s like 8,000 different types of orders anymore. And so when you’re trying to read the tape now, it’s a little difficult with Decimalization. I’m sure some people can do it, but it didn’t make sense giving the cost structure to have to sit in front of the screen and to try to do all that. Again, if you could read the tape, that definitely helped. But I think to answer the question that that’s why I started to hold things longer because I found out that when I sat out my hands, even with a prevailing 25 cents spread in stocks, for example, that if you held them longer or you got halfway decent at reading the tape and developed a feel for what was going to go, you know, could at least make your money back.
And then some futures were very, very different. Though I had a feel for those markets because I grew up in a state that was chalk rich and full of commodities and crop ears and this and that. So I understood how those markets worked because I kind of grew up in that environment. Then when I went to school, I got that job where they were hedging. So I got to understand the physical side of the business hedging side right before the specul, the speculation side, and then I designed my trading model using load what was then called Lotus 1 23, which was the prevailing spreadsheet of its day. So just like for you, things will unfold in your life that are going to kind of nudge you in one way or the other that will help you find a situation and a trading style for your capital base that will be suitable for you.
What I’m cautious to say is if your account is underfunded, right, meaning less than 25 K, you can find yourself developing bad habits because there’s virtually no commissions when you think about it. So some places are like they start you at a penny or share over up to a certain amount. Then you get fractions of sense above and beyond that. Some places obviously can do it for free, but that might induce you to trade when there’s technically no trade there, you see. So I think the cost-prohibitive, cost-prohibitive nature of the environment that I was in when I started actually was a good thing because it didn’t give me too many choices. It was very black or white. Nowadays, everything has been commoditized so that the commission structure is down 99 to a hundred percent compared to was it to where it was when I started. So you had to be much more selective right now, again, I had a bit of an edge. I didn’t know it was an edge at the time because I didn’t even know there was such a thing as a trading edge. So that’s how stupid I was compared to how smart all of you are.
I just knew I had to be selective and focus on one thing and do that one thing very, very well. We’re going to talk about that again this week because I get so many emails about process and things around that nature. I was also very hard on myself, just to be honest. So if you f and it doesn’t really pay when I didn’t have to be because why I was showing up and working hard and working very smartly. I was eliminating things and I think that’s, I said before, traders are leaders and leaders have to be very, very decisive. I was very decisive. It was also impulsive, which I’ll admit to, but there’s a huge benefit to being impulsive. You can sit there, there’s a form of procrastination called thinking. Cause as long as you’re thinking, you’ll be like, man, I’m working hard. I’m thinking about all this stuff.
I’m trying to figure it out, and you could fool yourself into thinking that that’s actually work when that’s actually a form of procrastination. You’ve all heard this expression blank or get off the pot, you know, get paid to do stuff, right? So when I say kind of tongue in cheekly, we don’t get paid to know stuff. We get paid to execute. That does not include thinking. You have to do some level of thinking. But remember in the book thinking simp, simple heuristics that make us smart, reduce the process down to one, two or three steps and then pull the trigger because you have to get into execution mode. I didn’t have any problem with that because I knew that it was in the doing right. I had other experiences in my life where I knew that I had to execute, I had to take action.
I had to ask people for their business. You see, so what else can I tell you? Why did it take four years? I mean, that’s just the time that it took. I also had other income streams, so I was afforded a longer period of time where I didn’t necessarily have to worry about getting my bills paid based from how well I was trading or not. So I was very, very deliberate with everything, but I didn’t have to trade under the duress of being broke, right? Two, I had all day to figure it out. I didn’t have here on the west coast, Coco for example, opens at five 5:00 AM local time. I don’t know about you, but I’m not exactly sharp at 5:00 AM and I don’t make any apologies about it. But what I do do is call in my orders the night before because there’s someone on the CTA desk who’s more than happy to execute my orders and get paid very handsomely for it.
So technically my orders are on the floor from people who are in a different time zone and who are very, very alert and who get paid to do a good job for me. So it’s not old school, it’s called professional school. You can do things how you see fit, but what ends up happening for some folks here in California is that they have to get up and be available for work, whether they’re on the road or remotely. So they have a one or a two hour window in the morning and then they have to go do their day job and maybe peek in during lunchtime or kind of cheat and take 15, 20 minutes during the day when they should be doing their, what they’re getting compensated for. I think that makes it hard, which is really not that much time, and if you say, well, I’m going to trade from six to say eight o’clock Pacific time, a lot of prop firms wouldn’t even let you trade in the first 90 minutes, and it’s probably be better for that because you could have head fakes, you could have a whole slew of things that happen at the beginning of the day.
We were told when we were coming up that it’s the retail side that does their business in the morning, and the institutions are actually kind of doing and executing their trades, either adding risk or removing it towards the close, which is typically at least on the exams, like the last say, 15 minutes of the day. Again, there’s no judgment here. This is just how things came to pass for me, given the environment that we’re in is very, very different now. Almost anything that I learned when I was cutting my teeth in the tactic side on the tactical side is the useless to you today because the mark world is a very different place 35 years later. All I can share with you is the emotional constitution of not necessarily quitting and focusing on your strengths, which is something we’re going to talk about tomorrow. Anyway, happy Monday. I hope you have a great week and I’ll see you tomorrow.
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The post How You Develop Your Trading Style first appeared on MartinKronicle.
The post How You Develop Your Trading Style appeared first on MartinKronicle.
Everybody, it’s Michael Martin, happy Friday. So the topic today comes in via email and it’s like, Michael, I’m in a drawdown and I’m finding it difficult to have a good attitude. Okay? I’ve been there a million times, right? Again, I think it was yesterday or Tuesday, I talked about it being apathetic. These days it’s just like the trades come, you put ’em on, you’re powerless over the results. You repeat the process over and over, and you learn to detach yourself from the outcome of any one particular trade because you’re just doing the same thing that you would do each and every day. And it’s a really good spot to be in. So you can’t really tell when I do these shows if I’m making or losing money, and it’s authentic because at the end of the day, it’s not like I don’t care, but I don’t care.
I put the trades on. Markets are going to go, been doing it the same way for quite some time. Market’s going to go where they’re going to go. And I mean, Microsoft is a market, sugars and market. So that’s what I mean by markets. They’re going to go where they’re going to go. I’m powerless. The best I can do is to anticipate the moves, put myself in the right place at the right time when I’m very lucky in that I had good parents. And so my sister and I grew up pretty well mannered because that was, we didn’t have a choice. So everything was, thank you, and please, and I think, so what happens when you’re in a drawdown? Okay, go back to the four pillars of what I think you need. You need good attitude, you need discipline, you need persistence, and you have to have determination.
So building upon that, when you find yourself in a spot where you’re kind of aggravated, or I don’t want to say feeling bad for yourself, but in your attitude is waning, it might have to do with your trading performance. Maybe it has something to do with the people you’re with. Maybe you are starting to not like a client or two. So one of the tricks that I did to get back into feeling good and having a good attitude, because it’s really hard to win when you’re in a bad mood or if you’re SU all the time. So the first thing I would do is would in those days we didn’t have smartphones, so you’d have index cards, you’d have a Rolodex where you could scroll through. And what I would do is I’d say, okay, well who are the people? Who are the people that are most important to my career?
My execution traders, blah, blah, blah, blah, blah. Maybe a certain client with whom you have a really good relationship. And I would literally take out a pen and an index card or a piece of paper, and I’d write down four or five names of these people. And then what I would do is I would call ’em up on the phone and I’d say, Hey, Gerard, it’s Mike. Hey Mike, what do you got? And I’d be like, oh, I don’t have an order today or at the moment right now, but I just wanted to take a minute and thank you for working with me. It means a lot to me to have you in my life,
And I love you, and I’m really grateful for the spot that I am in my life, and I’m glad that you’re part of it. It helps me a lot. I don’t take the time enough out to tell you how much I appreciate you because we’re always so busy with orders and fills and this and that and the other thing. And most people are stunned because who the hell gets a call like that? But that does so much, a creates so much abundance in your psyche to be to tell other people that they’re appreciated. What do you think the universe is going to do for you? The universe is typically going to find a way to reciprocate, to help you feel appreciated. And when you’re in a pissy mood or when you’re in a drawdown and you’re feeling like, I don’t want to deal with this shit anymore, and you want to just give the double bird to the market, we’ve all been there.
I’ve never actually picked up hardware and smashed it, but I have gone for long walks only because I can envision the amount of embarrassment that you have to feel after you go on tilt like that. I mean, imagine of me, of all people, if I went on Tilt and there was a video of me having a breakdown, that would be funny, wouldn’t it? So having said that, then I’d go to the next person and say, again, similar type of a deal. I appreciate these things about you and what you do, because it helps me be a better version of me. And I’m handling big money for people. Some of them who I’m never going to meet. You handle pension money. The beneficiaries of that money are people you’re never going to meet, but you can still have a big impact on their lives by doing a good job. And so what you find is after you’ve made three or four calls like that, you start to feel really good because you’re focusing on good stuff. The people who are important to you, which you should be talking to those people a lot anyway. You know, don’t have to send them flowers or buy ’em Amazon gift cards all the time, but you should be taking them out to dinner and paying the bill, right?
Because it does something for your emotional constitution. And at the end of the day, if you are not in a good mood, it’s really hard to succeed at anything in life if you’re grumpy. No one wants to work with a grump. No one wants to work with a victim or a martyr. So I don’t know why people do that. I look at social media because I’m usually on a listen only mode, and I’m like, when you start to complain, it means you’re weak. And why would you want to broadcast to the world that you’re weak? I don’t know. I talk about my feelings here because it’s genuine and authentic, and there’s really not too many feelings that you’ll go through in your journey trading, whether you’re retail at home, do it yourself or prop desk person, hedge fund person that I haven’t
Already felt and will continue to feel I don’t have. I feel all the feelings that you feel. What I don’t do is I don’t let the good ones nor the bad ones, sabotage, right? Because the good ones can sabotage too. Some people, we talked about greed when some people, one way they get greedy, and this is something I should have mentioned the other day, is they start to coast. Yeah, yeah, I’m pro trader. Do what I want now. Rules change. Rules change. When you’re a winner, and obviously I’m being facetious, but you can drop your guard and that begins to draw down. And then you’re like, Hmm, I’m not going to let that happen again because I brought it on myself. But anyway, don’t want to blather on one of the quick ways. Again, you could, and it doesn’t have to be you’re, if you’re trading, it’s good because all those people are kind of in and around your probably somewhere near your concentric circles, in near the bullseye of your concentric circles from your professional or your trading career. Maybe you call an old school teacher, Dr, and talk to them. Don’t send it off in an email. Be a human being. Pick up the phone, call them and say, Hey, you know, might not remember me. I took your class and it really had a big impact on me. Here’s what I’m doing now. I’m a big success, and I just wanted to take a minute and thank you for being your inimitable self and doing what you do. I’ve benefited greatly from that, and I just wanted to thank you. I do that all the time.
You could find good friends. And like I said, one way to combat loneliness too is call the person who you think is most lonely in your world. So then you start to feel good about having helped them. It changes your attitude, man, attitudes, everything. So if you have a trick that you use, I don’t have all the answers. I only have the stuff that I’ve come up with for myself, but you might have a better one. And if you do, drop it in the comments because everyone could benefit. That’s what this thing is. This is like our little, I don’t really do discords, but let’s, let’s call it a day there. I appreciate y’all being here. I hope you have had had a great trading week, and you have good plans for the weekend. Remember, treat yourself and I’ll see you Monday.
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The post How You Can Benefit From Trading With Detachment first appeared on MartinKronicle.
The post How You Can Benefit From Trading With Detachment appeared first on MartinKronicle.
Hey everybody. Happy Thursday. Hoped you like the lesson yesterday with Gja. He’s, he’s a wicked piss at that guy. Super smart. All right, love the guy. So let’s talk on Tuesday. We talked about what happens with fear and we want to process the fear right away so that we don’t let that compound and really shut us down because again, behavior predicts where you end up. And if you shut yourself down because your emotional constitution has been running to the ground as well as your account, it’s awfully hard to dig out. And I can’t tell you there’s millions of people out there who are day trading, can’t figure it out. Draw their accounts down 50, 60, 70, 80% and what do they do? They have their account open, 80% draw down, and they’re sitting there like this and they’re stunned.
And it’s one of the big contentions that I have with the industry when people are marketing things in an unregulated space, promising people all the returns, how much money they’re making. I made $10,000 working only 30 minutes in the morning. So if you fall for that kind of stuff, right? Because there’s probably someone that can do it. But the point is, it’s not necessarily scalable, meaning you can’t necessarily, people can intellectually understand that process, but if you don’t have a feel for it, it’s like going on a nice date with somebody, with a really good looking person who might be successful, but there’s no chemistry. And that’s the compatibility that we’re talking about. Set up a million. We live in la. People exercise like eight hours a day. Everyone’s in shape cause it’s basically summer all the time. So everyone has a nutritionist. It’s the weirdest thing.
It’s not, don’t you know what good food is? You need to pay a nutritionist. Okay, well the world never sees to amaze me. I’ve got a trainer for weights, I got a trainer for cardio and I got a nutritionist. I actually know people who have this. I myself don’t. I have one teacher, he’s a jiu-jitsu teacher. Everything else I kind of do by my own. But I wanted to talk to you about growth and the greed part in that. I think what happens is people, one of the things that you can do to actually help combat the greed is to just, with the fear, process your feelings immediately when you start to make money, is it you or is it the market? The way I always think about it, and I’m a pretty well-read guy and I know everybody, I always figure it’s luck to be frank with you.
And I’ll say that in any, I don’t really interview for stuff anymore, but even if I’m speaking with clients or potential clients there, we make so much money in sugar, why did we do this and that? And a lot of times I’ll say, well, I’ll be very journalistic about it. Where, why and how I was smart or stupid enough to put in my buy stop to anticipate the move that got us in. I had no idea the magnitude of the move. But obviously even small moves with decent amount of leverage can mean decent rates of return, both from a percentage standpoint and cash. If I don’t really think in terms of cash signs, I think in percentages and luck we were in the right place at the right time. That’s kind of what trading is. Can you anticipate putting yourself in the right place at the right time to invite all that abundance to you? Are you worth it? Think about that. And that should hit you right in the gut. Do you actually think you’re worth it? Because a lot of people don’t. And a lot of people pride themselves on taking, I take a three R, soon I go three r, I take the trade off, not sitting around, not letting gains like that. Just sit around and I don’t get out of bed for three R To give you context, it’s not an ego thing, it’s just not worth my time.
To be frank, when I look at my life when I was younger, I might have felt differently, but as I’m sitting here right now in my fifties, it’s just not worth the time. But one thing that you can do that absolutely helped me think abundantly, kind of along the lines of Napoleon Hill, think and grow Rich. When you give money away, it kind of makes you think and tricks your mind into thinking that there’s more coming. You actually have to treat yourself too. Now. You don’t have to go out and buy my box or another, your 15th pair of Golden Goose sneakers. But in your planning and in your goal setting, one of the things that we do, especially with the institutional clients, and there’s different issues cause they have lifestyle concerns. They might have a mortgage or two, they might have a Rolls Royce payment, they might have kids in private schools from grade school to high school to private colleges, not I state schools. So a certain lifestyle that they’re used to. But one of the things that we do is we say, cause we have to practice this ourselves and we always eat our own cooking is w in your goal setting in what you it is that you want to achieve. And knowing that growth is probably a subset of just straight out greed is what do you do to treat yourself?
What do you do when you have or hit a certain milestone? One that you were anticipating because it was a goal. What do you do to treat yourself? You’d be surprised how virtually nobody has that built in. And I’m not talking about taking the family to Tahiti or the Maldives for a week or going to Dubai in first class on right Emirates, whatever you say it. My friends are all international, so they call me Martin Ahma, my Chinese clients mot you. Good trade, Ahmad, I love them all dearly. And in New York, it’s not uncommon. When I was growing up, we called each other by our last names. First of all, there was like 85 Michaels in my class, so that was necessary. You say Michael, and it’s like everyone turns around. So make sure when you have a goal and what’s the word that people use, the FU goal.
If you really smash, say you make 10% for the week, maybe that’s what you were expecting to do, but in fact you did 15. Don’t necessarily go out and blow a bunch of cash on a discretionary basis, but say to yourself at these various milestones, here’s what I’m going to do to celebrate my success. Because it’s not the dollar value that you’re celebrating, it’s your behavior that you needed to get there in the first place. That’s what you’re celebrating. And you deserve to pat yourself on the back. Nothing wrong with that. Maybe you want to go to one of these $400 a head sushi o kind of places to experience something. Maybe you’re going to, you are in New York and you’re going to take leave Friday after the close on a red eye and go to London for the weekend just to see a show on the West end.
Or you’re going to go to some of those Seville suit makers and get CustomMade shirts. Something kind of audacious, but it’s within the budget that you can set because you’ve already made the money. And if it’s your money, that’s great. It’s probably going to stay in your trading account. If it’s part of a two and 20 structure and that’s how you get paid or your prop trader and you get 50 50 split, 90 10 split. It doesn’t matter to me what the numbers are, but build in those things that you want to enjoy over time because that can also help you temper both fear and the greed. Because there’s been times where I’ve started the month off kind of rocky and brought myself into draw down, but then I recovered. Why? Well, I was smart enough to stick with my knitting and put the trades on, but the markets also turned, again, something I never could have predicted, but something I absolutely would’ve missed out on if I had a pity party.
And so, man, those are hard lessons to learn. Those are hard lessons to learn where you know, lose your confidence. So now if you say, well that’s great, Mike, that was back then, what do you do now? Well, the truth is, is that I’m very non, I’m apathetic by everything. I’ve got everything down to such a science. I have no outside feedback coming in. No, never have the TV on. And I have a nice TV mostly for baseball games. I watch baseball like 24 7. So even Twitter, Twitter’s really a platform for me to syndicate the show. A very listen only mode. Like a hundred percent of the time if someone says something nice, I’ll respond cause I appreciate them. Or if like Brian Shannon does something and he’s a good friend of mine, I’ll retweet it, right? Just because I’m a guy, I’m a bro, yo bro.
But that’s about it. StockTwits have enormous respect for the platform. It’s super helpful. I know Howard lends in personally, but I wouldn’t go to those places to reaffirm things that I already know myself because at the end it’s still probabilistic outcome. And what happens is I don’t want to put myself in a spot because of fear. Agreed. Where I have to go to the computer and start looking for all the, if I’m long X, y, Z, let me go out and look for all the other bullish, X, Y, Z articles to see if it supports and kind of calms my nerves, especially if I’m in a drawdown. So I think one of the things that you can do along the way, of course, like we said Tuesday, is process your feelings of fear right away because you don’t want those to compound. You don’t want your greed to compound either because that typically doesn’t end well sooner or later.
And I remember this happened towards the end of 99, early 2000, there were lots of guys, there were a group of Asian traders that I knew very, very well. And what they were doing was instead of directly speculating in any of anything that had four or five letters in the ticker I e Nasdaq, they were just going up five, 10 bucks a day because it was the internet and people wanted to be involved in this new economy. Brick and mortar didn’t matter. It was all about eyeballs and page views and everything works until, doesn’t work anymore. And they had gotten used to selling naked puts on these companies that were in gigantic. Now again, when you sell a credit or have a net credit puts or cost doesn’t matter, that’s usually your max gain if you stay in that same position. So for me, I never was a big option seller because I didn’t want to know what my max gain was the day that I put the trade on.
I always think unlimited upside. That’s how you get to have 10 20 R type of moves. Again, it’s a personality trade. I don’t necessarily think it’s better. I do think if you’re in a winning trade, you might consider letting it run longer. And we talked about some ways to increase selling everything at three R and then piecemealing your way out so that your average exit could be four R. We talked about that already. But you also want to process your feelings about greed right away because on some level, enough is enough. There’s people out there worth a billion dollars. Again, I don’t know what their lifestyle choices are, but like I used to say to somebody, what is the difference between one and 2 million? Well, it could be quite substantial because it’s not just a hundred percent difference. You could be dealing with a home, you could be dealing with a business.
It’s probably not cash at that level. So that can actually be a big magnitude. So then if you say, okay, well what’s the difference between five to 10 million? Well, it could be something similar, especially the growth of a company or the appreciation of real estate. But then when you get to the next point where you’re like, I don’t know what the number is, I’ll pick 50 after 50 million in net worth tangible assets that produce revenue, there’s not a whole lot in the world that you can’t do. Now of course, if you’re trying to collect Lear jets or private planes or you want a big exotic car collection, you can use that money up quickly. You can buy homes and have homes around the world and all that. But what I’m saying is if you took that money out and even did passive income, so say you got 5% on 50 million, that’s two and a half million dollars, that’s probably taxable on some way. You could do municipal securities from the state that you’re in and have completely tax free income.
There’s a lot you can do with two and a half million dollars in terms of surviving. You divide that by 12 months for the love of God. You got 200 K a month to live your life. There’s not a lot that you can’t do. So there’s a point where the money just kind of comes, but it doesn’t have this gigantic impact in your life. So you have to have a special sense of discipline because in a lot of ways, whether you make or lose money in the markets, it’s not going to affect your quality of life because you’ve already achieved something that only the top one 10th of 1% of people on planet earth can do.
So make sure that you build in things that you can do to celebrate your success along the way. Because what I have found in my own behavior is that when I did that, I didn’t feel like I was missing out so that I didn’t have to go act that out in the marketplace, right? Because that’s how it can, at least for me, might be different for you. If you don’t pat yourself on the back, even humbly along the process or along the timeframe of your winning streak, you could almost have a certain resentment and you don’t even know who you’re angry at. It’s like yourself. It’s like, okay, I’m working hard. I made all this money and no one appreciates me. Well, guess who? No one cares. So you have to take the time out. Maybe you’re going to go to Sedona or maybe you’re going to go to San, you can’t go to San Francisco, maybe go to Montreal in the summer and see some of the jazz fest to go to Quebec for the ice carnival in the winter.
Doesn’t matter to me. But what I’m saying is take the time to go celebrate your success for yourself, not so much because you’ve got the dollars and or the percent rate of return that your targeted or that your target goal was, which you either met or exceeded, but for the very fact that you were able to stick to your discipline, stick to your knitting. You were in a draw down, you came out of it or you know, took the trades as you should and you were in the right place at the right time, which is kind of what stops her for right. They’re supposed to get you in at the right place at the right time and celebrate that discipline that yielded the results. Why do you do that? Well, because when you think about it, who are you really trading against? In many ways, the fundamentals and the technicals on some level, you can take both out of the equation because all the money that you want to earn or have come into your accounts as trading gains or credits, you want more credits coming in than debits going out i e losses.
You’re really trading against another person and the ticker symbol that you’re using is just how you communicate with one another. So I always think just in Jiujitsu, the person who has the most techniques eventually going to win, just the way the world works. Why do you think I go every day? It’s a lot to learn. So just like trading, all the money I want to earn is already in someone’s account. Yes, I know the government’s printing or has printed money, they’re going to the electric chair, but at the end of the day, I’m trading against the next person’s discipline because we’re all going to have losses. So the question is, if we’re playing that game of chicken, I know where my uncle point is and I’m not going to waver from that. You see? So the way I kind of helped myself understand my needs for appreciation is I had to learn how to appreciate myself and realize what value I’m bringing to my clients and to myself because this is a skill you can teach other people.
Your other family members can learn this. And so it’s an ongoing asset, not unlike co Coca-Colas formula for Coke or the formula for the seasoning in Kentucky Fried Chicken, which are generally closely guarded secrets. I’m sure there are people out there who know exactly what the chemical compositions are. But again, just to conclude, I found myself feeling like, okay, I had reached the top of Mount Olympus and there was no one else there. There was no one waiting for me at the finish line to say, nice job here. You completed the gig, you set a good time for your age and your ability. So you have to do that yourself. It’s probably no shock when you think about it and that this is a lonely business. We kind of live and die by our own agility. We live and die by our own gut instincts. And a lot of times you have to go on instinct and go by the seat of your pants. So I would celebrate your success and have those milestones actually planned in so that this way you have something to look forward to. That’s modest. It doesn’t, like I say, you don’t have to go out and buy a new Rolls Royce or something more extravagant, but do something that’s meaningful for you that you can appreciate.
Part of the reason too is as I get older and you start to have friends start getting sick, or some of them pass away, some of them kill themselves, which is obviously sad. You kind of come to understand that your whole life cannot be in and around the markets. You have to live your life, right? There’s so much to do outside of the markets. And so doing all that stuff also helps me feel alive, you know what I’m saying? And that I can appreciate my life. So I build those things in again to say, okay, everything is related. The lifestyle choice of being a trader has a lot to do with, well, I guess it’s true of any of profession, but you want to definitely integrate your personal life with your professional life and make sure that if nothing else, your clients will celebrate your greatness by giving you two and 20, right? And they’re like, okay, now what? Because you’re on in Hollywood, they say you’re only as good as your last movie. Same thing in trading.
I’ve been in situations where I’ve had accounts double and then you’re in a drawdown and that’s all they want to talk about. Nevermind the fact that they started with 200%, $2 dollars, and that’s just the human nature. So no one’s going to appreciate you and they’re going to be like, yeah, what do you want? What do you want? I’m paying you 20% incentive fee. What more do you want? So keep this in mind when you’re building out your goal setting and your models in that, you want to make sure that you build in these beacons, if you will, that are congruent with your level of achievement where you can appreciate all your hard work. It’s really important to do that because it also helps with the burnout. Because when the next drawdown comes, you don’t want to be in a spot where you’re in a drawdown, then you grew your money, you’re up 60, 70%, then you’re in another 10% draw drawdown. You don’t want to become bitter. Cause ultimately it’s all your own fault. So I found it really, really important for the marathon of it to celebrate my wins in modest ways, at certain inflection points, not on a per trade basis. Never had a great day going out for beers tonight. It’s not what I do. But anyway, it’s a really important topic because it keeps things balanced and you want to stay, kind of have this homeostasis of your
Emotional constitution where the losses come in and they go off your back, like the water off of duck’s posterior, and you have to take the gains in stride too. It’s just the nature of markets. That’s what it is. You’re smart enough to put your trades on and be in the right place at the right time. You’re going to have drawdowns and you’re going to have winning seasons. You got to take both in stride. Thanks very much for being here, folks. I’ll see you tomorrow.
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The post What’s The Difference Between Greed And Striving For Abundance? first appeared on MartinKronicle.
The post What’s The Difference Between Greed And Striving For Abundance? appeared first on MartinKronicle.
Hi guys. Welcome back to the segment that Mike and I do once weekly where we talk about comments and questions that you guys may have and go over and see if we can add anything onto it. Before we start today’s topic, I wanted to say make sure you guys like subscribe, click the notifications bell, all comments, help the algorithm and make sure you guys subscribe because you don’t want to miss a single video that we post to this channel. Not one,
Not
Not a single one. But today’s topic I wanted to talk about what are some of the biggest misconceptions about trading?
Yes, I mean, when you’ve been around for a while, you’ve, you see all the come commands. I think, and this comes in from someone who emailed me directly from the website, and admittedly it’s confusing for me. I think it was hard because there wasn’t access. So everyone has difficulty, but there wasn’t an online community there. I’ve talked about this till we’re blue in the face nowadays, there’s so much available. You don’t know who to trust, you don’t know who to rely on, and it can give you the illusion that you’re very, very far behind and that there’s a lot to know. But if you remember what I’ve been saying since we really started the daily show here is we really don’t get paid to know stuff. Anything that you need to know, you can Google or look it up. We get paid to execute. So I would very, very quickly don’t worry about studying and taking classes.
I wouldn’t worry about joining these membership sites or getting alerts. You have to eat your own cooking. So one misconception is that you need to be part of a community, maybe even eventually. To me, traders are leaders and they’re very, they’re lone wolves, they’re independent and they’re decisive. Very, very hard to make it as a trader long term if you have to rely on or wait for the phone to ring, so to speak. Figuratively speaking with advice as to where you should get long, the E mini, and I know it feels comforting, but that comfort, that comfort, it doesn’t really serve you long term. So as soon as you can get off the nipple, there’s a reason why you get weaned off of breastfeeding. You have to be independent, right? Sooner or later you got to get your own milk.
And it’s not to say anything bad about the people who run these. It’s not to say anything bad about the people who are also members that you might have a fun relationship, but when it comes to trading, you have to be your own boss. You have to gather your own berries in the nuts. And the more independent you can be, the more confident you’ll be. And as I’ve said before, I think the more confidence you have as an individual, even if you have average ability, you can do very, very well. And that’s true of anything, not just trading. So does that make sense?
Yeah, no, for sure. I was just thinking about one of the other things that you say a good amount, and it’s like there’s no substitute for actually trading, and that much is so true with a lot of things, but it’s like, yeah, sure the communities are great and you know, may make friends out of it and may even have some reassurance, but it’s like it could almost encourage you in a negative way where it’s like, oh, maybe I’m not going to make this decision. I’m going to contact my 5,000 buddies who are in this discord and say, Hey, what do you guys think? And then it’s like, is that really your own decision and it’s not? And how much did you learn from that, if anything at all?
And so where I’m going with this is that while we don’t get paid to know stuff, we get paid to execute. We also don’t get paid to think. And what I mean by that is thinking in many ways can become a form of procrastination. And that was for me too, because if I was thinking, I could say, man, I’m hard at work. I’m trying to design this model and what wasn’t I doing? I wasn’t inviting failure into my life, which is what teaches you how to trade. And so you need to embrace that, right? You have to embrace failure because it doesn’t say anything about how smart you are. And at the beginning that this is all space invaders, man, this is all Mrs. Pacman, your money at the beginning. You can’t hold onto it for dear life. It’s Lin’s blanket. You have to be ready, willing, and able to risk that because that’s your dry powder.
Yes, you can’t bet the ranch, but that’s really just your ammunition in the grand scheme of things. You also know that when you put money into a trading account, that’s not your savings account. So you have to take risk with discords and chat groups and this and that. What can end up happening is you get super comfortable logging in and go into your support group, but you can’t rely on them for trading ideas. I know some really, really smart people that are constantly here saying, is this a good price or whatever. And they’re two years into the thing. If that’s the case, the group’s failed you because sooner or later, yes, you can go there if there’s wisdom to impart or how to stuff, perfect, but then you got to move on because at that point what you have a subs is a subscription or what in marketing they call a continuity product.
So whoever’s running the discord is going to wake up and get 200 a month from 200 people and that’s their revenue stream. So that when you stay on with the membership, but ultimately you want to go there, make your money, learn what you need to learn and then move on. If you make enough contacts, you make enough relationships, you’ll always be able to share and kind of create your own little support group, but without having to pay the monthly fee, you see. So I would, and I’m saying this, having been in a rather well known men’s group right up in Incline Village, but we never about trading, it wasn’t about that. We were always talking about emotional intelligence and trader psychology so that we could grow as people. So we shared our feelings, believe it or not. So it was more of a men’s group than it was anything else, and it was remarkable process.
So that’s one big mess, misconception. Another one could be that you always need to have your money moving. I think that’s a fallacy, and I’ve studied this in my own behavior and I’ve studied it in the people that I’ve coached and I’ve listened and put my ears to the track for other to the railroad tracks and studied other people’s behavior because that’s really what you want to emulate is the behavior. And so there’s a theory out there, especially with smaller people, smaller accounts, excuse me, and especially people who are more shorter term like day traders, swing traders that they kind of constantly have to have their money moving. But I look at it this way and I’m not making any recommendations long or short. If you could look at their certain, so today is Wednesday, May 24th and already year to date, there are certain names that have doubled.
So my question to you is if your account hasn’t doubled by catching one of those big moves or having at least a good chunk of your account in that name or any of those names, it kind of disproves the fact that you kind of constantly have to keep your money in motion. Two, it’s physically exhausting. If you’re in a winning trade and you have to get out of it because you’re firm doesn’t let you carry risk home overnight, then you have to reinvent yourself the next day. And in the market environment that we’re in right now, not a lot of follow through. So it’s even harder to find winning names that can make you money than it is when markets are good. And it’s still not even easy necessarily in those markets either. A good friend of mine worked for a very popular, I would call them a discount brokerage firm.
They had very, very funny commercials and in the bull market between 95 and 2000 every three months they had to change out two thirds of their client base because even in the bull market, those folks didn’t have any technique and they’d get in feeling the burn of having missed a move right at the top only in time for the pullback, and they were actually losing money in a bull market. So you can’t believe everything that you hear. I think that’s a big misconception. I’m not going to say that it’s an outright lie because there’s probably, again, a very small, less than 1% of the population of traders who can actually keep their money moving the shortest term. Obviously being high frequency traders. But I’m talking about those where you’re not using computer code, little human ingenuity, discretionary chart readers. I don’t think you need to always keep your money moving.
If you’re in a good name and you have the right PO position sizing, you could let the instrument do the work as opposed to you are doing the work, let time and leverage, even if it’s cash paste, right, you’re paying in cash and not using anything under reg tea or day trading, buying power or in the futures markets there’s implied leverage. So you can’t because everything is levered. I don’t necessarily believe for a second that you have to do that. And I’ve had futures positions on for weeks in the same contract where it was, it looked like a buy and hold investment because the market was doing the heavy lifting For me, I want to make the most amount of money for doing absolutely nothing. That’s where my head’s at these days. I don’t want to do turn this into blue collar despair. This is not a nine to five job and it’s not a seven to seven job either.
If you’re putting that much money in, you better be pulling down 500 K a day. One way to kind of check that of course is look at your p and l and divide it by the number of hours that you’re putting in. And if you’re making minimum wage, you might run want, you might want to rethink things. Granted, I understand when you’re working for minimum wage, you’re an employee, you don’t own your own operations. So there might in stone, the key though is to be mindful of all your operations and measure stuff. So that to me is another huge misconception is that you constantly have to have your money in motion. That’s the fallacy. That’s absolutely not true. I know plenty of people like myself who can have even futures with the right position size and let those positions run and make you all that money. And sometimes I would, and I’ll be frank with you, there are times I would wake up and I’d be like, how am I making this money for doing no work? But as they say, intentions, equal results. That’s what I want to do. I don’t want to manage.
So while I have to manage my, even delegating the executions I call it into the trade desk and let them execute it for me, I don’t be sitting in front of a computer. There’s nothing fun about that. It’s not macho either with a bunch of monitors, you don’t need that. If you want that, great. But I’ve spent money on technology that became obsolete in six months and I started scratching my head, this is stupid, why would I do that? So those are a couple of misconceptions. Another one that you might not think of that’s maybe not in the world of misconceptions is that some of the best trading books are actually books that have nothing to do about trading, but everything to do with mindset, right? Because it gives you context, it gives you insight into your own behavior and behavior predicts where you end up.
So sometimes, like I told you when we first met the Jiujitsu first, one of the ethos for Jiujitsu for me wasn’t because I wanted to become some big black belt. It was more because I wanted to exercise my discipline muscle from another angle because from the trading side, I had already gotten it down, but I was always looking for ways to test myself, to make a commitment to do something that was arduous, that was also hurts. You get bas, you basically get beat up, not bullied, but it’s hard on the body. It’s stressful, it’s not terribly aerobic, but it’s a mental chess game between you and your opponent. And when your opponent knows more technique or they have more experience, you’re going to lose. You’re going to get submitted and have to tap out. So it keeps your ego in check. So there’s all these things.
And just to mention a couple, a good one is called the Diamond Cutter is a great book. And also if you’re feeling sorry for yourself, you could go read Maya Angelou’s biography that she wrote when she was 40. I know why the Caged Bird sings because really when you think about it, when you’re trading, you’re on your way. You might not feel like it, but you don’t really know struggle the way some other people know struggle. So I always try to say, okay, struggle. It’s part of it. I just embrace it and say, tomorrow’s another day. I’m never going to let one day define my career, at least to the downside. I’m going to take my small losses and I’m going to move on. And there’s probably a whole list of other books that you could read for context like that so that you can understand your own situation, celebrate the fact that you’re struggling and that you’re persisting because that’s one of the four crown jewels that you need as far as I’m concerned. To make it, you need a good attitude, you need discipline, you need persistence and determination. So all of that stuff adds up to your success. Even though if you can’t see it right now, if you do it day after day after day, you’re eventually going to hit your goal intentions equal results.
Yeah, it’s funny you say that about the best books for trading, not have anything to do with trading. When I was cycling a lot and I was racing, one of the best books that I ever read that kind of motivated me to work harder was to Helen back by Auie Murphy. He’s the most decorated us soldier in history. And just reading his story and seeing what he went through, the progression from his life in a good amount of ways, it kind of motivated me to say, okay, look, you’ve done a lot of different things already in life and people tell you you’re crazy for switching from here to there and all over there. But it’s like this guy’s done so much in his life. He went from being a cotton picker as a boy to lying, forging documents and then going into the military and then becoming a Hollywood movie star. He did so many things in life and that kind of inspired me after all that he went through. Why can’t I do that
A hundred percent? And the world is, I don’t want to say litter cause that’s a bad word, but look at Colin Powell. The guy grew up in the South Bronx when they referred to that police precinct there as Fort Apache and he ended up Secretary of the State. Like you are not defined by your situation, whatever, wherever you are, that it’s just a chapter of a book that’s on in the process of being written. You don’t know what the ending’s going to be like. Your life is a jazz song that there’s a certain type of a structure, but whatever happens, happens. And you can even see that if you listen to probably one of the best records ever by Miles Davis actually by any artist ever is, especially in jazz though. It’s a 19 58, 59 rec. 58 was milestones 59 is called Kind of Blue. And there’s a song on there, I think it’s probably one of the most beautiful songs ever written called Flamenco Sketches.
And the six people on that record eventually went on to be Titans, but All Miles did was put out four or five different modes and he set the tone with the opening line eyes on top of that. And you’re saying to myself, oh my God, there’s no sheet music written here. They just knew what the chords were, so to speak, the modes as he referred to them and they just played over it, right? Paul Chambers was on standup based, he’s passed. He passed away at a young age at 38 from tuberculosis. You had Bill Evans on piano. He was amazing in his own. And then of course the great Jimmy Cobb, who was the last of them to die, was as the drummer. He passed away a few years ago, at least he was 90 years old. But that record is like you’re listening to six people on a team who are listening.
They all have chops out the wazo, but when you’re a musician, you sit and you listen. So you can learn a lot from that in and around your trading by listening to yourself, document stuff, measure your performance because everyone’s going to get smoked. I wrote a book about getting smoked. It’s called The Voice of Trading. And I had some monster wins there. The book was written in 2011. There’s not a mention of the Monster Sugar trade I had where I can’t even tell you how I had more than half my money in sugar margin and it went from eight to like 21. But you don’t l I diagramming that trade isn’t going to help you be better because you can’t identify it with that when you’re just starting out. I could create videos on that and get millions of views. I could probably build a how-to course around it, but who is that benefiting?
I’d rather talk to you about the struggles that we’ve had or that I had to go through because that’s what you’re probably going through if you’re just starting out. And even if you’re more established, the market’s the same for everybody. What differentiates one trader from another is his or her behavior. We’re all looking at the same sugar contract. We’re all looking at the same Nvidia stock. There’s only one class of stock as far as I know. So the best you can do is and how you behave under certain circumstances, especially the arduous ones, because you have to stay cool. You got to chill.
Yeah. So I mean there’s probably a bunch more misconceptions. I don’t like hearing the sound of my own voice. Everyone says do longer content, do longer content. But it’s like if I could make my point in a very effective and efficient manner, I don’t want to say repeat myself using 45 different examples. Cause I think you got it. I don’t think you need lots of monitors and have spent lots of money on hardware. I don’t think you need to. If you want to sign up for alerts so that you can learn the howto, get that under your belt, but give yourself a diet. Say I’m doing this for two or three months and then I’m going to move on because in my opinion, if you want howto, there’s a million howto things out there already for free on this channel, on YouTube for example. But to me there’s too much of that.
There’s not enough on the psychological and the emotional and that’s why you behave the way you do. It’s because of the emotions and the psychology. And if you don’t believe me, well then just document your behavior and try to figure out why. Because if you disagree with me, I’ll take on any debate. There’s no problem with that. I don’t have all the answers. But I tend to think that if you’re not aware of why you do what you do, it’s because your subconscious is running the show because everybody on planet Earth has an emotional model that seeking pleasure or avoiding pain.
Yeah, for sure. I think one of the things that you just touched on a little bit was limiting. Limiting certain things in a timeframe only have alerts for two months or three months. And it’s like that to me is probably one of the most important tools for progressing at anything. It’s like if you know what your training wheels are, how long you need to have ’em for, or at least set a timeframe. And it’s like, okay, when you get there, say, all right, well look, I was a little bit off. Maybe I need another week or another two weeks or whatever. And really take some notes on what’s going on and really try and ask the why. Ask a lot of more questions so you can kind of benefit from that. And then also say potentially, oh, I don’t need ’em anymore at all a month before my date. So whatever I’ve learned enough, I’m moving on. And then set your next timeframe. I want this by, I want to do this in this amount of time. Just set goals and have limits on training wheels.
They say goals are dreams with deadlines. So you want to say them in the present tense. You don’t want to say stuff like, I’m going to be a successful trader because when that’s in the non-existent future, you can behave like that right now. So you have to be, I don’t want to say you don’t have to be brutally hard. You don’t have to say this is a seal stuff that’s an exaggeration. Trading is a great personal challenge. Everyone meets it and finds a certain facet about it. Maybe more difficult than the next person. Some folks might be great at entries, they might suck at exits. We talk to one listener or viewer now cause we’re on YouTube, we’re still on the other channels too, by the way. So you don’t have to be here on YouTube, definitely trying to grow the channel. But G Gaja still puts up things on Spotify and Stitcher and Apple. If you know it’s hard for you to watch videos while you’re driving, for example, that’s a skill unto itself.
But make sure that you’re accountable. You can’t delegate your risk management to another person. And that’s kind of what the discords and these chat things set up is that you want to rely on us. And that might be true for a small window of time, you see. But after that you have to, like I said, go on a diet of your mind, learn what you can learn and then move on. Because for the most part, you shouldn’t need a support group. You’re just getting started. If trading is so stressful so soon that you need a psychologist, I would say you’re in the wrong business. Find something that’s less stressful or that doesn’t push your buttons or take some time off to learn who you are so that you don’t find yourself doing things that sabotage your behavior or sabotage your account. Now it’s a lot different if you’re a 10 year pro and you’ve got a lot at stake and you like to have an accountability coach, but if you need a therapist because of your trading, to me, it’s not worth it. You want to have a quality life above and beyond just my personal opinion.
So we have a lot of good things planned coming up. We have topics out the wazoo that we can develop. Some of them are good for the Monday, Tuesday, Thursday, Friday episodes where I can just bang them out by myself if they need more time, I’m willing to go longer. There’s things that are a lot better to do with ganja here because he’s a pro in his own and he’s lived a very rich life for a young man. And so there’s a lot of good stuff that can come from the conversation that I wouldn’t think about if I was doing this subject matter by myself. Just like I said during the other four shows during the week, there might be a chance, depending on how the audience responds to add a second window. We’re actually both extremely busy. But I made a promise, you have to remember why this whole thing started, right?
Because it certainly ain’t for the money being that it’s free in that when I started, I found that there was a level of what I kind of coined a phrase, intellectual greed. There wasn’t any mobile technology and this and that. So it was really from reading books and then knowing people, I only knew a handful of people. And the newer folks that I met who were becoming acquaintances were oftentimes very reticent to want to offer any help even if you took out for a steak and some beers after work or had tickets to a Yankee game because those jobs were very coveted and they always felt like you’re only as good as your last trade. And in some of those positions you only had three months to make it happen. And if you didn’t make it happen, there was someone else who was ready, willing and able.
And those folks had witnessed that. So some of those proprietary trading firms, there’s like a revolving door. You don’t have a long window of time, you see. And so I think they were in fear. They operated from a fear-based situation as opposed to I’m going to put abundance out into the universe. Anybody watching? I guess the analogy would be like here, if I can put out abundance from all of my experience for anybody, most of whom I’ll never know or never see and they can benefit, I don’t need those people specifically to pay me back. This is once I put it out into the universe, I know the universe is going to reciprocate. I don’t necessarily care where it’s coming from. And that’s the ethos that is still true to this day is because I felt the burn that I was trustworthy. I’ve never been arrested.
I’ve got perfect credit. I got a good record with D M V. It’s hard to prove that to people when they don’t know you see? And so all I needed was a break and those were hard to come by. But again, persistence and determination, having a good attitude, not taking no for an answer, and then following George Bernard Shaw’s advice, George Bernard Shaw who said that people who are winners are successful. They look for the circumstances that they think that they need to succeed. And if they can’t find them, then they create their own. And that’s what I had to do. I had rejection letter after rejection letter from these bigger firms. It was very different. In a lot of these trading prop firms right now are more like trading arcades. You need your own money. So it’s not really prop trading. There was, if you went to D David Shaw haw or say Bear Stearns, where you’d have a desk, you’d have your resources and you’d have firm money without having to put up your own money and they would educate you and they would pay you a draw, right?
So it’s not prop trading today isn’t what it was. I know they call it prop trading, but I’m kind of puritanical about it. It’s a very different business model. And the risk reversal is on the trader. It’s not on the firm. The firm’s not really taking chances per se. So another misconception, I suppose, I didn’t mean to kind of bring it up that way, but if you’re true to your goal, I think you’ll hit your goal. But I don’t think you need a lot of the things that people think are trying to talk you into. You might feel insecure, so you want to remove that insecurity. What I would try to do is say like, well, what is the insecurity trying to teach you? What is it saying about who you are right here, right now? And what does that mean next week? Because is ins, some people are insecure all the time, but I find that it’s very difficult to make progress because you get what you think about.
And if all you think about are your insecurities, I think you’re going to get more insecurities. And if you start to rely on these groups, and it feels the worst thing that that can happen to you is that you join a discord and you become comfortable. You want to become uncomfortable so that you move on and do your own homework, you eat your own cooking and you rely on yourself. Cause once you can do that, I’ve said it increases your confidence. And then again, in my humble opinion, I’ve just seen it too many times. Some, there was a person that I know, I can’t mention his name, but he lived in East New York and he was a paper salesman. And in July, August in New York in a suit, he’d be carrying reams of different types of paper on his shoulder walking into businesses and selling paper.
And that person became a traitor and he just smashed it. He just killed it. Why? Well, because he wasn’t overthinking on stuff. He found a set of rules that worked for him and he just amplified that over and over and over and stuck with one thing. And again, you take a person, and I don’t even think he had average intelligence to be honest with you, but he was committed. He knew one thing and he could put the blinders on and go down that path. He wouldn’t know anything about macroeconomics. He wouldn’t know anything about even basic economic theory that you could get in your econ 1 0 1, but the guy found a set of rules that worked for him as a discretionary chart reader and he never looked back.
Two, I know lots of traders who trade many different styles. Some of them are short term day traders and they’re so short, they just trade the open or the close or they wait for the first hour to pass and they trade from seven 30 to 10 eastern time. I mean California time. So 10 30 to say 12, and then that’s it. I know successful swing traders, I know position traders, I know pure, systematic people. There isn’t one way to make the most money. Another misconception. So you might hear from marketing people that there’s a conspiracy out there and the world is out to get you. The world of trading wants you to win because the more assets that you have, the more commissions and clearing fees that they can make. It doesn’t make sense to me to think that there’s any broker dealer introducing broker futures commission merchant or any member exchange member that wants to see new people come into the business so that they can steal their money and put you out of business.
There has to be a winner and a loser, but at the end of the day, it’s massively expensive. If the world of trading has to replace the participants year over year over year. So that’s another misconception. There’s no conspiracy. What there is is a lack of discipline. What there is is a lack of accountability. That’s true. It’s hard to get clients if you tell them that they don’t have discipline though you want to be the pied Piper, that’s great. That’s a marketing thing. I don’t fall for that. So, and around that too, I can’t say that position traders make the most money because that might be self-serving. But in the same breath, I can assure you that the day traders don’t make the most money either. That doesn’t fit the dialogue of the marketers because I know people of all different shapes and size are smashing it.
What you want to be concerned with is what’s the best risk for you to take, and then what are the risk adjusted returns? You can’t compare commodities corporation to tutor investments, for example, because a different business model. So you can’t say the guys who were making 10 to 20 times their capital was better than when tutor doubled their money very, very early in their career. It’s a different business model. Each did very, very well based upon the rules that they had in order to run their businesses. So I’m not saying to be an activist and challenge everything, but just realize the source of where the information’s coming from. A lot of times you see, so ask really good questions, and if you don’t have anyone to ask the question of, shoot it over to me, I’m not going to throw shade in anybody because it’s not my spirituality.
You know what I mean? But I can give you objective answers for the most part. I know the business models that are out there for trading and how people can make money. My biggest concern is that I want to help you find the best one, the one that’s most suitable for you, for the risk that you’re willing to take as soon as possible. So this show, yes, it’s a way of giving back, but what I’m trying to do, if you haven’t figured it out already, is help you accelerate your own learning curve by you studying yourself, because I want you to be independent. Everyone that I mentioned in those different asset classes and in those different holding periods, there’s one thing that’s true of all of them is that they eat their own cooking, they do their own work, and they eat their own cooking. And if they have a support group, it’s super casual, it’s casual, it’s like they’re professional friends. That’s it. If I can think of more, maybe we can do a second episode, but again, I don’t like running long in the tooth here because I know you have other things to do. Learning about yourself.
What do you think?
Yeah, I’m not, not sure I have anything on that. I mean, we’ve already touched on a lot of really good stuff today, and I think if we think of anything else after this, then we can always add onto it on a separate episode or the same episode.
Okay,
So
Thanks for being ganja me. Let us know because again, the last thing I want to do is waste your time, even if the shows are short. I want to try to stick and keep the conversation going on some of the themes that we have so that you can get the best education that you possibly can learn about yourself and then go off and kill it
A hundred percent. With that said, guys, thank you so much for tuning into today’s episode. We really appreciate it. Make sure you guys like subscribe, click the notifications, be all comments, help the algorithm. And yeah, if you guys have any questions, leave ’em in the comments. We’d love to maybe answer them, add onto it, potentially make a separate video on it. And yeah, thank you guys again, and we will see you in the next one.
Thanks everyone. See you tomorrow.
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The post MMS EP #12 – The Biggest Misconception About Trading first appeared on MartinKronicle.
The post MMS EP #12 – The Biggest Misconception About Trading appeared first on MartinKronicle.
Hi everybody. It’s Michael Martin. That’s me. That’s why you’re here. Thanks for showing up. So continuing our conversation. I got to thinking about fear and why you want to process your feelings on fear post-haste, like right away. Because what happens is when you think of emotional investments as well as your financial investments through your trading and otherwise, right? You don’t want to let fear get ahead of steam. You see meaning you can’t let it continue and build up. So what if you’re feeling fear about something? Process those feelings right away because you don’t want them, you don’t want it to carry forward into the next day, the next trading session, the next week, the next month. Because again, you get what you think about. It’s very uncanny. And if you’re in fear and you’re fearing fear, you’re being fearful, you might find yourself in a spot where you’re missing opportunities.
So the opportunity cost associated with fear can put you on the sidelines right? Now, humans are bad at prediction. So typically when you’re in a drawdown, you might find yourself taking a haircut on your capital, which means if you haven’t heard that expression before, haircuts just mean fantasy land. Hypothetical drawdown. What do I mean by that? What do I mean by that? So say you’re, you have start a certain trading period, the month of May. You had a hundred percent of your capital marked to the market coming into that month, which just means whatever your starting balance was for the beginning of the month and after the first several weeks, you found yourself down five, 10%. So now you have 90 cent dollars based on what you had at the beginning of the month, right? That’s the kind of language that I use. Another way of saying is you have 90 cents on the dollar from where you started.
Nothing bad about a 10% drawdown, it’s livable. But once you go beyond 10%, and I’ve talked about this in other episodes, the numbers kind of get worse, right? What’s the difference between 10 and 11? Not a lot, but what’s the difference between 10 and 12 or 12 to 15? It actually starts to get worse as far as I’m concerned, because then you put so much more pressure on that money i e u to kind of get back to where you once were. So again, I’ll talk about how I’ve modified my system to accommodate all of that myself and still be able to trade. So the haircut would be say that you had a hundred percent, a hundred, a hundred cent dollars. You’re starting capital at the beginning of the month of May, which is the month we’re in now, in case you’re watching this in November of 23, and you find yourself kind of coming into the mid midpoint of the month and you’re down five to 10%. So keep the math easy. Let’s say that by May 15th, you’re at 90% of your starting capital that you had at the beginning of the month. So 10% in two weeks might shake you don’t increase your position size. It’s the worst thing to do.
What you may consider doing if your style is not amenable with what the market’s showing you. And there’s an episode actually on that. What happens if you’re out of sorts with the market and it’s kind of choppy when you’re a breakout trader or you know, have a breakout, then the momentum stalls and you kind of get stuck and there’s no real follow through. But to your credit, you stay with the trades and you get sc, you get stopped. So a couple things you can do. One is you can look at the value of time stops, right? If you’re in a trade for 1, 2, 3 days and you’re normally a swing trader and you’re at a break even, maybe you’re take off the risk because it hasn’t moved, the momentum is stalled. So going back to the haircut part, if you’re at 90 cent dollars, what a lot of traders do is they try to assume then that they actually have much less money.
So they maybe trade as if you had a million dollars, you drew it down to 900 K, they might position size now based on 600 K, because now one half of 1% of that number is what? Three K, right? As opposed to one half of 1% of 900,000, which would be 4,500. So you’re cutting your position size by a third when you do that. And so when you trade smaller and you get knocked out, when the markets are not amenable, you lose less money. That’s the whole point of it. Stay true to your system because behavior predicts where you end up. But getting so much in fear where it shuts you down, kind of locks you into that number. Then what happens? Oh my God, I can’t, this sucks. And you’re now, you’re locked into this lose losing frame of mind, which is breaking rule number one of Michael Martin’s mental attitude is that you have to have a good attitude.
We’ll send people, like I said, we’ll send people home. Don’t come to the office with a pissy attitude. I don’t want to hear about it. If you don’t like trading, find another profession. But I have no time for people going boohoo, because the markets aren’t good. Don’t, don’t trade. This is a way of life. It’s life on life’s terms. Get a sponsor. So what you don’t want to do is shut yourself down from trading, because if you’ve taken, say, six losers in a row, you don’t know that the seventh one isn’t going to work out and kind of bring you back to break even. You might not gain all your money back on that one trade, but if you’re trading small enough, it could happen. If you trade one 10th of 1% and you’ve lost 60 tenths of 1% on a trade, it’s possible that the seventh trade can come back and bring and earn all that money back, which again is one of the benefits of keeping losses small, is that you don’t have to do a lot of recovery. My initial losses are so small as a
Percentage that it’s like something landing in your hair that you can’t feel, and then the wind blows it away. You don’t even know it was ever there in the first place. So it’s not as if we don’t know where our stops are, of course, it’s just that there is no loss unless there’s an act of God in everything else being equal or satir parais. As economists say, no one trade is ever going to put me anywhere near being in the neighborhood of shutting myself down emotionally, right? Psychologically or even financially, because it’s just not worth it. And the same should be something that you concern yourself with, is feel the feelings of your fear and you can be bummed about your drawdown. But there are enough tools that we’ve spoken about on this show that can help you both financially and emotionally stay with the program because you only lose really when you quit.
And I don’t want to sound this way, but I’m going to say it bluntly. You’re not smart enough to know when the next winning streak is going to start, right? I mean, we talked about faith and fear, both our beliefs in unknowns and some things that are not tangible. So why would you choose fear over faith in yourself when you’re newer? I get it might be harder because you don’t have any real track record yet, you see, so I get that. But just realize that even the best people, bill Dunn, who’s the legend guy, I know personally before he, I still know him, but he’s since retired at Dunn Capital, I’m sure I haven’t seen, and I very rarely look at other trader’s results, but I remember speaking with him and saying, he’s him saying something to the effect he had three years in a row, and he’s purely systematized mechanically.
He doesn’t do any discretionary trading, not a chart reader. Again, he’s retired now, but I’m sure he had, if I remember correctly, three years in a row where he was down 15% each year. So you compound that to see, you know what you down 50%, right? And that’s somebody who’s been trading futures since 74. So if you find yourself in a 5% drawdown and you’re feeling bad like your dog ran away from home, get over it. It’s 5%. The key is don’t let the stuff change your behavior because again, behavior predicts where you end up. Best way to have good behavior is have a good attitude, trade smaller, but stay in the game. You have to beat the fear. You can’t shut yourself down. And if you’re newer and you’re kind of winging it because you’re really trying to figure out what’s good for you, that’s fine too. Cut it down to one share or one micro contract, but keep moving, keep punching, keep moving forward. Process the fear immediately. Don’t let that thing grow and compound because it’ll get so bad that you’ll be second guessing yourself on every
Trade, and you’ll be ready to put a trade and you’ll be like, yeah, do you like sugar here? I was thinking about it, but I’m not sure I’m down a lot of money. I’ve lost on the last four ones. What do you think? Are there any websites that I could look at? And so when you get into that headset, it’s you. You’ve let it go too far. You really need to stay on top of all your feelings and process them. And I would say the same thing for greed. Enjoy your success. You have to, right? We’ll talk about that actually tomorrow, cause I don’t want to blather on. But appreciate y’all being here. Please like and subscribe if you have any comments, like things that you’ve experienced and things that you did that were, especially if they were a success, you don’t have to confess your sins here because we’re no different from one another.
We’re human beings. Share one of the techniques or one of the tactics that you did when you were in fear and or in drawdown, right? Because most people don’t have fear of winning. That’s a unique emotional constitution. But I appreciate everyone being here. Thanks so much. Please subscribe to the show. Send me what you think about each episode. It really means a lot to me. Lets me know what you really care about and I keep creating more content around the things that resonate with you the most. Thanks for being here, and I’ll see you tomorrow with Gaja.
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The post What Happens To Your Trading When You’re In Fear first appeared on MartinKronicle.
The post What Happens To Your Trading When You’re In Fear appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So it’s going to be a great week. I have some amazing topics and we’ve been getting really, really good questions. So I figured out which ones I’m going to cover here on Monday, Tuesday, Thursday, Friday, and then which ones I’m going to do with Ganja on Wednesday. And a lot of really good material out there, a lot of great comments coming in. Thank you so much. As always, if you wouldn’t mind, please consider subscribing and liking the channel. Click the bell so you can get updates. The data that we get is really amazing and we really sit and let it steep for a while. Try to come up with the best material, which hopefully the channel’s growing. You like the material, it really serves the whole community. We have this ongoing conversation on the mental aspects of trading as it would relate to trader psychology and emotional intelligence.
So I didn’t get a question necessarily about fear and greed, but the tone of some questions that came in recently, like the past two weeks had a real big theme of being in and around fear and then being, say, overzealous about one’s ability. So I thought might have a short conversation today on fear and greed and how it can creep into your mindset, and it’s pretty important because as soon as you start to have a bias about anything, you know, might want to just hit pause for a second and figure out what that means because one trader called it intuition wishing. So fear and greed. I think those terms are terms that can mean different things to different people. So the expression data science data scientists use is we would need to operationally define what do we mean by fear and greed. So fear can show up as a feeling you’re afraid of something, probably the unknown or you’re afraid of your continuing losing streak will continue. You’re afraid that your drawdown might increase in terms of magnitude, it might last longer than previous ones. Your fear is that since we’re dealing with probabilistic outcomes, that the economy is what it is. The debt ceiling is an issue.
April CPI came in, what, 4.9. So that can creep into your mindset too and kind of get you to be resigned that the world is going to be tough. And while I think you need to be aware of what’s going on in the world from a macro sense, I do think you have to stick to one’s knitting, as they say. So you have the fear of missing out and you have the fear of loss, right? Losing money, loss of opportunity.
I always think of opportunity cost. What am I forsaking today by being or doing what I’m doing in terms of effort? And that does come up for me too, even in making the show, because I’ve got to take time out of a pretty busy schedule to sit and record stuff. Then it has to be edited. There’s a whole bunch of aftermarket, as you would call it that has to get done. Then there’s the fact that there’s no sense in creating videos if the content isn’t up to snuff, because I don’t need to hear myself talk. So I try to absolutely keep my ears to the track to make sure we’re talking about things that are resonating with the community or a good chunk of them. Anyway, you can’t hit all everybody, but you can certainly thematically deal with or talk about things that are going to resonate with many, many people.
Then you have on the greed side, hubris maybe, right? You have a winning streak. Now you’re onto something. Maybe I’m going to trade bigger. Maybe I’m going to start to take flyers because I’m in the groove. And that’s all processes that you need to work out. In other words, I feel you need to know how to calibrate your greed. So typically one of the benefits, for example, and I’ll give you a compare and contrast, if you’re using, like we talked about mechanica or trading blocks as trading engines to simulate trading, the good news is that if you’re risking say one half of 1% on a trade of your overall capital, that’s going to be consistent, whether you’re in a drawdown, whether your account’s flat or whether you’re up 40% because the machine’s going to always calculate whatever one half of 1% is right. Then you’re probably going to figure out what’s the volatility of the instrument that you’re thinking of, what’s your entry?
And then you’ll figure out your position size, which is how, where we make and lose money. But we want to be able to understand where our greed comes from. Is it excitement, right, about your ability or what you think your ability is? Because again, greed, people just throw the term around. People are greedy. There’s certain folks in the media or in politics who feel like all speculators don’t work at all, and all they do is make a million dollars for not making any work. I mean, that seems to be the tone out there, and it’s kind of an ignorant way to look at things because there’s an enormous amount of math and science that goes into speculation and trading and managing risk, and I’ve never thought that there’s anything easy about it. And whatever I’ve made and lost is up to me. That’s on me. It’s my responsibility. I can’t blame anybody else. No. Also, as far as making money,
I don’t recall in 35 years ever hearing a question or a statement that someone broke into someone’s office, held a gun to their head and made them trade markets to deliberately take losses so that other people could win. No one’s a victim here. People willingly come to the marketplace to participate in the market, and they know, or at least they should put a lot of thought into what it is that they can lose. So I think of greed as something that’s necessary right in it. But there’s a difference between greed, which is almost like I’m, you’re insatiable versus having growth goals. Cause I think there’s a difference in greed. You might not put a lot of thought into your activity. You might kind of believe what you want to believe. You might also be have a, I don’t want to say a fair weather kind of memory and forget how hard it was when it’s hard.
Usually after you’ve been around the block a few times and gotten your head kicked in, you just kind of take things in stride anymore. But I think there’s a big difference between greed and then having growth goals. Growth is important because it helps you conjugate your activity every day and helping you change your life, because if you’re not really growing, what are you doing then? I don’t know that you’re dying, but you’re certainly not making progress. So I think it’s healthy to have goals. That’s what successful people do. They constantly have goals. They’re constantly reinventing themselves, not because they’re fickle, but because once you hit a goal, that becomes your new comfort zone. So you can hang out there for a while, not unlike a stock going up and then channeling ready for the next breakout to the upside. Some people think in terms of bases, so you can have a lot of bases inside, like a stage two breakout, nothing new there.
But if you don’t really think about it and you let your breed go unbridled, it can oftentimes put you in a very difficult spot because you might find yourself in too big of position. And that’s happened to me invariably. Look, if you’ve done this long enough, you’re going to come across every single instance of how to screw things up because there’s too many of them. And one of the reasons why we talk about that here is because, again, it’s not about chart patterns. In many ways, yes, you need to have setups maybe, or you need to have a systematized set of rules. Obviously all of that has to add up to a win loss ratio as well as ratios between your winners and losers where you multiply the whole thing out and you have positive expected value for all your activity. You see, I think it’s a little harder to do for discretionary traders because when do you know that you’ve had enough data to look back onto what you’re,
To know that you’re doing it in a way that you can rely on yourself? It’s true. Simulation is not predictive, but in my experience, if you have a systematized set of rules that you’ve back tested through either of the aforementioned trading simulators, those results don’t typically turn on a dime. And I’ve talked about that. And you can have winning streaks and losing streaks, and yes, it’s an average, but the average is it’s like the 200 day moving average. It’s very slow to move. So you can have a system that worked in the eighties that maybe by the year 2000 didn’t work anymore. Its efficacy was muted for one reason or another. But like I said, it doesn’t work for the month of May and then all of a sudden not work anymore. When you’re a discretionary chart reader, you have to temper the fear in the greed because obviously you want to be in the game to make money, net net of everything.
You have net trading profits that can show growth. But I’m talking also about personal growth. What does growing your trading account do for you in your life? Does it help you finance single family homes? Do you start buying a level artwork? What do you do along those lines? How do you maybe change the quality of the money or take some of the money out, change the quality of it, and also maybe change the level of taxation? So that’s all tempered in there in your behavior, because ultimately what that’s talking about, fear and greed are feelings in your body, but they invoke you to have certain behavioral patterns when you fall into those pockets of emotional capital, you see? So we spend a lot of time making sure, especially on the institutional side, because they have a lot of buying power, they got a lot of clout, they also have really good information that they kind of keep things simple and they don’t look into things.
You can help somebody develop their intuition. That’s something that we’re good at, especially for me, because I actually have really good intuition. So there’s a lot of skill unto that as well. But I think you have to have some fear, a healthy bit of fear and a healthy bit of what I would say growth goals. Greed, again, is unbridled. I’m insatiable. I kind of constantly want, want, want. So we have ways to help people overcome that. But I think most of us though, have a decent amount of respect. Let’s call fear respect, right? Because I’ve been in that situation I’ve had in the futures markets, I’ve had limit moves against me, and they’re not fun. Saving grace, again, was position sizing in that I didn’t get killed even though I was locked in a position that was off for limit down. That’s the way it goes. Doesn’t happen a lot, but when it does, you know, have to be ready for that and you price that in. So there has to be, I don’t know, fear, but there has to be respect because you know how bad things can get, markets can move quickly
With without leverage, and you have to respect that. I don’t know that you have to fear it because fear can shut you down. And as they say about lotteries and stuff, if you’re not in it, you can’t win it. Obviously that’s a game of negative expected value, so it might not be a great example. And then in terms of greed, I think you do need to have to want more, but it’s normally attached to a goal because there’s purpose to it. It serves you somehow. You feel self-actualized in Maslow’s hierarchy of needs by being a risk manager.
So we’re going to talk about that and break it down this week. Obviously, if you have any thoughts, send them in because we can add them in or if you have any other questions, we can address them as well. But I do think people have both going at the same time, but as at the pro level anyhow, they’re kind of tempered. And those pros that we work with are very self-aware people and kind of know when one is kicking in, so they don’t let it get the best of ’em, right? That’s the key. It’s okay to feel fear, and it’s okay to feel greedy. The thing is, is that you don’t want to change your behavior from the baseline of what got you there in the first place. There’s a saying, right? You dance with the girl who brought you, so you have a certain process that you used to get where you are.
Once in a while, the market’s going to set up for where you can be an utter fear, and then you can shut down, i e, your behavior shuts down. Or you can be in greed where maybe your activity now accelerates, so you’re more active, right? You’re trading bigger. And there are times when you can do that when the markets are super hot and when they’re amenable. But you have to measure the results. The key typically is whatever you’re feeling, that’s a strong feeling in your body. There’s nothing wrong with that. You’re not a loser for feeling those feelings. You’re a human being, and I know it’s generalization, but everyone goes through those moments in time. It doesn’t have to be around trading. There can be greed about who’s got the bigger house, who’s got the best, this and that. So greed can manifest in many, many, many ways.
The key for the trader though, as it relates to making and losing money, is to feel those feelings, address them, realize that they’re part of who you are, but at the same time, not necessarily modify your behavior. So in a nutshell, and I’ll close it today by saying it’s okay to fear, it’s okay to feel feelings around fear and greed. The key part though is to temper your activity to make sure that your new model then, or you don’t change your model to reflect greedy behavior as well as change your model to reflect fearful behavior, fearful behavior. So I will say yes, there’s an asterisk on the last one because I did talk about when you’re in a drawdown, you can systematically take a further haircut on your capital to induce yourself to trade smaller, but I don’t necessarily know that’s fear. That’s just good finance.
You see, and if you know everyone’s trading systems and chart patterns, setups, so to speak, can have a seasonality to them, right? In commodities, that’s a big thing in the physical space is that their seasonality. In equities, you have seasonality because it’s earning season. Or maybe you have companies that can benefit from holiday sales, whether it’s Black Friday, cyber Monday, mother’s Day, Christmas, Hanukkah, new Year’s, that kind of stuff. There could be seasonality there too. But what I’m saying is that when you look at your p and l, you can find yourself in fear. If you can see the beginning of a drawdown, right? If you’ve had a rough two weeks, that can kind of sour your mind. Again, what do I say is the most important trait for traits? It’s attitude. So embrace the fear in the greed. Listen to those feelings. Try to decipher what they’re trying to teach you.
There’s a small chance that your greed might kick in because in fact, you were really onto something in the marketplace. Unfortunately, when you’re just starting out, you don’t know. So that’s why I wouldn’t go and start trading twice as big. I wouldn’t go from trading five contracts to 10. It’s too big of a jump. And if you’re using a fixed amount of capital as far as what you’re willing to risk on any one particular trade, and you’re looking at the volatility of that instrument, the move would be from five to six contracts, not five to 10. So you want, and likewise, if you’re cutting your position, again, you’re trying to preserve your capital. So I would tend to be maybe more aggressive and not go five to four, you can go five to two, right? Because you can’t have two and a half contracts. But that’s just because I think playing superior defense is really the name of the game. And even for speculators who were balls to the wall, hell, Ben, for election playing superior defense is why you know about the folks who are market wizards. It’s why you know about the people who’ve had decades long careers. It’s because they didn’t allow themselves to put themselves, they didn’t allow themselves to get into a spot based on their own behavior where they put their whole franchise at risk, you see? So anyway, thanks for being here today. I appreciate you and I’ll see you tomorrow.
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The post How Fear And Greed Affect Your Trading first appeared on MartinKronicle.
The post How Fear And Greed Affect Your Trading appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. Happy Friday. So there’s one thing yesterday that I didn’t mention that I want to mention today, and that has to do with envy or jealousy. If you trade long enough, there’s always going to be somebody who’s the new kid in town that’s doing very, very well. And to me that was always motivating, again, that making good gains and having good performance was possible, even if it was by random luck. The goal, of course, would be to do that consistently. That’s why people like me have performance coaches. That’s why I reciprocate and do performance coaching myself. It’s because I will always want to be at optimum behavior because behavior predicts where you end up in life if someone else does very, very well, even if they’re at the same firm. This happens at the institutional level with our clients a lot.
You have to pat ’em on the back and encourage them to do even better. It’s the minute you get into the thinking that you know become jealous. They’re outperforming you. You’re in an asset class that’s not working out and you’re trading style is in, isn’t amenable with the markets. You could find yourself trying to compete and put yourself in a spot where you put on trades that you otherwise don’t have any business being in only because you’re tired of being second, third, fourth, fifth place or what have you. And so give everybody their moment in the sun, celebrate their behavior, be abundant along the lines of think and grow rich. The more you give, the more you get and celebrate someone’s success because they’re going to probably turn around and help celebrate your success when it’s your time. Remember, asset classes and trading styles ebb and flow in terms of their efficacy in the marketplace, and yours will have its day if it didn’t already, and other people will too.
And that’s just how life goes. It’s very cyclical. So stick with your process. Stick with what you know how to do and compete with yourself. The goal being to have discipline every day, yes, you have to have a good attitude. You have to have discipline, you have to have persistence, you have to have determination. But other than that, that’s the best you can do. Enter your orders, put in your protective stops, you’re powerless over all the rest. If you’d like to get a free copy of the audiobook version of my book, the Inner Voice of Trading, you can get it. Click the link below if you’d like to look at some of the coaches, take two. If you’d like to look at some of the courses that we have for Mindset, we have online courses, we have group sessions, and we have one-on-one. Thanks for being here, folks, and I’ll see you tomorrow.
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The post Performance Coaching & Sticking To Your Game Plan first appeared on MartinKronicle.
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Everybody, it’s Michael Martin, happy Thursday. So I got a question that I get a lot through social media and they say, okay, something about your four years, it took you to make it. When did you know that you were onto something? And it’s a very interesting answer. It was partly because of the consistency of my behavior. It wasn’t necessarily because of my p and l, because I always, I knew how to make money. The problem was position sizing, knowing when to take losses, strategic use of protective stops, knowing when to take profits. That stuff comes with experience. So you can’t really read a book and say, here, do it my way, because it’s perfect, because it might not feel right for you. So you have to work your way into it or develop your own way. I developed my own way, but I think there was a mental trick that I used if I remember correctly, and that was when you’ve probably heard me say, we live in a paradigm of personal responsibility.
I always had a strong inner voice. I was just born that way. It’s the way it goes. Lucky me, but I think when it comes down to trading and having that sense of confidence, remember I’ve also kind of said, if you take an average person, but you inject them with a bunch of confidence, there’s really no stopping how well they can do because they’re in the groove. And that’s true. I think obviously in many areas of life, not just with trading, but when I accepted the fact that I was in control and that everything that happened in my account was my own doing, right, because that’s kind of how I lived my life. It hit me not a ton of bricks, but it made me, it was like two days of this big kind of ongoing aha moment where I understood that you can make money in this business.
I’ve witnessed other people doing it, and that I need to find the equation that’s right for me in order to persist and stay determined over time, even when I’m losing little nickels and dimes in drawdowns. And so in accepting that responsibility of my entire p and l, right? That is when the light bulb went off and that I knew that I was very, very close to figuring it out, and it injected me with a new sense of excitement about the process of making money by having your own buy and sell rules and your position sizing algorithm. Because at that point it was very empowering because it meant a few things. One, especially when you lose money, it was no one’s else’s fault. It was never the market’s fault. It was never whoever the Acts analyst was, it was usually the analysts effect equities more than they do futures. It wasn’t any f OMC meeting wasn’t the White House. It wasn’t the house or the Senate. It wasn’t some big short seller or market prognosticator who had said something on the television. I
Said, that’s the way the world works. The F O M C is going to have meetings and they’re going to make announcements. Analysts are going to upgrade and downgrade stuff. Other traders are going to move in and out of big positions. Of course, you have these outlier events too, like nine 11 for example. So then you have the economy, you have recession, you have boom times. The truth is you’re powerless over all of it. And so when you accept that and say, okay, that’s the game that I’m playing and I’m going to go basically try to do this endeavor, which is the equivalent to tap dancing in a minefield. You get what you get and you don’t get upset if you want to play victim, that will hold you back for as long as you play victim. It’s a type of mental cancer, so to speak, that I think stops you from moving forward because you feel like you’re not actually in control.
You’re kind of participating in something that you’re not actually responsible for. And this is a game of willingness. You have to be willing to put on the risk. You have to also understand that risk and reward are connected. Again, that depends on, well, they’re always connected, but what you get out of that situation, and that relationship has a lot to do with your position sizing. It really comes down to how much you make or lose comes down to your position sizing. Because if you trade bigger, you can have tighter spot distance between your entry and your protective stop. If you trade smaller, you can give it more room. So there’s an inverse relationship, but it’s a relationship nonetheless, and you get to pick that out. No one is forcing you to do anything. And so this is true whether we have Russia, Ukraine, we have people with strong opinions about red and blue in the United States, we’ve got, so in other words, what I’m saying is you might feel like you’re constantly under attack for your beliefs or for who you are as a person, but as a risk manager, all that stuff is just chatter.
It’s noise. It doesn’t really affect the signal. So you have to learn to disengage. That’s what I did. I to, I wouldn’t call myself a news junkie, but I was very up on world events. Now I kind of am, but ultimately I figure when I wake up any morning, anything can happen. So I don’t try to handicap what the energy reports are going to be on Wednesday and Thursday. I don’t care about the crush numbers for the bean market. I don’t care about earnings. We’re in the markets right now. We’re in earning season. A lot of people get hyped up and they try to trade earnings. It’s not my style. I don’t like making bets in the face of things that I can’t handicap. And although I have an amazing sense of intuition, I think if a person thinks they have a good sense of what a company is going to do, they might be kidding themselves because you really can’t tell unless you’ve spoken with the company.
Analysts can’t tell. They can take the guidance, but coming up with the number and then figuring out what that number’s going to mean to the marketplace versus what’s the whisper? What’s the estimated number, what’s the actual number? That’s, people tend to give themselves a little bit more credit for their sense of being able to predict things. And in my general thought is that people are not really good at prediction at all, and that’s coming from a guy who has an amazing sense of intuition. The point being though, the more responsibility you accept, the more empowering to me that it actually is. At least it was for me. You might feel differently. But the minute that I basically came up with the idea that I’m actually in control here, especially with the idea that I can limit my losses and that I’m not just putting on risk and becoming a victim of what circumstance, of whatever’s going to happen in the marketplace, I started to figure out, hey, I can put on this risk with a requisite amount of position size that’s appropriate for me, and I can determine ahead of time where I’m going to say, uncle, if it doesn’t go my way.
And knowing that I was in control of that process. And yes, it’s kind of discretionary in as much that you have to pick the instrument. You have to pick the position size. You have to pick the entry of where to add the risk for the first time. Where’s your protective stop? Where are you going to add if it moves in your favor, if that’s part of your process? Or where are you going to start to remove risk after you’ve had some unrealized gains and you want to realize them? I said, wow, this is a much more empowering process than I ever thought it was. If you read the books and you kind of grew up the way I did, the big thing in the eighties was the efficient market hypothesis, which when I read it was I never really believe I had to learn it for school.
But I’m sure you’ve been in that situation yourself where you’ve had to learn certain doctrines, read and write about it. But unfortunately, the way the schools work is you can’t come back and give it and disregard the theory, right? Because there’s a practical part of Michael Martin. There’s of course, the theoretical part. I understand. I understood what it meant, and I understand how the folks who were involved with that model are kind of reved revered, and so you know, have to pick your fights. But I kept saying to myself, well, what about the crowd? Because ultimately it’s what the crowd thinks, not what you think is intellectual or theoretical about a particular stock or instrument. So then I kind of married that disregarded, efficient market hypothesis, even maybe before I started to trade. And then I kind of said, well, what’s really important is crowd behavior. And that’s why I’ve recommended extraordinary popular delusions in the madness of crowds, because if you can understand how crowds work, the fundamentals are important long term. But if you’re a trader, a lot of
Times you just have to understand where’s the tide? What are the market forces and who’s in control of that instrument? So now I got a whole other sense of education in trying to determine who’s in control. Then I was lucky enough to have a mentor in Michael Marcus who was really, really, really good at that and understood that that’s really what moves markets is people’s perceptions of what the fundamentals are. Because everyone wants to sit down and be like, yeah, man, I just follow what barn buffet does. They follow the fundamentals, all this and that. And you say, oh, yeah, okay, cool. How much Berkshire do you own? Well, no one ever called me on my bullshit before. I don’t own any, but I want to be like him. Well, granted the guys in his nineties, I think if you’re bullish on Berkshire or you want to do it the Warren Buffet way by Berkshire, and then go find something really good to do with your time, because probably trying to emulate him and his access to information is not something that the casual investor at home can do.
Sorry, to burst anyone’s bubble. If that’s your goal and your dream, by all means, disregard everything that I say and go for it, because it’s really up to you. But from a practical standpoint, fundamentals do matter. Earnings matter, cost of borrowing, money matters because it affects right earnings. So you can have that debate, whether it’s earnings or interest rates that really move a company well, it depends if the company’s got to borrow money and what their cost to carry is. But then ultimately, it’s your job to understand momentum, and that momentum comes from crowd behavior. And so whatever you’re modeled, you need to understand, you might be super bullish on something because you even used the product or the service, but what matters is what is the 15 million other people who’ll be trading that name tomorrow going to do? Because no matter what, it’s like driving.
There’s certain times when you’re at an intersection and this and that, and you talk about right of way. Well, to me, the market always has the right of way because that’s what the crowd determines. Doesn’t matter what I think, doesn’t matter where I want to enter. And so this kind of gave me an inner calm in that I’ve got to develop my instincts and my skills around understanding how the crowd’s going to behave given the chart and given what the fundamental environment is, given what the overall environment is now in the marketplace right now, right? It’s Thursday, and we’re talking about there’s still fear around all these regional banks. What’s going to happen? Are they going to implode? What are people going to do around getting their own money out of their bigger banks? No one’s ever going to stand up and say, yeah, we’re not sure we’re going to make it through the summer.
I mean, that’s what they should do if they had integrity. But it’s up to you. It’s your responsibility. And I can’t count on anyone else to have integrity, and that’s not a sad state of affairs. It’s that I’ve gotten to the point where I don’t really count on anybody for anything. Yes, there are people who have helped me, but I also showed great interest. I also had great promise. I was highly of my background and the fact that I never, because so many people, if they went through what I went through, not to say that I’m God’s gift, but it’s very easy to become discouraged, right? Because I’m a goal setter. I’m a person who hits his goals, and it’s so messy. It never comes to pass. I hit my goals, but oftentimes how I got there never is how I started. So the path towards your goal can change, but the goal itself cannot.
And in that four something year window of where I was cut, cutting my teeth and sewing my oats, so to speak, one of the biggest thing was yes, I always had a good attitude. That is to important. And yes, of course, you know, need discipline, but persistence and determination, those are all four brothers and sisters of the same argument, attitude, discipline, discipline, persistence, and determination. Those are all super important. And when I determined and made up in my mind that I was going to actually take control, then the whole rest of the world didn’t matter. I didn’t care what anyone else did. All I had to do was modify and control my own behavior. And that the way that translated for me was, again, because there wasn’t the aftermarket, there wasn’t all this stuff you can do on discords and chat groups and whatever. It was basically you and the books that you had, the relationships that you had, and you could look at some charts and maybe see a few things on, I don’t even know what was a, I don’t remember what it was. Maybe it could have been Yahoo Finance or the Wall Street Journal at the time, the C-section of the paper had a lot of that type of information. Now it’s very different cause they don’t take up the physical space. They delegate that and they put that all online.
I didn’t use it, but a lot of folks used Investors Business daily as well. So I kind of learned how to read the tape. Again, things dollars were broken up into eight parts. So there it was easier to read the tape. If you had a level two, and you could also call people on the floor who kind of knew where there were sizable orders. They couldn’t tell you who the orders were from. But if I was stepping into a trade to buy 50 natural gas, they might say, okay, well there’s like 3000 contracts to go between five and 10 cents above the market there. So you might get in, but there’s a wall of selling pressure right above you. And that was regular. That was a regular chat. So when I took responsibility, it was actually very, very empowering because it precluded my ability to blame anybody else, especially from my failure. Then the trick was, as I was making money, of course I could look back in my failures and make sure that I didn’t become too full of hubris. You know what I mean? Because the minute you start thinking, you figured it out, that’s when you get taken out back and beaten. And I didn’t want that either. So I became super placated and said, okay, here’s what I’m willing to lose. I didn’t quite fully understand what my expected value of a trade was, because I was still sorting things out.
But I kept track of the data and then it empowered me to say like, okay, I am deliberately choosing to do this. Why would I blame the result on somebody else? So it didn’t logically, and I’m f I don’t know that I’m stoic. I’m just saying that when I went through that realization, I kind of remember where I was. I was walking around the lake and I was near the boathouse in Central Park, and I kept saying like, okay, I’m frustrated from having lost money. I’m frustrated because I’m getting, I got different results. I make money, I’d lose money. And then I was like, oh, okay. Well, I heard someone being interviewed, and I was like, well, that’s just the way it goes. In trading, you win, you win some, you lose some. The key is to not let your losers put you out of business.
But the second key then is to not let your users take out all your gains. And that was one of the first battles I had to come up with is that I was making money. The problem is I was reluctant to get rid of my losers much quicker. And so when I went back and I did some due diligence on my trading ledger, one of the first things I did was pick better stops on the chart and minimize my losses because I did make money. The problem was I was losing enough to kind of keep pace with the storm. So I was running to stand still as bono saying. So I was like, that’s stupid. I’m putting all this work in, but it’s my responsibility to learn this. So then I said, okay, I’m going to focus on my losses because my instincts get me into good trades to make the money, but they also keep me in my losing trades too long.
What is it that I’m reluctant to feel? And so you go through that whole thing about all the feelings that you have around losses. If you get knocked out, it comes back in your face, this and that. Then you come to realize I can’t manage risk based on what I think is going to happen tomorrow, the next day. If I’m in the risk, now I have a stop and that stop is written in stone and that’s it. I don’t negotiate with it. So that was a big aha. But it all came from yes, having a good attitude, having discipline, persistence, determination, but the big aha moment came for me, that really was the beginning of my going parabolic, was understanding that I’m responsible for everything. I don’t get to blame anybody. And maybe if you are struggling, that might be something for you to look at.
I don’t know. Anyway, it’s a great question. It’s a super deep concept. I’m sure I could go on and on and on with it. If you’d like the show, please like and subscribe, click the bell because we’ll alert you when new things are up. You have any questions or comments, please write ’em in. I don’t have all the answers. I just have my own subjective experience, which I’m trying to share with you all here for free. If you haven’t gotten a free copy of my book, the au, the Inner Voice of Trading, you can get the audio book version for free. Click the link below. Thanks for being here, folks. I’ll see you tomorrow.
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The post When You Know You’re In The Zone first appeared on MartinKronicle.
The post When You Know You’re In The Zone appeared first on MartinKronicle.
Hi guys. Welcome back to the weekly segment that Mike and I do where we talk about kind of what’s going on. We look over some of your comments and suggestions and see if we have anything to add on that. Today we had a really interesting topic, but before we get into that, I wanted to say thank you guys for all the support. We really appreciate it. Make sure you guys like subscribe, click the notifications bell, all comments help the algorithm. And yeah, we really appreciate it. So to get into today’s topic, we had a comment from our most recent video. Thank you for this content. It really helps and it’s nice knowing I’m not the only one who deals with these struggles. I’m three years in and hell bent on becoming a consistently profitable trader. My question to you, my question for you is that there are many bad habits I’m constantly keeping at bay and some days they come through. Does it ever get easier? Do you still have bad habits that slip into your trading? If so, how often?
Yeah, I love hell bent. That’s such a great expression. Hell bent. The thing about trading, it’s like, here’s your hurry. You have to take your time and enjoy the process. And that means even when you’re making the sausage in the early days, your salad days of trading, I didn’t really have a choice because I couldn’t really reach out to other people because there wasn’t wireless technology nor an internet. So we had books and maybe a couple of chums. I only had two friends that I knew coincidentally from childhood that were went to Wall Street and one of them was actually in commodities. Another one was in branch management.
Kids I knew since before I was 10 years old. So my whole thing about the psychology of trading is that you have your conscious mind and you have your subconscious mind. Now, conscious mind is all the stuff you’re aware of. The subconscious part though, was a little trickier to get to. And the way I would get to it is keep a journal. It could be on the back of an envelope. I don’t care if it’s an actual journal, but I would write it with, I wouldn’t do it online. Don’t need those programs. You need to write it out with pen and paper and write down what you anticipated, what was going to happen. The happen sometimes called the ex anti expectation, and then what happened as the result, the ex post realization. And from there you can keep a diary on your own behavior day after day after day on what you’re endeavoring to do.
And then what happened? This way you can start to uncover how your subconscious might be sabotaging your trades. Now for some people, the subconscious is really powerful and they develop a sixth sense and they use that. They kick it into overdrive, they get a good feel for the market and they can just feel the trade. Million guys like that out there. I’m kind of one of them. Then if you don’t like the results that you’re getting, you know, need to have that list of what to work on. Cause if it keeps happening for you, somehow you win. Because if we’re all pleasure seekers, there’s some way that even in this, what you would refer to as a dysfunction, that holding yourself back is actually pleasurable. Some people have a fear of winning because they’ve never been there before. They haven’t had financial abundance before, so they don’t know what it feels like and they’re scared of it.
What would actually happen if I made 10 times my money in a year? So I think start with having a goal and getting super clear about what that goal is, and then also put it in a state of mind where you want to have yourself, have yourself in a state of mind where you’re conscious of everything that you’re doing. And if you feel a strong feeling, it’s probably coming from your subconscious. I like to say that your subconscious is probably running the story anyway, because in there you have all the things that you learned from growing up and what other people demonstrated to you when they were taking risk or avoiding risk when they were angry or when they were happy, when they were in love and when they were single. And all of their behavior actually teaches you stuff. And so you have to make sure that you don’t let that seep through your system and that you adopt it.
Because sometimes you can adopt that habit and you don’t even know you’re doing it only because you saw it repeated over and over again by other people who were in your life. It could be friends, family, nuclear family. It’s usually your parents or your sister or your brother. And then, you know, go from there. Million ways to answer this question as far as my own behavior, I don’t mean at the point now where I execute best practices as far as I’m concerned because I’ve had enough times where I was in a trade and it was going on and on and on, and the thing was plus or minus 10 cents. So I just used the time stop, right? Because momentum stalled. I’ve had enough times where again, after 35 years I’ve put in protective stops. Then I tried to negotiate and say, well maybe I’ll give it a little bit more room. So I don’t mind losing that much money. Never really works out in your favor when you do that. Cause good trades start working out right away. And so now personally, I’m at a spot where I know better, I know better to try to cheat. I know better to adjust my stops or not put them in.
I know better to not add to my winners when I know I can because I’ve, I’ve had almost every scenario kind of play out for me. And so what happens when I just do what I’m supposed to do that feels good. Sure, I get frustrated when I get knocked out of trades or we’re coming out of a situation or we’re in a situation where there’s momentum stalls and we all as traders need momentum. But I would rather be in a trade and not put in a bad habit, whatever that might be, and get knocked out of the trade for a loss than to try to what? Invent some new behavior on the fly. That wouldn’t make any sense to me because I have so much time where I can back test. For example, I have too many years of real experience having a good feel for markets and there are some days that I don’t trade, so they don’t really creep back into my, what could be the bad habit when there’s no signal or the market’s kind of stalled and you force something that you hadn’t seen before and you kind of make a decision on the fly.
I don’t, that could be one, but I don’t do it. Most of my trading, I kind of follow what Paul Tuda Jones said, who knows, 30 something years ago, maybe more. That trading is what happens between five o’clock and eight o’clock, which is when you’re doing your preparation for the next day. And I’ll say even day traders should have an idea of what they’re going to do the next day, maybe in the morning. Don’t look for what the catalyst is. Look to kind of confirm the catalyst that you knew the night before.
Different strokes for different folks. So you have to do what’s best for you. But I like the idea of being prepared gives me solace. I have at least an idea of what I’m going to try to do the next day. And if the orders today I had three orders in, neither of ’em getting filled. Oh, well, it’s the way it goes. Nothing got done. Markets didn’t go to hit my levels, so those orders are canceled. I’ll redo the thing tomorrow and I’ve done that for six weeks, six, seven weeks. Just keep putting in my orders, putting in my orders. And if it never gets there, it doesn’t get there.
I, I don’t remember the rest of the question, but I don’t have bad habits kind of leak in. I’m always kind of super clear about what it is that I’m doing and why that I’m doing it. And if you are having trouble, so there’s people that I use, they’re not necessarily coaches, but I use them for accountability because I largely work by myself. I do some stuff with Victor, but at the end of the day, I’m responsible for my own behavior. So I do have folks that I chat with kind of keep me accountable for stuff and it’s probably an extra step. It’s probably not necessary, but I do it anyway. It feels good and it keeps me honest. It keeps me prepared because in order to do that, I have to have a ritual and a process that I go through where I write everything out and say, here are my intentions, here’s what I’m going to do. Then you follow up and they, how’d you do? And then if you have a variance, you have to explain the variance. I don’t have a variance, but if you do, as you mentioned in the question, I think this was Lynn, right? Was this Lynn’s? Lynn’s comment, I forget. Yep. Oh, Jess. Jess, sorry. Jess. Jess, winy, Jess, Winn, Jess, Jess win. So you might find that having an accountability coach could help. And if you’re having trouble, this is largely what, I don’t want to turn this into an infomercial, so I’ll say two minutes on it.
When we do or when I do consulting, it’s not so much as how to trade stuff as it is. Let’s look at your behavior because the system, it could tell very simply by looking at it, if it’s going to make not money or not, then give you a tweak or two to help you make it have positive expected value. One in a bloom. It just doesn’t work. But at the end of the day, I know enough about putting these things together and what the moving parts are. So that’s a quick little 10 minute, 15 minute conversation. The most valuable part though is looking at your behavior and why do you do what you do? And have, there’s an online 12 week program, takes about an hour to three hours a week if you wanted to do that, that’s a self-study. Then I do one-on-ones and almost a hundred percent of the time what we’re talking about is why do you do what you do?
What feelings do you have? What feelings are you trying to avoid? And if you know something is a good thing to do, but you can’t figure out why you can’t do it, there’s some feeling that you have to process, right? Because as pleasure seekers, we’re going to go towards pleasure and we’re going to even more go away from pain. And that’s been well documented. I didn’t make any of that up. But people will go to much greater lengths to avoid the pain than they will towards going to the prophets or the gains. And so where does it come from? I don’t have a damn clue. Maybe like I said, there are some, there’s, there’s all different combinations that people execute in the marketplace. The healthy ones understand that we’re looking at risk adjusted returns and they are normally risk averse, which means they’re willing to take on risk if there’s ample reward that that’s congruent with that risk.
That’s what risk averse is. Then you have risk lovers, i e gamblers, we don’t want to be there. And then you have risk and they’re in money markets and treasuries. Nothing wrong with those people. Different mindset though we are risk averse, which means we’re seeking gains. But the risk has to make sense. So maybe if you have bad habits, it could be that you’re afraid of winning. What happens if I actually hit my goals would and study how strongly are you attached to your goals? Because if you’re not, this could look like one of the million New Year’s resolutions that come through. You want to be a trader, but you just can’t get the behavior down. Behavior defines what we are and who we are as people. It’s your behavior. It’s not what you think.
And then from there, is the goal strong enough? Does it have enough emotional pull to keep you executing every day? And then we look at your subconscious and then what happens when fear kicks in? There’s a whole bunch of stuff that we go through. Unfortunately it’s not a one hour consult, it’s really intense and I end up this gaja, but for every hour that I end up spending with someone on the phone, I’ll spend three, four hours behind the scenes doing homework, preparing everything so that it’s completely bespoke and it fits like a glove. Everything is customized, it’s not some rigamarole. And that’s why it’s got a decent price point. It’s not necessarily for the casual user, it’s for someone who wants, if they want to go pro or they want results, that’s what it’s geared towards. Yeah,
For sure. I mean, you know, talk about it quite a bit how you run your coaching program and stuff. And to me it just makes the most sense out of any of the options that are available. You know, do so much research for each person and you really tailor it to each person’s experience. And I think that it’s much better long term for people, for the people you work with that you’re trying to help them dissect their subconscious and help them learn to make better decisions and be aware of why they do what they do. Because it’s not just like, Hey, make this trade, you’ll make money sounds great. It’s like, how can we consistently make you money? I think that’s part of the thing that you like to do and really refine the protocols and the processes and the internal algorithms that, you know, help people learn. I think it’s a super, super valuable resource and ultimately it’s what people need to do anyway if they want to function at a really high level. So having that kind of guidance is super huge,
Man, always, it’s kind of tongue in cheek, but Tiger Woods when he was at the top of his game had three coaches at the same time. So if you want to be a super performer, then you either have to be gifted and good at self-study, right? Or have someone that can help you be accountable, have someone who can help you break down your behavior. So I think if you’re considering a performance coach, we’re as good as anybody and we’re actually doing the trading. So we go to bed, as I say, tongue in cheek, we’ve put a foot on the floor because the bed’s spinning. I mean it’s not spinning, but so when you’re dealing with a practitioner, I’ve been there, I’ve felt all these feelings. If you’ve listened to the show almost every damn question that comes in, I’m coming out of my own experience to answer it.
And I have the feelings that many of you have. I just don’t let them sabotage what it is that I’m trying to do. Cause I’m hyper clear about what my goals are and I don’t like anything get in the way even myself. You know what I mean? Yeah. Because it’s easy to take a flyer, it’s easy, it’s easy point and click the mouse. You still do. We still do a lot of phone execution just because we don’t want to show the size on the screen, and I know someone out there knows how to do that and this and that. I just grew up executing on the phone and that’s what I do. That’s my process. So some stuff will get on the screen, but a lot of times it’s still phoned in. It’s again, it’s just what I’m used to. I’ve a lot of success doing it and I don’t think it shows any type of weakness because I feel empowered when I’m in the zone and I know I’m accountable because otherwise I’m spending a lot of time by myself and I have goals.
And then I look at my behavior, you’ve heard me say it before, when I go to sleep, as I’m winding down, walk the dog, I say, okay, did I win the day? I know that sounds kind of slangy or casual, but when I say it has a lot of meaning to me because I’ll look getting up at five o’clock Pacific time and run through the day and say, okay, here’s what I endeavored to do. Never ever do I have problems saying, well, I meant to put on that trade and I didn’t do it. Because for me, I enter, if I’m trying to go along, I’ll have buy stops resting above the market. As soon as I get filled, I have protective stops. And so all I’m basically doing on any given day is managing a big book of stop orders, stops to get filled to at risk, stops to get filled, to remove risk, and that’s it.
And then it’s like, okay, I’m powerless over everything else, so I’m going to let the market come to me. If it doesn’t, okay, tomorrow’s another day, but I’m not, we’re going to become emotionally invested by needing to have a seven figure day like that. That’s ego talking. And if they happen, then great, but for the most, I’m not going to go chasing that because that’s an emotional issue, not a financial one, you see? So then it’s like, okay, well what tasks did I have? Because there’s goals, is there, is it time to evaluate the path and is the path that I’m down for this particular goal coming to fruition? And if not, then I have to change the path. I’m not changing the goal, but I’ll change my path that’s for dam shore, but I need to have ample evidence that I’m absolutely failing at that particular path, and then I’ll move on. And if I did fail, say that, say that it’s a failure, right? Because no, everyone wants to show you about how I’ve made 10 million, I’ve made 10 million in the market. I don’t have any Lambos and I don’t have fancy watches, but how can I prove it to you? That’s the latest Instagram hunk of hunk of fiction going through. So we don’t really do that here because if that appeals to you, you’re in the wrong neighborhood.
So think about your subconscious, why you do what you do, how does it please you? Or if you don’t take an action that you’re supposed to take, it’s probably because there’s a feeling attached to that, you’re unwilling to feel. It really doesn’t get much more deep than that. Now, some of you have had trauma, right? I’m not a psychologist though. I don’t want to be one. I just have a lot of experience and I’m super mindful of everything that I do because ultimately I know my feelings can affect how I behave, and I know and I own the fact that behavior predicts where you end up. So if you want pro-life results, which is abundance, financial abundance, then you have to do the things that they do. I’ve said it a million times and it’s worth repeating. There’s nothing we can sit and chat about stuff till we’re blue in the face, but we have to execute. And if there’s something that’s habitually getting in the way of your being able to execute, you have to go to the source. It’s not looking at another book or joining yet another discord. That’s not what we’re getting at. Again, I keep repeating myself because I want you to adopt this mindset in this way of thinking for yourself. There are no external solutions to your internal problems. Forget discord, forget even YouTube.
Ultimately, you have to go to the source of why you do what you do. Sometimes the feelings that you want to feel are on the other side of the ones that you don’t want to feel. And you have to find the strength and the courage to push through that with this new style behavior. Maybe consistent behavior is unique to you because there was nothing in your life that you did consistently. That happens a lot around people. Again, I’m not a psychologist, but around people who were people pleasers, they’ve spent so much time making sure everyone else was okay, they forgot what the hell they were living their own lives for. They spent so much time taking care of other people, even when the other people didn’t need taken care of.
So it gets really, really deep. And that’s again why we make the big money, because I’ve done this work on myself. All the lessons are right out of my life. They’re not some made up things that I think would be kind of cute or what have you. This is real. I relived this stuff. Every time we go through it, I’m like, oh my God, I remember doing that. It still hurts. I mean, I don’t have unresolved feelings, but I still remember it because they’re very vivid. You’ve had things with your biking and look at, tell ’em the story about when you went pro, you did your first scrimmage. I’ll say scrimmage because I’m an adult. You want to say scrim to appeal to
This? Honestly, I didn’t really even know what you meant when you said scrimmage. So you’re going to have to change your vocabulary.
Change my attitude. I better change my attitude on my own. I
Mean otherwise I won’t understand. It’s just that’s, but no, so yeah, when I did my first scrim, do you mean first scrim or first match? Which one?
Well, I don’t want to blow the story, but it was the one on the Saturday you were in a certain role and you were really, really excited and things didn’t go as planned.
Okay, yeah. Yeah. So that was my first game that I ended up playing, and that was horrendous. I mean, it was terrible. I play eSports and I joined a tournament with a team. I got on this team and I was really excited to play. I was in a really important role that requires a lot of micromanagement, lots of timings, and you also have to be very mechanically gifted in order to do this because you can’t rely on, so
Tell ’em the game and tell ’em your role. Let’s get real here.
Yeah. Okay. So the game is called Valant, and I’m a controller player. That’s the spot that I fill on this team. And I was really excited to do it. And I was playing a character called Omen, and basically everything that could have gone wrong went wrong. We were losing the places we were supposed to defend in fractions of a second. And I was doing as good as I could have done, and I was still, my brain was just blowing up the entire time. I was like, oh my God, what is happening? And then we ended up losing, and I was kind of bummed, but I sat down and I was like, okay, well why did that go the way that it went? What was the kind of internal mechanism that made me do so poorly? And I was like, wait a minute. I was just nervous. I sat down and I realized I was nervous and there was a lot of things going on. And it also wasn’t just me that was part of the problem. It was a multitude of things, like all just combusting at once. And while that really did hurt, at the end of that day, I was sitting down, I was really bummed how we didn’t do so well. I feel I
Know you called me.
Yeah, yeah, yeah. I texted you too, and it sucked. But I sat down and I was like, okay, well why did I do the things that I did? And I was like, okay, well I made this mistake here. I took way too much space when I didn’t need to. And I got caught out by an enemy teammate waiting for me. He knew I was going to do that. He expected me to be there. And he caught me off guard. And there were just small little plays that I was working out in my head why I did the things I did. And I was like, okay, wait a minute. That wasn’t really representative of my typical performance, and here’s how I’m going to fix that for next time. Yeah, I’m going to be more vocal. I’m going to communicate more to my teammates. I’m going to call out timings. I’m going to break down certain things that I need to relay to them in order to make the game work. And we spent a lot of time working on that. And we’ve improved, I mean, drastically since then. And my team play specifically has improved tremendously.
So folks, what he’s saying it, it’s okay to fail and be reflective, right? Go reflect on your behavior. See where did you fall short? Is it a skill thing? Is it an ability thing? It’s okay to have nerves. You’re a human being, right? Yeah. And then the most important thing is, I think if, I know this is a while back that we’re talking about, but I think you had it recorded, not, and then you went back and re-watched everything or something like that. Yeah. So you did a post-mortem, right? Which is also healthy. It ain’t fun, especially when you take a beating, right? And again, you said your teammates didn’t do all that well either. So what you could have done is become so discouraged. You could have just quit, but you didn’t, right? You went back to work, you studied your own behavior, you saw where you could improve. You started practicing on those areas where you could improve. You had an open conversation, great communication with your team, I think. And then you went back and I think the next tournament you did very well, or you won, if I remember.
Yeah. Yeah. I did very, very well. And a lot of the things that I struggled with in the first one, I completely rectified. And kind of what you were saying, it’s okay to look at a bad performance. And I was bummed out when I called you. I was upset, but not even for a second was I was I like, oh man, I’m
Terrible. It did not go well.
Yeah.
Hey, how’s it going? I’m glad. Well, I’m excited to hear about your show. How did you go? It did not go well.
Yeah, that’s pretty much what I said. But not once was I saying, oh my God, I’m so bad at the game. I have to quit. I, I knew at heart the problems that I was having were super fixable and I knew what I needed to do to fix them. And I think that’s something people kind of stray away from a little too much now is being able to say, okay, I know that I can improve here and just figure out how you can do it. Break it down. Ask yourself the why, and really just sit down and figure out solutions for the issues you had.
Yeah. Now you create a loop for yourself because you can go to school on yourself as that’s a saying in golf, go to school on if there’s a putt inside you or outside of you, you can go to school on the guy who has to putt first. So now you have this process where you go, you’re excited about the opportunity, you go, it couldn’t have gone worse as far as what your expectations were, but you sucked it up. You went back and watched the tape of your team’s performance. Everyone gets to improve. Now you have even better things to practice on because it’s not just, oh, let’s check this out. You’re actually practicing the things that you need to improve on because you’re only as good as your weakest link. So that’s healthy. And now that process, then you went and competed again, and the team, you did well and the team did well.
So now you have this whole snapshot in your brain where you can say, okay, this first attempt with the team, which I was really excited about, cause it’s kind of an audition, right? Let’s not forget that for everyone watching, when you’re your first time, all the eyes are on you. So it’s even more pressure. But soup to nuts, you can go back and say, okay, we recovered, which is life how? It’s not what happens to you, it’s how you get up and recover. You have a smashing next event. The team does very, very well. Everyone’s feeling good, and now you guys have a process because it’s all guys on this team to replicate that. When things don’t go as planned or as you know, have to set up strategies, that’s the whole thing. And so if you call out a strategy and it’s the wrong one, or it’s not a efficacious or effective for the type of attack that your opposing team is coming up with, then you have to have all this stuff ready to go.
And this from Jiujitsu, how many times did we execute scissor sweeps together about a million times? And it’s banal. It’s completely banal. Starting the guard, grab the collar, do this scissor sweep. Okay, let’s do it again. Because it’s just the massive constant repetition. And you could just go through it mindlessly. You would do a pushup. But if you stay present for every single thing, next thing, as they say, I didn’t come up with this, but I love the saying, this is kind of on a post-it note on my computer. Practice doesn’t make perfect, perfect practice makes perfect. So again, simulate, go back, test your ideas and see that they work. Because then if you can’t conjugate something that works with your own behavior, something has to get fixed. And as they say in management, if you’re not getting the results from your team that you need, you have to change the man or you have to change the man.
Yeah. And I mean exactly what you’re saying, really. And I think to kind of circle back on the comment too, it’s just do reflection. If you have bad habits that keep creeping up. Throughout my years as a cyclist and various different professions, I’ve had tendencies that have popped up. And since I switched professions a lot, they would pop up the same thing, but in different ways too. And I would really reflect, I think a lot of where I overcame those bad habits that I had was really just reflection. I thought about it, I was like, okay, why did I do this? What are some things I can do differently when I’ve always had this issue with competition and it’s sleeping the night before, right? Yeah. I’ve always had issues getting good sleep the night before. Yes. And what I figured out is how to deal with that by making myself tired that day. You don’t have to supplement with melatonin or whatever. At least I didn’t have to. But I literally said, okay, look, I can’t,
Stuff’s not that good for you anyway. I mean, yeah,
If you’re supplementing with it constantly, it’s pretty bad. But if you’re doing it once every month or two months, it’s not horrible. But anyways, I said like, okay, here’s how I’m going to go to sleep. I’m going to do a tough workout. I’m going to wake up early and make sure that I have a good bedtime. So when I wake up at five in the morning, the next day I’ll be well rested and ready to go. And it worked. And I stopped having that issue and it never really came up again.
Yeah, I think when I look at my own behavior, I was reluctant to fail, which you have to invite failure if you want success, you got got to go walking in traffic. You know, really have to invite the risk. You have to invite failure. And it’s in learning through that failure that you learn how to cut the right corners. You don’t want to cut corners to be cheap. You don’t want to cut corners to think that you can one up the system. I think in a recent podcast I was saying trading is a lot like driving, but the market always has right of way. And if you don’t like being in that position, which is a whole other conversation, why would someone feel that way? They’re hardy, they’re full of ego, they think they’re infallible, right? They’re used to having a bunch of seeking lower companions and they have a bunch of people around them that the market doesn’t care about any of that. The market is the truth meter. And you can either execute or you can’t. And it doesn’t mean you’re a loser. Loser. I always remember Jerry McGuire in the movie John Travolta’s, former wife, she passed away rest her soul. That was after they broke up, she would go lose her.
So yeah, humility, man, not humiliation, but having a sense of humility and inviting that failure, knowing that if you lose money, you’re not counting that money. Those aren’t a pair or Air Jordans that you were going to buy because the money’s in your trading account. It’s not in your savings account. It’s not for disposable income, right? So when I was younger, that was one. That was one of the things that I definitely did. Now that I bring that up is cause I came from working class background and I was used to working hard and making money. And so as I was going into white collar work in and around trading, every time I had a trading loss, I would think about what the opportunity cost was. Now what was I not going to have in my life because of that money? But then I got out of that pretty quickly and I was like, well that wasn’t in my savings account anyway.
It was in my trading account. My trading account is really the capital that I need. Those are the points in the video game. That’s my dry powder so that I can do my thing. I was lucky also, I did one of the recent podcast episodes. I said, I think it’s harder today in many ways than it was back then. Why will? Because there was so lack of resources. I was forced to have blinders on. I couldn’t join a discord because the internet didn’t exist, right? Blackberries were not, weren’t even like the tactile devices that you knew. I think they were called two-way pagers at the time. So this is going way back. So I couldn’t fall into the bad habits that many of you can fall into right now. Cause those avenues weren’t even open. Twitter channels, private Twitter channels, alert groups, slack channels, Microsoft teams, any of those places where you can segregate a group of people who are paying a premium.
It’s all kind of interesting stuff. But again, you know, can’t be 14 year olds and still sucking on the nipple. You know what I’m saying? You have to learn to do it yourself. So learn your craft and then go do it, right? If you need an accountability coach, that’s one thing, but going to feed off of somebody because you constantly need to get fed trading ideas. That’s not sustainable. Ultimately, you have to go harvest your own vegetables, kill your own meat, gather your own berries, and then come home and cook it, and then eat your own cooking. This is a job of independence. It’s not about relying on other people. Again, we live in a paradigm of personal responsibility and this is all on you. And if you lose because you’re following Jim Kramer’s action alerts, well that’s your failure for relying on him. Nothing wrong against Jim.
Smart guy knows a lot about a lot of stocks. I think he can tell you about 3000 stocks off the top of his head. I cannot. So I look up to that. That’s a good skill to have. But if you’re trading, you have to do your own homework. And if you’re reluctant to do your own homework and you want to delegate that for 97 bucks a month to get someone else’s ideas, how are you going to pick which one? Do you trade every one of them? Or do you let bias come somebody else? Okay. But then we’ll get those results. You really have no one to blame but yourself. It’s not the source of the idea. You have to do it yourself, right? Again, and you can have teammates and work on a desk and share ideas. That’s awesome. And that’s definitely beneficial. It’s really good. But when you click the mouse or pick up the phone to put on a trade, that decision rests with you alone. It’s not a team decision at that point. Even if you have four or five people bouncing ideas and calling out stuff over the headsets and this and that, it’s your decision to put the trade on. And if you’re using your discretion, then it’s your result.
And a lot of folks shy away from that because they haven’t had to do that in other parts of their life. And coming into trading, they try to bring their old rackets from being nine to fivers and having a bus and being told what to do. Now they have to be self-starters, autonomous, decisive, it’s a whole other, you’re like a split personality. You’re living a different life. So it’s very, very difficult to make that move and do it effectively at the beginning because you do. You’re using skills that you don’t have to, that you haven’t been using ongoing. And when you start to exercise those muscles, as people say, it feels weird, which is their way of saying it feels new. Hopefully I can get comfortable with it because I know if I don’t, I’m not going to make it. So can you hear me?
Yeah, yeah. No, I got you. Yeah, I think, no, you make some good points. Practice is everything and perfect practice makes perfect, as I’ve heard. I really like that saying though, actually, to be honest with you, it’s a good thing and good technique makes a great person and I think that’s a good place to wrap up. Okay, thank you guys. Thank you guys so much for watching today. We really appreciate all the support. Make sure you guys like and subscribe. All comments, help the algorithm, press the notifications bell so you get notified every time we post a video. And thank you guys very much and we will see you in the next one.
And thank you, Jess, for writing in. Appreciate it very much. Thanks folks. Check out the links below if you want to inquire about the mindset course or if you want to get the download for the audiobook version of the Inner Voice Trading. See you next.
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The post MMS EP #11 The Mental Game Of Trading first appeared on MartinKronicle.
The post MMS EP #11 The Mental Game Of Trading appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Happy Thursday, and I appreciate you being here. I also want to, again, thank you for writing in all your comments and your questions because I get to learn a lot and it helps me go back in time. I’ve got 35 years of experience and it’s hard for me to go back and kind of harvest ideas from any particular timeframe. So the questions actually bring me back to certain milestones or hoops that I had to jump through. And the hoops, yes, they change their size and they change their angle. They change the distance from you. They don’t go away though no matter where you are in your career. So yes, in the beginning there’s certain things you need to achieve and then towards what would be considered still your early years, but where you have experience, your hurdles are different, but you still have them.
And then when you’re fully blown, for example, you still have hoops, but yet again, the conditions are different. So no one has actually ever leaved from the mental game or the psychological game of having this as a career. There’s so much to it. No. Again, yesterday or Tuesday, we spoke about lifestyle and managing your cash and doing all that. So there’s different pressures that come into play. Question came in, I’ll put two of these together. How do you raise outside money under the proviso that you have a two and 20 type of a structure or some type of profit allocation? You have a share in the winnings that can enhance your own trading because once you get paid, whether you do it monthly or quarterly, you can take those funds, put ’em in your trading account, you can take those funds and put ’em in your savings account.
Doesn’t matter to me. You have to figure out what’s best for your budget. But raising outside money can help you amplify your cash and get you closer to if you have a job and you have a career or you’re doing something that’s not in the world of trading, but you eventually want to segue into trading, running other people’s money under a disciplined set of rules can help accelerate your financial abundance so that you can turn away from your nine to five job or whatever it is that you’re doing right now, that you’re no longer in love with, or you’re thinking of segueing from. Doesn’t have to be tomorrow, but you want to have a plan. Running outside money can be pretty lucrative type of a deal. And it’s how most of these guys that you’ve read about, whether it’s Ray Dalio or Paul Tooter Jones, like Stan Druckenmiller over time, that’s how they’ve made so much money, is that not only did they grow their own money from their trading, but they were taking profit allocations from other people.
And then that money finds its way into their own trading accounts or savings. And so then you can go parabolic with how, you know, grow your net worth. Then you get to a point where you’ve got five or 10 million and you realize you can get 5% on a treasury bill with no risk. And so if you get burnt out and you want take a year off, you could take your 10 million and buy a nine month piece of paper for 5%. And although you’re buying it a, it’s no idea, original is a discount, you’re not getting paid the interest per se, you’ll earn half a million dollars over the course of the year for just living on the residual passive income on your investments. Get your head back in the game and then come back and do it. It gives you a lot of flexibility where you don’t have to force yourself to do things that don’t feel right.
You never want to have to do that in life. Well, trading is no different. If you’re dating somebody and something doesn’t seem right, trust your instincts. You might not be able to actually identify it or articulate it, but trust your feelings, trust your instincts, and so go from there. So the other question, this is kind of like a combo episode. What do I do every day to keep my head fresh outside of the trading stuff? So I mean, I have a list of things that I try to do to that serve me and my mental game that are completely unrelated to trading. I try to take a minute and quiet my mind. You don’t have to call it meditation, just quiet the mind once or twice a day. Sometimes that could be deliberately just sitting, still going inward. A lot of times it’s doing art. I paint and I also play guitar. So that’s on the schedule. Even if it’s just for 15 to 30 minutes each. I try to put it on the calendar so that I feel more complete as a human being. I don’t think, even if you’re starting out and you’re about becoming a trader, if all you’re thinking about is the markets, I don’t think that’s a healthy response. I think you need to know and have a break, give your mind a chance to work on things behind the scenes.
When I was coming up, again, I think it’s harder today to focus because there’s just too much out there. There’s too much noise, and the majority of it is noise. I don’t want to call anyone out. Cause this isn’t like, I’m not Ed Bradley, the late Ed, great Ed Bradley from 60 Minutes is probably the best journalist on planet Earth ever. I’m not trying to gotcha, this isn’t gotcha journalism, but I see a lot of hokey stuff that folks are marketing and trying to appeal. If you see a fancy watch in a video sales letter, or if you see somebody pull up in a Lambo or a McLaren, that that’s targeted to young, younger guys, not necessarily adolescent guys, but say 22 to 32 people who are impressed with that, and I guarantee you they have a price point that fits into that model too.
It’s very calculated. It’s not random. So no one needs to see Michael Martin’s MTV Cribs, right? Or whatever that is. There’s not a lot to see anyway. I tend to leave a live a very simple lifestyle. So I try to go inward. I absolutely write, and that can be ideating, interpreting questions and ideating for the show. It could also be reinforcing my self-talk, right? How do I talk to myself? Shut up when I’m talking. No, just kidding. So what’s my inner voice, right? That’s very important because you become what you say to yourself. You get what you think about. So you better have good self-talk if you’re constantly beating yourself up, it’s hard to trade. Well, it’s hard to do anything in life. Well, if you’re hyper-critical of yourself. Two, you need to be aware of your environment because the people in your life can have a very subtle effect on how you think of yourself because of the way that they treat you.
And so I like to believe that I teach people how to treat me, and I draw pretty clear boundaries around that stuff. So I write that stuff out. I like use as you, I’ve, I mentioned before, I got notebooks all over the place. I like to use pens because there’s something about the creative process that also helps your synapses in your brain. Then if you were typing it out on a computer, so I, I’ll paint, which is messy, so I have to get cleaned up and I have dropped cloths all on the floor and stuff set up for that. I play guitar. So sometimes, and that too is meditative, right? I practice jiu-jitsu every day, but Sunday because the gym’s closed on Sunday. So I train every day. And that’s important to me, both for mental health and for my physical health. I wouldn’t call it aerobic exercise, it’s largely anaerobic, but it’s just, it’s good for me.
And I mentioned to you there’s goals attached to it from belts. There’s also the discipline of knowing that I’m going every day. Last night I got beat up. You can’t tell by looking at me, but it was a sparring class. So you go through some warmup and some stretching, then you do some fundamental drills and then you know, put your mouth pieces in. And I won my first match and I got smashed on the other two. But they were younger guys who were upper belts from me. And that’s just the way it goes. If I’m not in it, I’m not learning, I’m not getting better, which is just trading. And I mentioned, that’s why I do it, to reinforce that discipline muscle that I have that I live on. That’s very, very important to me. But it’s outside the world of trading. So it’s important to me for my own development, even though I might be older than many of you or have a very different business model or trading strategy than some of you, I try to eat, well, I inadvertently do this intermittent fasting thing just because I wake up so early, I’m just not hungry at five in the morning.
Maybe you are, I don’t know. I typically don’t do any kind of stimulants. I’m not a big coffee guy.
And so by the time we’ll get to like 11, 12, 1 o’clock Pacific time, then I’ll have something to eat that’s pretty healthy. Then I’ll have something after class just because you burn like 1500 calories in a jiu-jitsu class. So you come out of there kind of starving. Plus, I haven’t really eaten a really big meal and I vacillate with wanting to eat before CLA class versus after class. Cause I don’t want to go to bed with a gut full of food. But that’s how I do it. So I break up my day, I time block everything. I’m not going to show Ferrari’s or fancy watches in my videos.
And that’s that. The last part of the questions that came in dealt with raising money, and it’s not on the YouTube channel, but if you go to Spotify or if you go even to martin chronicle.com, there’s a search bar in the top. There’s literally episodes on how to talk to backers, how to raise money from outside investors. Where I went at length about that subject matter. I don’t think I can add much to it other than saying make sure if you’re approaching people who are potential clients, make sure that you know how to articulate what is your value proposition. What is it that you do in running money that they can benefit from? Maybe part of it is that you’re going to actively manage the account, but you’re going to keep your draw down smaller than passive buy and hold. So then you can go back and look and what if someone bought and held the s and p, how what they have done, how big were the drawdowns?
How long did they last? And again, if you think that’s too much work, then just recognize that when you do your studies, your self-study on your relative strength on how bad you want to be a pro trader. Because trader’s going to want to look at that and know that data. Now, if you’re talking with backers, that’s, that implies there’s something else for them. So a backer could be somebody who has 5 million bucks, they believe in you and they want to give you money to run, and you’re going to actually be able to charge fees, build a track record with real money. But they might end up owing owning 10 to 49% of the company as well. So be sure that you can articulate what’s in it for them if they step up and they help you, because at that point, they’re kind of a business partner. Even if they’re a limited partner, they can be successful business people. It wouldn’t hurt if you talk to independent investment advisors, could be good referral sources for, especially if you’re trading commodity futures, because it would be considered an alternative asset class, which the investment advisor typically wouldn’t advise on because it’s not part of their licensing. If they’re registered under like a, say
The Uniform Investment Advisors Act in 1940, there’s a test involved with that. It’s a Series 65. Yes, there are some exemptions in terms of who has to register and either at the state level or at the national level, right, with the S sec itself. But in terms of doing commodities or commodity futures and then especially, oh, the battery died.
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The post How Do You Raise Outside Money? first appeared on MartinKronicle.
The post How Do You Raise Outside Money? appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. So today I want to talk about managing your cash. When you’re newer to trading, you might be working and trying to trade concurrently When you’ve made money, you’ve probably set up some type of a budget. You might have a spouse or a partner who’s contributing to the bills, so to speak. And if you’re at the higher end of the institutional aspect, you have a certain lifestyle that you’d like to maintain. So managing your cash is something that’s at the heart of this business because as you’re making your money, you know, might be squeezing off some of your trading profits and putting that into your savings account or checking account. If you’re at a bigger place, you probably have a draw and then you get bonused out on based on your agreement, on your trading profits. So either way, you’re used to a certain lifestyle and you don’t want any threat to that lifestyle.
And so it doesn’t matter how much you’ve made or where you are, we come into the market every day at zero, right? And if you’re married with kids and you’re the breadwinner and you’re used to making a couple million bucks a year, very difficult, even with ample savings to all of a sudden have no trading revenue because the markets weren’t amenable to your trading style. So what I typically advocate is something that I’ve practiced myself is that I absolutely segregate and have strong bias versus what’s my risk capital versus my sleep tide stuff. So they say you should have several months of savings, an emergency fund, and this and that. So I would definitely look up those suggestions and follow them because they can remove a lot of duress if you know that your overhead is for your household. And that would include mortgage or mortgages, tuition for schools, which could be grade school, high school or college, maybe car, luxury car payments.
You might be looking at 50 K a month. Now if you had a draw and this quarter or these this month has been tough for April, for example, that can run a shockwave through your system in that the markets are tough given your trading style. And so you might find yourself in a spot of having a little duress. And what you don’t want to really do is ever put yourself in a spot where you’re trading with scared money. And that was important for me at the beginning. Cause I didn’t have a lot to lose. I mean, I had nothing to lose on from an emotional and a philosophical standpoint. But from a financial standpoint, I do remember how hard it was to put together my first grubstake for trading capital. And so I had to develop a plan, which I did very early on, and say, okay, I want to grow my trading account, but I also want to get to a point where if there’s a tough month, I don’t have to worry about paying my bills cause I have that money tucked away and I never cross that boundary and
Infiltrate those funds to be greedy. I like to know that there’s some sleep tight, God forbid, style money that you have earmarked and sequestered for your monthly overhead so that you can live a consistent and placated lifestyle choice that you’ve chosen to live and not have to sit down and talk with your partner or your spouse or even the kids and say, we can’t afford to go on vacation this summer. We can’t afford school tuition anymore, right? Because those are now much higher order of magnitude type conversations with the family, and it’s upsetting and it’s startling, especially for younger kids. So they don’t want to move. They have their friends, they have their routines, they feel safe in that routine. It’s not that they couldn’t do well if you moved from New York to Chicago. I mean, I’m not sure that’s where you want it to move given what’s going on in that city.
But maybe getting out of New York and heading to Florida or the tri-state area for Florida or Texas or Nevada or a place that’s got even Puerto Rico for tax purposes. Some folks are choosing to stay put despite the economic hardships that they might be having in their respective states. The main thing though is what are you doing with your family? You can’t worry about what’s happening with everybody else. You have to do what’s best for you. So in order to have a clean head when you come to the marketplace, knowing that lots of places, maybe even your firm are under somewhat a du under duress because the markets have been very choppy and difficult, you know, can take solace in knowing that you have six months of expenses earmarked in cash and are in savings, maybe money market, maybe even have treasury bills to make sure that your cash is insured, right?
Because you know about how cash works and F D I C and S I P C and all that kind of stuff. So you’d want to think about having maybe a cash equivalent that’s backed by the full faith and credit of the US government even though the rate of return isn’t there. Because if you own a couple hundred thousand dollars of treasury bills, that’s considered a security. So it’s different type of insurance than if you’re just carrying a lot of cash, but you’re probably up on all that kind of stuff. The moral of the story here is that you can take a lot of pressure off of yourself if you pinch away some of that trading capital that you might be having and fulfill or endow your savings account where you’ve paid the household bills from can calm your nerves because no matter what’s going to happen between now and the rest of 2023, you’ve got everything covered.
So now you can just focus on managing the risk in the marketplace. That can give you peace of mind. It might not be a big thing for some of you, but for a handful of you that might be what’s going on in the back of your mind is that you want to feel safe as a human being. Now, I admit some people trade well from a disadvantaged position. I’m one of them because my sixth sense kind of kicks in. However, that’s only unnecessary evil when you have to use it. You don’t want to deliberately put yourself in that spot because you know that you’ve got enough cash to take you through, say, August. But then after that, it’s a crapshoot that can put a lot of pressure on you to try to perform. And if you’re going to try to dig in and perform on your assets at a time when the market’s not amenable to your trading style, you could end up digging yourself into a bigger hole and then it gets back in your mind like, wow, I hope things turn quickly because I do only have one trading style.
Or maybe I have two trading styles. Neither of them are working really all that well. So I can kind of project what I think my income is going to be based on my share in the profits, for example. And so you can do yourself a good bit of good by sequestering those funds that you’re going to need batten down the hatches. I’m not trying to play Joe Financial advisor here, but cutting expenses that aren’t necessary might help take some of the pressure off too. The main thing is your mindset. If you don’t, don’t want to come to the market where you have to make money, what you want to do is come to the market where you are very, very happy to exercise your discipline and to follow your rules. You’re powerless over the results. But when you know your cash flow is tight and the results aren’t coming because the market’s soft, summers are kind of thin in terms of a lot of people on vacation.
July and August are slow, December slow. So you want to kind of think and put that into perspective. How do you project the rest of 23 coming or evolving given where you are now, given what you know how to do and given what you know have in both your trading account and your savings account. So again, we’re trying to conserve and be good stewards of your mental capital. Cause when it comes to the marketplace, the main thing you want to focus on is managing risk. Not having to put on trades because you know, need the cash flow. That’s a pretty lethal spot to put in. Can’t say that. I’ve seen too many folks in that spot work out of it by doing things that aren’t in their best interest when they act out emotionally. You don’t want to throw a tantrum. I’m not even talking about going on tilt. I’m just thinking about taking chances because what you’ve been doing hasn’t been working. And now you put yourself in a spot where you feel like you have to take a flyer or you have to step outside of the boundaries of what your discipline to be. Usually, it’s not like it’s going to dig you in a hole, but it’s not necessarily helpful again. And that’s separate from the basic
Experimentation that you might be doing, right? That’s something different. Experimentation is tiny, tiny sizes just to kind of put things on for size, see how they work, see how it feels, learn the market dynamic of a new system. That’s something different, right? So anyway, appreciate you being here. I appreciate all your questions. I’ve been given away the free copy of the audiobook version of my book, the Inner Voice Trading, which I published by Ft Press in 2011. You can get the audiobook version, look in the description below. If anything in the show resonates with you, please like and subscribe because I get good data on the kind of topics that resonate with you as an audience. And then that keeps me focused on the bullseye of what, what’s most important to you versus things that I might think are important but don’t really resonate with you at all. I don’t want to, even if the shows are only five to 15 minutes, I don’t want to waste anyone’s time on any particular day, even if it’s five minutes, because time’s very, very precious. And I appreciate you all being here. Thanks so much and I’ll see you tomorrow.
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The post When You’re Trading With Scared Money first appeared on MartinKronicle.
The post When You’re Trading With Scared Money appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Hope you’re doing well. Thanks for being here. Happy Monday. So a good question came in from YouTube about what are my thoughts about hedging versus taking a loss? And this is a deep question and I think the way the question is a asked is you’re in a position and it’s gone against you and now the pain of losing money has put you in a spot where you want to try to hedge away the risk of further downside. So to me, that’s an emotional issue, not a financial one. And it means to me that it hasn’t been worked out ahead of time where you’re comfortable putting on the risk, but at the same time, knowing where you’re going to get out, traders know both of those numbers, those price points, they obviously know the quantity too, which is kind of where we make and lose all our money, is with position sizing more than snipering your entries.
But it certainly sounds like you’re a Navy seal or something, but it’s not. Again, you need relative accuracy to make money long term. Here there’s an old saying, I don’t know who came up with it. And it says something along the lines, it goes down as one of those Chinese proverbs. I don’t know if it’s a Chinese proverb or not, but ultimately it’s kind of in that peppered farm commercial kind of wisdom. And the saying is like if you’re out in the water and you’re in a boat and the boat springs a leak, you don’t drill a hole in the boat at that time to let the water out. And if you can understand why, you can understand why when if you’re already losing money, you’ve already missed the time to hedge, right? Hedging happens at the beginning. In order to have an effective hedge, you have to have a correlation.
I can’t hedge, I think it was gunlock or somebody was talking about having a long apple position in short natural gas or something. And there’s no real connection there between those instruments. So in order to have a hedge, you have to have correlation. Spreads in commodities are hedges. That could be like what options traders would consider. Time or horizontal spreads is really what you would do in futures. Buy one month and sell another month against it. That would be an intra commodity Spread. Spreads are hedges. In C commodities, you can have an commodity meaning between two different ones, gold, silver, stuff like that. But those relationships to me are kind of just historical. I don’t know that there’s trading signals around them. I’m sure there’s one person somewhere though, who can do it. And so more power to you in terms of stocks. You can have Paris trading inequities where you’re long at one instrument in a sector, normally the strongest horse in the barn. And then you’re going to sell short the glue factory one.
Julian Robertson of Tiger Management was famous for doing that. So you’re kind of in the sector. So it’s not a perfect hedge, but it kind of means if there’s sector rotation or if the sector gets hit from relocating money, at least you’ll be short on naming the sector to kind of offset the losses that you took on your long. So this brings into the sharp relief. Now the concept of options as a hedge. So if you’re long a stock, how do you hedge? Well, hedging you want to be in control of the instrument that you’re using to hedge, right? So selling calls to me is not really a hedge, it’s an income creating strategy. Why? Well say you buy a stock at 50 and you sell a $5 call, you’re capping your upside for one, which I typically don’t advise doing. And two, the hedge.
What happens if the thing opens at 30? How effective was your hedge? You lost 20 bucks on the stock and the premium on the option probably got cut to three bucks or something like that if there’s any time value left. So that’s not, that’s an imperfect hedge. I know on the series seven, which we’ll talk about sometime this week, and they talk about hedging, but if you’re not in control of the option because you’ve sold it short, to me, that’s not an effective hedge. When you buy insurance, you’re in control of the policy. So now you’re talking about basically married puts. And married puts is a situation where you’re longest stock and concurrently long a put on that underlying instrument at a strike price. That makes sense. Again, if you have a $50 stock and that’s your cost basis, buying a $20 put, what’s the point?
So an insurance costs money, so it comes against performance. What you eventually have though in that stand standpoint is a synthetic call. So you say, well, why don’t you just buy the calls upfront? So that’s why this is a very complicated question cause it’s like is it financial or is it emotional? My first impression is that it’s an emotional aspect. You’ve lost money, you’ve put a lot of time into studying this name, you might have long-term beliefs. The best thing to do is to trade it smaller. If you’re going to be worried about how much you’re going to lose on the name, then cut the position in half and step in. I kind of did that not for the same reason, but because when I was wrong, oftentimes that was early and I couldn’t stay in the position with the full position on, so I couldn’t put my optimal position on at the same time.
And I didn’t want a hedge because think about it, if you buy a stock at 50 and you buy a $5, put with it. So now your costs are 55 a share, your break even is higher, right? On the whole thing in terms of making money. And if you’re really thinking about holding it for a long period of time, maybe not as an investor, but as a position trader, more like me than what I would do is I would scale down, trade it smaller and step into smaller pieces and add your way up to your optimal size. This way you won’t
Have reluctance to take losses, but to give you the advice that I think you’re soliciting, I would have the requisite amount of shares that are appropriate for the amount of risk that I’m willing to take. That’s the key here. Willingness and then knowing exactly where your exit is. That to me is the best thing to do as far as managing the risk. Because normally when I hear about, especially since you said taking a loss versus hedging, you hedge at the beginning. So that would be something that you would do or you’d walk into that trade knowing ahead of time. But again, I don’t know too many traders that are doing these types of things unless it’s a longer term hold, right? So it wouldn’t be a swing trading or a day trading type of strategy. And if you want it to be in the position for a longer period of time, my advice would be to not get the married put, but to trade the actual instrument smaller and then see how it behaves.
This way. You give yourself a lot of latitude and if it works against you, it’s not going to do any lasting damage to your equity. Also, it’d have a firmer understanding of where’s the reluctance coming from, because that’s going to keep showing up and it’s probably showing up in other parts of your life too. Why will? Because we run emotional systems concurrent with what we think we know we’re doing in the markets, which we typically don’t. We’re kind of dealing with probabilistic outcomes and hopefully we can skew the odds in our favor enough times so that even though we might lose more times than we win, we still make money. So I would get used to the concept of expected values and the expected value of a trade and what that means to you and reconcile the frequency with which you lose. Once you get comfortable with that, I think you’re going to lose the need for having a hedge doing that.
And also trading it smaller is probably more prudent risk management. And if you’re saying to yourself, well then I’m not going to have enough on to make money, well then you got to sit down and look yourself in the mirror and figure out what are you doing this for? Because at the end of the day, if you know the expected value of a trade, you can figure out how many trades you have to put on in order to hit your target, right? Because you’re not just winging this. You have a goal in mind, a financial goal in mind, why you’re doing the trading in the first place. What does it mean to you as a person, right? Because it can have emotional, psychological benefits and challenges of course, as well as financial ones. So wouldn’t, when I hear hedging, again, if you’re not normally a spreads trader, which there are, especially in the commodity space, there are people who, that’s all they do. And when there was a floor, it was one way that floor, that floor traders and market makers could hedge their risk because market makers typically are inherently short. Futures are a little different because I don’t have to borrow anything. I could just sell short. Everything in futures looks like a naked short to a stock short seller.
There’s no borrow mechanism here. It’s not how that market’s built. So to me, I would spend more time thinking about yourself than more than the tactics of it married puts with stock. To me, I guess you could do it with futures too, only what’s appropriate for your tolerance, for risk and otherwise. But when I hear about married puts, it’s normally something that they’re doing at the same time. In other words, the put buying and the equity long are executed concurrently. If it’s after the fact, to me it’s an emotional issue or it’s a longer term investment that you’re just not willing to sit through the loss. And so again, to me, I would work those issues out long before I even put the risk on so that I have a set plan and I know where my ouch point is. I, it’s probably worth noting here that I don’t agree with the statement that says, never let a trade become an investment.
I think if you’re in a winning trade and it’s working to me in the way my mind works, I would keep that winning trade for as long as possible, even if that meant a year, which kind of puts it into the investment category. Now, that’s not my intention, but I’m not power. I have no power over the marketplace. And if I’m long an instrument and it just keeps going up, sometimes you get lucky and your trailing stop never gets hit and you adjust your protective stop. You stagger it up, stagger it up, stagger it up, and the name really keeps moving and doesn’t take a break. Sometimes that can happen for 18 months where there’s no material pullback. There are other moves like gold in the late seventies, early eighties where it was, there was zigging and zagging. So you had to kind of trade around the core position, but you don’t want to, of course, a losing trade to become an investment.
So you need to know if you’re a trader where your ouch point is obviously and get out more than worry about hedging. The hedging part to me means you normally have risk. You can’t take the downside. Maybe again, this is talking about trading, but oftentimes folks who have concentrated positions because they have stock that they’re awarded through a compensation plan or stock that they’ve inherited, even with a stepped up basis, they have an emotional attachment to it because their dad worked at Proctor and Gamble and he’s got a 10 million share, 10 million share position that you’re reluctant to get over, get out of because of the connection to your father. That happens all the time. I’ve seen it a million times and there’s still ways to hedge that, right look up. So with people who have positions that are normally 2 million or more, you can effectively hedge and borrow money against that without getting a tax built.
It’s a very sophisticated situation. The sophisticated name for it is a variable prepaid forward sale. The the IRS currently does not consider that a constructive sale. I’m sure I did a video of it once in a while. So again, but that’s for folks who have big stock positions with a low basis where say 90, 95 or more percent of the actual value is cap unrealized capital gains. So as soon as you sell a share, there’s a big tax burden. So folks want to, you can’t convert stock in commodity speculation into the same as real estate where you can have cash flow, but the depreciation doesn’t give you a tax bill. So folks would use these, I actually don’t want to get into it cause it’s not appropriate for most people. It’s a private banking tool, and again, it goes into the realm of investing more. It’s about holding that position for the upside and then they hedge with using a zero cost collar and then you can borrow against the very credit worthy asset.
If that’s an issue for you, then reach out, we can talk about it and where I can send you to have that done. If you have a big concentrated position and you’re worried about the downside, so how do you manage the risk there? Typically, you want to decrease the size of your position. But again, if you have enormous amount of unrealized capital gains exposure, sometimes selling that stock is a big tax bill. So the tax bill and the reluctance to take the tax bill and have to pay it because you don’t have the losses to offset the gains, people become reluctant. What happens? They sit in the position and then it goes down and all of a sudden they don’t have a tax problem anymore because all the gains are gone. So again, as far as this is concerned, I think where you’re going, this is a question about your emotional constitution more than anything, anything else.
Anyway, though, if I haven’t answered the question thoroughly enough, right back, and that’s about it. Again, I don’t think selling calls as a hedge, it’s really a way to bring in income. So I would anticipate that this question deals with buying puts. But again, you would do that on the onset. You’d put that trade on concurrently with the equity, presumably the equity long. Obviously, if you were a short seller and you wanted to hedge at the same time, you would buy calls concurrently, right? Because then you’re on both sides of the market. But then again, what’s the point? So anyway, good question if you haven’t been here before, thanks for joining the show. I’ve been given away the audio book version of The Inner Voice of Trading, which you can get for free. Click the link below and if anything on the show here has resonated with you, please like and subscribe. And as Gja says, to click the bell so you’ll get alerts every time we publish a new video. Thanks for being in here. I’ll see you tomorrow.
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The post Should I Hedge Or Take A Loss? appeared first on MartinKronicle.
Hey everybody. Happy Friday. It’s Michael Martin. I keep meaning to tell you I’m not going to create a mid roll so that I’ll just have this once and that I can have gone to drop it in that I give away the audiobook version of the Inner voice trading, which you can get free. Click the link below. It’s easy to get. You get the download link and it’s probably four, 500 megabytes, not that big of a deal. Also, if anything in the show here has resonated with you, please let me know. You can do that a few ways. You can like and subscribe to the show. You can click the bell, get alerts when new episodes come out, which is largely every day, Monday through Friday anyway, and you can send in comments. I’ll try to get to all the, I see them all and I try to, they evoke things because I can remember typically things that I had to endure and live through when I was cutting my teeth.
And so it brings me back to yester year or yester decade and relive that and bring it into sharp relief. And the question came in about emotional intelligence. Now there’s books on it. It’s certainly got enough clinical literature. I don’t feel you need to be a clinical person to know what the stuff is. But think of emotional intelligence as, think of it as like situational awareness and emotional awareness of things that you’re going through in your life because it’s typically not relegated just to trading are human beings are emotional human beings. Unless of course you’re on drugs and you’re catatonic and you just don’t want to feel anything, so you suppress it with food or drugs or alcohol or sex or whatever it might be. But I, I’ve spoken about this at length a while back. There was a podcast episode where I talked about your emotional model that you’re running because the managing the risk part is kind of easy.
The math, it’s fourth grade math. It’s not that difficult. Finding the right setup takes a little trial and error, but if you do it enough, you’ll find something that resonates with you. But in each step or at each step, there’s a trade off between pleasure and pain. There’s the quality of the work, there’s the quantity of the work. Some people love to work hard so they can find ways to work really, really hard in trading, and that becomes satisfying for them emotionally. Doesn’t say anything about profitability, but it feels good to work hard. Why? Because that’s what they learned growing up. That’s what they saw their parents do. They were hardworking people. So I try to think of it situationally as it relates to trading. Think about whatever from, and the podcast episode delineated this as better, better probably than I can do now, is if you look at your pre trading work, your preparation, your order entry, you’re waiting for those orders to get filled, what happens and how do you feel?
Once the orders are filled and you have risk on and you’re managing the risk, you’re adjusting stops, then you get stopped out of a trade. And then there’s the whole post-trade feeling. So if you add up all those feelings, you can look at and see your emotional model. What’s interesting is that this emotional model might be replicated in other parts of your life. So you can really learn a lot about yourself if you pay attention to how you feel at the various stages of being a trader. And if you want to get crazy with it, start from the minute that you wake up. What do you feel when you wake up? Are you excited or do you have anxiety? And where does that come from? So you could spend so much time studying yourself, my, which is what I recommend, because you can’t lose. Things can only get better if you study.
What gets measured can be improved upon. So if you study your own behavior, I don’t think you have to turn into Tim Ferriss, but you could certainly study your behavior around managing risk and what you think. Because when people say, what do you think about this? They usually give you an intellectual answer. They don’t tell you what they’re actually thinking or better. One, I misspoke, how do you feel about X, Y, Z? And they’re like, oh, I’m bullish or bearish. Whereas they could have said like, I’m nervous or I have a lot of risk in that position. So I’m thinking like, I’ve got to trim some of the position, take some profits here, maybe hedge using options, this and that. Because feelings when someone says, how do you feel about something? You should answer about an emotion, not something intellectual. But most people are conditioned to not speak about their emotions. And I think the traits of the future are going to be emotionally intelligent at the nth degree.
And those types of people who are willing to feel all their feelings can have that type of brutal honesty that people can speak about but might not be able to experience. Because then you get to look at your behavior and where did it come from? And then you get to say to yourself, okay, well why do I feel? Where did I learn that from? Why would I interpret a certain loss as me lacking when it could be just a dumb random event? When you study longer periods of time, you can see patterns not just in the charts, but in your own behavior, you see. And so that to me is how you could make the most amount of improvement, is by focusing on your behavior and your emotional awareness, your situational awareness, which kind of can include your trading tactics. That to me is the whole rub.
And that’s pretty much the reason why we teach that in the consulting both online and one-on-one, because that’s where a trader can make the greatest amount of strides in their behavior, which translates to profitability, right? Because they lose less, they start to make more. It all comes down to wh why are you doing what you’re doing at any given stage? And until you have someone walk you through all of that, and this isn’t an advertisement, this comes from the post on the comment from a couple of days ago from Ram and talk about emotional intelligence. To me, that’s the whole rub. Once you can figure out who you are as a person, then what falls into place? What’s the right asset class? What’s the right position sizing and what’s the timeframe? What’s your holding period? Meaning all of that stuff becomes so much easier if you know what makes you tick.
Because I know plenty of people who probably would’ve made really great traders, but they weren’t connected to their behavior and they started down a path with the wrong asset class and the wrong timeframe, and there wasn’t any fit. There wasn’t any chemistry. So what happens? Well over time you’re kind of destined for failure because as you lose money, unless you’re going to reload like a gambler sooner or later, if you keep playing a game of negative expected value, it’s predictable that you’re going to have total ruin. People slowly say, blow up, you just lose. You don’t have to blow up because that doesn’t necessarily mean you had one big cataclysmic loss. It could be losing 1% a day just by not knowing what you’re doing or trying to do something that you have no compatibility with. But the compatibility means you need to have deep understanding on two different things yourself and the very instrument that you’re trying to trade.
And that’s where Michael Marcus was great because he kind of understood not just himself, but he understood the instruments. And more importantly, in my humble opinion, what the crowd was going to do. What were their expectations? Where would they feel disappointment? And if they did feel disappointment, how would they react? Right? Because most folks can’t see that on a chart until after the fact. And even then it’s kind of sketchy as to what sometimes people send me these videos and I’m looking, I’m like, wow, guy took an hour to say something. He could have said it 12 minutes. Why did he make everyone sit there through ano another 48 minutes of throat clearing and blathering? It’s cut to the chase.
So anyway, I would spend the days studying yourself. And if you think I’m full of it, that’s okay too. You can go look at market wizards and in each one of those chapters, there’s somebody who had to learn a tough lesson. And now these are people who were already pretty good and they were still learning lessons about conjugating their behavior with what they felt and what they thought. Most of the time when they tried to do things on the fly, it worked against them. So you can really learn a lot and just understand that this is a human condition. And if trading is 80% psychological and emotional, then you should spend, I don’t know. I don’t necessarily think it has to be one-to-one, but you’d start by spending four out of five. Imagine if you spent four out of five days studying yourself and one out of five days on the charts. Because if trading is three quarters to 80% psycho, psychological and emotional, what kind of work are you doing in that space?
Because typically, like I said, there isn’t an external solution to your internal issues. So you can look at chart patterns, you can look at indicators, but if you feel insecure, none of that is going to help you in fix that. So I would spend the time looking at yourself. We have a self-study program. It’s pretty affordable, it’s great work. I’ve built it myself. I do all the teaching. Then for folks who need some handholding or work better cause they want to do a deeper dive, we can do that as well. But the main thing is that there are resources out there, not just through me, where you can learn about self-improvement. You could learn about yourself and what it is that makes you tick, and then you can optimize other things too. Ganjas really into he health and fitness, and he knows a lot about the supplement space.
He knows from having been a professional athlete about optimizing performance that way from a physical standpoint, from both diet, rest and sleep, hydration, nutrients sometimes supplements. Most of them aren’t cracked up to what the marketers tell you they are and kind of go from there. So there’s lots of things that you can start to improve. You just have to change and put your focus on those things little by little, do one thing at a time. But I think ultimately if you want to improve, look at your emotional models that you’re running because chances are the one that you’re running in your trading might very well be one that you’re running in your life. And this way if you fix, I don’t want to say fix, but if you make a tweak and you make an amendment right with that particular emotional model, you’re going to feel like a lot of my clients felt like that.
Not only did their trading improve, but their lives improved. Why woke? Because the emotional model was really behavioral software running behind the scenes and everything that they did in their subconscious and they weren’t aware of it because it’s hard. Unless you start thinking about these things, typically your light bulb doesn’t go off, but you learn this behavior over years and years of watching other people repeat their behavior. Then it becomes part of what you saw. Why? Because you can witness it, you can see it, you can feel the feelings, you can feel other people’s energy.
So it gets very, very deep. But in my opinion, the best traders out there are the ones who have the strongest inner voice and are also very, very good at understanding who they are as people and why do they feel what they feel at certain inflection points in their lives and in their days. That’s all I want to say about it. We can go on and on about it if you watch the show enough that that’s kind of the topic every day anyway, so go back and take a look and see which of the headlines make sense. I try to write realistic headlines that aren’t clickbait for you. But again, please and subscribe. The data really helps me come up with stuff that resonates with you. And I think as the channel’s going parabolic and the interest is growing. That model of soliciting content from you and getting you to vote on the things that you like really helps us myself mostly, and gaja to another degree, come up with things that you really like and that you’re willing to sit through.
Cause the last thing I want to do is create a two hour video with something I could have said in 15 minutes. Don’t want to waste your time, nor do I want to waste my own time having to record that. So it’s kind of cut right to the chase. Anyway, folks, I hope you had a great week. Hope it was productive and that you have some downtime away from the markets, not even thinking about the markets for several days, so that you come back Monday and you be super fresh. I hope you have a great weekend, folks. I’ll see you Monday.
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The post Your Inner World Versus Your Outside World appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin, happy Thursday. So today we want to talk about the trader psychology and the emotional intelligence around riding your winners. And I liken this to when you go away on a trip, some folks when they trade, they’re in a trade and they start making money and they immediately have to cauterize the win. Why? Cause they want to lock it in because then it’s a win and no one can take it away from you. And I know what that feels like because it validates what you’re trying to do as a trader. Obviously, more times than not, well, not more times than not, but net of all your efforts, you need to have net income, right? You might not win, but 30, 40% of the time. But when your winners are much larger than your losers, you could still make money using mathematics of expectation.
So then there’s other folks who are like, well, I’m going to be super greedy here, so I’m going to hold the thing. And they write it all the way up, and then they write it all the way back down. Why? Well, because they didn’t have a clear vision of what it is that they were doing. So I liken it to traveling. The short term gains can be likened to a weekend away, maybe a three day weekend where you can go away and you can have fun and you could trade short term a day or two in a day, two or three days, and take a win. Then you can go on a seven to 14 day vacation. Maybe it’s a cruise, maybe it’s a trip through several countries in Europe, the id, the idea being that the more time you have away, the more pleasure you’re going to have, right?
So why would you go on a 14 day cruise and then cut the trip short? That’s how I look at people taking profits too soon. And so imagine you were excited to go away somewhere with a loved one, your family, friends, wherever. Maybe it was a girl trip, guy trip doesn’t matter. And you were there and after two or three days, you know, had enough fun and you were just like, I’m going to go home. Now, sometimes there’s an event where you’re like, all right, I’ve seen enough it, I’m going to go because if not, I’m going to end up getting arrested. Where I’ve been in those situations as well, where you have to have to have a keen eye for when the trouble’s going to show up and then definitely be the first one out the door. I’ve been in those sit, actually, Jared Dian can teases me about that.
So I liken that to what we talked about on Tuesday as it relates to having to feel patience. Because when you’re in a winning trade and your hair trigger responses to want to take the thing off, why? What is the feeling that you have? Is it fear? I’m going to guess that it’s fear that gain, whatever the gain is, is going to go away. And you have to memorialize it by offsetting that winning trade. If you bought it long, you got to sell it long and go flat. But how come you don’t feel fear about missing out on a bigger move, right? That’s the illogical part. You’re in a trade, you have a three to one asymmetric setup that you like to follow. Your winning percentage is 50% and it hits three R. And without a lot of thought, you methodically take the trade off. Now, obviously, a winning trade’s a winning trade. You can’t take it away from you. But if it comes from the standpoint of your unwillingness to feel certain feelings, we’ve talked about this in the past, that you might find yourself in a spot where you’re never going to love yourself enough to have a five R or a 10 hour win even for part of your position.
So when I look at riding profits, you have to look at two different emotions. What’s the emotion of being in the trade and having fear of not taking the win when, especially when it’s close to or at a predetermined offsetting spot like your three are, right? Or, and then say, okay, I’m in the trade. It’s a winning trade. What would happen if I would stay in the trade longer? What would happen if I would have to exercise patience? Which means I have to feel whatever feeling I would have to feel when I sit on my hands. Is it full of trepidation? Do I really feel this risk right? And even if it was just for one trade, who cares? It’s one trade over thousands of the thousands of trades that you’re going to make.
Because
To me, trading is experiential. You have to do it because that’s how you learn. And most importantly, that’s how you learn to conjugate your feelings, your habits, your paradigm, your emotional constitution with the behavior that you know how to exhibit, right? That’s why it’s not about somebody’s system or it’s not about cup and handles, for example. They might be all super popular, but what’s best for you? So when I look at riding winners, it, it’s under the chapter of what it is it that you want out of your trading. And for me, you might want to consider the following statement as it relates to your winners. If you’re in a winning trade, how can you milk the trade for as much net income as you possibly can because you’re still going to have losers, you see?
And that here we are probably presuming that you’re following some lost limiting methodology in your trading, in that you’re very religious and disciplined about taking the losing trades off very, very quickly. And there’s a whole bunch of ways to do it. Yes, there’s canned, slim, and seven, 8% and all this and that, you know, have the right position sizing, but ultimately it comes down to what emotional needs do you want to have met? So how do you get satiated when you take short-term gains and not let your winners run? How does that serve you? And how do you reconcile that? You might be leaving money on the table, the opportunity cost in some cases might be actually higher in dollars and cents than the actual realized gain.
So I don’t think you could figure this out by looking at a chart. Definitely. No, you can’t figure it out by buying somebody else’s system. You have to do it. So that’s why I said buy three shares, sell one share at three R profit, sell them all at one r loss, sell one share at three R, sell one another one at four R and sell the last one at five R, right? And if that works out, now you’ve just created a four R on average of four R rate of return, which is a 30, 33% increase. When you go from three R to four R, that’s a 33% increase. So think about all that and then see about what are your feelings when you summarize or delineate what are the possible outcomes that could happen if you don’t liquidate all or part of your winning trade at plus three R, for example, what would it feel like for you if you had to feel that uncertainty of that probabilistic outcome, right?
Because that’s where you can apply base theorem, right? What is the probability of event B given the known probability of event A? Well, you would know that 40% of the time you have trades that go to plus three R. You’ve been taking those winners at three R 40% of the time, times three. That’s your positive, that’s your winning expectation. So how do you feel around these other moving parts? Because you can only do that in my humble, my humble opinion, by actually experiencing it and documenting it. And if you’re trading, trading futures and you have many or micro contracts or you’re trading stocks, one micro contract or one mini contract is not going to kill you. I mean, I don’t know your financial situation, but you could always find a way to trade something smaller. And if you’re trading the gold, look at shares of G L D.
If you’re trading a commodity future, you could do an etf. I always recommend doing something small, but with real money because then you learn a lot about your behavior. And that’s really, really important because I think just like you’ve kind of come into this model where you have 40 to 50% of winning percentage, and you take your winners at three R, you cut your losers at one R, that’s learned behavior. And guess what? You could learn to cut them at four R. You could learn to cut them at five R. So why not stretch your legs a little bit and see what that feels like?
Because the feeling of being able to walk around knowing that you have an asymmetric relationship that’s four to one or five to one to me, is observable and learned behavior. You can learn to do that. But in order to get there, you have to be willing to feel the feelings of not offsetting trades. A three are at least not a hundred percent of them. And again, you can talk about it till you’re blue in the face, but you have to go and experience it with real money and real feelings and then go to school on yourself and be brutally honest. You could say for ages, I’ve had this irrational fear about taking risk home overnight, and it made no sense because if the trends and the movement and the momentum is strong enough, the mistakes or the surprises are going to happen in my favor more times than they’re not. Now, base theorem comes in where you can say, okay, I know that 40% of the time I can realize a three are gain on my particular style. Then you could also observe what happens to those names the next few days after. What’s the probability of it going higher to four R? Because you can observe that you can go back and study your own trades that you were in.
It’s clean data. It’s not hypothetical. Those are trades that you were in. You could say, huh, I could at least walk away with three and a half. Well, three and a half are, that’s more than a 10% gain on your other gains. So that’s 110% more than 110%, right? 3.3 would be 110%. So 3.5. So now you start to skew your winners higher, all because of your emotional constitution and how you’ve learned to become comfortable with what had once been very uncomfortable for you. Uncertainty. Have to sit on my hands. I have to exhibit patience, right? That’s all stuff that you could learn and put to work and actually look at your own trading ledger. And for the folks who are more established, I know you have a relationship with your risk manager, that’s obviously, again, good relationships are about good communication. You can have that discussion and say, Hey, what would it be like if I was in this trade and I was up three R and I peeled off a half to two-thirds of it and I kept a piece on for posterity, and I raised my protective stop to say, plus two or two and a half.
R, would you be okay with that? Can I take that home? Can I take it home over the weekend and see what they say?
And that is good because then you start to evolve as a human being. And I think you start to get closer to what it is that you want and how it is that you want trading to serve you. If you’re going to do the work, as far as I’m concerned, and you have unlimited upside, you might as well consider becoming very, very comfortable with feeling all the feelings in your world that you can get from trading. And that means the act of not participating, which is a powerful tool for speculators, right? Getting a little bit off subject here, but we could talk about that another time. But anyway, folks, I appreciate you being here. These are great concepts. Cause I can remember from my own life and then it brings from my own experiences. Then I also get to relive the stuff and bring it into my own consciousness again, because some of these lessons are things I had to learn a long time ago.
And lucky for me, I didn’t have to keep relearning ’em because I didn’t portray, I didn’t leave my wingman, as they say in top gun. So I stuck to my knitting and I realized that it’s the discipline of what I do as reflected in my behavior that’s going to really predict where I end up. That’s the name of the game more than what it is that can you control your behavior. And from that, it all comes down to psychology. And some folks believe that that’s 75, 80% of it. I believe that too. It’s about a trading psychology and emotional intelligence. That’s the name of the game if you want to do this for 20 plus years. All right? Anyway, please like and subscribe, check the bell, see that you get alerts. And if you have a comment or if you disagree, cause I don’t have all the answers, I just have my own subjective experience, I’m happy to expand on an answer or debate somebody on a certain point or maybe make something a little bit more clear if I talked over it too quickly as I sometimes can do. Anyway, folks, thanks for being here. I’ll see you tomorrow.
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Hey guys, welcome back to the segment that Mike and I do weekly where we answer your guys questions, comments, and see if we can add anything onto it and just go over topics in general. I wanted to start today by saying make sure you guys like subscribe, click the notifications bell, all comments, help the algorithm, and we may answer your questions in a dedicated video and you can go ahead and talk about the course. I’ll cut this part out,
Yeah. Yes. And we dedicate this show to you, our loyal fans and newer folks. Welcome to the show. I did get a few questions via email. I guess folks wanted their privacy. They asked about enhancing their mindset. I’m not big on marketing and advertising, as you can probably tell. I do a daily show, and the most I ever say is you can get a free download for the audiobook version of Inner Voice Trading, but we actually have a mindset course. It’s 12 weeks. If you liked anything about the book or the show and you’re struggling or you want to get your mindset to that of a pro level so you can get pro level results, we have, it’s a 12 week program, eyeline self-study. So you can do it at your own pace whenever you’re available. It’s a lesson a week. You can’t jump ahead.
There’s nothing to download. It’s all streamed inside the platform, the learning management system. And it’s the feedback that I’ve gotten from many people is that not only did it help their trading, but it’s really helped them change their outlook and improve their lives. So if you’re interested in that, there’s a link below. You can check it out. That’s one way to help the show. As Brandon said, our beloved ganja, please like and subscribe because we get really good data and we don’t want to sit around and talk about stuff that you don’t care about. So far we’ve been dead on, but we do a good job of listening. So it’s not terribly random. We listen to what your concerns are. We actually read the comments and the questions and it’s very, very important. But as far as I’m concerned, if mindset is your issue, there’s no pl better place in my humble opinion than to start there. Some folks need one-on-ones or what have you because they have bigger issues. And it depends what kind of student you are. Admittedly, some folks do very, very well with self-study, but check it out and then reach out if you have any questions.
And we got a lot more stuff coming on the education front, and I think it’ll be really exciting and really helpful for you guys. And with that said, let’s get into today’s topic. And I wanted to expand upon something that we talked about the last week’s episode, and that’s mindset and tilting. And I wanted to bring in a concept for my world and kind of get your take on it as well and see how that kind of applies to trading. But basically we talked about how the market can be really undesirable and death by a thousand paper cuts and how that can be wearing and mentally fatiguing for some people. And everybody kind of internalizes that differently. And I wanted to tie that into something that I do, which is the professional video gaming front and you know, have to cue matchmaking. And matchmaking is random.
You get random teammates and sometimes they’re good, sometimes they’re bad. So the odds are not always in your favor, but they can be. And basically what happens is somebody starts their day, they play one game, they have a really bad game, and then they’re pissed and they’re just a complete jerk for the rest of the day. And then they do tilt queuing and they’re just losing their rank. The rank keeps going down in the hole and they just turn into this evil, nasty person, really, really not nice. And I think that tied in a little bit to what you were saying about the internal struggle with trading and how that can affect you and you should just really take a break and go golf in Puerto Rico for five days. And I just wanted to see, see what else you had to say on that, if anything at all.
Yeah, I mean I think we’ve all seen it. When folks go on tilt, they’re imploding and it’s not pretty to see, unfortunately for many people when it comes to trading, if they blow up and they lose all their capital, they’re kind of done for a while, then they need a, which is interesting because intentions equal results. So if you don’t deliberately take the break that you need that everyone else can see that you need, if you keep trying to bull your way through and you lose all your capital, you’ll be forced to take that break. So as I tell you, and take some time off because you’ll preserve your capital, come back with a fresh head and perhaps a fresh perspective on things. But ultimately you end up in the same place. So you might as well do it on your terms. People don’t care if you’re a martyr and people certainly don’t care if you’re a victim.
Those are folks who are kind of insta block because to me it’s like what’s going to happen when you put on trades ahead of time? So that makes no sense to bitch and belly ache about the outcome of any one particular trade because no one trade is any more important than the next one. They’re just waves to surf. That’s it. You’re putting on risk, you have no idea ahead of time. And this is something that I’ll say after 35 years of doing this, I can certainly say, cause I’m a human being, which just means that we’re emotional beings. Unless of course you’re catatonic or you’re on drugs and you don’t allow yourself to feel anything. But that’s awfully difficult to have a good life with. That is that I’ve had hunches, I’ve had clairvoyant moments where I could kind of anticipate people’s behavior, but for the most part, I can’t say that I was able to anticipate or see any particular trade in advance and knew it was going to turn out to be one of, say, my top 10 trades. You don’t know that ahead of time. The best you can do is put the trade on and stay out of the results.
So that’s where my mindset is. It’s very placated in understanding that this is just a process. And over the years I’ve been able to get this eliminate stuff, not add crap. Of course I’ve got a million books, most of them I’ve read, some of them were sent to me. But the thing that taught me most about trading was my actual doing it. That’s why I tell you to do that. Can’t make any money with that. The broker dealers can’t sell you mindset stuff because there’s no money in it. They have to sell you advanced charting packages, duh. Right? But if that was really important, why would they have to replenish their client base every six to nine months? Because active traders who don’t have the right mindset blow up, lose their money, they become discouraged, they quit. They feel the system is rigged and it’s not because you are the system. And so you might as well sit and learn and study your own behavior and learn from it and then see how you can have compatibility with the market.
So that’s what I try to focus on is where’s my level of compatibility? Because it’s like dating or being in a relationship if two really good looking people meet, but there’s no chemistry, probably not going to be a second date nor there of relationship. So you have to kind of have that same type of chemistry that you have with your best friends and mates and whoever you are involved with romantically if you are, you have to have that type of chemistry with your behavior as it relates to trading. And when you don’t have that, you’re kind of just asking someone if they want a cup of coffee. And so it doesn’t mean it can’t evolve into something, but that’s how I look at losing trades. If I say, let’s go grab a cup of coffee and she says, no, I’m not interested, or I’m busy or I’m with somebody, to me, I still won.
Why? Well, because I stuck to my system and I asked the woman for a cup of coffee, whatever it might be, probably not the best analogy, but you got to be in it to win it. You have to put risk out there in order to get return. And if it’s dating or asking for sales, you’re going to face rejection. Now, there’s ways to work with the rejection, but for the most part, no means no. Right? That’s a good boundary to have. And every play date has a beginning of middle and end and the door prize, you get what you get and you don’t get upset. See, all these parenthood sayings apply to trading, but does that kind of hit upon going on tilt?
Yeah, I had a bit of a follow up with that too. And it’s like people, it’s easy to say don’t be emotionally involved in the results, separate yourself. But yeah, I kind of wanted to ask you how you do that, but before I wanted to talk about how I stopped tilt queuing in this game in particular because you, it’s like chess, right? It’s like an ELO system. You have to maintain a certain level of ELO to be in a specific category of rank. And it’s hard. It’s really hard to be at the top level. And what I started noticing is obviously in this game you’re communicating with people, and I would do little things that it was almost subconscious. The way I would ask for things or the way I would say things I could tell would kind of come off a little rude. And I didn’t understand that at the time, but I stopped, I became really emotionally analytical as to how I was approaching these situations and why I was coming into the same result of people firing back at me and being really angry. And then the whole game was just like toast. And so I really sat down and I was like, okay, well here’s where it went wrong. What can I do differently the next time? Yeah. And I kind of wondered, did you have a similar process for trading? And where is the point where you say, all right, I’m not going to pay attention to this or, and even how do you do that? How do you not pay attention to it?
So I think when you talk about going on tilt, the things that can destabilize you as a person in the marketplace is when you have either a gigantic win or a gigantic loss. People mostly associate going on tilt with losing money. But you got to remember the people out there have, the psychology of the trading world is very complicated. There’s some people who are starving for attention and they love drama and they do this because they want attention. So they put themselves in bad spots to lose money so they can stay at the center of attention as opposed to just putting on risk, managing risk and making money in a very low key way. I think when you don’t care about status or your ranking, because you talked about E L O and this and that electric light orchestra, obviously I don’t know what E L O stands for, but the point being is that if you don’t care about status, then you really don’t have to worry about making or losing money on any one particular trade because unless you’re in the bad habit of having to post everything on social media about your trades, which I don’t think really helps anybody you know can say, instead of looking for that, those dopamine hits on the vanity metrics, which is what they are, the likes and the retweets and stuff.
I mean, I appreciate everyone’s feedback, but ultimately I know my worth and obviously this isn’t terribly retail, so it’s not going to have 1,000,005 followers, so I don’t care about that. I think this type of stuff is for those that want it, not those that need it. So to avoid going on tilt, I kind of have worked out all the potential outcomes ahead of time in my brain.
Now with stocks and futures, they’re a little bit different. You have limit moves and circuit breakers and this and that, but typically you learn the hard way that if you go after this ego fulfilling career kind of trade, when you flip the coin, what happens when it comes up tails? Because yes, you might put on a trade where you can make 60% as a rate of return on your overall equity, but for what purpose? How does that serve you? And if it comes up tails, what kind of damage are you going to do to your equity? Because I can share with you, there’s an actual equation that you can use to calculate the risk of total ruin, which means you blow up. Now the blow up can happen because you literally wipe out your account. Or two, you’ve just lost so much money that you’ve become destabilized and disgusted with yourself.
Nevermind the markets that you just stopped trading, right? Because you’re stunned. You never thought it could happen to you. This happens of course to folks who don’t put in protective stops. So to me, there’s enough out there in the lexicon of trading of what not to do in order to stay in the business for as long as possible. Because despite what you might see, this is a marathon. And I think if you come to the ta, one way that you can go on tilt is if you show up to this fight with a sprinter mentality, when we all know that it’s a marathon right there, there’s incompatibility between yourself and the market, and that typically doesn’t work out all that well. It typically works against the trader because you’re not going to muscle the market, not no chance. There’s no chance. So I kind of feel from a meditative standpoint, you can sit back and think about putting on a trade.
There’s really three things that can happen in varying degrees. You’re going to have unrealized gains after you put the trade on. You’re going to stay at breakeven function of time. What’s going to happen between now and the next several moments in terms of the price right now, you can stay in the trade and it can continue to leak against you, presuming you’re long and you’ll have your protective stop in, you can get knocked out. You never adjust those prices. Know what the point is ahead of time, put it in there and figure half the time you’re going to get knocked out. Some of the times you put on trades, there’s an enormous amount of buying pressure where you’re getting in. There’s a lot of slippage in skid, and next thing, your portfolio could be up 2% within the first 30 minutes of putting on the trade.
That happens too. So what’s your behavior going? How are you going to behave when that happens? You can work this out ahead of time. All wars are won before the battles are fought. So you should have that scenario worked out as opposed to sitting there kind of trying to figure it out on the fly, which when you’re newer is very difficult to do because you don’t have your instincts honed if you even have any instincts. And to me, the pros kind of know what place to call so to speak, not what trades, but how to handle their behavior when certain scenarios unfold. Then there’s the other magic trade, and that is, well, what happens when you pull something at 50 and after three days, it’s kind of like 49, 90, $50 and 10 cents. So you can employ what we call a time stop because you haven’t made any money, you haven’t lost any money, but whatever you thought was going to happen after you put on the trade after several days hasn’t happened.
So you can typically remove the risk and just offset the trade at no gainer, no loss, because you always have downside. And if momentum stalls, momentum’s, very, very important for traders of all shapes and sizes. And if momentum stalls right after you put the trade on, in my opinion, you can test this, but most of the time it’s going to work against you. So I just typically get out if that’s the case, doesn’t happen all the time, but when it does just say, okay, well look good on paper, put the trade on according to my rules. But I think the main thing is that you can validate yourself as a trader by can you follow the same process day after day after day? That’s what makes you a trader. Being profitable is something that you’re going to have to find out over time. There’s not going to be an instant gratification with that.
And even if you want, I think it’s very difficult to trade if you want instant gratification, I think you have to play the long game and think about what are your annual returns more than what you’re trying to do on any particular day. Because then again, without any real trading training, you can force yourself into stuff because you need that dopamine hit for the day. I don’t have that in my brain. Maybe I did, I can’t remember, but I don’t think it was ever part of my calculus. It was always a function of I can remember saying to myself, do I know what I’m doing? And what do just, I spelled out if I’m in a trade, it’s either going to go up, go down, or stay flat. So under certain circumstances, what’s going to happen? The easiest decision, right? It’s like applying to schools.
If you apply to your top five schools and you get into three of ’em, that’s actually a problem because now how are you going to choose when any of the five were going to work? Whereas if you applied to your top five schools and you only got to got into one, there’s no problem because there’s nothing to decide on because you only got into one school. So to me, the easiest trade is one where you get long and it hits your protective stop and you get knocked out. Nothing to decide there. It’s very mechanic, it’s very rote. The tougher part is what happens when it starts to move in your favor and you get antsy. Because again, in my humble opinion, if you’re newer, you’re probably looking for something to satisfy you emotionally. And again, not to plug the course, but the stuff that we talk about helps you address where these things come from.
80% of the time it comes from subconscious. You don’t even know where or why you behave the way that you do. But like me, ganja, anybody else, we’re all products of our environment. And so we have been taught by other people demonstrating through their behavior how you should behave in certain circumstances. And your sense is your sense of smell, your sense of hearing, your sense of sight, your sense of feel, you, the way you can perceive and feel someone’s energy, which is a sixth sense. You’re taught that because people are teaching you all day how they behave under certain circumstances. And you’re absolutely insane if you don’t think that that’s infiltrating your world. So you have to put yourself on a diet in saying, pardon my language, I have a no asshole rule. If someone’s going to act like a jerk or lose control the double, bye-bye because they’re only going to screw up your own inner game. You have to have enormous amount of discipline to not have that around you aside, just immature and annoying. And the last thing the trading world needs is someone who’s 32 losing money and acting like they’re 16 and they’re going to throw a temper tantrum. There’s no real room for that in the trading world.
Yeah. I wanted to add something real quick too. I really like what you said about calculating the outcomes and from each side, from the winning side, from the losing side. And I wanted to ask you, if you calculate all the outcomes for a trade and you’re like, I hope this is a winning trade, you’re like, here’s the chance that this is a winning trade. Here’s the expected value, praying, praying that it’s a winning trade. But you also calculate, calculate the negative outcomes, right? You’re like, okay, well I could lose 30% on what I put into this trade, which is a lot I know. But if you calculate that and it turns out you’re right, even though you lost money, does that still validate you in some sense? Because you’re like, okay, look, I calculated the outcomes, I didn’t make money, but hey, I knew that I could lose money and I lost pretty close to what I thought I was going to lose.
So you have to remember, the expected value in and of itself is on average. So here’s the funny thing about it is like say the expected value is 1.2. Even if you lose the expected value of every trade is one point. Two years ago I spoke with an author, she was a poker player, she’s probably still is, although maybe not professionally, Annie Duke. And we talked about how if you have a process and you follow that process, you can lose, but you still did the right thing. Whereas there’s other times in life where you can do absolutely the wrong thing, make a fortune and think you’re onto something. Those are the people who kind of win the lottery and then end up broke with too many rental income properties with no tenants, and they find themselves filing for bankruptcy. So you have to stick with the process.
My comment was more relegated to folks who aren’t doing the back testing, right? Cause they don’t have anything to go on, they’re in the dark. Now, why someone would want to stay in the dark about knowing something about the outcome of a potential trade is very foreign to me. I don’t know why. Why would you go to college if you didn’t know what the potential outcomes were? Why would you do anything if you didn’t know what the outcomes were? Now handicapping those, you’re going to get better at that over time. But to me, even if you have a losing trade, the expected value of that trade was the same as if you won. When you do expected values, you’re something that’s black and white, which is what’s your winning percentage? You know what that is? Or you can certainly simulate it. Again, to me that’s something you’d need to know because say for example, you had a trading idea and the thing only worked 20% of the time, that doesn’t mean that it’s a failure. Yes, if you’re in school, that’s a failing number by a big, big margin. But if the payoff is 40 to one, then that to me has positive expect and value. The question is, do you have the emotional makeup to be in a system that wins one in five times? Because that takes a special emotional makeup to be able to follow that system.
So again, we talk about the goal for the trader is to have a system with which they are compatible. If you take it personally that you lose, nevermind the magnitude of the loss, but just the losing in general, trading’s awfully difficult. So my focus was always like, am I onto something here? Because I have really good instincts and really good intuition. So I knew if I was close, then it was just a question of culturing the pearl. I could start to see things taking shape. But there were years where I didn’t know my backside from a hole in the ground, and I just knew like, well, I’m never going to go on tilt and I’m not going to blow up. Cause it’s hard enough to get a grub steak in the first place. So again, if you don’t care about status and if you separate what you think a winning trade does for your ego, you’re off to a good start.
But like I said, so much of this stuff comes from your subconscious. Sometimes you don’t even know why you do what you do and you don’t know why you feel the way you feel. I make sure if someone’s sitting in my classroom, you don’t even get to lesson number two until you know what the hell you’re doing it for. Super clearly. And then I get to see what you write. And if I’m not one over again, this is all private, I never kiss and tell, I’m going to ask you to go back to the drawing board because I have a hunch that there’s something more to it.
What is why some people want to be famous? So they put on famous trades than they blow up and seen it a million times. I was asked to help a few people who were not that you couldn’t help ’em, you couldn’t get to ’em, they didn’t want to listen. And it’s just like addiction. You can’t aa, as I mentioned the saying before, which I borrowed from aa, I’m not an alcoholic, but I’ve been through Al-Anon a few times. It’s for people that want it, not those that need it until you’re, you’re willing and you make up your mind that that’s what you want to do. You’re not going to go get the help. And sometimes folks get caught in a rut and they don’t know where to turn to. So I always just say, stop trading because if it’s not serving you emotionally or mentally, then to stop doing what you’re doing because something’s not right.
And in any given trade, there’s always two outcomes. There’s the financial and there’s the emotional and then all the combinations that can possibly go on. So it gets super, if you look at it, whoops, it can get super deep. But starting with knowing what the why is, what it that, how do you want trading to serve you as a human being? Forget the p and l. How do you want this process to serve you in your life? Because to me, traders are risk managers and you have to look at it that way. You’re adding and removing risk at strategic times. You need to know why you’re doing that. What is your motivation? You need to know how you’re emotionally, emotionally sat, satiated. How do you win emotionally from that now and in the next year? How are you going to do it over five years?
And that to me is the benchmark of how you succeed long term more than how to swing, trade or date trade or trend follower position set trading, broken wing strategies in the options markets, or you trade the binary space in the uk. To me that is just how you express yourself like an artist would. Some people play piano, some people play the cello, some people play acoustic guitar. And then what’s your technique? If you play guitar, just like in trading, there’s a knack that you have. There’s certain folks who play beautiful nylon string, but don’t really have much to say on say, an electric guitar because it’s in a lot of ways it’s a different instrument. And that’s before you look at right hand and left hand technique. So to me, trading is super deep because there’s a million, there’s myriad ways that you get fulfilled as a human being and a lot of times it has nothing to do with the making or the losing of the money.
I wanted to bring this up in the last episode too, actually. It’s funny you mentioned Annie Duke. I’m actually a bit of a poker connoisseur. I find high level poker really, really entertaining and just fascinating. And you know, were talking about trusting the process and even developing your own and running it through simulations and testing it. And I almost brought up counting cards. I don’t know if you’re familiar with the concept, but yeah, it’s, it’s really big in poker and they’re communities built around this and
Blackjack.
And blackjack too. And for people who don’t know, counting cards is basically a system of assuring that, you know, win money, ensuring the best outcome I guess for each hand. And there are lots of different algorithms you do and you count in your head and it’s actually banned in some casinos too. They’ll kick you out for it. But what I’m trying to get at is there are rings of people, and you can find this on YouTube, it’s really popular right now. Actually. These guys will put a hundred grand together and they’ll say, Hey, we got five players, we’re going to go count cards at all these different casinos. And they talk about like, okay, so today we were down 50 k, but we’re still doing the right moves, we’re still counting the right cards. We know eventually we’re going to be up. And then by the end of the trip you, you’ll follow them along this journey. And they’re up 45 K from their start. So 145,000 and they just split that between each other.
Yeah, yeah, exactly. And Annie and the show mentioned the expected value of a hand. You could sit there at the table, play the hand absolutely correctly and still lose. You didn’t do anything wrong. You played the hand exactly the way you should have played it, but you lost. And that’s going to happen with trading too. I think it’s probably, I think our educational system has a lot to do with how people perceive accuracy, but you’re dealing with a high level of uncertainty and in a system, both poker, blackjack and trading where you’re dealing with probabilistic outcomes. And so for me, the minute I started to understand expected values and conditional probability in base theorem and that there are, like I said, there are myriad ways that trade could unfold to both make and lose money. I can sit and meditate on all those perspectives. The ones that I could even think about and bring into my consciousness and say, okay, these are all probabilistic, these are all I at the beginning, of course I couldn’t handicap them.
But over time you can learn to do that. You can learn to see, okay, what given your emotional makeup, not what, because we don’t get paid to know stuff. We get paid to execute. So what is it that you can pull off? Because no one cares about the idiot with an encyclopedic memory about trading charts or what have you. If you can’t put on the trade, that doesn’t really serve you, it doesn’t serve the community. Why? Because you could look up everything for free. There’s a video on it somewhere. So then the question is, what can you execute? What are you comfortable executing?
You get up every day, you go to a job. Why? Because you don’t want to get fired probably. That’s why right? There comes a point where you’re not self-actualized anymore, but it’s more fear-based. You’ve got overhead, you’ve got bills, you’ve got a mortgage, you’ve got a wife and children, or a spouse or a lover, whoever. Doesn’t matter to me what your preferences are. But I’m just saying that once you get those types of responsibilities, the stakes change. When you’re trading, you have to live with that uncertainty. But as I mentioned in previous shows, the uncertainty is where the money is because the uncertainty represents risk, not just financial risk, emotional risk. And you have to be willing to feel all of your feelings. They’re all trying to communicate with you. So it gets very complicated because especially for guys who aren’t m maybe, I don’t want to say stoic, but women are much better in processing their feelings and even talking about their feelings.
In my non-professional like experience, I’m not a psychologist, I’m just good at studying human behavior, especially around trading. So again, using myself as a Guinea pig, anything that I’ve ever talked about on the audio only version of the show as well as what’s going on in YouTube largely comes from my own experience and what I had to learn and what I had to go through. Even the inner voice trading, people are like, well, it’s a trading book, but there’s not a damn trade in the thing. And well, it’s a memoir, it’s what I thought I knew at the time. To me it’s got a lot of candor because every time I thought I was onto something, I find a new way to fail.
But the thing is, I never quit. So it’s a gesture of sticktuitiveness, if you will, because there were a lot, try doing that for four years. So I would say just learn to deal with the fact that when you put on trades, there are probabilistic outcomes and that you human beings, despite how smart you think you are, I’m going to call you out and say that you can’t predict anything. You might think that you can see things after the fact very clearly, but studies have shown that people are not as great as at predicting it. And you can kind of get honest with yourself that that’s the fact for you. Then you can let go of that and not drive yourself crazy and invite, as Brandon said, going on tilt, which only undermines you. There’s no real good thing that can happen when you go on tilt.
It always subverts your efforts no matter what in any area of life, this business is going to drive you crazy. So you have to have a strong emotional and psychological inner strength, if you will, because otherwise things are very rarely going to go as planned. The only thing that you can do is control your own behavior. And for some of you, that’s also very difficult to do. So that’s why we focus on doing it, because that to me is 80% of the business is can you control your own behavior? Can you act consistently for five to 10 years? Seems like it’s easy to see it, but doing it in real time when every trade has both the financial and an emotional payoff, both of those compound. So there’s no magic pill I can give you. It’s something that you have to get through experience. Which again is why I say doing the trading is going to teach you more about trading than reading books or watching videos, even this one for example. And that’s all I have to say about that.
Yeah, no, and I think to kind of add one more thing before we wrap up here, you know said going on Tilt really subverts your efforts and you’re a hundred percent. And what I’ve noticed specifically for me and my experience with this ecosystem and this game that I’m playing is you could have five great days in a row and you could literally just throw away all that effort, all of the six hours a day, the hard effort, the studying, you could throw away all that in one day of tilting. Yeah, one day. That’s it. And it’s really not worth it. And it actually gets worse than that because let’s say you go on tilt with work or play whatever it is, it’s going to affect you outside of that too. And who knows, you may say something to someone, you may, you’d be like, man, I really wish I didn’t say that, and I know it was just because I was angry about what happened today, but I still feel like a jerk now. And then it starts to affect you externally, and that’s like the worst because you threw away all your hard work that you put into whatever you’re it is you’re doing. And you also let it affect you outside of work too,
And now it’s in your head and that thing’s paying dividends. Absolutely. So I mean that’s why this is a beast in many ways. I don’t know why betrayed, because it’s so, there’s just so many moving parts that are, there’s stuff that you can see, but then the majority of it you can’t see. And when you are being triggered by stuff that’s coming out of your subconscious, then you have to either keep, either have to be like me and just be too stupid to quit, or you need to work with a coach and figure that out because it typically doesn’t go away by itself. There was an enormous amount of work I had to put in that I’m very proud of. I mean, pride’s a big banana peel, but at the end of the day, most folks would succumb to it because trying to make it over four years, that’s a lot of time.
It’s 1200 and something days, whatever, of insecurity, of uncertainty and having to deal with that. But I eventually found out that I had that type of makeup that I was largely born with. I feel like similar personality traits, I’d be good as a 9 1 1 operator or an emergency room surgeon. Cause I just don’t freak out when things are stressful. I stay. I’m a self-contained unit basically, and you focus on the process. So it’s a good book out there if you want to read something that’s kind of related to trading, but not specifically about trading. And it’s called Simple Heuristics. I don’t think I have it here. No, it’s probably in the bookshelf somewhere. But anyway, it’s called Simple Heuristics that make us smart. You might find that interesting when you’re thinking about indicators and your process and what is it that you can do that you can replicate day after day after day and create for yourself your own version of best practices as it relates to trading because it has to be congruent with who you are as a person.
Anyway, I appreciate everyone being here. Again, I don’t really tout stuff, but I know the course that I built came straight out of hard knocks and through my own experiences and it’s actually what I did to evolve myself into the person that you guys kind of see through the video here. Now with a lot of help from the folks who helped and mentored me over the years. I don’t think there’s anything like it out there. And if you’re struggling with that, this can absolutely help because there’s no place to hide. So you might have to take a beat and give yourself a couple of weeks or months to get ready for it, but it’s kind of in your face and it forces you to address stuff that you might not have had to have addressed before. But if you wanted bad enough, it might be a good fit if you’re really hellbent on making it as a trader. But as Gja said, please like and subscribe. Check the bell. What does the bell do?
It gives them notifications for when you post a video.
Oh, subscribers don’t see that.
They do, but the YouTube subscription box is broken. So even this is actually good knowledge for people who are subscribed to channels and they’re not getting the videos. They may actually be uploading videos, they’re just not showing up in your subscription box because YouTube has issues with that sometimes.
That’s why he’s here. He’s smarter than me. So check the bell, check the bell. We’ll do this. We’ll keep doing this. We love it when you send in comments and have questions and stuff because sometimes we talk so fast. I’m from New York, we talk super fast and I might lose my train of thought, but kind of keep going. So keep the comments coming in. It means a lot to us too. It’s kind of good to give back to the community from a Think and Grow rich kind of standpoint. So thanks for being here, ganja. Thanks for all that you do. I like the feedback, I like the vibe of the show. It’s good. You bring up good questions too. Good follow up stuff. Help the show stay focused and thanks everybody for watching the show and doing the deep dive with us. I think you can achieve whatever you set your mind to. The mind is the best computer on planet earth. Just remember that. Intentions equal results. So you need to know deep down what are your true intentions. And that might be intimidating for some folks if you’ve never been put in that kind of spot to really have to think about it, especially if you’ve been living your life for someone else. Anyway, I appreciate everybody being here and I’ll see you tomorrow. And Ganja will be here again next week.
Thank you guys very much. See you in the next one.
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The post MMS EP #9 – What To Base Your Trading Entries On appeared first on MartinKronicle.
Hey everybody, this is Michael Martin. Happy Tuesday. So I have another comment that came from YouTube by Roman. I hope I’m saying the name right, and it says, can you please, can you make videos on these topics? One, patience until our setup forms. Two, writing prophets. Three, emotional intelligence. Sure. I mean, I kind of have been making videos on those all along. I could probably spend a whole year on any of those three because they’re very deep subjects. I think it starts with the fact that we’re products of our environment and that the people that we were surrounded by are nuclear family. Our friends, they demonstrated certain behaviors in certain circumstances, when they were happy, when they were sad, when they were angry, when they were rich, when they were broke. And we learned that, right? We learned that behavior and part of it becomes part of us because if nothing else, it’s in our subconscious. If you’ve ever seen somebody fly off the handle or you have found yourself doing that, it probably comes from have you having seen somebody else doing it, right?
Verbal abuse that’s typically taught. People don’t gene generic generally come out of the womb wanting to rail on people and berate them. That’s kind of stuff that you have to see. Well, where did you see it? It might have been an innocuous type of a thing where it wasn’t really a big deal, but it was on that particular day. Usually those folks have regrets if they have any sense of consciousness. So I think we could take any of these and turn it into an episode. We’ll start with the first one. Patience until your setup forms. There’s a lot to be said. I’ve mentioned patience. What is patience? It’s the state of not doing anything. You’re in a moment of limbo. You’re waiting. Now that could mean you also have your stops in and you’re just waiting for the market to come to you, right? It’s life on life’s terms.
You don’t want to chase, or you certainly don’t want to engage in the market just because you’re not doing any activity, right? Because trading is not making executions. That’s the very last step in a very, very long process. Does that make sense? So it has to be intentional intentions, equal results. Well, what do you trade for? You’ve heard someone really bright say, what do you want your trading to do for you? How does it serve you? Does it help you busy up your day? Because man, you could look at charts in multiple timeframes and uptime and downtime and throw on indicators, and you could spend hours every day observing that stuff, but not making any particular progress. So I think when you think about patience, you have to think about what is it? What is it that you feel when you have to sit on your hands, right?
Because that’s really what comes up. Cause I don’t think of patience as a feeling or as an emotion. It’s a state of being, right? Patience where they’re, there could be things to do, but it’s out of your consciousness right now. So you’re going to go learn it on the fly. I don’t really advocate that. I think do your preparation. I think it was Paul Tooter Jones who said, the trading happens between 5:00 PM and 8:00 PM every night. And what he was saying is in the greater context is that that’s in your preparation at least, that that’s when it was for him for the next day. You might do it earlier in the morning, especially if you’re short-term trader and you’re looking, you’re really looking for a catalyst more than you’re looking for the name. So that’s a different mindset than someone who might be stalking as a position trader, knowing the fundamentals of a commodity future or looking at technical charts.
A good example of doing that right now and looking at a move that’s underway would be in sugar, right? Sugar’s taken off. There’s fundamentals that are going on. The charts moving up, hasn’t taken a break. I’ve seen these things move. They can keep going for a long period of time before it kind of settles in and creates another stage as stock traders would call it. So where did you have to be patient in other parts of your life? And what were the results then? Because chances are, if you don’t like the feelings that you have to feel when you have to be patient, there’s an emotional model, a psychological model around that you’re replicating. And it could infiltrate your trading. You might find it. We talked about relationships yesterday. If you’re impatient, you might try to accelerate a relationship before it’s had enough time to really ripen on the vine so you can study your own behavior, which is why I say self-knowledge is more important than trading knowledge.
Because if you don’t know who you are, it really doesn’t matter what you know about trading, about anything in life. You need to know what makes you tick. And the folks that I know that are really successful, whether they’re traders or Richard Branson or anybody else in business, is I believe that they have superior self knowledge and they know what they can execute. They can envision themselves living a life that’s very different from the one that they’re in, and they make that their goal and they go towards that goal knowing that it’s going to be messy, that it’s going to be full of failure, but they’re going to keep failing forward and learning along the way. So when you learn the hard way about patients that if you sit around and you keep trying to put on trades, when you have no business being in those trades because you put them on because of boredom or because you saw somebody else making money in a certain name, you realize that that type of behavior sabotages yourself by way of drawdown, right? Because it’s very rarely that you’re going to put on these trades as a roll of the dice and they’re all going to work out and become career trades. What are you thinking about? And I’m not trying to ridicule people because I’ve had these thoughts in my mind. I did things very intentionally coming up where I didn’t really roll the dice. I can count on one hand the time that I took flyers. I always had a preparation involved. My thought process might have been faulty because I was ignorant
To myriad things that you need to be aware of. But I was still making attempts because it’s in the attempts that you learn. Now, maybe you’re going through that right now. It’s hard to say. There’s no context in your question. But where in your life did you have to be patient? Was it applying to a school and you were waiting for the acceptance letters? What did you do? Did you call your friends and daydream about what it would be like to be in that school? Did you start looking at the online store to buy the hoodies with the repping the school name? Did you go visit the campus again by yourself? I’m not making fun of anybody. I’m just giving you some for instances. What did you do when you had to be patient? How did you spend that time productively knowing that you’re powerless over the outcome?
So I look at that as patience can mean a few things now as it’s hitting me. It could be when you’re not in a trade and you’re waiting for a setup and it’s not there, or they haven’t evolved yet, or you haven’t found them right? Because now you’re stacking emotions. You have to be patient, but you’re also frustrated that you don’t have enough names. So how do you do better research? So that feeling might motivate you to help yourself do better research so that you’re better prepared. That means maybe fewer missed opportunities. Cause I don’t know these days what the screening process is. I know there are tools out there. I don’t typically endorse any of ’em, but you might find one that helps you screen your names because that’s the beginning of it all right? Is to figure out what’s going to even be on your watch list to trade the certain way that you trade.
Then there’s, when you’re in the trade, you might have to be patient. Is it moving enough for you? Or do you cauterize the winning trade because you can’t take the pain of winning, right? I have a whole thing on that where I think there’s a whole family in a universe of short-term traders that could make a lot more money if they could just learn to hold onto their positions longer, especially if they’re winning, you see? So what does that feel like? Does the lack of patience cause you to unwind an otherwise good trade that you’re in because it’s whatever, it’s hit your three R level or it’s 3 45 eastern time?
So try to reconcile what those feelings are trying to teach you, because I believe sometimes the feelings that you do want to feel are on the other side of the ones that you don’t want to feel. You just have to learn to get used to them and take what used to be discomfort and make it comfortable. How do you do that? Massive repetition. You just keep doing it little by little. You don’t have to make gigantic strides. Just do it little bit, little by little. But then again, if we’re all pleasure seekers, what is it that you feel when you have to be patient? And how does that serve you think you don’t like those feelings? Why?
Because I’m from the school that there’s no such thing as a bad feeling. They’re all good because they’re all showing you that there’s a certain stage of where you are in your life right now that doesn’t conjugate with an image that you might have. And I learned, one thing I learned from Ed was knowing how to understand the difference about judgment and being a judge so you can really go to school on yourself when it comes to patience, because sometimes sitting on your hands is the best trade. And that could mean two things. One, not putting on a trade impulsively, which I know a little bit about. I I’ve acted impulsively when I was younger.
And then what do you feel when you have to be patient when you’re in the trade? So there’s two things there. What to do when you are not in a trade? Do you force trades because you’re busy and you can’t take the feelings of doing nothing when there’s other people that might be making money trading another style and another instrument or another asset class? So how can you reconcile that and realize that sometimes being a pro means no activity, right? Because either the setup that you’re looking for isn’t there, or the exit on the trade that you’re in isn’t there either. So then you could study, yes, I didn’t get stopped, I didn’t take my profit, but I have a time stop that I’m going to put in now. So after two or three days, if I’ve been a trade and it hasn’t worked out, I’m just going to offset the risk because clearly momentum has stalled.
Now look, I can go on and on about this stuff for hours, but to me it’s like the best thing that you can do is really study yourself because behavior predicts where you end up in life and it’s no different for traders, you see? So look at that and just notice there when you’re engaged with something and you’re looking for an outcome, but the delivery of that outcome is uncertain, right? Cause trading in and of itself is probabilistic. Look at anything in your life though. You reached out via email to somebody or you sent someone a text or you were going to get tickets for the new Basquiat installment downtown la, which I would I’ve seen last week and I would go see it. I’m going to probably see it again. When you invited somebody and they didn’t get back to you. So what is it like? Why didn’t they get back to you? Well, maybe they’re blowing me off. Maybe they’re being discourteous, this and that. Maybe the email went to spam, maybe their phone was off when the text was sent and it was never delivered. So you make up all these things in your brain about what it could be that’s off putting for you and maybe what happens, you act out of emotion and snap at the person. So again, that all comes from not being willing to feel the feelings around patients.
What happens when you have to sit on your hands?
Does that emasculate you? Right? Do you feel you should be doing more? Maybe your opinion of yourself is not congruent with where your ability is just yet. And that could certainly cause a lot of trouble because you could find yourself. I was in the very beginning of my career on Wall Street, I thought that a trader was someone who could trade any asset class in any timeframe and owe how wrong I was. And my success only came by saying, okay, I have to put some of my goals and my dreams and my aspirations on the back burner and focus on one. So I think I remember telling you that I had to first cut away foreign exchange, the interbank stuff, then I had to stop options trading. Cause it took up a lot of time and there was certainly a knack to it. I had some skill in managing stocks, but I had the best results from commodity futures, and that’s just the way God wanted it, basically.
So I put four x options, equity derivatives and stocks over here while I focused on getting good at one thing and one style. And then from there, I could grow. In the meantime, I had to deal with the feelings of like, why was I a failure at far X and how do I reconcile the fact that I had skill in trading stocks, which was much more popular, much more broad asset class that almost anybody could talk about. Whereas commodity futures is not necessarily a household asset class, if you will. It’s not something that you’d jump in a cab in New York City and someone could talk to you about the march april spread in natural gas, for example, where they might have an opinion about Amazon or Apple and the new iPhone at the time, or this and that. So the best thing that you could do, I think, in any of this trading stuff, is really study yourself and investigate why do you feel the way you feel?
And then how did you pick up those feelings? Because it’s from learned behavior, right? Then you could begin to unwind it and or replace it with behavior that’s better for you that suits you based on what your goals are, and of course what it is that you want your trading to do for you. That’s why I bring all these questions up because they all kind of come back to that. It all comes back to you having a goal and having a clear vision of what you want your life to look like in the future. So anyway, thanks for the question. I appreciate it. Please like and subscribe and let me know what you think and the comments below. I usually respond and or I’ll do a show on the next one. Thanks for being here, folks. I’ll see you tomorrow.
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The post Patience And That Act Of Not Participating appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. Move the camera around a little bit just because I wanted to, needed to get the mic closer, but then it was in the way of the other setup, so I moved the camera over here, see if that works a little bit better cause I want the sound quality if I’m too far from the mic, even though it’s a great mic, the sound quality doesn’t really work out all that great. So it’s going to be a great week. I have some great topics and ganja and I actually have already recorded Wednesday’s episode. So for today I want to kind of talk about a question that can kind of tie into that Wednesday discussion that I have with Ganja Brandon. And it comes from a comment on a video. The video was building higher levels of discipline. And Micah writes, I wanted to know your take on relationships, both friendship and intimate within trading.
It seems to me that most highly successful traders either taking their personal dating life seriously at much later time in life or never even concerned themselves with the thought of a romantic partner during the first few years of development as a trader, is this the price a trader must pay for success. Friendships dwindled down as well when someone wants to get a drink at night. This is a long comment, especially for us folks in la. It seems like a poor choice when we know what lies ahead of us in the morning. Yeah, meaning Coco opens at 5:00 AM in Los Angeles because it trades in New York. There will always be something for us to do. Is this just how it is in the early years or is this just the way things are when you dedicate everything to trading best? Micah? So thank you Micah for writing.
And so I don’t know what the dating habits are for the men and women and non-binary folks in this space. To be honest with you, I do know a lot about relationships because I’ve had a lot of them. I know what makes it work for me. I know what it makes, what work for partners that I’ve had the women in my life. But I think, and this is kind of a truism, it all really comes down to communication. I don’t know that traders who are just starting out are single celibate or whatever, or they let go of certain friends. I think I can share with you this. When folks do the mindset training that we have, they start to see the world in a very different light. They see themselves in a different light and then they get to interpret their own behavior and their behavior in their relationships with a different lens.
And so in that case, they can yes, kind of sift things out and let go of certain things that they had been holding onto or establish newer relationship relationships or deepen the ones that they have. I think communication is key. When you’re in a relationship, what is it that you want out of it? Do you just want the physical part and the sex? Do you want companionship? Do you want someone to validate you? It gets very deep in terms of what are your personal needs? What is it that you want out of the relationship? Just like I say, what do you want out of your trading? People are like, well I don’t know man, I just want to make money. Well, that’s not really why you trade, right? It’s not why you trade. There’s so much more to it. So I think it’s an evolution.
Obviously if there are people, how could you explain it? If I was in a court of law, how could I explain that? Younger male traders, a group of people that I came from because I’m older now, how come they might be single? Well, when you’re studying the how to of trading, that can become all encompass encompassing. I don’t recommend you go that route. Cause I do know for a fact that you can burn out very, very quickly if you don’t take the time to, I don’t want to say decommit, but to put the market on the side for a while and not think about it. It’s a very healthy thing to do even when you’re just starting out and you’re like, I got to look at my charts. I got to read another book, I got to listen to another podcast. I’ve got to go do all this kind of research.
I think that is important. But anything in life, you have to have a balance. And if you don’t or you can’t find a partner that’s going to work for you, it might not be the partner’s fault, it might be the fact that you just communicate poorly. So setting boundaries, what’s your safe word? Mine is banana. What is it that you want your partner to do for you? And what don’t you want from a relationship? Do you want someone who’s in your back pocket? Which is a nice way of saying another expression who’s kind of this way? I don’t want that kind of overbearing type of situation with men or women in my life. So I think if you can communicate clearly, especially if you’re using a dating app because it gives you all the fields. Don’t put stuff like if you voted for Trump, swipe this way or if you’re not, if you voted this way or if you’re not a friend of this or that or whatever. I mean you have 140 characters to kind of say what it is it, what is it about you that makes you shine and you’re going and you’re defining what you don’t want in other people.
So be careful what you communicate, right, because you only have that brief moment in time to express yourself. But again, I do think it’s important to describe what it is that you want and what it is that you don’t want because that’s very, very healthy. You need to know the boundaries for yourself as well. What is it that it’s not like you can tolerate or put up with it? Cause the other people aren’t bad. They’re not bad people. We’re just talking about chemistry and is there a good fit? So what works for you? Because they can all be very, very lovely people. I, and for one, I never don’t do bad breakups. So I’m thinking maybe you communicate early on what it is that you want out of this relationship. Where the boundaries, what kind of time do you have for the relationship? Here’s what you can commit to, here’s what you’d like to see from your partner and then have that conversation.
It’s a very adult-like conversation to have. I think it’s a very healthy one too, because then as they say, expectations have built in disappointments. If you’re meeting people out and this and that happens and you start hooking up and things start to go down the physical path very quickly, that can lead to resentment because if those needs, needs don’t get met after there was a certain type of behavior and all of a sudden you turn on a dime, no one likes surprises like that, right? In life. And it’s just fair. So I think in the onset you might talk yourself out of some business if you don’t know what I’m saying. But unless you want all the drama thereafter, why would you want that? Why would you want all that angst between yourself and a partner? Because things got off to a certain start and then you put the brakes on stuff because you wanted to dedicate time looking at your charts.
I would go out on the date you, but I know when you’re younger and you’re starting out, and again, you want that validation. So you put the work in because you want the winning trades. So you can break down your emotional models. Again, why do you do what you do? If you’re older and more established, then you already have a strong idea of what it is that you’re doing every day to create your alpha. And that there might be certain days, especially if you’re at a place where you say you just trade natural gas and for any one particular day or week, there just might not be a lot of activity in natural gas for the way that you trade it. So you might have some extra time on during that week. Well that would be an interesting conversation to have with your friends or your partners that you know like to be spontaneous because that fits with your type of schedule.
So can you find a partner who can get up and go, Hey, market’s week, I’m looking to be long gas sold off 15 cents Wednesday of last week and you know, were looking to get long at two 50 basis to Junes and it didn’t work out. And so now you think the chart’s going to need several days if not more, to repair itself. So you take a three, four day weekend. So can you find a partner who can get up and go right now as far as platonic friendships, same sex stuff, especially if you’re a guy, you know have to remember as guys are coming up, there is a PAC mentality to guide behavior and there’s a lot of peacocking going on. There’s a lot of, I don’t want to say lies, so I’ll use the fancy term pre verification where folks want to cast a bigger shadow when they’re younger because they don’t have anything to show for their experience or for their education at that point.
And I think that’s kind of natural and they’re really insecure, they mean well. It’s certainly those are feelings that I have felt. It’s like, man, I went to this great school, these teachers, some of them had Nobel prizes and what do I have to show for all my hard work? At the beginning it wasn’t much. It was all promised. It was highly projectable as a draft pick so to speak. So I think with those types of friends, there’s nothing wrong with watching people peacock. I think it would get under my skin very quickly though. Now given my temperament now when I was younger, I just kind of shrugged it off because I knew those people were kind of blow hards and the folks who were talking about all their conquests really weren’t having all their conquests. You probably know the type. So you should find people who support you when you’re endeavors.
Obviously not talk about your behind your back, not try to cut you at the knees every time you’re in a group of people. Those types of folks are usually just jealous, insecure, they might not have a clear vision for themselves and they’re on their own path, nothing wrong with it, but that type of negativity isn’t going to help you be a better version of yourself. So those types of things, if you really care about the person and you’ve known them a long time and they’re acting out of character, you might want to have a one-on-one and just say, Hey, I noticed when we’re together you take these pot shots at me. Why is that? You know what I’m saying? Because I find it hurtful and you talk about your feelings, you can’t be wrong as soon as you call the guy a loser or whatever, you’re going to look to escalate stuff. And if that’s what you want, then by all means escalate and don’t even wait, just cock the guy in the face and let him figure out where the new boundary is.
But I would definitely take the time to communicate those things and then realize you’re going to do better if you kind of congregate with folks who are on a similar type of mindset or trajectory because then you could support one another. And so your peer group can become your tribe or your own little mastermind. So that might be something to consider. But I do believe that when I think about relationships and trading intentions equal results pretty much in everything in life. So if you’re not in a relationship, it’s probably because you don’t want to be. Because I think if you want to have a healthy relationship and be a traitor and do it from say California, when the markets are largely New York and Chicago hours, you can do that. But you just have to build out the boundaries and what you’re willing to do and what you can’t do and then effectively communicate that.
The good news is when you do that, I think you build trust with people because now you’re being open and honest and saying, here’s what I can do. Monday through Thursday might be a little challenging in terms of doing stuff, but as long as we go out and I can get home and I don’t know, get to bed by 10 o’clock on any particular night, there’s no real reason why we couldn’t go out and see a movie or grab some dinner or do something during the week or if there’s sleepovers, just understand I got to get up at five and get out the door. It’s nothing personal, but we’re not going to be any adult activity that next morning because I got to get up and get to work. And it’s important to me that you understand that this is something that’s hard even for the best of people.
I’m just starting out. But this is important to me. I want to have a good relationship. I like you as a partner. I always want to have an open line of communication. If whatever I’m doing is making you feel a certain way, then please let me know and communicate it with, cause I’m figuring this out as we go along too. Those times of those kinds of conversations are good for bonding. And so you can communicate, it might always go the way you want it and the person might say, I need someone who’s a little bit more available. I need someone who’s a little bit less intense, but that’s okay. It’s better to figure that out early on than to go put 3, 4, 5 months into something and find out that your tab A doesn’t fit into her his slot B, if you know what I’m saying.
So I think if it’s important to you, then you can find a way to make it work. And it all starts with really, really good communications. So anyway, folks, as Brandon likes to say, on Wednesday’s episodes, please like and subscribe. And then there’s a bell thing you could click on too. Apparently it gives you notifications. It also gives us really good data on the stuff that we’re publishing and how well it’s resonating with the audience. I’ve been given away the audiobook version of my book, the Inner Voice of Trading. So there’s a link below in the description. You can get it for free. It’s a free download. It’s probably four or 500 megabytes, but it’s really good people. It talks about my journey, kind of how I failed my way to success is the cliche way of saying it, but with a lot of candor.
I speak about what I thought I knew at the time and what I endeavored to do and what the results were. It’s basically about a book of failure. I had millions of winning trades. I didn’t mention any of ’em in the book just because I don’t think the community needs another book that gloats with the secrets of trend following or the little known things that day traders do because they don’t exist. There’s not little known things. It’s the age of the internet, everything is known, right? Anything that you want to know is already on the internet somewhere so you can go find it. So there’s no such things as secrets. There’s no little known X, Y, Z because everything data’s proliferating.
But anyway, that’s all I got on this subject about relationships. There’s probably a lot more to say, but I ultimately think intentions equal results. If you’re a clear communicator, you’ll attract the right person and that person will appreciate who you are, everything that you are and everything that you’re not. But anyway, thank you for the comment. Michael, I Micah, I appreciate you writing in everyone else. Please keep the comments and the emails coming cause they give us good data. And I’ll see you tomorrow.
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The post Navigating Relationships As A Trader appeared first on MartinKronicle.
Everybody, it’s Michael Martin, happy Friday. So this week we’ve been talking about discipline, and why do you think that is? It’s because that had the biggest impact on my performance more than anything. Any other attribute? Yes, I always had a good attitude. I had always had a strong inner voice, but I’m trying to demonstrate that it wasn’t about a particular chart pattern, but my behavior around the chart pattern, right? Because if you know how to draw head and shoulders down, it’s pretty much the same for everybody. You know what I’m saying? Now, how you trade, that can become part of your edge, you see? So that’s why I don’t get too fussy about chart patterns and things, because ultimately it’s how you behave around the chart pattern, right? We talked about the importance of not personifying your p and l. Why? Well, because over a short period of time, p and L maybe isn’t a good representation of who you are or what you know how to do, because the external forces of what’s going on in the marketplace are much stronger than what you’re bringing to the table at the time, or the market is just not amenable for your particular trading style.
So in fact, if you’re starting out, you might have to sit on your hands for a while and wait it out. And if you’re a more experienced trader, you might have to switch strategies if that’s part of your game plan. We talked about time blocking and putting things that are really, really important. Earlier in your day for me, my days got really busy as the days went on and things would happen that I’d have to deal with, someone would call and say, I need to meet with you, or I have a referral that I want you to meet. And so if I had planned on doing, say cardio or the gym after the close, things got really messy after say three o’clock eastern time for me when I was starting out. So what I found out was if there were things that I wanted to do that were important to me that I absolutely needed to get done for a whole bunch of things, including my own, I had to put those things first, meaning earlier in the day, and I mentioned getting in my exercise because it was just too easy to go meet with people.
Someone would call you and say, Hey, I want you to meet this guy. I’ve got what they would’ve season tickets to save Madison Square Garden or new Yankee Stadium. And at the time, Shea, now Shea has been raised for city field, and the old Yankee stadium has been raised to give way to the new one, which I don’t particularly like as much. But nonetheless, someone would say, Hey, I want to introduce you to this guy. Could be a good client for you. That’s referrals or the lifeblood of your business at that point in time. So I would put my cardio or my exercise early in the day. That might not work for some of you, especially if you’re short-term people because you’re looking at the morning’s news as your catalyst, right? Your catalysts aren’t going to happen perhaps until closer to the opening bell. For me, I did my work the night before
To know what my wishlist was. So there were very few catalysts that I would be worrying about that day because ultimately price is going to go where it wants to go, doesn’t matter what people say. So when you’re disciplined, it directly impacts your p and l. So if you were personifying your p and l as we were speaking about it, I think in Monday’s episode, this might be a way to help get you out of that mindset where if you have a day where you lose money, whether it’s a thousand dollars or it’s a hundred thousand dollars, it’s not necessarily a reflection of who you are. It could be if you’re taking flyers and you’re making trades out of desperation, that could be the case. But I think you even know while you’re doing that, that that’s not exactly behavior. And even if you don’t want to go pro, you still have to exhibit professional behavior to get the same results that they’re getting.
You see what I’m saying? So that’s why I always encourage people to try to trade other people’s money because once you have the discipline down to trade your own money, you’re acting effectively like a professional trader. So you’re going to get pro results. Those pro results could be very valuable to other people. So when you also have enormous amounts of discipline and not take trades that you’re making up on the fly, what ends up happening is it absolutely impacts your p and l because by sticking to your discipline, a lot of things happen. One is you tend to stick with the setups that work best for you. So you work, you’ll make more money on average over time. Two, you block out the emotional need for taking flyers or recommendations from other people during the day because you can’t come up with your own ideas.
You’re looking for leadership other in other places, which doesn’t typically work long term. So you block those out. Then by sticking to your discipline and blocking those out, you further build your confidence. Why? Well, because now you’re not your own worst enemy anymore, and it just doesn’t matter if you’re working at Caxton or whether you’re doing this at home in your pajamas. When you take a person who’s got average ability and fill ’em up with confidence, there’s really no stopping that person. So the scale of it doesn’t really matter to me. Everybody falls victim to this when they get psyched out. Doesn’t matter what your line of credit is or what your capital, your assets under management, whatever your firm uses in terms of measuring that amount of corpus, i e, your account balance. So I find that discipline is also important because it affects your attitude and your attitude to me is the most important thing.
Cause it’s very hard to succeed in anything in life. If you don’t have a good attitude. Can you take things in stride, right? Do you live in a paradigm of personal responsibility and realize that everything that you do and everything that you don’t do affects your trading and therefore your p and l, right? You don’t want to put in a protective stop. Well, you might get away with that once in a while, but sooner or later, that’s going to come and grab you, and then you’re going to sit and say, man, I should have known better. I don’t know what I was thinking. How did I let myself get into that bad habit of doing that? Because especially if you’re trading several names, it’s hard to have mental stops for everything. So then you have to let go of the boogeyman of like, oh, they’re going to run the stops.
That’s overthinking right there. So put your stops in. But ultimately, when you think about trying to improve your p and l, it’s not so much looking at a new chart pattern as it is examining and measuring your own behavior about what it is that you’re doing in your existing trading. That’s what can be improved upon first, more than going out and finding yet another chart pattern or another subscription or another discord. Ultimately, these people all have to start somewhere. So why don’t you start and do your own homework, right? That’s the whole point here. See something that other people haven’t seen. Now, it’s very easy for me to sit back and say this now, but everybody, if they know my story realizes that I struggled probably for longer than most of the folks watching. And the thing is, is that I had a good attitude and I didn’t quit.
And when things didn’t work out, I didn’t quit or get pissy or take it out on myself because it’s hard to make money in good markets. You need to still have that sense of discipline. No one gives it away, and that’s just the way the world works. If it was easy, everybody would be doing it. I think a lot of folks try it. Now, ultimately, if you’re running larger lines of credit, you might find that markets are stalled for certain types of trades that you’ve put on. And so you might consider trading smaller until we see some good numbers. Right now, we’re in earning season, so it’s the end of April right now in 2023, and earnings are upon us. So you might want to wait if you’re a discretionary trader and just kind of see what’s happening, win some of the names in your sector and see what they’re doing.
Are they meeting expectations? Are they coming in below? And then how are, obviously the most important thing is how are, how’s the crowd reacting to the news, right? Because sometimes this is very frustrating. You can see a company missed by a penny and no one cares. You could see another company misses by a penny, but the expectation was higher, and the thing could be off quite a bit. The thing could be off 10%. Likewise, I’ve had situations where street, you know that the company beat by 8 cents, which in certain companies could be a monster number and the stock is flat. So you don’t know when we’re coming into earnings just how things are going to work. Has the stock moved a great deal in anticipation of the earnings? And therefore when the earnings number comes out, the thing is basically flat. So you have to be careful around that.
I wouldn’t make big bets if you are coming out of a drawdown. I wouldn’t make big bets before earnings. That’s really a gamble because again, human beings are not that great at prediction, despite them thinking that they have a great feel for things. You might have a feel for how other people behave, but it’s very difficult to be clairvoyant to guess what the earnings number’s going to be and then how people are going to react. So this is why I think studying your own behavior is more important than almost anything else, because you can have the perfect setup, you could have the perfect chart pattern, you can have the perfect clients, you can be approved to trade any market, but it’s what you ultimately do that predicts where you end up in life. So you have to have enormous amounts of discipline and self-control around all the places where you get to enter your orders.
Because just because you have the power to enter the orders, sometimes the best ones are where you’re sitting on your hands, i e, you don’t even enter them, right? Anyway, don’t forget, folks have been given away the audiobook version of the Inner Voice Trading. Click the link below. It’s on me. It’s about four or 500 megabytes. You can get it there. If anything in the show has resonated with you in any way, please leave a comment, like, subscribe, click the bell so you can get some alerts, and I wish you a great, great weekend, and I’ll see you on Monday.
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The post How This One Characteristic Directly Impacts Your Profitability appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Happy Thursday. So this was a big thing for me and that was learning how to time block effectively. It’s one thing to keep a list of your to-dos, which are different from goals, and then how do you place them throughout the day knowing that you do have to pay some attention to the markets, if nothing less than entering your orders and seeing if they get filled. And if they get filled, where do you put your protective stops? Or for those of you who add to your winners because you don’t buy your optimum position size at the beginning, how are you going to scale in and at what levels? So I had all that worked out. Then over studying that for months and months and months, I was able to isolate what was it that I did in my behavior, in my preparation that required a higher waiting.
In other words, what was much more material in my behavior that led to my trading success rather than looking at things that might have felt good. And so what I found was that there was a lot of, I had macros written out on Lotus 1 23, which was the prevailing spreadsheet of the day. Trading simulators really didn’t exist and the whole cottage industry of coders and this and that didn’t exist either. So what I learned was that I was super sharp in the morning. I was like an early, early morning, late evening type of a person. But the late evening part became problematic because it was in and around time where I should be going to bed. And what I found was in studying my own behavior that when I was looking at computer screens after 10 o’clock at night, and we’ll talk to ganja about this, it does something to your energy and it actually makes you more awake.
At least it did for me. And so I had a tough time winding down if I was doing a lot of market related stuff the night before, well, late night before. So I would do my preparation usually after dinner. I wasn’t much of a TV guy. I was in New York. I’d go to a lot of events, that’s for sure, because I was into the arts and New York culture, and that could mean everything from Broadway plays to off Broadway stuff. That was fun. I had family members in entertainment business. So we saw a lot of musicals, a lot of shows, saw a lot of ranger games at Madison Square Garden, saw a million concerts there, radio City musical. Then there was obviously taking out clients to relationship build and bond and all that kind
Of, so you were out a lot. And what I would do is if I met those folks after work is I would come home and I would get my preparation done immediately. Now, the good thing is that if you’re looking at certain markets and how you buy stuff, or if you’re looking at a certain, looking for a certain pattern, one little look at the chart, you can kind of see are you even in the neighborhood or is that instrument even in the neighborhood of where you want to be? So a lot of times you’re just scrolling through stuff and it needs charts would need weeks or months actually to develop. So there were a lot of the ones that I didn’t have to look at until the weekend because I knew during the week that the charts were a disaster, for example. So then I would focus on, okay, what happened with the things that I am looking at?
Because then even the smaller portion of that are the ones that you’re actually entering orders on. So there might be, say, 12 names on your to-do list. You might have three or four orders in. The other ones are still kind of close, but they’re not right there yet. They’re not at the price that they need to get to the pattern might need more time to develop. So those are kind of close and you have your eye on ’em, but they don’t warrant putting an order in yet. And then there’s everything else, which is the majority of the securities. So that goes for, at the time there was probably 60 traded commodities around the world. Obviously there are tens of thousands of stocks around the world, but in terms of liquid commodity futures, say there’s five dozen, there might be 12, one dozen on my list.
And even of that, there might be only three or four names where you’re actually putting in an order, for example, for a directional trade. So I would just kind of have to review stuff because if you look at the same things every day, if someone said, okay, where’s may sugar trading? You kind of know where it is because you’re looking at it every day. Not necessarily in real time, but from looking at the chart and where you’re putting in your orders, right? Then for the other names, like say you had 12 names on your wishlist and you have four of them, you have orders on the floor, there’s another eight maybe with those, you’re going to put in alerts and say, okay, well alert me when it gets to this neighborhood. So now I’m going to rely on the technology so I don’t have to use all my brain power.
But here’s the thing, I would double check my work in early morning for making sure that I didn’t have any errors. Because if I read in the wrong order and they execute it, there’s no problem with the execution. They executed it the way I told them to. So that’s on me. If I enter it on the screen and I fat finger something that’s also on me. So I wanted to make sure for the orders that I was entering on the phone executions that I had all the math and I’d still make mistakes. What was the biggest one? So in futures, they have this thing called first notice. Now, unlike options where the
Owner of the option has control, especially when you think of it from the standpoint of being able to execute, there is no necessarily execution in commodity futures. Bulls want things to go up, bears want things to go down. But you also have this unique aspect of commodity futures that you don’t really see in stock so much, unless of course you introduce, say, pair trading or options. And that’s hedging. And so you can buy hedge and you can sell hedge selling hedges work. When you’re in the production of a physical commodity, you grow soybeans. So you’re along the physical. So to hedge, you’re going to sell futures. If you make tofu or if you crush beans and make vegetable oil, sometimes there’s certain vegetable oils that are a hundred percent soybean oil. So you get the soybeans, you crush ’em, you bake bean meal or 45% protein, and you get soybean oil, which can be used in foods and salad dressings and this and that. And so when you look at all of that.
So when the, lemme just get regather. My thoughts here. You would look at if someone sold futures, it’s because they were long. The physical. Now I’m long futures because I want to make money as a bull, but they’re someone who’s long the physical that’s actually selling the futures to me because they’re hedging. Maybe they think the price levels are right where they’re supposed to be. And at that point in time, you have to be concerned with the thing on the futures contracts calendar called first notice. And that brings into sharp, sharp relief the time when the shorts can deliver against the longs. So in futures, again, it’s the short seller who actually has the power in terms of delivery. Whereas in the options space, the people who buy the puts and calls can exercise them in futures. It’s the short sellers, especially those who are hedging that can deliver the physical to the long.
And I would never commit to memory what that date was because you would figure like, here’s expiration and you would count backwards. Now it’s all available on the internet. You click the button and you can see it. But back in those days, the information wasn’t so proliferated around the system to know that stuff. The C B O T website didn’t exist. So it was harder to get that information. So I would be aware of where was the volume, where’s the open interest for sure. And that kind of helped me stay clean for most of the time. But I can’t tell you, it was probably half a dozen times a year, again, over hundreds or maybe thousands of trades I had six times a year it would happen that I’d call in an order. Jira would say, okay, just so you know, say it’s a Thursday.
Okay Mike, I’ll put the order in. But just so you know, in case you didn’t know, first notice is Tuesday, Wednesday next week or something like that. And I’d be like, damn. So he’d say, do you want to still put in that order? And I’d be like, okay, let me, let’s cancel that order and I’ll go look at the next expiration. Sometimes it was May, if we were, was the May kay contract the next month not is not always June, it depends on the commodity. It might be July. So I would look at the next commodity chart, then expiration month. Sometimes the trade signal wasn’t there. So that would happen a lot. Well, it would happen enough that I wanted to study and learn what that stuff is. The good news is that the technolo technology kind of caught up and populated everything. So I kind of knew where I would want to start unwinding trades or not even put them on because of this thing called first notice. But what’s going on behind the scenes for me with all of this is that is the main takeaway for today is not to study first notice, who cares? It’s that the most important stuff in your day you should do first in the morning. That’s how you would prioritize. Talk a little bit about intention equals results and time blocking. And in the
Time blocking space, you want to make sure that you are in fact putting the most important things that you should be doing for yourself in the earliest part of your day. Because you always want to make sure you can get done the most important things as days go on. And as time transpires throughout the day, you might have something happen to you in your business or in your personal life that throws a wrench in things and precludes your being able to do what you want to do. And if on your schedule you had these really important things to do, it can create a big conflict and that could impact your life. It could impact your trading. Obviously force maur and random events happen. You can’t escape and they’re going to happen to everybody. But that’s why I feel like first thing in the morning, what do I do is largely exercise.
That’s when I typically go do my cardio because it’s important to me and I want to get it in. Yes, I know you probably know by now that I study martial arts, but that’s largely anaerobic, right? It’s mostly position. It’s not even about muscle. I mean, you need some athleticism, but you need good technique is what you need. So I don’t need, yes, you need grapplers cardio for sure. But anyway, so I do my own cardio in the morning and then I’ll do my review. Obviously this is very early because I’m in la, just review my orders to make sure there’s no typos or again, I haven’t screwed up the first notice thing or this and that, and I do the review because then it doesn’t cascade, right? And because that’s the most important part of the trading is the risk management, is knowing that and double checking the position sizes, which I largely do unlike a spreadsheet, on a spreadsheet or through the simulator. But then, you know, want to just double check your math to make sure that you absolutely have stuff nailed down. So if you’re struggling with things, maybe what you can do then is isolate the things that you do during the day that you know or you can attribute your success to, and make sure that those are happening earlier in the day than later. Please like and subscribe to the show folks. I appreciate you being here. Keep the comments coming and I’ll see you tomorrow.
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The post Building Higher Levels Of Discipline appeared first on MartinKronicle.
Hey guys. Welcome back to the weekly segment that Mike and I do where we go over topics, questions, and comments that you guys have, and see if we can give a little bit of insight on that. Today we have a question from the comments, and it says, being new to this game, I always wonder what are the avenues I should go deeper into? You say indicators are a no-no. Then what are you basing an entry on new, weekly or monthly high consolidation, low or high, et cetera. Before we get into that though, I wanted to say thank you guys for all the supports and for all the support. We really appreciate the comments. Make sure you guys like and subscribe. Click the notifications bell, all comments, help the algorithm, and you may have your questions answered in the next video, like today’s topic.
Yeah, yeah, because it’s good feedback. If we’re saying something or I say something that’s not entirely clear or that would prompt a person to do follow up, then by all means let’s keep it as a, I’d like to think it as an ongoing dialogue with everybody. Kind of like a conversation. So the question was, what do I base my entries on? Yeah. Or something.
Yeah. Oh,
Right. So the thing about indicators, if you’re newer to the game, you don’t use indicators for bi signals or cell signals. What you would use an indicator for, and the only reason I say it this way is because I have a simulator that’s super expensive and I test the indicators against price, volume, open interest in this and that, and none of them is very, it’s not predictive. So I find that indicators are some things that newer traders go to because they don’t want to feel the uncertainty around trading. So they figure if they put indicators on top of their chart as well as looking for patterns, they’ll give them more sense of surety. But that doesn’t exist. So you just have to go to the source of what the issue is, which is to feel the uncertainty around putting on risk in your portfolio. So depending on a person’s timeframe, if they’re looking at intraday stuff at one minute bars, I’m probably not a lot of help for them other than to share with them that one minute bars are very random in terms of data.
And two, if you’re looking for 5 cent moves, I think you should set your sites higher, right? Because some of the moves are very pronounced, and so I wouldn’t look at risking a penny to make 5 cents, which yes, I know is an asymmetric return. There’s so much more money on the table than trying to make nickels and dimes basically. And so that’s what I’ve advocated is that it’s hard enough, especially in this market, right? We’re in earning season, I don’t know about you, but we’ve been, we’re not dying, but it’s like debt losses by a million paper cuts. You know what I mean? There’s no follow through for the most part. Everything is down. People are scared. You still have to put your trades on, but nobody is immune. Now, when I get knocked out of a trade, as you know, I tend to add to my winners.
I start small. I never put on my optimal position, which is just my style. Some of you, it’s risk on risk off. You’ve got your one R stop, you’ve got your say you’re two, you’re three, your four R, whatever that number is in terms of your upside. I do things very differently in that I anticipate moves that are more like 50 to a hundred dollars in stocks and several dollars for x, for example, in the commodity space. So with that in mind, I can take my time to scale in. I don’t always get it right in terms of anticipating the move, but at least, excuse me, I’m there. I’m there. And I oftentimes will have my optimal size on by the time that the thing actually moves. My intuition plays a big role in choosing both the instruments and the entry points. I’m following the crowd at a poker table, you can’t just play your cards, you have to play the people across the table from you.
So there’s a lot of that. What’s the crowd doing right now? The tape seems a little heavy. People are spooked, but that’s just the nature of the market that we’re in right now. It’s not for always. It’s not forever. So I guess the question I put back to the person who wrote the question is what do you think the indicator was supposed to tell you? We know what the definition is. Anybody could look it up online of any particular indicator, but it doesn’t, to me, the indicators aren’t risk on risk off indicators. They’re just there to kind of confirm what you can already see in the price. So what you’d want to look for would be price movement, and then conjugate that with volume because institutions leave footprints. Good spot to start would be to go back and look at the show that I did with Brian Shannon. That would be a good type of a show to look at and talk about volume and how important that is at what price is.
There’s a million ways I can go with this. Of course, whoever asked the question can go simulate themselves and just kind of see what’s the efficacy of the indicator that they’re looking at. But I think the main thing here is what I heard in the question is that indicators aren’t green light, red light. The price is right. You’re using the price to enter, not the indicator. The indicator, especially if it uses price as an input, can only really help you confirm what I think you can already see in the chart right now, if you’re using stocks, by all means, you want to look at something that is for sure valuable relative strength and what the measurement is of that, higher the better. But that just puts the stock on your radar. You don’t buy something because it hits 98 in terms of relative strength, for example.
Same with a dx on the future side, you’re never going to see a strongly traded, excuse me, a strongly trending commodity that doesn’t have a high X rating. So waiting for some kind of pullback in a D X or some kind of upper threshold. It’s not the point. It just simply tells you the pulse of what’s going on in the market. So what you can do if you’re looking for more pronounced moves and you’re not doing shorter term things like I think day trading, intraday stuff, maybe even swing trading is know where you are in the weekly in the monthlys. Because in my opinion, when you’re looking at something like monthlys, the data are much less random. You’re dealing with every trading day in the month in one bar. So one or two aberrations on a particular day kind of get neutralized by all the other days.
In other words, the data is much more meaningful. So if you can see something that looks like it’s going to start to break out on the weekly or the monthlys, now at least you know what you should be looking for in the dailies, and then you could sniper down, even though I don’t like looking at that, using that particular term, because it evokes certain things about needing for accuracy, which you don’t need relative accuracy, but you don’t have to be a scout sniper. So I think this is getting to the heart of the question, there’s a lot of ways to go with it. But ultimately, as I’ve said before, whatever you use, you have to make sure that you’re actually putting on trades because you’re not going to, sitting and ideating on potential trades by looking at indicators doesn’t really help you conjugate your emotional constitution with what’s going on in the marketplace and how you add or remove risk.
I think if someone said something about a specific indicator, it would be better. There are a few that are measurements. I don’t look at them in indi as indicators like rsi. To me, that’s not an indicator. It’s just simply a measurement of stock’s strength compared to the overall market. Same with adx on futures. You can look at, again, objective things that you can use that will give you forced objectivity. I suppose if you look at the volume, the volume number is the volume. You can’t really negotiate it with it if you want it to understand, for example, what’s the daily volatility of a particular instrument. You can objectively use say average true range, for example, and give you an idea of what the dollar swing is going to be on that instrument, especially if you’re doing things the way I do it, which is taking risk home overnight and over the weekend.
So you want to have an idea, is it predictive? Not in the least, but it does give you an idea like a back test, what the general tone of things are, and that can help you with position sizing, right? The more volatile the name, the smaller the position, knowing if you have a fixed amount of your portfolio as a percentage of your assets under management, that you’re willing to risk on any one particular trade. The first thing you have to do is obviously figure out what number that is for you. Maybe on a hundred thousand account you’re risking say 200, 250 bucks, which would be one fourth of 1%. This way you could be wrong four times in a row and still have 99% of your capital. So it doesn’t destabilize you by putting on too much risk. You might be saying, well, Mike, that’s too small.
I’m going to get knocked out. And the goal to me is to play superior defense. So I don’t feel like you need an indicator to help you with that because you can calculate your entry to your exit. Where’s your protective stop multiplied by the number of shares that you have. So buy 20 shares and risk $25 doesn’t matter to me, but I wouldn’t worry about the upside as I would focus on making sure you keep your losses small. And going back to the question, I don’t think there’s really any indicator that can tell you that the crash is coming. You can have an idea by looking at the tape and seeing is there any follow-through on the particular names. Obviously that’s something you’d be more concerned with, I think if you were short term trading. But only because I’ve tested everything under the sun to see if there was any efficacy. I have found that they were good for discretionary traders in helping you see if there’s actually a confirmation. So most of those in indicators will confirm something that you’re in already, but by the time you knew for sure you’d already missed the trade. You see what I’m saying? So indicators aren’t used for trade signals. They’re used to confirm them if you use them at all. I don’t use them.
Interesting. I had a follow up question on that. You know, were talking about the market and how it’s kind of death by a thousand paper cuts right now. Yeah. And I know a lot of what you talk about is mindset based, and I find a lot of your information really valuable and applying it in a lot of different facets. But how do you shift your perspective and kind of change your paradigm when it’s a bad market? I know that’s not really an ideal term, but how do you change your mindset and stay positive through the whole thing?
So that’s a great question. My mindset’s the same all the time, and I’ve got knocked out of my last six trades. That’s just the way that it works. And I don’t care. You have to put the risk on to be in the trades in the first place. But again, for my style, which is terribly small building into really big positions, I don’t mind whether I’m early or not because I’ve done it long enough to know that this is going to happen from time to time. Again, there’s no real damage to my equity because I trade super small at the beginning. Cause I’m looking for more pronounced moves. It’s not everyone’s style. I think where other folks would be getting out, taking their profits, I’m still looking to add more to get to my optimal position. So again, different strokes for different folks, I just realized that this isn’t a sprint, it’s a marathon. If I don’t, there are certain types of things in life, whether for poker tournaments or track meets where there are qualifying events. I’m already qualified, so I don’t need to qualify anything about myself and my behavior. I know what I’m doing. I know who I am both to myself. I know who I am to the community. I’m starting, obviously when I get more feedback, I learn even more about what I mean to the community.
But to me, it’s like I, me, Brandon, I do the same thing basically every day. I know what’s on my wishlist. I know how to put in my orders, the things that I do for downtime. Like this past Sunday, I went to Grand la, and so the Basquiat installment, he’s one of my favorite artists, and I just zoned out and meditated there. I had seen a lot of his work in New York City when I was younger in New York. The drinking age was 18 at the time. And the driver’s licenses, interesting story because I used to see him in Warhol and Bianca Jagger and a boy, George. I’d see them. There was a club in Lower Manhattan on Hudson Street, I believe it was called The Area, and it was the funnest place to go. It was a freak show and it was quite eye-opening for a guy who was teenager.
Anyway, there were no picture IDs that were laminated with pictures or whatever your driver’s license or what you would use as Id didn’t look terribly unlike what your car registration would look like, except the paper was green and it was a little smaller. And I’m not saying I did this, but a person could scratch out with a pin a digit because they were those computer kind of printout numbers. But a person could scratch off that ink and then get a big super fine black point. Again, I’m just telling you what I’ve heard other people do, right? In the new, I knew a guy and maybe exactly I, and then write in the new number to make you look as over age. I started shaving in eighth grade, so I looked a little older. So by the time I was like 15, 16, I could pass as 18.
And so I’d have the id. Anyway, I was in these clubs and it was great to see the culture of what they did in their downtime because I actually learned what to do in my own downtime by watching other successful people like you can’t be on all the time. And I would seize Jean Michelle. I’d see Andy Warhol, not that we were buddies, I don’t think I said a single word to them, but they were out in that community because that’s in and around where they lived. And I spent a lot of time down there doing what young people do, going out for a drink, dancing, trying to meet women and this and that. And so that was probably one of the better clubs that I can remember. I’m not a big club guy, but back then that was what you did. And it was called Area and it was really good.
I think there’s a book about it. They ran themed, the internal part of the club, they ran themes. So every time that you went to the club, it would be a whole other place. But anyway, we’re getting off topic. So I kind of do the same thing day after day for downtime. I train jiujitsu, I paint, I play guitar. I go for hikes once in a while, go to the beach or take day trips and go away for the weekend or do something like that. And that doesn’t really change regardless of what’s going on in the marketplace, because I don’t, I think we talked in Monday’s episode, I don’t personify my p and l. It is what it is. Just like I don’t wake up and see it’s overcast and get upset because it’s not a clear blue sky. It’s just the way things unfold.
So I think last, excuse me, week, we talked about what traders do. I think in their downtime was I think that was what the title was. And so that’s what I would go back and look at that episode and find things that are interesting to you in your life that are fun, or things that can actually keep your mind off the market. I think especially right now if you’re struggling because things aren’t following through and momentum in many ways isn’t there, of course there’s probably five names that are out there, whatever that people are trading very well, more power to ’em. I’m just saying that market breadth, if you look at the overall market, some overhang here. So it’s a little tougher to be long these days, but you still have to just follow your system and put the trades on because you don’t know when it’s going to turn. You can’t predict it.
So when I think about that happening, I’ve already made that adjustment decades ago, and I take it in stride. And in fact, I take solace in the fact that I trade small at the beginning because when I’m wrong six times, it literally isn’t even a rounding error as far as my equity is concerned. So I just don’t even care. I know that might sound like I don’t understand it. He’s losing money. Well, I’m not really losing money. I certainly didn’t make any. But again, the p and l part is, again, according to my style, it’s, it’s not even really a rounding error. So I kind of take it all in stride, but I built my rules to fit my personality, right? Cause I didn’t want to get all worked up. I didn’t want to be like, yeah, man, going to be president of the United States.
Not that I ever want to do that because the things are good and then be down in selling and overcast in my brain because the markets aren’t amenable to my trading style. When I look, I think in the Monday’s episode, I said something, no, it wasn’t Monday’s episode, but it was last week. Maybe it was Monday’s episode. But I remember saying something like, I’m not struggling. It’s the market that’s struggling, right? Because I’m executing everything that I set out to execute, so there’s no struggle there. I put on the trades that I want it to be in. I put in my protective stops exactly where they should have been. So to me, there’s no struggle because I’m powerless over the results. And so why would I get all upset if I put on a trade and I lost money? What the hell did I think was going to happen in the beginning anyway?
Even if you have coin tossed odds, right? Half the time, you’re going to be wrong. So why would I be upset if I know that ahead of time, unless I’m a drama queen, which I’m not. There was probably times where I never really was a drama queen. I was frustrated, but I never liked what it looked like when other people became drama queens and kind of put on shows for everybody because it showed me that they lack discipline and internal control. And that just spins you out into, well, I guess that’s the expression you get spun out. And I never liked what that looked like. So I’ve made a promise to myself that I was never going to freak out. Certainly publicly, privately, I suppose you can be frustrated, but that’s just the way that the world works. And the way I balance that part out in my brain was that there were times in the mid 2000, in the mid two thousands, or the mid s for my friends in the uk and China was buying every commodity on planet Earth.
And so it was fishing for bluefish in Long Island Sound. You could take a bait list, hook and throw it in the water and the fish will just bite it because that’s, they’re running hot. That’s the way that it works. And in those markets, we were pulling out 20 cent clips in copper, 50, $60 clips in gold. We were taking, again, five. Well, the sugar was more of a longer term trade, but everything was going berserk, and you were in the right place at the right time just by putting your orders in. So I look at the trades today in this week and last week is the same as that in that I can’t predict what’s going to happen. I don’t know who’s going to be buying what, and all I can do is put in my orders and stay out of the results. So again, I want you to detach from your p and l because it doesn’t mean if you’re losing money, it doesn’t mean you’re an idiot.
It just means the market is not amenable to your particular trading style. What you do want to do is stick to your guns though. Don’t start trying to beat Paul Tuda Jones and trade seven different ways. If you’re just starting, even pros who have million, several million line of credit, stick to your knitting dance with the girl who brought you. Don’t start trying to do other stuff because the market sucks. Right now we’re like, well, I’m going to buy stuff and now I’m going to sell straddles or broken leg strategies and options. If that’s not your main Batten ball, then don’t get into it right now. What you should do is take five days off and go play golf in Puerto Rico or do something, go get the hell out of town because that’s going to help you not be stupid. And I’m always looking for crutches like that to say, okay, well, why is my, I kind of slang call it stinking thinking. It’s like, okay, I could sit here and be frustrated, but that doesn’t really serve me. So what do I get out of it? If we’re all pleasure seekers and I get frustrated, how can I use that emotion to help me? So I just look back at the charts and do a postmortem and say, okay, well what did I do if I did anything wrong? Where did it go wrong here? Because losing money isn’t necessarily a mistake, it’s just one of the potential outcomes of putting on a trade.
So if that’s the case, what the hell are you getting upset about? I know where you get upset. It’s because you’re newer in the business and you haven’t been validated. And so you feel I’m, and I’m going to say you’re incorrect. You feel that winning trades validate you and that losing trades invalidate you, and that’s absolutely incorrect. What you want to look at is, did you put on the trades that you intended to put on? And if you did that and you entered your stops, not mental stops, but you put in your protective stops, that’s the best that you can do. And that’s your behavior. That’s what you should focus on, the outcome you’re powerless over.
And to me, a trader is someone who manages risk. That’s what they do. They add risk and they remove risk. Now, granted, over time, you need to know, does your model have positive expected value? Can you actually make money doing that? Which if you haven’t simulated, which many people have in either because they don’t want to do it, they’re too lazy, it takes what they think too, too much time. And admittedly, it doesn’t necessarily predict anything. But in my experience, when you back test and you use very, very specific rules and the forced objectivity of using a trading simulator, models don’t typically turn on a dime and reverse. So if you have something with positive expected value, and the number is say over one, it might go from 1.2 to 1.1 or 1.2 to 1.3. But in my experience, when you back test a simple set of rules over 10, 20 years, 10 minimum 20 better, there’s an ebb and a flow that goes with it.
I have never tested anything where it went from 1.5 expected value to minus 0.8. Now in short little windows of time, you can have just like coin tosses, right? If you toss the coin a million times, the probability of a head or tail coming up is 50%. Well, you can calculate over enough how many flips it would take if you wanted to see a run of say, 10 tails coming up at the same time. You can figure that out. And if you do enough trades, just by good luck, bad luck. You’re going to have winning streaks and losing streaks. But they don’t say anything as far as I’m concerned about you as a person or your trading ability. What I would look at if I was hiring people is what was their behavior? If they lost money, did they haircut their capital to trade smaller in order to better dig out of the drawdown, or did they increase their position sizes?
Right? Because that to me is much more telling than the actual p and l itself. But people get all worked up in this, especially guys because they get insecure. They want to be able to say that they’re a profitable trader, but it takes a lot of time to get there. That’s why I think a lot of folks can’t make it in the business is because they just don’t have what it takes emotionally. And I don’t mean to sound that way or call someone’s girlfriend ugly, because it doesn’t mean they’re bad people. But if they’re thin skin, this is a business that’s going to beat your ass purple every day. And I’d be lying if I told you that wasn’t the case. So if you’re offended by stuff easily, if you’re, you know, wilt, or if you have strong opinions or you think that your feelings about politics and the rest of the world are facts, there’s some growing pains in ahead of you, right?
Let’s talk about indicators, because this market doesn’t care who you are. Doesn’t care. If you went to Avon Old Farm and then Columbia got a cfa, you have an mba, you can have a quantitative degree in applied finance. No one cares. That’s all really for yourself, your own edification and my humble opinion, no one’s immune. And so if you know that coming into it that you have to accept that as possible outcomes. Again, going back to the question about indicators, there’s nothing that’s going to in, there’s no external solution for your internal issues, is what I’m trying to say in a long-winded way. So when you laying on indicators, to me, it tells you where your mindset is, is that you’re insecure and you don’t like uncertainty. But that’s where the money’s at, because risk and reward go together in life and in the markets. If you don’t take risks, you’re not going to have any growing pains. You’re not going to move yourself forward.
If you don’t put on risk in your portfolio, you don’t give yourself the chance to win. So I’m not trying to be some kind of philosopher here, but I think that’s common sense in many ways. Does that risk and reward go together in life? And so the uncertainty part is how you get paid. The more the uncertainty, the more alpha you should be able to create. Obviously you need to know what you’re doing. You need to have expected values, and you can simulate that. There’s simulators that you can use for free. There are some that are better than others. The better ones, of course, come at a premium. And so you have to figure if this is going to be a business, is that an investment that you want to make? In my opinion, that answer is yes, but some people are like, nah, I don’t.
It’s not worth it to me. So when I look at the emotional equation of that, it tells you more about the person too. They’d rather live with the uncertainty and then bitch and belly ache about it than actually going out buying the simulator, subscribing into a data feed and getting down to brass tax and doing some back testing to at least have an idea. So it tells me again, there are probably budget constraints. But then again, if you’re trading with 5k, you know, have to understand that that’s underfunded. You’re underfunded. There’s not a lot you can do with 5k, but by all means have added, I’m not going to be a dream killer for anybody, because no matter what your trading style is with, especially in futures, the margins can tie up a lot of cash very, very quickly. And obviously with stocks, you don’t have any day trading buying power.
Not that you’d want to use that anyway, but I think simulation, look, pilots do simulation when they’re learning to fly. They put in hours, they get instrument rated. So you have to put your time in too. Just looking at charts and trying to trade a pattern because someone else has done it. What’s the expected value of that trade? That’s the question I would be asking more than is a certain chart pattern bullish or bearish? I’d want to know what’s in it for me? What’s my risk adjusted return? How much do I have to put up in order to make what? And what’s the frequency that that happens? So going back to the mindset, this already, I’ve had all those years and years and years of debating this in my brain and living through it in different types of market environments and watching things that I thought never could happen happen. But ultimately, somehow all of that filters down and affects your position sizing because that’s kind of, that to me, more dictates what you make and what you lose probably more. So it’s debatable, but I think that’s probably even more important than your exits or your entries. Yeah. Does that answer the question, you think?
Yeah, no, I think you touched on a lot of really important points, and I kind of want to talk about some of them in potentially another episode in a longer form, specifically about the internal struggle because I have some thoughts on that as well. But I think that’s a good point to wrap today’s episode. Thank you guys for watching. We really appreciate all the support. Again, make sure you like, subscribe, press the notifications bell, please comment because we will answer your comments and questions in another video potentially if we think we have something to add to that. And yeah, thank you guys so much. Appreciate all the support.
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The post MMS EP #8 – What Do I Base My Entry On? appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So as a corollary, t yesterday, I always think about these things after I hit stop record. There were things that I did when I was kind of in the struggle, and again, it wasn’t really a struggle. I just incorporated losing money as struggling, which wasn’t really the case once I gained a different type of maturity. Anyway, the one thing that I did do, which was a mistake, was I started taking flyers. Why was that? Well, I don’t exactly remember why, cause it was over 30 years ago. But when things aren’t working, you can put yourself in a sense of desperation, where you’re going to try anything just to alleviate the pain. Heck, you’ll take a small a hundred dollars win, right? Because it’s points on the board. It isn’t much, but it’s points on the board. And so my advice is don’t take flyers, right?
Well, that’s not the advice. The advice is if you do your preparation the right way, you can start to avoid some of these hair trigger responses that are meant to make you feel good. Admittedly, that’s what we do it for. We’re pleasure seekers, right? So I just had to say, okay, well, taking flyers without any preparation, I’m not at that skill level where I can do it. Some treaters can. I don’t think you’re born that way. I do think that you can develop that over time though. So my rule to myself at the time was, and this might help you, is when you do your preparation, you’ll have your wishlist, whatever you want to call it, potential orders, this and that, or where you’re going to put your stops.
And my rule was, if it’s not on that document, then it doesn’t trade, which at the beginning was probably harder to do. But after literally a week, I remember feeling relieved because now I gave myself, gave myself a healthy boundary to say, I can’t be watching C N N F N or whatever the show was at the time. CN BBC hadn’t really hit its its groove. I’m not sure if it ever did, but there’s certain parts of it that are pretty good. I suppose I don’t really watch financial tv doesn’t help me trade better, but I can remember letting that type of behavior creep into how I was doing things because I wasn’t desperate, but I definitely wanted a win. I needed to put points on the board. It’s like, how can you explain it? You’re a starting pitcher and you’re losing seven nothing, but you still have six strikeouts. You have something that you could walk away with. So I wanted to have that, something to walk away with for the day because otherwise I was losing money. So I drew boundaries around my behavior and said, okay, I am going to
Do exhaustive research. I do it the night before. I know some of you, especially on the shorter term, are doing stuff in the morning. We’re going to talk about that tomorrow and why I don’t think you want to do that. But at any rate, I drew boundaries with my behavior and I didn’t have all the theories then that I do now about human behavior in and around managing risk, especially myself, because I used myself as the Guinea pig. Everything I speak about largely comes out of my own experience. And the questions are really prompts, right? Because the answers are coming from my actual past, a lot of it, which was not, it wasn’t productive in that particular moment, but when you add it all up, it means something because I kept fighting my way through until I finally succeeded. So I would not let a TV story or an analyst upgrade or an earnings upgrade or take over rumors.
I would never let anything on the outside overwhelm my sensibility of good risk management. So I would prepare everything the night before and say, okay, here’s where I’m going to start to get interested and start to add risk for the way I was trading. Then obviously things have evolved quite a bit, but the point being is that I want to not let bad behavior creep into what I believe to be good behavior. Because again, I always knew that behavior predicts where you end up. You have to be in the game, you have to be in the action. And so I would write these very detailed order buck slips for all the trades that I wanted, and I would go through that motion deliberately, even though it was probably overkill because I wanted to reinforce it was the repetition of doing that reinforced. So I literally went to the printer and I had this heavy gauge paper printed up in these buck slips.
They were probably two and a half, three inches wide and probably five inches long. And I would have the date, the ticker, the month. If it was a futures contract, the price, what was the quantity? Most all those orders were stops. So I didn’t have to all put all the other qualifiers, time enforce good till, cancel, all that stuff. That was not the case when I would write that out on the buck slip. And so then I would enter my orders. A lot of them were phoned in, some of them were on the screen, although I didn’t like doing that as much because if you made an error, it was your fault on execution. Whereas if you call the order in to the trader, some of you might not have account size that are big enough account sizes that are big enough yet for that.
But I did, and that was a good, that was it. You know, get what you pay for. You’re paying a premium for that type of service. But for me it was very important because I knew trading errors can happen all too easily, easily. So then when I would call those orders in, I would put the day and the time, obviously the date was already there, but I’d put the time in that the order was placed in, and then who do I speak with on the desk? So I’d kind of timestamp my own thing. Then they’d say, okay, read it back to me. They’d read the order back to me and I’d say, okay, well what’s your tick your ticket number on your desk? Cause it might have been like the first trade of the day could have been the seventh trade of the day for me.
And he’d say, okay, it’s ticket one 19. So I’d write ticket one 19 on it as well, and then I would just hold it there and it would replicate that for as many orders as I would have to put in. So then closing bell would come for the various markets because they all don’t close at four o’clock east and stock market does. But futures markets, depending on the market, they all have different closing bells, so to speak. So then at the end of the day, I would call up the desk and I’d go through, I’d do what was called a checkout, and I’d go through all the orders that I had entered and say, okay, is there anything done on ticket 1 19, 1 21, 21, anything like that? Nothing done. Those orders were all good for the day, and so nothing was done. Those orders are there for canceled.
But this, although it might seem like it’s overkill, made a moat around my own behavior because now I developed a process that was also super disciplined or more disciplined than I had coming in to that period of time where I was struggling. Now obviously, I went through a lot of buck slips because every time if I put in 3, 4, 5 orders on any given day, again, remember stocks traded in eighths, there was no internet, there was nothing wireless. So everything was phone talking to people. I developed a routine that I was able to practice day after day after day, and that reinforced discipline. So then when I’d, someone would come by and say, oh, it looks like the corn spreads are moving or this, that, or the other thing. And I’d be like, okay, well that’s not my trade. You can trade it and it might make you a lot of money, but just like you have a personality, you have a certain trade, it’s your trading style.
So people would come up and say, I’m in this trade or this, that or the other thing, and I’d be great. And they’re like, are you in it? And I was like, no, it’s not my trade. So that’s where I didn’t give my per sense, give myself permission to mis trades. But I also realized that each person has his or her their own trading style. And so I need to stick to my trading style and not feel bad about missing out on things that other people might be in because their style was different, you see? So I encourage them to keep doing what they’re doing. I congratulate them on their success, but I wouldn’t look at big moves necessarily as things that I missed if it wasn’t my setup or what I was or my following my rules. So that was really, really important as far as preparation was concerned.
And then I just continued to study my own behavior over time so that I could correct myself. So you have to measure everything. And even though I have a mind, like a trap, it was better for me to write stuff down because I would remember more of the salient points over the course of sure, if it’s Friday, I can still remember what I did Monday very vividly. But as months and months would go by, it was harder to have that kind of recall on the minutiae. So I would write out detailed notes, not as to why I was in the trade, because that’s more of a fundamental type of a thing. For those of you who keep index cards and fundamentals are definitely important. But I think without, let me put it to you this way, I’ve taught CFAs and even they can’t get it right?
So don’t sit back thinking you’re Mario Gelli because you’re probably not. And if Mario, you’re watching, thanks for being here. So I would just kind of say, okay, now here are my rules. I’m actually going to write them out. Why do you do that? Because it’s a pain in the ass, right? It’s just so much easier to click the mouse or fill in a spreadsheet thing or do this and that, and it’s all digital. But to actually take pen and paper, and this is just one. Here’s another notebook, here’s another one, this one. So I have notebooks for different things, plus my mouse pad is one of these thing that Jocko gave me this thing when I saw him in San Diego. So look, I want to help you develop the discipline so that you can study your own behavior. I know brokerage firms and other places alike are not going to talk about this because they can’t monetize it.
They want to sell you advanced charting packages, right? Because that’s intellectual. And if you’re feeling like you’re lacking, you’re like, I could just buy my way out of this. But it’s not like you’re at the poker table and you can buy your way out of a bluff, meaning you get everyone else to fold and you win. So I think you want to make sure that you focus on things that can help you enhance your discipline. And even if it’s extra work, to me that’s a good thing because then the way I looked at it psychologically for myself, I would never betray my own rules for the mere fact that I was putting in all this extra work and I didn’t want all that work to go for nothing. I knew that there was going to be evolution, and I knew that I was making certain attempts that would seem like it was wasted time, wasted efforts, maybe wasted even money. But like I said, your trading is going to be the best teacher to you than anything else that’s out there. You know what I’m saying?
So most of the folks that we consult to when we do that outside of our own trading is they’re already good. They already know how to trade, they just want to refine stuff, and that’s usually behavioral. So at any rate, these questions are really good. They’re really deep. There’s no simple answer to, I’m just writing some notes here so I don’t forget. There’s no real simple answer to a lot of these things because it all comes down to you studying your own behavior, you’re studying my behavior might be good from a role model standpoint. They say model people who are successful, this and that, and that definitely does work. But when you’re talking about trading, it’s so unique because of all the factors that go into it, especially your psychology and your emotional makeup. That’s what makes this so unique is that it’s hard to replicate somebody else’s emotional constitution if that’s not part of your emotional makeup.
You see what I’m saying? So the fact that I wanted to sell you a trading system or what have you, to me it’s very random whether or not you can actually use it and stick to it because each trading system like a human being, has its own personality as well. And so it’s like I talked about setting people up here in LA basically, everyone’s really good looking because they’re all in shape. It’s summer, basically 12, it was cold, it’s 50 degrees Fahrenheit, so it’s basically summer all the time. So people are always training and working out and hiking and swimming and doing things and being active. And it’s also, we’ve got the Hollywood thing. So the culture is based on how do you look, feel, and all this and that. And so when I think about trading systems and workout regimens, they’re all very, very different from one person to the next.
You see? And if I introduced two people who had similar things on a blind date on a Friday or whatever, and then I talked to them Monday and they were like, Hey, how’d the date go? And they were like, eh. And I’m like, what happened? And they’re like, well, there’s no chemistry. So you’re going to have two very, very good looking people who are successful and in shape and they go out on a date and the thing falls flat. Not because either one of them suck or the people are losers or whatever. It’s just because there’s no chemistry. When I talk about compatibility between traitor and his or her, their rules or trading, I use that kind of stuff the same. Similarly, because I do think folks who have a strong sense of discipline can actually do things on a discretionary basis and replicate that over and over and over again. And it is a fact kind of a system, even though they’re kind of figuring things out largely the day of or the day before.
So your goal is to have chemistry with what you’re doing and the best thing to do is to kind of do a lot of different things to see what you like. It’s tasting many things off the menu. I had, I mentioned that in a previous episode, so go easy on yourself. But I would definitely put the extra effort more into the discipline. And if that means doing extra work to make sure that you’re not leaving anything uncovered, then that’s the type of work you have to put into the show. I mean, you get out of it what you put in. Most of the time you’re going to find that eliminating things is probably a good thing and keeping it super, super simple. That’s one thing I learned for sure over the years. Anyway, appreciate all the feedback and the comments and the emails. Please keep ’em coming.
If the show resonates with you on any level, please consider liking and subscribing because I get some good data. I can see actually for those of you who are newer, I can see who subs, how many subscribers I’m getting on a per video basis, and that helps me understand what shows and what messages really resonate with the audience, right? So I appreciate that feedback cause I don’t want to spend a lot of time recording stuff that won’t resonate with you or what have you, and taking up your time. I also don’t want to sit and record stuff and waste my time, even though it might be somewhat interesting, if it doesn’t help you move along the path faster than it’s a waste of time. Anyway, thanks very much for being here, folks. I’ll see you tomorrow.
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The post How Good Preparation Insures Against Acting Out Of Desperation appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So today’s episode’s going to be on the following topic. Don’t personify your p and l. What do I mean by that? Well, I get lots of emails from folks who don’t comment on the channel, which is fine. I’ll take it anyway, get it? He said, Mike, I’m struggling. I’m not making any money. Every trade I put on is a loser. And I started to think about when I was coming up and then even after I had attained great trading and financial success. And it’s hard not to when you’re starting anyway, not to get sucked into your p and l, reflecting what your mood is and vice versa. So if a trader’s down and not making money, they can be sell in or depressed. If they are making money, they could feel like everything’s going great and they just won an Academy award.
But the truth is, if I were talking to you on the phone, I’d say, are you struggling? Or is it the market? Is the market struggling? Because as long as you have, you know, write out your trades what’s on your wishlist and you put in the orders that you want to put in, there’s no guarantee that they’re going to work out in the first place. So I take it that when you’re losing money, you probably feel bad, and that’s the struggle that you speak about. But the truth is, if you’ve put on all the trades that you wanted to put on, then I don’t see it really as a struggle. I see it as the market not being amenable to your particular trading style, specifically with the names that you were putting in the portfolio. So it’s very difficult to separate that when you’re younger and newer because you need trading gains to validate what it is that you’re doing and who you are.
You don’t need a PhD to talk about this stuff either, right? You just need real life experience. So you feel like, man, I’m, I’m really stuck and I’m struggling, but I feel like you have to treat this market as if it’s almost not an alcoholic. But if you had done the 12 steps of Al-Anon, it would probably make a lot more sense to you because you can’t predict what the market’s going to do, and the market is going to probably seem erratic a lot. And you don’t want to tie up how you feel based on how the market’s doing. If all you can do is stay true to whatever your discretionary trading rules are. If you’re a chart reader, for example, or you’re your systematized set of trading rules that you might do with a computer and everything in between, one’s not better than the other.
It’s just which is the best fit for you. To me, that’s really the best you can do. And you can still give yourself very high grades, yes, over the long haul, you have to be profitable, profitable, but I don’t feel like profitability makes you a good trader or not. You have to have a good attitude. You have to be coachable. You need to have discipline and persistence, and then the best you can do is put your trades on whatever happens. Once you add the risk to the portfolio is kind of out of your control, the next step would be to put in protective stops. Or if you’re making money to figure out where are you going to remove the risk, right? Or some of it we talked about staying in your winners longer so that you could increase the expected value of a trade. And we talked about how you could possibly maybe scale out of the trade starting at three R, then another third at four R, and then the last third at five R.
It’s just something to experiment with and go from there because at that time, it’s like a shopping order or going to Amazon. You’re filling in the fields, you’re entering your orders, and then the best thing you can do is walk away. You can’t control the outcome. So I think if you interpret or see this overall process from say, a 10,000 foot view, it should be a lot easier for you on your psychology in as much that the struggle is kind of made up right now, where can there be shades of gray hair? Well, look, if you’re in a 20% drawdown, that might be weighing upon you as well. But some of the best traders ever have had drawdowns of at least 20%. So I wouldn’t freak out about it in as much as it’s something that you have to live through and it’s something that you have to, the most important thing in my mind’s eye is to not start to over trade and not start trading larger.
You actually want to go the other way, because in a drawdown, I understand it’s frustrating and you don’t know there’s a lot of unknowns. So with the drawdown, and this is kind of ties into the question, you’re in the drawdown, and it’s not only you’re not making money on the individual trades, you don’t know when you’re dealing with the uncertainty of the upcoming trade and the uncertainty of how long is it going to take you to dig out of the draw down. So honestly, what I would do, or if I could speak to my 20 year old self is I’d say that’s all irrelevant. You can only focus on the ever-evolving moment of right now, put on your trades, put in your stops, and do the best you can that way, because behavior predicts where you end up. Now, I admit that that might seem a little easier said than done when you’re just starting out, but I think those of you who’ve been around for quite a while and are used to managing risk that drawdowns come and drawdowns go.
So you just have to dig out and stick to your method, stick to your knitting, right? That’s really what’s going to happen. That’s going to give you the fastest results the minute you start internalizing the thing and start feeling bad because you’re down. To me, that adds gasoline to the fire because it’s hard to do anything. Well, when you’re coming out of a, I don’t want to say a pissy attitude, but when you’re not em emotionally at your best, we talk about having, you know, have a fight with a loved one or a close friend or your partner and you know, hear the expression of emotional hangover. So when you come to the markets every day like that in that kind of emotional hangover, you know, kind of feel a little bit beat up, that might be a good time to flatten out the accounts.
And if it’s a Thursday, come back Monday with a fresh head, go take a long weekend somewhere. Get away. Because grinding, I haven’t seen grinding really work. Putting pressure on yourself when things are already challenging is a very difficult place to trade from. And trading is, it’s not necessarily hard, but it takes an enormous amount of focus and clarity on every day, and you really have to be at your best. If for no other reason that you want to make sure that entering your orders, your stops to get in and get out is an easy process. You don’t want to have to fret over it or second guess yourself. And when you’re in an emotional spot where you feel like you’re struggling, you get what you think about. So the struggle kind of persists, and you don’t want to give it that kind of power. You want to stay in control all the time, always managing risk, adding and removing accordingly based on your recipe. And that’s really the best you can do. They say focus on the process and stay out of the results. I know for newer folks, it’s kind of trying because you might not have put a lot of success points on the board, so you don’t have any after the fact kind of success from an experiential standpoint to back yourself on, and that becomes a real challenge for some people because they need the validation.
But anyway, I don’t want to blather on. I feel like you want to make sure that whatever your p and l is, you want to be mindful of it. But the key to doing this very, very well for a long period of time is to stick to your knitting and to make sure that on any given day, the best you can do is put your trades on, enter your orders. All right? You want some additional information on this. We talked about position sizing in another episode, and you can go back. It’s not uncommon for traders
When they’re in a draw down or they anticipate that a bigger one’s coming to trade smaller, maybe trade not as frequently. So go back and watch that. In the meantime, folks, don’t forget, I’ve been given away the audiobook version of my book, the Inner Voice Trading. You could get it one of the links below, and if anything on the show is resonated with you, please leave a comment, like and subscribe. Click the bell so you can get alerted when we do new videos. I appreciate everybody being in here. Keep the comments coming and I’ll see you tomorrow.
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The post Don’t Personify Your P&L appeared first on MartinKronicle.
Hi everybody, it’s Michael Martin. How are you doing? Happy Friday. So I should have mentioned the books that I read when I was younger, cause I know someone’s going to ask and I kind of record these the same day largely cause I need to batch produce them, otherwise they don’t get done and I’m just too busy. So I just finished recording Thursday’s episodes like a couple minutes ago. I, I’m like stupid me. Why didn’t I mention the books? Cause again, there wasn’t any online community. There wasn’t any Zoom meetings or teams or Slack. There were no discords because the internet didn’t exist the best that the next big technological ad advancement were. Those little beepers where the thing would go off and people would look whose number is that? And they’d have all the codes. Seven seventy seven was call home or whatever and they at least spy codes.
But when I didn’t know what I was doing, I did need to become edified. But I want to caution you on that, that you only need a little education. You don’t want to be an ongoing student in so many ways because ultimately learning new things doesn’t mean a whole lot until you actually put real money to work. So there were three books that really shaped me as I was kind of coming out of not knowing what I was doing to becoming moderately profitable on the how-to side. Of course there was Jack Sch Swagger’s Complete Guide to the Futures Markets. There was also a great book. It was pretty big book actually called The Futures Game. Who Wins, who Loses and Why By Richard Tools and Frank Jones. And that had trading systems and spreads and all this kind of stuff, which when you don’t know it exists, it’s because you’re like, oh, look at this other way people can make money.
But here’s the problem. All that stuff is like if some of you might be parents, you have kids, kid says, dad, I’m thirsty. I’m like, okay, go look in the fridge. What happens? They open the door and they stand there for 45 minutes. Why? Because you got milk, juice, water, you got diet soda, you know, got a whole host of stuff and they’re full of indecision. They’re thirsty, but there’s too many choices. So likewise with trading, really it doesn’t make sense to learn something intellectual. In my humble opinion, you might feel differently if you’re stuck in trading and you’re going to fill your brain with 45 different new trading solutions. I think that’s a disservice because just like the kid who was thirsty at the refrigerator, which is right over there, you freeze because now you don’t know what to do. And I’ve said it before, I’ll say it again. The best teacher that you can get for trading is your actual trading. That’s the best way to learn it, is to just do it. But you’re
Like, Mike, I don’t know what I’m doing. Well, and neither did Jeff Bezos when he set up Amazon. He didn’t know his ass from a hole in the ground. He just had a vision. So what’s your vision? Can you envision yourself doing this right? Can you look somebody in the eye, practice this in the mirror and say that you’re a profitable trader even if you’re not, because it changes your psychology. The other book I read of course was Market Wizards. It was actually such a profound, that book changed everything for me because I could see successful traders now as human beings. And I actually have, because you noticed that I have a bookcase next to me. I actually have a whole bunch of books. I have the Ketner book there. Anyway, I have two copies of Market Wizards. This was the hard cover that I kept at home as a reference.
And this was the, you can see it’s all yellowed and dogeared. This is the one that I would carry. I carried a it around with me and I would read it on the train. I’d read it we’re going up the escalator. It really had a profound effect on me because it let me know that these people were human. And they eventually became, they were quite well known, those folks back then. But obviously their legend has grown. But the stories in market wizards, let me believe or led me to believe that they were human and they were not exempt from being stupid. And if you look at any of them, there’s always a bunch of stories of humility where they had to pay some form of tuition, mostly because they either weren’t connected to their overall strategy at a hundred percent, or their emotional constitution shook them to make financial decisions.
That ended up not being great. Even the great and now retired. Bruce Covner had a soybean spread on and he lifted a leg, went limit up to limit down, lost a lot of money. Now those are good lessons to learn because they help you calibrate your own system. The late great Michael Marcus was taken, I think Thorazine or something because his feelings were so strong, you learn not to chase Paul. Tuda Jones was in the cotton ring and he put on a big trade when the thing was range-bound and he paid a price. So no one’s exempt. So if you’re feeling like you’re doing these types of things, we’ll join the club. It’s a good thing because you have to try, you have to invite failure, but sooner or later you have to pick something that works for you. Then once you make money with that, then you can kind of hone it.
I know there’s a sharp pencil out there who can back test something and probably find an indicator that might improve your accuracy a little bit. But I haven’t found indicators being predictive. They only tell you what you already know after the fact, as far as I can tell. So the whole thing of I want to learn more, I don’t think you can. No, how’s the saying go? It’s very difficult to intellectualize strong emotional feelings. Even if you have a big aha moment that people talk about, you still have to put the trades on because until you know what it feels like, right, you’re kind of guessing. You can’t theorize, you can’t. And humans suck at prediction. So don’t even start with me like, oh yeah, this would be a good fit. You don’t know. You don’t know until you put real money at risk. Now, I know some trading firms out there when they’re starting people off, they only give them a small line of credit, which I think is smart.
But they also don’t let you lose a whole lot. And the point of that is be, I think it’s a step better than paper trading because you have real money on the line. But two, it helps you conjugate who you are as a person, your emotional constitution with you know how to do. To me, if you come from the intellectual side, it’s kind of easy to learn the how-tos of trading. You’re a, in some way, shape or form. You’re adding risk and you’re removing risk. It’s really not that sophisticated. The harder part is finding the methodology that works best for you. And that’s why I found Market Wizards very much the first one. Anyway, I know there’s been a million more. The second one Victor’s in it. The first one has all the guys that I know in Commodities Corporation and this and that. And so I feel you can learn something from everybody, don’t get me wrong.
But I only needed to read the first version of Market Wizards, the very first one to help me understand that these are human beings and I’m really no different than they were on some level, even though they were much more established than me, except what came out of out in 89 ish. So that’s a long time ago. And so I had to go into the laboratory and I think that’s how you should look at your desk and your phone and your hot keys or whatever. It’s not necessarily a cash register, it’s a laboratory to experiment. Now you can put on trades and risk five to 10 bucks. You don’t have to risk a lot. The key is to get into the game and to get a feel, because that feel can help you improve your profitability as well. So go easy on the, I got to buy more books, I have to go buy more courses, I have to do this and that.
It might all be interesting and you might be really enthusiastic about being in the business, trying the business, but even if you know, have a 10 million line of credit at a big fund in Connecticut, I don’t want to mention any names, you know, still it’s about your emotional intelligence. The how-to part is not that difficult. If you’re in and you’re trading the energy sector, you know, can experiment by putting on a few small trades just to see how it feels. You might be able to do that in your personal account depending on what your firm’s compliance is. But ultimately all that how-to stuff is fine in paper. But the hardest part is the stuff that I talk about on this show, which is the emotional part of the business. Some people refer to it as trader psychology. I think of it more as emotional intelligence for the individual.
You could debate it. That doesn’t really, I don’t know that there’s a winner. You can call it really what you want. But sooner or later you have to take whatever you think resonates with you intellectually and put it to work in the marketplace and see how it works. Even if you’re back testing when you have trading blocks or mechanica, some of the higher end professional prosumer style trading simulators that allow you to test at the portfolio level. Or I have clients who have their own proprietary stuff that was coded in-house by people so they could test anything under the sun. That’s all good because it gives you an idea of is there a positive expected value? Or at least was there one. If you look back over the history of whatever, you’re back testing five, 10, you probably do minimum of 10 years, twenties even better.
The reason why you want to do more than 10 is here we are in 2023. Well, by the time you see this, it’ll be Friday, 10 years ago was 2013. Well, in 2013 you’re in the aftermath of oh 7, 0 8. So if you’re going to try to sniper, make sure that you’re back testing through some of the more arduous periods of time to see how your trades would’ve done because it’s hard to make money. There were periods of time that were very distinct. Bear markets where, you know what? 66 to 68, I know some of you don’t care, go back that far, but market got cut in half and we’re talking the s and p, we’re not talking about the semiconductor in index or whatever that nonsense is. So to me, the more objective that you can be, the more wisdom that you get because there’s no otherwise, there’s no, in this, I’m speaking for myself. If I was doing that type of a back test and I was kind of looking at timeframes that made my trading look good, no, there wouldn’t be any integrity in those numbers.
And I’m very hard on myself. I’m always asking questions, where’s my blind spot? Where am I wrong? What am I missing here? So those are the types of questions that I ask the folks who helped me come along. It wasn’t about specific trades. It’d be like, okay, what am I missing here? What do the old timers know from experience that I don’t seek? Cause I don’t have the experience. So let that sink in that you probably know enough already to be not just as successful as you are, but perhaps even more successful. And it’s not going to come down to learning more tricks to be. It’s to better understand who you are and how do you feel about taking chances? How do you feel around the possibility of uncertain outcomes, right? Because now you’re dealing also with magnitude and duration.
Magnitude and duration. Of course, we can talk about drawdowns because you need to keep your losses small. If you’re watching this on Friday, you could steal a rule from Ace Greenberg, which I use all the time. And that is, if something’s down that I edited during the week and it’s down, even if it hasn’t hit my stop, I just take it off the screen. Because good trades tend to make your money right away. You can use that to improve your trading. But the goal is to develop a system with which you’re compatible. That to me is the most important saying ever. And that compatibility means it’s ongoing, right? Because when you have what you do as a trader, okay, you’re going to evolve as a human being. And so when you look at, going back to my last point, magnitude in duration, that’s both for draw down and for winning streaks.
And winning streaks can be just as destabilizing as losing streaks. I’ll cover that on another episode, maybe Monday. But because that’s a big conversation. But nothing is going to help you succeed in trading more than experience. So that means putting on trades. They don’t have to be big whopper trades because don’t, don’t forget, if you’re looking to try to put on a, I think people call them hero trades or career making trades. Career making trades. If they go against you could also be career ending trades, right? Because they go together. Those are perfect compliments you see. So at any rate, please consider leaving a comment. I like the feedback, it helps me grow. Come up with better ideas. Don’t want to waste your time, don’t want to waste mine either. And then the show is for free. Please consider liking and subscribing to the channel. That helps me as well. Makes me feel good that the show is resonating with people, even if they don’t leave comments on specific things. And while you’re at it, if you’d like, there’s a link below in the description where you can get a free copy of the audio book version of my book,
The Inner Voice Trading. You can get it for free. Actually have, that’s it here. Inner Voice Trading Forward by Ed seko, published by Ft Press. I got an old picture, an old one. Why do you still use it? Someone had asked me that and I didn’t answer, but I should obviously, since I’ve shaved my head. So this picture was taken by a friend of mine who since passed away. His name was Michael. He died of als, Lou Gehrig’s disease. So it’s of emotional for me to remove the shot cause he was a good friend of mine. So I keep it there kind of as a memorial to him. I should probably update it though, because I can still love him and his memory and change the picture so that it looks more like what I look like now. That picture was taken probably in 2010. But any rate, folks, I hope you have a great, I hope you had a great week of trading and the earnings are upon us. Make sure that you bet the right amounts and that you keep your bet size consistent and I’ll see you on Monday. Thanks very much for being here.
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The post The Best Trading Instruction You Can Get appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So I got some good feedback on the episode from, I think it was Monday, the one that dealt with math. I do it on the white screen and the, sorry about the resolution. It’s harder to get it to be. This is on a 4K camera, so it’s easier. I’m working on finding a better solution. So that will come out. But anyway, the question dealt with why would we focus on increasing our winners? Can you believe someone asked that versus why not just become more accurate? So I start to think who’s the person that’s asking this question? And I think it’s someone who’s probably super smart and they’re intellectually oriented to the marketplace. And if you remember, my argument was if you’re in a winning trade, so a hundred percent of the time in those instances you’re in a winning trade, how much harder is it to stay in that winning trade?
When with fourth grade math, you can calculate what your R is, right? Whatever your risk unit is, what one R is, you can calculate up to 10 R. So then the key is to figure out how to scale out of the trade with smaller positions until you liquidate the full position hanging on for as long as you possibly can. Some of you are emotionally very, very uncomfortable with taking risk home overnight or over the weekend. I’ve shown studies that tell you that that’s a profitable strategy, but you can’t beat it into somebody’s head. They have to be willing to do it. So I deliberately went and focused on increasing the winners because again, I think if you’re in a winning trade, that would be easier to do because you’re already in the winning trade. You also know how to scale. Out of a third, you can calculate what one third of your position is right now, if you’re trading say one contract, that’s a little harder.
If you’re trading two, well, what are you going to do? Take off half and leave the other one on. But I think you get the point. You’re already in the winning trade. How much of your unrealized gains are you willing to risk in order to stay in the trade? Right? Now, some of you might experiment and say, okay, I’ve got 15 contracts and when I hit three R, I’m going to sell 10 and I’ll keep five. This way. If the thing comes back on me twice, the level that I had made on the other 10, I’ll still be at breakeven. So you could back test and figure out what’s best for you. But for me, the easiest thing to make more money when I was coming up was to hold on to my winners longer. And that was emotion, that was emotional because the math was not difficult to understand. The intellectual part also was not that difficult to understand. So intellectually, if you’re an intellectual person, I think you will go to great lengths to avoid certain feelings because it’s ingrained in who you are as a person to go study. You’re probably really good at it, you’re probably really bright, and so you’ve had success in other areas of your life, and so you want to replicate that in the trading world. But in my experience, if you’re doing this and if you want to do it for a long time, you have to maximize your winners.
This is before we get to the part where there’s a certain age, and I don’t know what it is, it might be 35 to 40, somewhere in there, maybe early forties, where unless you have somebody helping you burn out this, I heard someone say a long time ago that this is a young person’s business and I didn’t agree with them at the time because I was younger. As I get older, I do think you can burn out just from the monotony of it. So we’ll talk about this maybe tomorrow in terms of taking planned breaks to keep your mind fresh or hiring other people to do a lot of the grunt work that you would have to do. Maybe read through your charts, look for certain setups and help you with that. But when I was coming up and I felt insecure about my trading, again, don’t forget, there wasn’t an inter internet there. There was nothing digital. So anything that you’re comfortable with, it didn’t exist. And I’m not even that old. But that’s how quickly things have come to pass. You remember, if you’re an institutional salesperson, how many people were using aim, right? AOL’s instant message. I mean, that’s how they asked people if they cared, if there was inventory.
And now that I guess it’s a chat program, it doesn’t even exist anymore. So I had to go to the bookstore and then I had to rely on people. And the people were very unreliable except for two people. But I had known those folks from my hometown. They were childhood friends. Everybody else was like, I can’t possibly help you because if I help you, you could end up taking my job. And so that’s kind of the thrust of why I even do this show is I’m trying to give away every morsel of wisdom that I have because no one was there for me largely when I started. There was what I kind of coined an expression, intellectual greed folks were not that helpful at all. And so not knowing any better, I’d go to bookstore and I’d start reading books as many as I could find on the how to because I kept figuring, well, if I don’t make money, it’s because I don’t know how to.
But that’s not necessarily the case because in order to make even a lot of money in your trading or managing risk, you’d only need to be kind of right. You don’t have to be a hundred percent accuracy. So that’s why I kind of poke fun at the people who talk about advanced charting packages and sniper like precision because that’s a made up marketing term. You don’t need that. It might feel good if you’re super anal about slippage and skid grant you that, but that still is. That’s your own deal. That’s your own drama. I wouldn’t let someone bring that racket into my trading firm. It’s not going to happen. So it’s a natural thing to want to study up on something, take a course, look into this, maybe find a coach or a mentor. But in my experience though, from my own trading, the accuracy thing was not the big turning point because I didn’t have to be a hundred percent accurate. I could be relatively accurate and still make a lot of money. Hence the equation from Monday’s lesson, which was the one for mathematical expectation. What’s the expected value of a trade?
Again, there’s more to that equation I want to get into. Maybe next week we’ll talk about it because the expected value of a trade also kind of tells you on average how many trades you would have to put on in order to hit a certain financial goal. So this is one way to kind of keep yourself in check if you have a big financial goal, but your trades are too small, it’s physically impossible to put on the number of trades that you would need to put on in order to hit your goal. So you have to figure out, do you have to set a lower bar because your activity isn’t going to add up, right? So I figured when we look at the expected value, presuming that you don’t negotiate with yourself and move your protective stops lower in order to stay in a losing trade longer, that wouldn’t make sense.
I know the feeling though of not wanting to get stopped because of the fear that the thing will come back. Now, if you do hundreds and thousands and thousands of trades over the next 10 years, that is going to happen. I know it is. It’s going to happen to you. And so if you know that that’s going to happen, you can process those feelings today because there’s really no getting around it. It’s just the way the world works. There’s just so many different variations of what can happen with a trade once you add the risk to your portfolio. But the thrust of the lesson wasn’t to poo poo the need for accuracy. It was though. It was absolutely to downplay it though, because I feel that the majority of you and the majority of people, even at the institutional level that we consult to their number one problem is there unwillingness to feel certain feelings.
And think about it. Imagine if you went to bed tonight, and I’ll leave you with this, where you could improve your trading returns by say 20%. So if you did 10%, you’ll do 12. If you did 20%, you do 24, but in trades that you’re already winning. Imagine if I told you that you could actually make more money not necessarily doing anything differently except holding your winners longer. Why wouldn’t you do that? So you look at it the other way. Your unwillingness to feel whatever that uncertainty is is costing you money. How does that feel? So now start to compare those feelings. Does it make you angry? Because it did for me. And I just said, well, I can’t tell you what I said because in New York, we speak two languages, English and vulgarity. And so I said a lot of vulgar things to myself like, why am I such a bonehead?
And I was already in the winning trades. I was cauterizing them too soon, meaning risk on, risk off, all in, all out, because it felt good when I didn’t know what I was doing, it felt good. But then later on I said, man, I’m working like a dog and I should be making more. At least I felt I should be making more for the work that I was putting in. So I had to look at my behavior because again, I’m sorry to keep Bo you with this, but behavior predicts where you end up. So I found out that if I was willing to feel more of the uncertainty, I actually did better. Now, the way I did it was I wasn’t trading 20 cars in natural gas in order to take those home or even to trade the spreads and take the spreads home because it spreads are a little easier because you’re simultaneously long and short to the same commodities, different expiration months. So it’s kind of like what an option player would know as a calendar spread.
So in order to take the outright directional stuff home, I had to cut my positions down to ones and twos like a fraction of what I had been trading because I wanted to experience what that was like. What was it like to take home even one contract overnight and over the weekend when the trend was in my favor and I was already in the winning trade, the in a winning trade, granted with unrealized gains. And the more I practice that you thick in your skin, you increase. If your bullseye is here in terms of your comfort zone, you have concentric circles, you have to step into the discomfort of the next concentric circle to and feel those feelings. You don’t have to do it on the same scale. Make it your own and make it messy because you’re going to discover a lot about yourself and how you behave around managing risk.
And that to me is where the money’s made. It is not about advanced charting packages. There’s no such thing in the world as an advanced charting package. Think of it like cable. You can get Showtime, HBO, O, you can get stars, you can get whatever you want. MGM plus watch, godfather Harlem. It’s a good show. And so those are all just marketing packages to create bundles. But in the world of trading, there is no such thing as an advanced charting solution. Charts or charts you can make of them what you want. That in fact is good homework assignment. Anyway, I’ll leave you with that. Just keep this in mind though, that the feelings that you aren’t willing to feel around taking risk home or scaling out of your winners is costing you money. How do you feel about being your own worst enemy? I didn’t like it, so I had to do something about it.
But anyway, please like and subscribe. If anything here has resonated with you and always remind, I always like to remind you too, if you check out one of the links below in the description, you can get the free audio book version of The Inner Voice of Trading. It’s a book I wrote in 2011. I give the audio book version away for free. It’s on me. Thanks for being here, folks, and I’ll see you tomorrow.
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The post Why You Should Increase The Size Of Your Winners appeared first on MartinKronicle.
Hi guys. Welcome back to the segment that Mike and I do weekly where we go over topics, comments, and questions from you guys. Today, I kind of wanted to keep with the theme of talking about mindset and I wanted to talk about what you do in your downtime and why do you do it. Is it like a refreshing thing? Is it so kind of elaborate on what you do with your downtime.
Me, are you talking?
Yeah.
I take mushrooms and I take massive bongheads with Percy sauce. No, I don’t do any of Percy sauce. It’s too strong. And you are gja, by the way. Not me.
There’s a reason I’m ganja.
I know, but you’re not a pothead. That’s the point. I
Know. Yeah,
No, some of my guys, I don’t want to mention any names, but some of those guys smash that, I think it’s like seven 10 labs or something. They do the wax and they in the quarts and they get the burner looking thing that you make the creme brulee with. No, they smash like 86% T hc. Yeah, people
Straight up dabs.
If I did straight up dabs like that, there’s three places I would go to. I see you. Yeah. Yeah, I’d be in intensive care. So downtime, this is a good question. Downtime. So I think downtime. First I want to ask you this question too because I, you’re a hard charger. When you’re a hard charger, you absolutely have to program and calendarize your downtime. It has to be a prior, a priority. It has to be part of your trading system. I’d known a lot of guys who could trade me under the table, but they never turned off. They were just go hard charges. They were out late at night making big money renting Porsches, trying to live on Central Park West, doing bottle service, which is got to be the stupidest thing on planet Earth.
And in three years they just couldn’t maintain that pace anymore and they just burnt out. They couldn’t take it. So this is a marathon. Sometimes you feel like each day it might be a bit of a sprint, but I think if you in your mind think of it, you don’t want anyone day to define your career. You want to manage the risk. If you don’t do that, the risk manages you. And yes, you will have some career trades, but you can’t go deliberately out to make those trades because like I said in an episode, or I think it might be an upcoming episode, that if you try to make those hero trades that and you toss that coin, what comes up on the other side is you blow up. So you can’t force the hero trades. They kind of come up for you. But you absolutely have to, and I have it in my own calendar.
I actually put in every day I practice jujitsu. So I practice, I train six days a week. I know the calendar and every course I know who’s teaching. I know if I’m teaching and I still put it in my calendar because if someone says, Hey, let’s meet Wednesday at six o’clock, and I’m like, no, I got class. I could meet you after. I can meet you before. But nothing’s getting in the way of that because my downtime is intentional and it’s just as important to me as anything that I do. From the opening bell to the market closes and I’m, for me, the opening bell isn’t nine 30 coco and opens at eight o’clock in the morning eastern time, which is five o’clock where I live.
Intentional with your downtime and program that in to give your mind a break. So with that, it programs your brain to understand that that’s really important. It’s good to get away from the screens. It’s good to get away from the people that you spend time with every day and it keeps things fresh. You get a new perspective. I’ll give you one example then I’ll shut up. Jiujitsu was fantastically difficult. It was built to beat all the other martial arts and it’s just abject humiliation because you get beat up every day and it’s not fun, but you lose when you quit. So I looked at it at first I didn’t know it’s changed my life and my friends at time ganja and other close friends who are family now that stress hardens and makes diamonds basically. So I wanted to exercise my discipline muscle from another angle because I have it down with the market stuff, right after 35 years, there’s one thing I have is my discipline and my self knowledge. So I wanted to exercise that discipline muscle from another angle in an area that had nothing to do with trading, but kind of had everything to do with trading. So that’s why I took up martial arts and it’s been very rewarding experience.
Now ganja, you are a pro-gamer and among other things you’re multi-talented person, which is why you’re here because you not only are smart, but you can also execute. Gamers don’t keep the best hours as far as I can see. How do you this because you’re playing with people who, if you got a team of five people, I’m guessing maybe two people are in the same time zone.
And it’s a really big challenge. I was telling you about this team that I’m working with from Canada and they function off E S T Eastern Standard time. And I have a challenge even with them because I’ll play with them until one in the morning, but for them it’s four and they don’t care. They’re like, yeah, four in the morning gaming sessions, let’s go. And I’m like, dude, you have to understand this is one so bad for your health. And two, I can’t keep pace with this and it’s not because I can’t stay awake until one or 2:00 AM because I know that staying awake at one or 2:00 AM while being fully alert and hyper congnitive is so bad for your brain and your body is terrible, especially being in front of artificial light. I mean were touching on earlier really ruins your circadian rhythm that those are things you don’t want.
So I guess to answer your question, how do I deal with those hours and stuff? I still have to do it because it’s unfortunately, I can convince people and they’ll say, yeah man, it’s so bad staying up late at one or 2:00 AM but they do it and they’re on my team. So you know, have to play with your team otherwise there’s issues. And I’m slowly trying to make people aware of how bad it is for your health. And I mean, just to give you an example, in high school I knew somebody who was a professional gamer and I played with them a little bit and they would always message me at one or 2:00 AM after practice for them and they’d be like, Hey man, let’s play. And I’m like, all right, sounds good. I’ll hop on right now, we could play, run some strategy together. And he’d be like, hold on. We, we’d get on a call, he’d be like, hold on, give me a sec, I got to go take some Adderall. And I’m like, what? At 1:00 AM you’re taking Adderall? And he is like, yeah, I just take 60 milligrams at night. And I’m like 60, 60 is the biggest dose you can get. And it’s just terrible what these guys are doing with their brains and their sleep and all that. So
We were talking about that privately on the phone too, about, I think the word you used was neuroplasticity.
Yeah,
It’s like a big deal man. And you can’t fight mother nature. These people who are doing and taking these hormones and whatever, I think it’s really bad for their bodies until they get to a certain age. I’m not a scientist, I’m not Andy Huberman. I listen to his show when I can and he’s really a good source of information on this, but really it does bad things to you. Even ganja. And I know guys who drink in 12 diet Cokes a day. That too is so bad for your body. The non-nutritive sweeteners to me, they’re worse for you than sugar. You might as well just drink the Mexican Cokes for example, and just have the pure cane sugar. So there’s a lot that goes into being a pro trader. And even if some of you are at home saying, well I want to use one of these funding accounts and go to Apex or this and that, or maybe try to get a seat on a prop trading desk.
You have to really think about trading from a 360. It’s not just that you can come in and create alpha. Yes, that’s what we talk about. We talk about the mindset, but it also includes your sleep, your hydration, your overall diet, and what do you do for your head away from the screen, right? Because we’re talking about mindset as it relates to trading, but then there’s other things that you can do. For example, I train martial arts. I also have painted since I’m 14 this October, I will have played guitar for 50 years so I can play anything, I can hear it, I can play it. And that again, takes practice, it takes time, but it gets me away from the screen and it kind of puts me in the zone. It could also be meditative. So I do a lot of things to keep my head in shape because that part is kind of like the basis, it’s like the bootcamp if you will, so that when I get to the trading desk, so to speak, I have my mindset as it relates to trading, but I’m not bringing baggage from my life.
Like poor sleep habits can’t have, don’t, I don’t drink a lot of caffeine. I don’t want to be amped. The reason I don’t like drinking alcohol is because, or even smoking marijuana, even though it’s legal here or taking edibles or any combination of it, because I am willing to feel all my feelings. I don’t have to check out. I don’t need some type of medication to cool off or to get stoned like that. Cause I don’t want to escape. I love my life the way it is. In fact, I want to bring more of my life. I want to amplify my life. So doing things that could be mind altering. And I’m not judging anybody, I’m just saying for me, I don’t want any type of escapism. At best I’ll go meditate or do yoga, which in and of itself is a moving meditation. But for me and for the people that I would work with, people that I would hire from the partners that I would have, you can’t ask somebody what their age is or what their gender identity is and any of that stuff.
But you can pick up a lot just from listening to them. And if they don’t have the right lifestyle choices, I don’t even look at them as candidates because so much of what you do outside of trading actually impacts who you are as a person and how you perceive risk, how you manage yourself under stressful situations. So it’s probably more information that you were thinking about. But for me, where I’m sitting, I’ve seen people come and go, people who had enormous amount of talent, people who I are fully, I’m looking you all straight in the eye right now. People who could trade me under the table and they couldn’t take it because they didn’t set themselves up to win. And it’s a huge thing. I mean that’s why I speak about the mindset as much because the how-to part of trading, once you figured that out, you’ll make small amendments, you know what I mean?
Over time because the market’s always going to morph. So you have to sometimes tweak your position sizing a little bit or this and that or adjust your entries. But it’s not major turn on 180 s, right? It’s not that major. It’s a, it’s small adjustments. It’s trimming the hedge so to speak, as opposed to growing a whole new set of hedges. So I feel like now you could talk about cycling too, that’s physically demanding on top of the mental side of it and the actual tactics that you need from drafting to man, you were telling me behind the scenes about that stuff, the amount of preparation that goes into the race. The race is almost the easy part on some level it’s the preparation that yeah really sets you apart. Which makes a lot of sense because how do you get to Carnegie Hall? Practice, practice, practice.
So a new piano player can go play Fran’s list who wrote so much complicated music that he was basically only, it’s about risking real money. Five, 10 bucks a trade doesn’t have to be a lot by one, share by one mini micro contract. Doesn’t matter to me. That’s practice. And you have to practice, you have to be willing to get beat because in the way I look at it, the first two years of your career, you’re really amateur status. You’re not worried about becoming pro in six months because you’re not ready to, no one is, you’re not ready in six months. You don’t know enough. You haven’t seen, you lack the maturity. And I don’t mean you act like you’re immature, you’re 14, I’m saying you’re acting because you haven’t seen enough market cycles. You don’t know what it’s like to trade in good markets and bad markets.
So to me, when we talk about the victorious and then seeks battle, the winning part has everything to do with preparation. And that means mental preparation. It also means physical preparation so that you have the mental and the physical stamina. And that’s a more true, if you’re on a short-term trader and you’re sitting in front of the screen all day, you have to have the stamina for that. And you can’t be drinking diet Cokes at two in the morning playing video games thinking that you’re going to get up at six or seven and do that. Yes, you can get away with it for a little while, but that’s not sustainable. It’s absolutely not sustainable.
To touch on that too, it’s, I kind of jokingly said I don’t deal with it, I go to bed at 2:00 AM I don’t do that every night. And it’s about realizing that it’s not sustainable. I have a self-awareness like, hey look dude, it’s been two days in a row. You’ve gone to bed at 1:00 AM you’re not doing this again. You know, need to fix this now or you’re going to have deleterious outcomes that you don’t want.
And that’s good use of the word deleterious. I love it,
Dude, you knows an
S a t word dude, I
Love that course. It’s an s a t word, you’re talking former pre-med guy here. But just to kind of touch on the cycling and the gaming and stuff too, and how you said preparation is key. The thing that set me aside from literally everybody else in cycling and in professional gaming as a whole is the fact that when I decided I wanted to do it, I sat down and I told myself, I’m going to outwork everybody. I don’t care who you are, I will outwork you. Yeah, I will outpace you. It might take me a year, it might take me two months, but I will eventually catch up to you because I worked way harder than you. And the thing is, is like that’s great. You can say, Hey, I’m working hard and you can even do it. The recovery is really hard. And you know, have to learn that balance and say find your recovery strategies. What is a recovery for you
A hundred percent. And you need to have that mapped out ahead of time. It’s not you. I mean look, yes at first you’re figuring it out on the fly because you’re new and you don’t have any experience, but that point that you just made is worth the whole price of admission. To me that’s very valuable stuff. I think I saw something on Instagram recently where I was scrolling through and I was listening to Kobe Bryant rest his soul talk about for his first two years he came off the bench mamba mentality, came off the bench and he said, and I’m paraphrasing a little bit but you’ll get the jux of what I’m trying to say here. He said he was going to make it, he was going to outwork everybody and practice so hard and increase his talent to the point where he put his coach in the spot where he had no choice but to play him all the time.
So he didn’t play like victim and he was a prodigy, he was very good player at a young age. I think he went pro like 17, only Wayne Gretzky as far as I know when pro at 17 for the whatever, when he was in the W H A before they moved to the N H L. But the point is, all these guys that you see, who everyone likes to quote and who everyone likes to emulate and parrot, you have to be able to do it. Now granted you have to do it your way. You probably can’t do it the way Jocko did it. You might not be able to do it the way Goggins did it or any other of these famous people that you like to quote, but they can’t do it like you. Right? Exactly. Doesn’t mean they’re better. They’re popular, they’re popular, but you know, can do it.
And that’s the beauty of it is that you get to do it and you get to make it your own. And Kobe was famous for that. I remember another Gretzky’s kids went to school with my kids and he told a story about how his late father Walter was watching some preseason work and I guess Wayne wasn’t skating hard, which is hard to imagine. But nonetheless the father knows best because he’s coaching the kids since he’s three years old. And he said, listen, if there’s a kid who’s going to buy a ticket and he is going to spend 50 bucks and he is going to come from our hometown in Branford, Ontario to come watch you play here in Edmonton, Alberta and you know, have to skate out of your skates, basically you have to skate every is more important than the name on the back. But you have to execute, execute every play. And I think that’s one of the reasons why I can’t say the number of the percentage, but I have a sense from everyone that I’ve known and I’ve worked with and I’ve worked for and or worked next to or kind of observed how they work. They might have been in different companies, different desks. The preparation, the 360 degree preparation was absolutely of paramount importance to longer term success.
Folks who started in 95 and bought tech names, by time 2000 came, they were up 50 fold, but they stepped into a really good market. If you stepped the s and p in 66, you lost half your money over the next two years. So what happens is they got used to making a lot of money, especially the guys who sold put contracts. Why? Because they markets would go up, the puts would expire and that worked until it didn’t work anymore and they got used to a certain lifestyle. So my point is, is that this business trading is like any other profession. And when you sit ganja and I talk about setting goals, that’s the number job number one. It’s like what do you want out of trading? How do you want it to serve you as a human being? Do you want to feel part of something bigger than yourself?
That’s cool. There can be a fraternity sorority kind of aspect to it, but that’s not typically the motivating factor that’s going to help you create the best alpha that you can make. Is it because you think there’s some kind of status traders and otherwise that doesn’t exist, right? It’s very subjective, it’s not a higher form of life, it just works better for certain people. So how do you want trading to serve you in your psyche and how do you want it to affect your soul but also what is it that you want your money to do for you? I know people that traded and made a lot of money, but because of the tax treatment, depending on where you live on short-term capital gains, they actually took all their money and converted into multifamily homes because they can generate cash flow and not get a tax bill because of the depreciation.
So they really knew investment finance. It wasn’t just all about the trading. The trading was part of a bigger plan. What does your trading mean to you when we do consulting? That’s question number one. And we don’t even get to lesson number two until you can get absolutely clear. And I don’t care if these people paying me a hundred grand a year, we don’t go to lesson two until they can absolutely define what is their, why do you do what you do? And it’s hard for some people to answer cause they speak about their feelings, but it’s a disservice to them to let them off the hook. And so bringing it back to the question, this is where what you do in the pre-market, what you do in the aftermarket that’s not trading related. When I was in school in New York City, I was so busy between study groups and reading books and typing papers I did and plus I worked two hours a day in a work study jobs, how I got my start in commodities because my school was the third largest landlord in all of Manhattan that I couldn’t find a way to get my exercise in.
So what did I do? I got up an hour earlier and jumped on my bike. It was a Bianca, you would appreciate that being a bicyclist yourself. And I would go and I’d ride because the loop in Central Park was closed at the time to traffic. So you could roller bladers and the skateboarding wasn’t that big then, but roller bladers and bicyclists would have free rain on the park. You just have to watch out for one another. But there was no vehicular traffic, no cabs, no otherwise that could drive through the park then. So I’d get up 5 36 in the morning, jump on my bike and go to the park and do the big loop twice and then go back, put the bike away, shower, shave and that whole thing and get ready to go to class because if it’s important to you, you have to find a way to get it on your calendar. And I felt that my ender fins and my energy, I actually slept better. And I know that’s something that a lot about because your brainiac that when you exercise it affects your brain and it affects your body in a whole bunch of ways. So why don’t I turn it back over to you and you kind of talk about your health, your diet, your sleep and your exercise, your endophytes, the dopamine stuff and all that as it relates to your overall health.
Yeah, no, for sure. And look, I mean I’ll tell you guys a little secret right now, if you are
Steroids, it’s all about steroids and H G H and it’s all about steroids and Percy sauce.
Well, so I used to manage athletes. I still have a couple of ongoing clients that I work with typically like high profile guys and I do manage steroid cycles and I do work with some of these guys with really, really niche optimization. And the secret to having the best cognition that you can possibly have is two things, working with hand eye coordination and high intensity interval training, cardio. Those are the two best things. Study backed. So you can look this up, it’s not like I’m pulling it out of the cabinet or whatever. It’s really amazing how you can optimize your cardio to just work for your life. Cardio is the secret to living longer. It is the best thing you can implement into your life. And people like Jim Bros, they shit on cardio. They’re like, whoa, I’m not going to kill my gains. Well the reality is it’s not going to kill your gains, it’s going to prevent your organs from having fatty deposits and stuff like that.
It’s also going to optimize blood flow to literally every area of your body. People think it’s just to your legs and stuff, but it actually has wider effects downstream cascades that result in more blood flow to the brain. And that early activity, especially if you can manage doing your cardio in the morning is so beneficial for just your circadian rhythm. So having exercise implemented reasonably early in the morning, if you can do it after an ice bath, wait to have your caffeine 90 minutes after you wake up because you literally don’t have the neurochemical signaling going on to actually have that caffeine work for you, it ends up working against you because caffeine doesn’t make you awake, it actually binds to the receptor that makes you tired and says, no, no, no, you are not going to be working. So with that said, what I ended up doing with all of the knowledge that I have on biohacking and biochem, I worked out a way to be as good and as alert as possible when I’m playing games.
And I did this for cycling too when I was a cyclist and it, it’s really beneficial if you just sit down and think what can I do to change how I’m going to feel in the day? Number one thing people don’t do vitamin D supplementation, huge ginormous measure how much sugar you’re having in a day. And I’m not talking about fruit. If yeah, if you’re really overweight then how much fruit you consume will affect you or if you’re trying to get super shredded, but I’m talking about how many cokes do you drink a day if you’re having diet Cokes, understand if you’re going to drink a Coke with sugar in it, having a diet Coke in my opinion is a better choice. But that doesn’t mean if I’m not drinking soda, it’s okay for me to drink a diet Coke. So the reason all of this is important is because it really just relates to how you feel and how you feel dictates really where you go unless you are so hyper cerebral and can say I know how I feel but I’m just going to ignore it anyway. And even if you say that you know are still subject to how you feel, if you wake up feeling great, you’re like, man, I feel great, I’m going to kill it today. You probably will. There’s a good chance you will.
So I have a lot of follow up questions because basically anything that you put in your body, whether it’s food or liquid, can be a type of a drug. And I don’t want to get into obesity and people loving themselves with food. I know that there’s a lot of mental stuff that goes on with that. So I’m not picking on anybody, but I do know that people can love themselves with food. And so a crazy nerd like me and you study your behavior, everything that you do, if we are pleasure seekers, then everything that we do in my humble opinion is either going towards pleasure or avoiding pain. I don’t medicate because I’m on. I am willing to feel every feeling. There’s nothing that I’m afraid of because only I can beat myself. You understand? I don’t care about other traders and how well they are.
Not that they do, I’m competing against myself. I’m a team of one. I got a lot of support, but ultimately I’m responsible for everything that happens in my life. You’ve heard me use the expression, we live in a paradigm of personal responsibility. So you have to accept if you want to be, see, here’s the thing, if maybe you don’t want to be a pro, but if you think that you’re going to be a trader for 10 or 20 years, you still have to do the things that pro traders do because otherwise you’re not going to make it. You’re not going to last long enough. So going back to what you said, vitamin D and something that Andy Huberman, I call him Andy because we’re just on that level. He said something about getting natural sunlight in your face, in your eyes at like 8, 9, 10 in the morning or something. Yeah, talk about that.
Yeah, kind of like what I was touching on earlier, being awake with that light in your eyes at 1:00 AM is horrible for your body. It’s terrible for a number of reasons there. There’s a study coming out that’s kind of elaborating on that and it really spoke about how if you’re exposed to computer screens or any type of light past 1130, and you can mitigate this with brightness, people thought it was like blue light turns out it’s actually not. It’s just a level of brightness and you would have to have it subvisible levels of brightness to be on a screen past 1130. But basically what this study says is people who are on screens past 1130 have decreased. They feel worse as people, they’re dopaminergic responses have been dampened to the point where it’s like pseudo depression for really hours of the day. Yeah, absolutely. A hundred percent. And I can
Speak up, I wonder what that says to folks who trade and sit in front of computer screens, not just one, I have 2 24 inch max here, but some of these traders have eight mo six monitors in front of them putting, showering them with this light that you talk about.
Yeah. And it’s really bad at the end of the day if you’re doing that at certain hours of the night, it’s like, yeah. And what about
Those glasses that you can wear the anti glare, do they help or is that just marketing bullshit?
It’s just marketing bullshit mostly. I mean,
Unbelievable. Yeah, and this idiot sitting there,
Well,
With his glasses on, I
Will say originally it was based off of good data. It actually was based off of good data. But
Yeah, silver, we Lance Armstrong’s blood test. But go ahead.
Exactly. But now we have the understanding of, hey, it’s not just blue light. Actually, it’s not in a specific wavelength, it’s actually just the brightness and intensity of the light additionally, which I see, which makes it challenging for people like me who try and biohack this stuff to speak specifically. I had a client who wanted to read late at night and he had trouble because it wasn’t bright enough, couldn’t we had a light solution for him that was based on some of the older studies. It didn’t work. It literally just didn’t work. He couldn’t read. He’s like, my eyesight sucks, and then if I wear glasses, that kind of ruins the whole point of what we’re doing here, right? Yeah. I’m like, yeah. So basically with all this in mind, if you want the perfect day, you should wake up early in the morning, preferably before eight o’clock.
I know that’s not early for some people. You should go out in the sun, have about 30 to 45 minutes of sunlight in your eyes. That doesn’t mean look directly at the sun, please don’t do that. It should just be on your skin synthesizing vitamin D. And also you should have it visible to your eyes to the right. Yeah, just the reflection. Just the reflection. And then make sure you eat and make sure if you can implement ice baths. And saunas are great too for closer to when you go to bed ice baths in the morning and yeah.
Oh, let me stop you there for a second because you mentioned something in a few minutes ago when we were talking about exercise. What’s you want to do your cardio or your exercise before the ice bath or after?
That’s kind of a tough one. I actually don’t really do ice baths on certain days of exercise. So if I’m doing weightlifting, I literally won’t even do an ice bath. So if I’m doing cardio, I will try to do an ice bath before. And some people are like, well, what’s the whole point of that? Doesn’t it help recovery? Yes, it does, but it also dampens the amount of muscle tissue that you can accrue. And what you can do to kind of mitigate that is take your ice bath before warm up naturally about an hour and a half is usually my experience. And then do your cardio workout immediately after get in the sauna for 20 minutes at 180 degrees because that actually accrues about 50% more slow switch muscle fibers and would’ve, you would’ve had them anyway. They just disappear because of the way lactic acid kind of circulates and destroys thing. You have destroys things, you have weakened metabolic function. There’s a lot of different reasons for it, but it does encourage muscle protein synthesis for both fast twitch and slow twitch, primarily slow twitch.
This guy’s 20 years old folks, these are actually, you shut up, you can’t talk anymore. You’re too smart. Okay, these supplements, do I want to take those with a meal? Do I take ’em in the morning or does it matter? How do I administer that? Because you can buy that at whole food. You can get that anywhere, right? I mean, it’s just a over-the-counter solution.
And I take vitamin D that’s in fish oil. They’re called solar gems. They’re made by a specific company. I really like them, not because I am sponsored or anything, but just because having those fatty acids in your diet is super important and people don’t really get enough of them. So taking
Vitamin, those are the omega-3 fish oils you’re talking about.
Yeah. Yeah.
Those ac. But that thins your blood if you take too much or
Yeah, but it, it’s great for a number of reasons. So omega-3 S in general are really good for your brain. They’re super positive for your brain. And vitamin D also does the same thing, right? It’s really good for your brain and you want to take it early in the morning because if you think about it, if you take your vitamin D at eight o’clock at night, yeah, the time it gets absorbed into your body, your body’s like, great, it’s morning time. I’m getting sunlight.
Oh, I see.
Yeah. So then, then your body is trying to go to sleep and it’s just confused.
So folks, as you can see, this stuff can get as deep as you want and you can make things over complicated. You can keep it simple, I guess is to set up a protocol that you can execute consistently because the consistency is your model. It’s a little bit of the how-to and it’s a lot of psychology and emotional intelligence and you want to be able to replicate it day after day after day and make it habitual. All of your habits are your make up your paradigm and you want it to be able to replicate this day after day after day with and make it almost automatic because then it becomes habitual.
Then everything that becomes second nature and then you can build off of that. So if you start small and pick one area of your life, then by all means you can certainly expand. I think with younger guys that I speak with, they want to become Paul Tudor Jones in three months and it’s just not practical. Enjoy the ride, set yourself up to win. Because if you get this business down, you’ll live a life nobody else. You’ll have liberty, you’ll have money, you’ll have freedom, you’ll be able to come and go as you please and do whatever you want and not have to answer to anybody.
But you have to prepare for it. And it’s so not about candlesticks and it’s not about cup and handle patterns. All that stuff is important, but there’s so much more that goes with it that you can’t necessarily rely on any one thing. So for me, success is something that you can plan for. You make up in your mind what it is that you want to do. What do you want your money to do for you? How do you want your money to serve you? So when you have deep emotional meaning attached to this stuff as opposed to I want to make a hundred bucks a day, or I want to make another client wants to make a million a month. Those are just numbers. And that’s, to me, when you just pick a number, it’s probably, this isn’t scientific, but to me, when you just say, I want to lose 10 pounds, or I want to quit smoking, or I want to make a million a month, this is why all those New Year’s resolutions never get done and people don’t even follow through beyond the January 31st every year. It’s because there’s nothing emotional attached to the process to get what you’re endeavoring to get. Some of these people are actually just writing stuff down to give it to the boss to get the boss off the back. It’s like, yeah, I’ve got my goals here, go away. But for me, you can manifest everything that you want. That’s how we coach to people is be clear about what you want.
Because if you don’t, likely things from your subconscious are going to be dictating your behavior. So that has a huge impact on where you end up in life. That’s why you want to be hyper-conscious of everything that you do. And it’s a lot. It’s to, but you start small and you build upon it. My big takeaway is be aware and conscious of everything that you do. How do you spend your time? When are you going in fifth gear? When do you downshift to first gear? When are you coasting? Because it’s all good. You just need to know what the mixture is, what’s the recipe.
Yeah. And I guess to add to that and sort of in conclusion, Mike has a great point. Ask yourself why. He mentioned this to me, and you kind of hear it a lot in general. It’s like, well, wouldn’t you want to know why you’re doing something? It kind of seems like common sense, but people almost never think it through if you actually ask them. And when we started doing this whole thing and working on the podcast and episodes together, I was kind of plateauing on my experience as a pro gamer. It was really disheartening. It’s hard to find a team and I kind of felt like, man, it’s so tough to keep doing this and to keep doing the level of effort. And then I heard you say, why? What do you want your money to do for you? And then I asked myself the same question about why do I want to be a pro gamer?
And the answer I gave myself was because I know I’m the best and I will eventually be out in front of enough people where they can see that. And that really kind of rejuvenated my whole experience and took away some of the, I guess the toil of it. It’s a lot like it’s a lot of work. And when you develop your routine, I guess if there’s a really big takeaway from this, make sure you implement downtime, make sure what it is and ask yourself why you’re doing stuff. And also, if you put those things in place altogether, you optimize your recovery your day, you schedule your downtime, you don’t just let it drag on. Eventually you will outpace people and it’s just going to be that way. It might take a long time, could take two months, who knows? But I can tell you one thing for certain, the reason that I am where I am at right now in video games is because I made a sustainable thing. I made a great schedule. And I can tell you for a fact that there’s at least 30 people who I started out with who were like, I want to be a pro gamer. They wanted to do the same thing. They’re all gone now. They couldn’t keep up.
Yeah, it it’s true. Trading is about life in many ways. It’s about jujitsu and trading are actually very close. Don’t get submitted, don’t get tapped. Play superior defense. That’s the name of the game. So can I tell people a little bit about what you do or is that okay? Or is that kind of ob out of bounds? Of course. So Brandon’s expertise in the gaming space comes down to Valant and go sees, right? Sees go,
Sees go, yeah,
See us go. Which is amazing, right? Because we should do an episode just on the economy inside and the skins and all that. Cause it’s very fascinating stuff because you’re kind of a traitor inside the game. Now, not only he plays all the different roles and he is also coaching people. So this is a guy who knows competition at a very, very high level and knows what it takes. So I would listen to him. He’s a very, very bright guy and he has a lot of wisdom to me. He’s like 20 going on 40 in terms of wisdom. He’s beyond his years. Don’t let your free time just happen to you in your schedule. That’s how a lot of people do it. They have all their stuff that they got to do and then the free time just kind of happens in the middle of it all.
I think that’s the wrong way to go. And I’ll challenge any prop trader guy, any guy who runs a desk, man or woman to tell me that I’m wrong. You have to build this in and make it important. It has to become a priority because the game, if you’re going to put the work in to succeed in this business, if you can succeed, yes, of course one or two years, it doesn’t say a lot because you might be in a really good market and not know it, and it’s really more of the market than it is you. But in order to do this over a longer period of time, you have to set a pace that’s sustainable, right? Folks that run the Boston or the New York or the LA marathons don’t go breaking out. They break out of the gates to get into the leader pack, but then they have to set a pace and even biking.
Everyone sets a pace and you have to set your own pace and own your time and know that it’s your time. You get to decide how you want things to go. It’s not what happens to you. You get to decide how many hours you want to put in on the desk. You get to decide. I know a guy who trades gigantic money and he spends two hours at the open before the open and into the open, so around two hours in the morning and then he comes in for the last hour of trading, whatever happens in the middle of the day does not care. And he goes out and does stuff and he’s trading wood, man. I mean, the guy’s got size. So you get to design it exactly the way you want it. You just have to not be lazy and get super clear because what you’re witnessing other people do isn’t necessarily what’s best for you. It’ll make you fit in. You wear your blue shirt and your khaki pants and your boat shoes and I get that right? But at the end of the day, that’s easy to do. Anybody can do that. So plan for it, build it into your life and own your time because it’s yours and you can carve it out of stone exactly the way you want it, have it and design your life the way you want it.
I know we’re running a little long here, so ganja, I’ll turn it back to you.
Yeah, I mean, I think that’s basically it. We touched on a lot of really great points today and we have some more topics to cover in the future as far as that. I mean, thank you guys for watching this episode. Really appreciate it. We will be back next Wednesday as usual, and make sure you like and subscribe. Press the bell for notifications, all comments, help the algorithm as well. And thank you guys for watching.
Yep. Thanks everybody. Appreciate it. I’ll see you. See you tomorrow.
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The post MMS EP #7 – What Pros Do In Their Downtime appeared first on MartinKronicle.
Hi everybody, it’s Michael Martin. Thanks for being here. So yesterday we talked about some pretty deep stuff. We looked at the actual math around your trading, not the hypothetical stuff, but the actual results from the trades that you did. A lot more can be said about that data, but I was answering a question I think about accuracy, right? Someone said, how can you help me be more accurate as a trader? So look, yeah, if you got 10% accuracy, you need your winners to be many multiples the size of the losers given those winning percentages. But like I was saying, you can definitely go a long way by learning how to increase your winners. Now, if you’re million dollar trader, and that would mean risking who knows what, 20 to a hundred k of capital of unrealized gains, for example. You can always try that on a smaller scale just to see how it feels because ultimately if it doesn’t feel good, what are you going to do?
You have to find a way to make it feel good. You have to get, find a way to get comfortable being uncomfortable. And so maybe doing that at scale of where you are right now is kind of hard to do, but you can certainly envision it if you tried it on a smaller scale just to see how it felt. Because ultimately you do have to make friends with those feelings. And if you’re not used to scaling in or scaling out, I don’t typically advise scaling out. If the number where your protective stop was is hit, time to go, you don’t want to negotiate with the market, because in my opinion, you’re always going to lose and it’s always going to take advantage of you, right? Because you probably mean well, right? You’ve got good ideas around all of that. But what happens is if you start to negotiate with where your protective stop is, it’s really the party’s over.
It’s time to go. Your timing was off. Maybe you got some bad luck. Maybe your analysis could have been off. It’s probably not likely analysis if you’re already a million dollar trader or you have several million line of credit with your hedge fund or prop trading firm. The key thing though is to get comfortable doing best practices, and even if you’re a shorter term trader, say swing trader, you can still find room to hold onto your winners for as long as possible, even part of them anyway. Selling winners admittedly, is probably the hardest thing, right? It’s like when do you know the move is over and they say you can’t go broke taking profits? Well, that’s true too, but you know what? If you were in trades that you could have made, say, you know, doubled your money, but if you had stayed in other winners, you might have made 160%, and that’s kind of material.
So I think the goal should be to optimize the process by looking at your winners. Now, when I speak to folks about this and then you revisit with them and you say, Hey, what’d you, what’d make out of that? What’d you end up doing? I was thinking about it, but I never really got to pull the trigger change stuff. Ultimately, your behavior, your sum of all your habits, oftentimes referred to as your paradigm, and if you allow yourself to say, be lazy or unwilling to feel the feelings that you need to feel in order to make those changes, I look at that as emotional or a spiritual type of inflation on your goals because it’s dragging and holding you back from what you could be doing. So I don’t want to say throw caution to the wind and all of a sudden become completely fearless. I think most traders are probably risk averse in that they’re not risk lovers and they’re not risk. They know they have to put on a requisite amount of risk in order to get the return. We’re going to talk about getting return setting goals using Kelly criteria and all this and that. It’s an old school way. It’s nothing new.
So the key is making the attempts because the behavior part is what’s going to drive the change. Admittedly, it might not be easy to do in the beginning, so you have to try it smaller, right? Because you’re used to doing things a certain way. So if nothing else, there’s a comfort zone there. So now you’re going to shake that up and put new criteria on. So I wouldn’t let the inaction of your goal hold you back because that is a form of inflation when you allow yourself to just haven’t gotten to it. To me, when I hear that, it means that you weren’t really ready to feel those feelings, and the best traders in my mind are the ones who are willing to feel any feeling that comes up because they’re all trying to teach you something, right? Doesn’t have to be monumental, doesn’t have to be earth shattering, but it’s giving you some feedback on your behavior and ultimately you.
That’s the only thing that you can really control if you’re already a pro, is your behavior, right? That’s what you do. You stick to your discipline. Did you win the week? Did you put in all the orders that you wanted to put in, right? Because you’re powerless over the results. The best thing you can do is just follow your rules. But that’s why it’s important to know at least do they have expected value, positive expected value. It’s also good to know what’s your drawdown ahead of time, because the last thing you want to do is start to freak out when you’re under greater pressure in the drawdown. So plan for this. Take the action because the growth can really help you perform better and also get you to a spot where you can become more comfortable in a new methodology. Then you can grow from there so they get comfortable in the discomfort because that’s where the growth can be. And it doesn’t mean be reckless. You can do this on a small scale, but I know enough about my own behavior that when I don’t revisit my goals or I don’t make sure that I’m marrying right, the fancy word is praxis, where you marry belief with your behavior. That’s when you’re in the zone. It’s when you’re like, nah, I’m going to take a day off, or I’m going to coast. I’m going to do this and that. Now you might want to reconsider what your goals are,
Right? Because you can’t just state your goal. You actually have to take the action. That’s the thing that I’m trying to get across, is that it’s the action. Even if you’re fumbling taking of the action is going to help you learn about yourself and the process a lot more than sitting around in theory theorizing about it. You see, it’s important that you actually step out of your comfort zone and take a step in that direction. Could be completely smaller scale, but that to me is much more valuable than buying yet another book or doing more research or doing things on the theory side, because we don’t get paid to know stuff. We get paid to execute. So in order to improve your results, you have to learn to execute. Maybe not better, but differently. See, anyway, appreciate all your feedback. Keep the comments coming. If you like anything here, it’s res resonated with you on a deep level, please consider liking and subscribing. I get a good bunch of data, and then I can create more content that’s better for you, and I’m not wasting your time, especially don’t want to waste my time creating videos that no one cares about. So far, so good. So I appreciate your feedback. Thanks very much for everything, folks, and I’ll see you tomorrow.
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The post How To Optimize Your Trading Process appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. I hope you’re doing very well. So I get some really good questions from everybody who watches and I really appreciate it. It’s, it’s very, very good. Gives me some feedback, maybe it helps me understand where I wasn’t clear on certain things, but it also helps me get to the heart of the matter where I can really answer a question such a way that it makes a big difference for you in the way you interpret what I’m saying and how you can take it and put it to work for you right away. So comment on one of the videos was how can you please help me get to be more accurate as a traitor? And at first I was just going to write something back then I said, nah, let me think on it. Then. It occurred to me that trading isn’t necessarily about accuracy, it’s about expected value. The problem is the way we learn and the way we’ve been conditioned to learn. So when you think about the expected value of a trade, it definitely helps you see and visualize where what it is that your edge is or where your edge is. So the formula for calculating expected value, it’s probably pretty simple. It’s all over the internet. You might have seen it in a course that you’ve taken. It doesn’t take a lot.
It starts with the winning percentage. And with that, you’re going to multiply it by the average win and then you’re going to subtract your losing percent. And then what it is you lose when you lose and that equals the expected value. So when you do enough trades, you can keep the data and calculate what it is where your edge is at. So I’ll use a hundred as an example. It’s not a big number, but it’s enough to kind of see. So say after a hundred trades, you find out that you have 40 wins and you have 60 losses. From an academic standpoint, that’s an abject failure. If you’re batting average, if you’re in B American baseball, you’re going to the Hall of Fame because you have Ted Williams style numbers. But if you’re looking this as a pass fail, you can think, if you think of it academically that you’re somehow a failure.
I don’t believe that’s the case, but you might be able to see that yourself. Depends how you process information. So the question then becomes how can you make money if you only win 40% of the time? And I chose 40% cause I didn’t want to say that you have coin toss odds, meaning 50 50. I wanted to show you that you can lose more than half the time. You win less than half the time, but still make a lot of money. And it comes down to then this ratio here. What is your average win to the size of your average loss? What’s that ratio? So if you used something like three to one, which means my winners are three times the size of my losers, it means also that one winner pays for three losers. That’s another way to look at it. And now that we have these numbers, we can kind of plug them in and just come up with an example and go from there.
So my winning percent is 0.4, and when I win, I win three times. Whatever my risk unit is, right? That’s this number. So then what’s my losing percentage? Well, it has to be the compliment of what I win. Cause I can only have a hundred percent of everything. So when you think of these two numbers, they have to equal to one. The way I’ve written it, right? Point six is 60%, right? Point four is 40%. So you could look at it however you want, but it has to compliment each other in that it adds up to a hundred, right? Then you have the relationship between your winner and your loser. Whoops, I still have the damn eraser on. And that would be this ratio here, three to win, three to one. You see that? And so when you start to think about the accuracy game, you might be missing out on all the other moving parts because now I have one, I did it again, I have 1.2 minus 0.6, and so therefore my expected value is 0.6. And so you can use, when you think of this three here and this one, you can use R, you can use dollar signs, you can use percentages. It all, it depends on what the best orientation is for you. So the question came in and said, Hey, can you help me be more accurate with my trading? And normally I kind of can. I’m sure that there are things that I can convey to you.
So this comes in on the sneaky way you can undermine your trading profits. So that was the video and the comment came in from Stanford oh eight, Stanford with an M, not Stanford like the cardinal. Thanks sir. I hope you give us some insights on how to improve trading accuracy. So I want to change the nature of that question and think about, I can hope you can give us some insights on how to have a higher expected value or how we could make more money, because trading accuracy doesn’t necessarily mean making more money. In fact, the systems that I see that are really accurate, like 80, 90% accurate, they’re only accurate for small gains. I don’t see 10 to one or these crazy asymmetric payoffs with a 90%. You see, you’ll only know from trial and error because it’s not theoretical and it’s not absolute.
In other words, I can’t give you an absolute rule for this that would affect your trading. You have to go through trial and error. That’s why when we look at this, it’s a real number. It’s after the fact. So just like in paid traffic or advertising campaigns, your first month, two, three months, whatever it might be, isn’t necessarily to get results from your paid traffic to harvest the data to see what’s working and to eliminate what doesn’t work. So then you can go, I don’t do paid traffic, but I’m just using it as an analogy. That’s how you get to refine things. And so early on in your trading, you need to be able to go take the chances that you don’t want to take because you might not want to feel the feelings that are necessary with losing money because it was hard enough to get place.
So let me clean this page up a little bit. And anytime you have expected value that’s greater than zero, then that’s a system that’s worth following. That’s the rule of thumb. The higher the number, the better. So when you start thinking about accuracy, what you’re really thinking about is this is your winning percentage. How can I increase my winning percentage? Because everything else being equal, if that goes up, then my expected value value’s going to go higher. But I think to get accuracy improved upon, it’s actually harder because you’re powerless over what the market does. The best thing that you can do is put on your trades according to the rules that you follow. And I’ll use rules if you’re a discretionary chart reader and you have trading rules that you follow, whether it’s pattern recognition or pullbacks or stuff that other people teach, or if you’re purely systematic, I kind of refer to that inter system because I know people that are discretionary chart readers that can get quite robotic about it, meaning they don’t let their emotions interfere with their judgment and they can execute time after time.
So when someone can do that, it’s very close to being a pure mechanized system. And they don’t need the computer because they have extreme levels of discipline and they don’t let their emotions sidetrack them and knock them off balance. So if you’re an intellectual person, you’re absolutely want to increase your winning percentage because it feels good to be right. In America, you go to school from the age of six to 18 that you have to for the most part. So that’s 12, 13 years, whatever inclusive, where you have been graded on accuracy. Every true false quiz, every test, every paper, every fill in the blank, every term paper, every midterm, every final was graded on accuracy. And the more accurate you were, the higher the grade. And that happens systematically and in a very hierarchical way over years 12, like I said, 12 years, maybe 13 for some of you.
So that’s ingrained in your brain. So you’re always, your default is to let me read another book. Let me take another course, let me get another tool. Let me add another indicator, which is kind of what got me thinking about this in the first place was that you don’t need another indicator if you’re willing to feel all the feelings that will come up from your trading. You can’t insulate yourself from losing money. What you can do is make sure that when you do incur losses that they’re small, they’re paper cuts. Because what you don’t lose, you don’t have to earn back. Two. When you think about, whoops, I made a typo here. Pardon? Pardon, pardon me folks. Sorry about that. This is the average loss, I apologize. Sorry about that. So your average loss on some level, if you’re very systematized, even though the dollar science might vary small amounts, if you’re risking say one half of 1%, then every trade should be the same. So in that case, your average loss should also equal your largest loss because you always have it set with a protective stop no matter what.
Now, even if you’re using a simulator and you haven’t done trades, you might have found that these types of results had come up for you in your simulation. And the key one is this ahead of time that 60 out of a hundred trades are going to lose money if you followed the rules and the back test is positive because you have to take both. You have to take the thick with the thin. It would be great if you could just throw in, cast your fishing rod a hundred times and pull something in a hundred times. It doesn’t work that way though, as I’m sure you imagine. So one of the benefits of back testing is it gives you a reality check and shows you that you are going to lose money if you have a good simulator. It could also tell you how big the drawdown is and what’s its duration, what’s the magnitude, and how long is it’s going to last. I’m down 14%, it’s going to last five months. I don’t know what it is, but that could be helpful for you. Why? Because when it happens to you in real life, then you don’t have to freak out. Why? Well, because you can see it ahead of time. You can see that that’s a reality.
So then you go back to the drawing board and you say, well, okay, well I don’t like that. I’m going to have to cut this number smaller, keep my losses even smaller, because if everything else is equal, my winning percent, my average win, and even the frequency with which I lose that can all stay the same. If I decrease my average loser, then my expected value goes higher. You see? And that becomes another way that you could make more money. So I wouldn’t think there’s a few moving parts here that discuss making money in trading only one of which is accuracy, which coincidentally is in the equation for calculating expected value. So again, accuracy is important, but as you can see here, it’s not the only thing because if my winners are 10 times the size of my losers, I might be able to have a system that I’m only correct maybe 20, 25% out of the time. Now, how would that feel if you were putting on five trades where you knew four out of five of them were going to lose you money?
That’s a whole other type of emotional constitution that you have to process. So the easiest thing for me, let me clean this up a little bit, get some of the crap off the screen here just because when I’m talking, it could be a bit of a distraction. So I’ll take this off and I’ll take that piece off. So now that we’re looking at this, if you can’t necessarily change your winning percentage and your losing percentage is a compliment, right? Because your winning percent losing percent has to equal a hundred. One of the other ways that you could make a lot of money or make more money is to obviously cut your average loss as we just discussed, but also look at your average win.
Because if you increase your average win, everything else being equal, you can change these percentages or you can change the relationship between those two. You see what I’m saying? So that’s why I want to get you off of, don’t worry about the accuracy. That would be the last thing I’d worry about. What I’d be interested in is like saying here, okay, well my, let’s just say that my winning percent is going to stay at four and my average win was at three. I’m going to lose 60% of the time, and that’s going to cost me one risk unit and net net, there’s my expected value. Well, you can see then if I increase this number on my average win, then the product of this side is going to be even greater than this one, which would stay the same. So say my average win goes up a third to four, now I’m at what?
1.6 minus 0.6, you see? So you can see the mathematical effect of increasing your average win. Now, how do you do that? Well, if you have a winning trade, one trick could be to stay in the winning trade. Let me clean this up a little bit too and go back to what I had. I think this was three, right? So say that you are doing this in units of R, you make three R and you risking one R. Well, suppose you’re in a winning trade and the way you break it up, and so this is mindset stuff, but it’s also tactical. So see how it fits for you. Maybe you scale out of your winners. That’s not my style necessarily, but I know a lot of folks do it. So how about this? When you get to, if you’re not stopped out of your trade at your one R loss here, maybe when you’re here you say, well, when I get to three R, I am going to remove one third of the trade, and then I’m going to trail.
I’ll have my protective stop at now two R. So this way if it reverses on the other pieces, I’ll still walk away having made money, but I’m going to keep two thirds of the position on why I’m making money. I can perceive that necessarily as a good risk. So let’s go down and say, okay, well now at four R, after I let the thing run, let’s just say my protective cell stop is going to be two R. So I’ll raise it here for three R, and at here I’ll lift a third, and at five R, if I get there, I’ll sell the remaining third with a four R trailing stop. So now if you can do the average, you can see how your R level on your gains will go higher by how you’re scaling out of your winners. The good news is you can already say that they’re winning because you can see that on your p and l.
All you have to do is stay in those winning trades longer. Now again, if you’re day trading, it’s probably harder the longer you go out. If you’re like position trader more like me, or if you’re a swing trader, you know, can see about putting these rules in and scale out of your winners. So that should make this number higher. Now, you can test again with the fractions too. I mean, maybe you sell a half and you keep a half. I don’t know, you could sell forth. It doesn’t matter to me. It’s something that you have to test because there is no absolute answer. There’s only what’s best for you.
But then you can mess with the numbers, like I said, and say, this was your profit. I’ll put pie because economists use pie for profit, and then this would be your protective sales stop. Notice, I don’t say stop loss. Why? Well, because you’re making money and I just choose to use very specific language in my brain where I don’t want to emphasis losing. Yes, am I not making as much? I’m not. But the expected value of staying in a winning trade could actually be higher, especially since I haven’t tested it. That’s what you’re saying to yourself. So sell a third at three R, maybe trail it with a. So two R is where your stop is. So if the remaining position goes against you, you get taken out, you still make money on everything. If it goes to four R sell, I guess half of what’s left, it’s still a third of your initial position, but it’s half of what’s left.
So you’ll sell that at four R and then raise your protective stop to three R. So if that last third reverses, you’ll have two pieces sold at three R and one sold at four R. You’re still going to skew the average of your average win higher, which to me is easier to do than worry about getting more accurate because every system that has positive expected value is going to have times when it goes crazy and times when it looks like it’s just the worst trading system in the world, especially when you’re in a drawdown. You see what I’m saying? So as Warner Wolf would say, let’s go to the videotape and investigate this even further and put some numbers to it. Again, you can figure this out in your own notebook on how you want to do it, but let’s just say that you started with 40% winning per percentage, and you made three times the risk unit and you lost your risk unit 60% of the time. That equals your expected value. So if we did the math here, it’s 1.2 minus 0.6. So the expected value is 0.6. So let’s just say that you can increase your winning percentage, excuse me, your average winner by 33%. So let’s change that to four, right? Everything else being equal.
So now it’s one, right? It’s 1.0. Here’s 0.6. Now I have 1.6 minus 0.6. So now it’s one. So check it out. Look at the factor on the multiplier here. From three to four, we improve 33%. Fair enough. What is it when you go from six to 10? It’s 0.6 to two thirds. So I increase my profitability at a higher magnitude than I actually had my own profits. Is that fair to say? So 0.4 over 0.6, how do I get the 0.4? Well, it’s the difference here, and that’s where I’m growing from. So 0.4 over 0.6 is two thirds, but I only increased my gains from three to four. So that’s one over three, that’s 33%. So the goal for me then is to become more profitable, not worry about accuracy. And how do you know whether you you’re in a winning trade? You can already tell that’s the beauty of it.
You don’t have to worry about the accuracy thing at that point because you’re already in the winning trade. You see, it’s easier to just stay with what’s working than have to worry about coming out and putting yet another indicator on your chart. What can you do? Well, we talk with Brian Shannon. You can look at key points and do some anchored vw. You could check the trends over multiple timeframes. I would definitely look at weeklys and monthlys because that’s where definitely weeklys and dailies, because that’s where the material data are in the longer time series, short-term data, intraday stuff, people trading 65 minutes, four hour bars, I get it. The thing is, is that no matter how you slice and dice the intraday stuff, it’s much more random despite the patterns that you think you can see, all right? Whereas if you’re looking at weekly breakouts, that’s much more significant because there’s so much other time that can be employed into the data to really screw it up.
So if you see something evolving on the weekly charts, now you can downtime it to dailies or maybe even intraday to see where the specific levels are. So when people say to me, I want to be more accurate, I always kind of start to think and say, well, there’s a lot more too. Trading profitably in calculating where you’re trading edge is by looking at the results. That’s why I’ve said from day one, don’t sit around and think about it. Don’t read another book risk five bucks a day. I don’t care what it is, but put some real risk on and test your ideas and make sure that it’s with real money because you’re going to behave differently when real money is at risk rather than paper trading. And it’s not to say that some of you can’t treat the paper trading account, it’s real money.
Maybe you can’t. But I do know one thing is for Dam shore, when you’re starting to lose real money that you had to work for, and you’re still in the spot where you’re like, okay, there goes 10 pair of Air Jordans, or there’s a weekend away that beautiful Mount Air Lodge or wherever you’re going to go, you start to internalize that, and now the feelings become much more real. You see what I’m saying? So that’s why I say you’re better off trading real money and risking whatever, some tiny not measurable amount of money because at least it’s going to attach real feelings to you. And you’re an emotional system as much as you are a trading system. That’s absolutely true. Now, once you have all this data, you can do some really funny things because you might have, when I say funny, I mean interesting in the way I use funny here.
What’s funny is once you get the expected value, here’s your expected value. Now you can go back and say, okay, well what was my goal? Right? Because you don’t want to, when you think about trading any other endeavor, it’s like what is it that you want your money to do for you? And I don’t mean I want to make money, but once you have accumulated all that money, okay, well, I want to grow it. Okay, great. At the end of the day though, there’s a point where you’ve accumulated enough money to more than cover a very high quality of life. So that’s what I’m getting at. What’s the point of growing your money? What does that do for you? There can be small things along the way. My self-esteem goes high. I know I can succeed at something that most people fail that can make me feel good without being shot.
And Freud, I can make my hour own hours. I can be my own boss. I can for the way that I trade. I can do this over several days early in the morning before work, and then I can offset or put orders in during my lunch hour or what have you, for managing my risk the rest of the day. There’s a million ways to do it depending on what your holding period is, of course, and whether or not you’re looking at using or trading levered instruments. So I would say in a long-winded way that focus on how to increase your average win, because you can do that without having to have a higher winning rate, because you’re al, if you’re already in a winning trade, you can squeeze more money out of it by staying in it longer. And that might mean holding it overnight.
I’ve already done that study and I showed you that you actually get paid quite handsomely for having risk overnight and over the weekend, you see, but I wouldn’t let you know the lack of a goal, the lack of a goal to me. We’ll talk about this maybe tomorrow, if you get lazy with yourself, it just means you’re delaying gratification or you’re not really ready to hit your goals yet. So that could be your subconscious. Why is that happening? Are you not worth it? Right? Are you afraid to really kick in? What would happen if you actually hit your goals is that very, sometimes that’s very scary for people. You see what I’m saying? So it doesn’t matter to me. If you’re into reversals or you’re day trading, or you’re a short seller, or you’re doing option spreads or commodity spreads, or you’re doing any type of directional trading, you’re only going to get the real data that means the most from real trading.
The hypothetical stuff is interesting, but the truth is, is that very rarely do the things happen in the laboratory. Do they work out in real life? It is important to give you an idea because you can, if nothing else, see that your system would’ve made money one and two, you can calibrate your emotional constitution with those very rules because if you start to trade and you think, well, no, I’m not going to have draw down. It’s not at least the way other people do because that’s just not me. I don’t do draw downs and then, okay, fine. But if you looked at your rules and you followed them objectively, these systems do like these simulators, right? It’s forced objectivity it. You can’t go back and say, oh, yeah, well, that was a big loser. I would never really have taken that trade. You don’t get to make those decisions because the computer just looks at the data and says, the criteria is met. We’re going to add the risk according to this position sizing algorithm. And then there you have it.
It’s important though also, or in order for you to grow your average winner, you have to be absolutely regimented and militaristic about taking your average and your small losses. So that has to be locked in because the minute you give yourself permission to say, I bought something, here’s the chart, dot da, da. Got the breakout here. I got it at 18, my stop was at 17, it’s at 20 now, and then it comes back on me. And then when you find yourself at $17 and 20 cents, you’re like, oh no, I’m just going to make it 16 because I don’t want to get knocked, knocked out and have the thing go back up. I’ll feel like an idiot. But what happens is if it trades 1720s through 17 down to 16, the way I would look at this and don’t, I’m not using any data, is that sixteen’s going to bring 13 before it’s going to bring 20 again.
And you can see that. You can see when tops fail, that oftentimes happens, is the thing comes back, takes out a bunch of folks, and then there you have it and it’s lookout below. So you always want to make sure that no matter what you’re thinking, even if you have a hunch that the instrument’s going to come down and rally back up, it doesn’t matter. You can only manage risk in the ever-evolving moment of right now, I can’t manage my risk based on what I think is going to happen next week or into May when earnings starts to kick in again, when earnings are getting reported. If the price is going against me now, and I’ve already determined what my position size is, there’s a set spot where I have to get out and you need to own it right here. And that’s the key to making money, is to keeping that number small.
Because what you don’t want to do is it put yourself in a spot where your average wind can go up, but then you get super lazy on where you’re putting your protective stops. And so at the same time, your average winner goes up, but so does your average loser. Why? Well, because you had that one big outlier trade, and then you do yourself a disservice by saying, well, yeah, that was just a flyer. I took it. I admit I was wrong. I lost money, but I don’t include that in my results. Well, now your numbers don’t have any integrity, right? Because you’re kind of making stuff up on the fly, and I don’t think you’re being honest with yourself. So before you start worrying about batting average and your winning percentage, I would say the easiest way to have a higher expected value, which to me is the goal, not how frequently you win, look to increase your average win.
And that can mean staying in trades longer, scaling out of your winners at key times, and then putting protective stops below the market on the remaining position so that if it does reverse, you know, don’t get knocked out for heavy losses, right? That’s a very interesting way to look at the math behind trading and why is it? Why does it work? Cause this here represents what your trading edge is. Once you get this number down, it’s something really cool happens in that you can look at, say, Kelly criterion or otherwise, and now you can see, okay, well if this is the expected value of a trade and I know I want to grow my money fivefold, I want to turn a 10 K into 50 K or whatever, the number doesn’t matter, I want to take a million to 5 million. Well, based on your own behavior, what the expected value of a trade is, a couple things happen.
One is you can say, on average, I’m making my expected value even on the trades that I lose. And that’s why it pays you to put on every trade effectively and spiritually, is that you have to put on every trade. Because on average, when you have an edge and you follow your criteria, right, the expected value’s not going to change from one trade to the next. If you change your bed size, yeah, absolutely. If you change where you put your protective stop, that’s going to alter everything so that the rules have to be locked in and written in stone. But if the goal is to make more money, I would say yeah, be mindful of checking out and testing where you can get better winners by altering your entering criteria. But I wouldn’t go nuts, and I certainly wouldn’t look at overlays and indicators because I’ve already proven to myself that they don’t work.
So I’d save you the time if you want to go do the work yourself. It’s a very enlightening experience. But I think increasing your average winner is might be the easiest way. Then once you figure out what your edge is and what the expected value of the trade is, you can use Kelly criteria to see, okay, well based on these numbers, here’s my optimal position size. And then having said that, you can figure out further in order to hit your goals, you’re going to have to put on a certain number of trades, and you might be like, man, market’s stalled. There wasn’t really a lot of good opportunities this past week. I’m going to need to put on 10 or 20 trades, whatever the number might be. I might have to put on tw 20 trades a week because the system, after everything is said and done, suggests that I have whatever, 250 trading dates and I need 500 trades. So whatever that number comes up to be, two a day, maybe that’s it. Maybe it’s 20 a day. So now you can say, okay, well based on the practical, there’s not that many opportunities for me given my trading style, but at least now you, you’re dealing with objectivity and you’re looking at the numbers so that this way, if your count isn’t growing, at least the reason why, and it probably doesn’t have anything to do necessarily, or at least solely with the winning percentage.
You see what I mean? So it gets kind of deep, but this is all very, very important because you’re winning and losing percentage come from calculating position size, entering your orders, and letting the market come to you. The average winner, average loser is a ratio that you create also based on your own behavior that you’ve observed. And so if you want better results, then you can absolutely have better tactics for say, taking winners or staying in winners longer, or maybe even adding to winners. Like all of that’s doable. That to me, is much easier than trying to find the most accurate system.
Cause I would say embrace the uncertainty of making and losing money. Just use your protective stops. Once you’re in the position, use buy stops above the market to enter long positions. So this will motion or the need to chase, which is lethal, and then add it all up. Because when you then look at where your edge is at and how you’ve created, now you can set goals to me are much more realistic because you can see based on your own behavior, what you’ve deliberately done, intentions equal results. So that’s why I don’t think this is terribly difficult. It can be difficult if you make it difficult, otherwise it’s pretty simple. The math is not terribly difficult. But once you have the math, then you could really set better goals because you’re like, okay, if I want to grow my money five or 10 times my account size, I don’t have enough trades on to get there.
One, I might have to increase my size. So that means what you have tighter stops, you give it more room. Are you going to invite bigger drawdowns? So now you’re kind of, again, you’re carving it out of stone. David was already in there, Michelangelo just said him free. Now you’re kind of doing that with your own trading, and it’s not complete guesswork. Now, if you go back and watch another video I put up about how to use scale up, you can see why people just going from trading ones and twos to say fives to tens is reckless because your account isn’t growing in proportion with your position size. So you’re actually increasing your risk in a way that hasn’t been scientifically tested to help you maximize the results that you can see from this very equation. Again, then you can go use the Kelly Criterion Kelly formula to help calculate what’s your optimal position size, and then you’re off to the races based upon what you want your target rate of return to be.
So then the whole thing isn’t just a role of the dice, it’s much more scientific, but then you have to stick to the behavior because the behavior predicts where you end up. You can sit and do the math all day, but the reality is, is that if you don’t stick to the rules, then what’s it all for at that point? Because you’re not being true to the model, and it’s the behavior that predicts where you end up. So you have to execute your trading rules, your model, your system, you can call it. It’s the same thing to me, you know what I mean? So this is hopefully very, very insightful for you on how do you actually improve your trading and making money. I would not worry about accuracy. I would worry about increasing the expected value of a trade, which again is to me easier.
How do you know? Well, because you’re already in the winning trade, just increase your holding period. You’ll have to deal with the emotions that go with that. But that to me is a lot easier than trying to test indicators and moving averages or otherwise to find a more accurate entry system. Okay. Anyway, thanks very much for the comment. Appreciate please like and subscribe and always give me comments. Let me know what you think because I can come up with more material like this that’ll hopefully be very valuable to you and help you accelerate your learning curve. All right. Thanks for being here, folks. I’ll see you tomorrow.
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The post How To Use The Math To Make More Money appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So I wanted to do some follow up on the video I did on position sizing. The title was What Most traders Get wrong about position sizing, which again, we’re splitting hairs here, right? So it’s not definitively wrong or they’re definitively right, because the thing ebb and flows and you’re really making these adjustments in real time. So say you’re working at a place where they have these tiers, to me that’s more of a managerial decision, right? Than it is looking at things based on the dynamic volatility of the marketplace. And I can see why it’s done, and I think it’s prudent, right? So I’m not, I’m poo-pooing it, but what it does do if you’re in that process is it conditions you to think in one particular way. What do I mean by that? Well, at any given time, your line of credit, your account balance, whatever it is, is reacting to the positions that you have in the marketplace.
And in my opinion, we really make and lose our money by position sizing, not by, that’s why I go crazy when I hear these companies talking about technical packages and technical analysis and sniper your entries. It’s not really that important. The sniper your entry. Yeah, again, if you’re trading 30,000 shares of a 6 cents stock, a penny can be painful. But I’m talking about trying to make real money with positions over a longer period of time. You have to be able to sleep at night, but also have enough risk on so that it makes sense for you when the thing does move in your favor. So think about having a hedge. It can be a beautiful eight foot hedgerow, but still, it still needs to be pruned. So when you find yourself in a position, and again, I’m not talking about intraday stuff, I’m talking about taking risk home overnight over the weekends, you have to conjugate that position size right?
With the volatility of the instrument and also with respect to where your account balance is. If you are up 200% already year to date, regardless of your account size, emotionally, you can free wheel a little bit. Not to just gamble, but you have it to give. Whereas if you’re in an A 20% drawdown and you’re trading 80 cent dollars, it’s a different mindset on how you handle the risk. So my take on all of this is that focus on your position sizing and dynamically adjust that because if you’re trading, say tens, for example, 10 contracts or a thousand shares of 10 future contracts, maybe five option contracts and maybe share sizes, you’re looking at a thousand shares, you might find that you can optimize your behavior better if you looked at say, 1,050 shares, right? Or 900 shares for your style of trading.
So that you can do that by testing. You can also do that by looking at the results that you have. So where I do think entries and exits are important, they have to be conjugated to the position size because you know, can’t just say having a $1 stop, for example, or a 10 point stop on the EI or blah blah blah is optimal until you’ve actually done it in real time. And then you might find that you don’t have enough risk on, which is actually a big problem in my experience. I think the professional traders do a really good job of knowing not to have too much risk on, but the one thing that I found is that oftentimes they don’t have enough on, and this is in the face of me totally agreeing with the idea that the job for us as speculators, as traders is to play superior defense.
That’s job number one. And so, yeah, that seems weird to hear when you’re thinking about, well, our job is to make money, but at what cost? Because ultimately, if you see somebody and they’re in these trading contests and this and that, which I don’t necessarily think they mean anything, it can bring out the worst of you because the key is risk adjusted returns. If you’re going to make 150% but have to live through a 60% drawdown, is that the type of trade-off that you want? Whereas if you make an 80% and you only have an 8% draw down, that to me would be remarkable. You see what I’m getting at? So I think you have to look at risk adjusted returns to what is the return that you’re getting for the risk that you’re taking, because you always have to be concerned about the draw down, which I think you have to ensure against first. And that becomes a function of your entry and your exit and your position sizing. So don’t sell yourself yourself short by trading too small and don’t be throw caution to the wind by trading too big. I think the position sizing thing is much more dynamic. And even if you’re going to trade, say gold futures or Nvidia stock, even if you’re risking say one quarter of 1%, you might find that your position sizing is different from day to day to day.
So look at it and make sure that you, it’s at least something that you think about from time to time. I’m going to do a longer form video on adjusting position sizes and how do you know when and how to scale? Cause it’s very hard to do in an audio only format and it’s going to take some whiteboard action. The only problem that I have right now is that I don’t like the whiteboard action scenario that I have here. I have to use a tablet and a stylist. And the quality of the video for your viewing hasn’t, doesn’t come out as good as if I’m using the 4K camera that I have here. So I’m going to work on that and figure out what’s best so that I can go through some examples so you can kind of see, because I think one of the things that guys do,
Especially they’re newer, they’re younger than, they have smaller account sizes. They want to go from trading ones and twos to twenties, and it’s just not practical. It, you don’t make that type of a leap. It’s much more dynamic based on the volatility of the instrument that you’re trading as well as the size of your account. So the growth is much more gradual. You go from ones to twos to twos to threes to threes to fours like this and that. It’s not practical to jump by. That type of a factor of say, five or more, unless you’re going to get a bigger allocation or to place where you’re working, gives you a larger allocation or a line of credit, so to speak. So you want to stay kind of consistent in your behavior. Part of that behavior is choosing the most dynamic position sizes for the risk that you’re willing to take.
Again, we talked about patience yesterday. It’s going to take you a while to get where you want to be. Again, what’s the goal? Do you want to walk around town and say to everybody that you’re trading twenties? Because to be frank, no one’s going to care, doesn’t mean anything. So you want to think about focusing on what matters most, and that is, can you behave consistently? Behavior predicts where you end up. So focus on what really matters more than stuff that might satisfy your ego. There’s nothing to feel insecure about. Everybody starts with zero. Richard Dennis, right of c and d commodities who trained all those turtle guys. He started with a couple hundred bucks.
Everyone’s got to start somewhere. So just enjoy the process and focus on the process as opposed to, I want to beat Paul Tooter Jones in a year. It doesn’t work that way. So it goes back to being patient, and I think growing your money has a lot to do with, yes, your entries and exits do matter, but they have to be conjugated with the position size because that’s where we make and lose money. As always, I appreciate your feedback and your comments. Please like and subscribe and send your comments along. I don’t have all the answers. I can only speak to what it is that I’ve gone through and then share my experience, strength, and hope that it might help you in your endeavors and in your journey as you grow in this business. All right, so thanks for being here, folks. I will see you next week.
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The post What Has The Biggest Impact On Your Profitability? appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. I got a good comment the other day about patience, and man, that’s something that I still think about to this day. It goes along the lines of how do you manage patience while in pursuit of your goals? And I’ve talked about patience a lot before, maybe not all in one spot, but it’s interesting because patience is really the act of not doing something that you might feel impulsively to want to do, for example. So what is it that you feel when you have to be patient? So for example, maybe you get in a trade, you’re a breakout trader, you buy the trade, it goes up a little bit, but it doesn’t go enough to warrant taking off the trade. Or if you’re still stuck and using price targets as opposed to letting the thing see, it’s unlimited upside, maybe you feel like once it stalls, now you are stuck, right?
Because now you kind of personify what’s going on with the security, even though the forces of supply and demand are at work. Sometimes when you see a protracted move, right, there’ll be a breakout, it’ll create a new range. Then there might be a natural reaction or a pullback from people taking profits, or maybe people who feel like the thing is overvalued at higher prices, so they’re entering the market short. Then you’re studying the volume. Typically, you want tighter volume, but every system could be different. And then you have to, I don’t want to say literally or figuratively, but you know, have to sit on your hands. So what does that feel like to you when you’re in a winning trade and you have to wait because it’s life on life’s terms? You take it a step back further. The people that do this very, very well are people who have learned that sometimes they can be their own worst enemy by forcing themselves to take action when no action is needed.
And they’ve studied their own behavior like I did, and realized that a lot of times when I was starting out, I was taking action because I felt I had to be doing something. And this is long before you could use hot keys and point and click your mouse and do this and that. It was much more troublesome to actually put in an order. It was also more expensive. So commissions have compressed 99 to a hundred percent depending on where you’re executing. My opinion, I use premium service because I want premium service. So you get what you pay for. But I think when you think about having to be patient, you’re really thinking about the feelings that you have to feel in between adding and removing risk. And I’m comfortable with those feelings. I don’t let my feelings overcome my judgment because I’m in it for the, I don’t want to say I’m in for the long haul cause that’s kind of a cliche, but I am in trades to hopefully let those grow to 20 R, right?
And if you looked at my own trading, oftentimes I’ll hold a futures position longer than some people hold stock positions. Now, I can’t fully load my account with that, but I could step my toe and add, step my toes in and add to my winners along the way. And if it keeps going up, well, I’ll keep buying. So you get to decide what it is that you want to do. I just found that when I acted impulsively, because I didn’t like what I had to feel when I had to be patient, I actually performed worse. And the double whammy on that is that you’re already in a winning trade. Now, all I had to learn how to do was to sit on my hands. That means I had to be able to let myself give myself permission to and be willing to feel every feeling that came up for me while I was managing risk.
This happens a lot for newbies as well as the folks who are making a couple million bucks a year that we consult to a lot of times there’s a lot, there’s a lot at stake, right? And two, it’s oftentimes a little bit more public than if you’re just trading for yourself at home, because you might be on a trading desk, you have a risk manager. You know, have someone who’s speaking with you every morning to say, Hey, how’s it going? What are we working on today? So there’s all that kind of stuff that gets in the back of your mind. It’s why one famous trader, I won’t mention his name as part of his client agreement, said three things. I promise to run my system. Two, I do not promise to make you money. Three, if you call me more than three times, I’m going to give you your money back.
Which of course is it. They’re not giving. They’re just resigning from the account because you’re having your account custodied somewhere and you just kind of resign from having third party trading authorization. But that’s how, it’s not an even necessarily subtle. If you’re a trader and you have client funds, for example, or people who are constantly asking you about your behavior, you find yourself in a spot where now you have to conjugate your behavior based on what other people think, and that unless you have a strong constitution, you have to be able to farm that off. I remember talking to Victorio when they were working at Quantum Fund together. George would call Victor every morning. I don’t think I could do that. I don’t want to hear from anybody, even if I know who, who the people are at the various firms that make these phone calls every day. And since largely the behaviors regimented on my end, the answer to the questions going to be the same every day. So in my way of thinking, right? Since they can see into the account, there’s no reason to have that phone call. Because if you say, for example, gold has been up to around 2000, historic high, this
And that. Imagine if for whatever reason, your system didn’t have you firing and being long gold, but the person called you in the morning and very subtly was like, well, what do you think about gold here? Or do you think it has more room to go when they know that you’re not in the gold trade? Are they trying to communicate something to you? Because people can be kind of sneaky that way. In fact, I would say more than half the people can’t actually articulate directly, like saying, I know you have your model, but what is it about gold that’s not firing? Like, why aren’t we in it? And so that kind of stuff can put pressure on a trader that has really nothing to do with his or her or their goals. You see, because now I have to fend off political stuff or answer questions to other people who really have nothing to do with my trading and may have political reasons to want to have to call me. It’s because they have to and they’re like, Hey, man, I’m just doing my job. It’s like, well, all right, well, our jobs aren’t going to work all that well together because I don’t want to talk to people about the markets. If I did, I’d be doing videos like Brian Shannon every day about the market recap and stuff. He’s really good at it. It’s not what I do. I could easily add my 2 cents to it. I don’t think that actually helps people, though.
I’ve said people should go out and start trading on their own, even if you don’t even know what you’re doing, because the process of doing it is going to teach you more than any teacher can teach you, and you’re like, that doesn’t make any sense. Well, the goal is for you to develop a set of rules or chart reading skills that you’re compatible with, and only you’re going to be know how to do that. Even in the video I did with Brian, which is getting a lot of fanfare, lots of views and stuff on anchored vw, you still have to put those TR trades on to see how it feels, because ultimately, if it doesn’t feel well, two things are going to happen. The first one is, you’re never going to follow the rules, and two, you’re going to have to find a way to get comfortable with the rules or whatever you’re doing so that there’s some type of harmony, because otherwise it’s very hard to be successful at something that doesn’t feel good.
So again, we come back to patience. This all kind of ties into it. There’s feelings that you feel in your preparation. There’s feelings that you feel when you’re about to, when you’re setting alerts, there’s feelings that you feel when you’re setting your stop orders. Then you get executed. Now you’re in the trade, you’re managing the drisk, the trade, there’s feelings there. Then there’s feelings when you offset, either you could stop for a loss or you raise what we call your protective stop, not a stop loss below the market, but above where you got in so that you can still take some, convert some of your unrealized gains to realize gains, right? Then there’s the feeling that you have to feel overnight when the markets are closed. What does that feel like for you? What does it feel like to be long or take a position home over the weekend?
So when you look at all that and you string it together, you have your emotional system that you’re running concurrent with your technical rules, whatever those might be. So it gets to this much deeper conversation about what it is that, what do you want your money to do for you, right? Because the folks that are working at the big firms that are making several million a year, they have a very clear vision of what it is that they want their money to do for them, and it’s that vision that actually pulls them through their actual goal of trading. Well, say they trade well, that’s taxable income. Then they want to take that money, and some of them, believe it or not, don’t want to endow or further endow their own trading accounts because of how it’s taxed. They want to take the money, pay the bills, and then start and invest in real estate because of the tax treatment, the depreciation, the potential for cash flow and all that kind of stuff.
And so it’s the actual goal of having a family, personal, real estate investment, trust of investment properties, multi-family stuff. Maybe you own land that actually pulls you through your success in trading. And so therefore, I can sit back and say, while I’m in a trade, it’s working. I wish it was working out faster. I realize it’s stalled, but it’s still a winning trade. It hasn’t really moved the needle enough for me to warrant offsetting risk or even adding more, so I’m just going to sit still, because that’s part of my process too. It’s not just the actual doing. It’s the act of not doing, you see? So there’s a lot to talk about. I don’t know if I can do it justice, but that’s kind of what goes on in my own own mind when I think of having to sit on otherwise winning trades that have stalled a little bit or that are even kind of pulling back.
Some people have retracement. Someone says it’s a natural reaction. There’s a whole bunch of things that describe the same thing. You got the breakout, it went up a little bit, and then it’s come all the way down, maybe even almost to your point of entry where you’re at a break even for some of you, that might drive you nuts. For me, it’s kind of like, okay, we’re just getting started. So again, it comes down to mindset and what it is that your goal is. Lastly, I’ll hang up here, your goal should be around to process. Your goal shouldn’t be to make a hundred bucks a day, right? I think the folks that say they want to make a hundred bucks a day when they’re starting out, or if they’re, they’re at a day trading firm, or if they want to make a certain dollar value or percent rate of return per day, they still have to live to learn with the uncertainty.
And I think when you speak about patience and the things that you have to feel when you’re in the process of being patient has a lot to do with you being able to conjugate what it is that you’re actually doing in the marketplace with those moments in time where there’s no activity or there’s no movement in the underlying security that you already have in your portfolio, because it’s the folks that can better deal with that uncertainty, in my mind’s eye, that actually perform better because they don’t beat themselves at that point, and the markets, it’s hard enough to make money. I’ve said this before, in good markets, these aren’t necessarily good markets. There’ll be some names that go up tenfold, and that in and of itself, a singular name could be a market. I’m just saying for the overall tenor though, of how people feel about stuff, this isn’t like boom times.
It’s not like the mid to late nineties, for example. So if you embrace the uncertainty by having strict rules around risk management, and you embrace the uncertainty in your emotional system, which you also have to consider, I think you open yourself up to greater trading gains because it’s the uncertainty where you get paid, right? If that’s the risk, the risk of the unknown of how things are going to go, there’s a reward that goes with that. And all you need to do at that moment in time is know where your stop is, and that’s how you deal with the uncertainty. You say, well, no matter what happens, there’s my stop and I’m not going to negotiate that, and if I bought it 19 and my stop was 18 at 1820, I’m not going to drop my stop to 1750 because I don’t want to get knocked out of the trade and have the thing go back up against me.
Once I get knocked out. I’m willing to feel that frustration because I can only manage risk in the ever-evolving moment of right now, not what I think could happen in the future, right? We talked about that in a different episode about me putting on my optimum position all at once, and then realizing that I was getting knocked out of trades that eventually would come back and win. I had to find a way to minimize that impact. So I had to change and go to school on myself and change my way that I was adding and removing risk. Then I had to be patient with that process because I can only see the real results after the fact, after I’ve actually done and exhibited the behavior. So I don’t think anyone is immune from having to feel their feelings in and around being patient, but it starts with having a clear vision, a clear goal of what it is that you want your money to do for you. And then once you get that money, what do you want it to do for you then? So sometimes that can actually pull you closer to your goal and help you change your behavior today. It’s a super deep subject. I certainly don’t have all the answers, if you like, or if anything has resonated with you in this or any episode, please consider liking and subscribing because that helps me figure out what it is that you do so that I can create more of it. Thanks so much for being here, folks. I’ll see you next time.
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The post Trading Better By Doing Less appeared first on MartinKronicle.
Hi guys. Welcome back to the weekly segment that Mike and I do where we kind of check in and talk about some reader questions. Today I wanted to go over one of the ones that we got in our YouTube comments and just also wanted to highlight if you’re on YouTube and you’re watching on YouTube, make sure you leave a comment if you have any questions. That also helps the algorithm. Make sure you like it, subscribe, and you may be featured in another video like we’re doing today. But today’s comment is, Michael, you touched on something I’ve been trying to work on in analyzing myself. I noticed I have triggers while trading that are simply in the wrong place or at the wrong time. Not sure if you might have a suggestion on how to reprogram myself in that respect.
Pass. Let’s go to the next one. So look, reprogramming yourself isn’t going to happen overnight. Something might hit you like a lightning bolt in terms of getting insight, but behavior predicts where you end up and you have to do, there’s this fancy world called Praxis where it’s the marriage of belief with your behavior. So that’s why we always start on some of the consulting stuff with what’s your goal? And as soon as someone says, I want to make X amount of dollars per day, we’re like, either we can’t work with them because that’s really not a smart goal to have. You want to have a goal that’s in and around a process and that you focus on replicating the process. So I think I’ll borrow from Sue and the Art of War, which I do from time to time, just because you can’t really stress the importance of planning enough, and that is the victorious warrior first wins and then seeks battle.
So if you’re getting triggered throughout the day, what could that possibly be? Could it be that the instrument that your long is moving against you and so you’re either losing money or you’re giving back some unrealized gains and that triggers you emotionally to engage with the market when there’s no financial plan around what you’re actually doing or if it’s moving up and you’re not in, do you feel like you have to chase? Is that a trigger? I suppose it can be. Eventually this might even come from your subconscious. That’s why there’s not one little sentence that I can give you and have it wave my hand like Yoda and cure you from it because it comes from behavior. You have to go through it, you know yourself and calibrate your feelings with your actions, which is not theoretical, right? It’s something that you actually have to do.
At least I did. I don’t suspect it’s going to be easier for folks to intellectualize. It’s easy to read books from Marcus Aurelius and Stoicism and all that, but to actually do it, it doesn’t happen overnight from having read the book. You see what I’m saying? So that stuff is all interesting, but as far as I’m concerned, it’s not terribly practical as a one day fix because any type of a philosophy like that, it’s not just a one day type of a thing, it’s a way of life. So you kind of have to get into it and live it. And so when I think about traders and what would make them get triggered, it also kind of lends me to think that they’re traders, right? Because why other would you be watching the market every day? Two, if you knew what the expected value of a trade was and you knew that you’re going to lose 40 to 60% of the time and that ahead of time, why would that still bother you when you put on any one particular trade?
So you have these emotional expectations and they say expectations have built in disappointments. So you just have to take one trade after the other and not become emotionally connect, connected to any one particular outcome of that trade and detach, they say love with detachment, right? So you can love your process, but on any given trade, who cares how it goes. And so again, for beginners, I know this is blasphemous for many people, but I wouldn’t be watching everything tick by tick. And two, this happens a lot when people don’t look at the volatility of the instrument that they’re trading and they’re putting their stop into close, which means it’s within the boundaries of what a normal person would figure is acceptable in terms of noise, right? Because even if you look at the average true range of an instrument for stocks or commodity futures contract, it’s not really a directional indicator. It just says this is the typical personality of the instrument. So for example, if you’re trying to scalp on the big natural gas contract and you’re risking 5 cents because you don’t want to lose more than $500 on that contract, each penny is a hundred bucks, but the normal volatility is 17, it’s over 17. So you’re thought you’re talking about almost $1,800 of vol that goes with that contract. And if you’re trying to trade it within that number, you might get knocked out just because of noise.
So you have to be practical when you look at your trading and where you put your stops in. You see now there are ways, and I’ve read about folks and I know hope, folks who are kind of reading the news and they want to see, especially around some of these reports around the energies or the crush numbers and beans or earnings reports and stocks, and they go in and they put in a monster trade only giving a few ticks figuring that they’re going to time the market really, really well with the announcement as it would happen. And they only give a few ticks. Why? Well, because they’re trading the move huge. They’re expecting a lot of volatility in a certain direction, and so they put on a monster trade, but they don’t give it a whole lot of room to work against them because it’s a large position. That’s one way to do it. My style would be more to add small and then add to the winners over time.
So there’s the triggering of the chasing, there’s the triggering of having a contract move against you and then internalizing what the dollar loss is. If you convert that to percentages, then it shouldn’t really matter because every loss should largely be the same percentage of your account may call it whatever you’re comfortable with, maybe one half of 1% or quarter percent, whatever that might be. I would find it harder to do hard dollar stops because of the nature of the fact that you probably have open positions in your portfolio that are getting marked to the market with every trade in real time and the instrument that you’re get that’s triggering, you might be moving perhaps in a different direction. I think again, you should focus on your process more than the results of any one particular trade. Now, when you’re newer, easier said than done because you don’t have enough experience in trading to detach yourself necessarily from your system because you might still be going to the market and seeking some type of validation. Am I really a trader here? I know I’m doing some things that traders do. I’m adding and removing risk. But what is it that you’re looking for from your trading where you can validate yourself?
Because if it’s the result of any one particular trade, that’s going to be hard to live with because on any given day you’re going to get smacked in your head and it could affect your self-esteem or your sense of self-confidence or who you think you are in the world as a person. And so I try to stay out of the results of the trades and not look at the outcome. So I just basically focus on you have stops to enter and then you have stops to exit. I don’t call them stop losses, that’s bad as far as I’m concerned. So you have stops to enter, which we did another video on, you can go look it up and then you have stops to exit trades sometimes for a loss and sometimes to preserve unrealized gains.
But again, now you can meditate on that long before you even put trades on and say, okay, given the number of trades that I could put on, here is the deal. Here’s what I can expect to happen happened in the past from my back test so I can anticipate something similar happening going forward. So, and you can anticipate what’s going to happen going forward, where you’re going to lose 40 to 60% of the time on your trades. Why would you get upset about that if that’s what actually played out in real time, unless of there was a way for you to win by being a victim or seeking attention for all the wrong reasons. Maybe a person got used to bitching and belly aching and they liked all that kind of feedback from their peer group. I don’t find it particularly productive to complain because then I feel like I’ve surrendered all my power and I’m too powerful to complain about a situation. I’m going to find the solution. That’s what I do. But you have to have a certain type of emotional build for that. Not everyone has it, they can get it. But again, chapter two of the book is surrender. There’s a lot of things in life you can’t control, and the results from your trading is something you’re powerless over. All you can do is follow your rules and stay out of the results.
Yeah, for sure. I mean that, that’s a really big takeaway in a lot of things in life, right? It’s like learning how to not worry about the extraneous factors that you can’t control for. Just do it. You know, do best, like you said, put in your stops and make sure you have your own form of insurance policies and your own form of algorithms that you go through. But even in cycling and gaming and stuff, it’s like at the high level you have to just have to be on top of your mental game if you allow yourself to dig yourself deeper into a hole. We call that in gaming, we call it tilt queuing, and it’s horrible for your mental. It is the worst thing you can do for your mentality and going forward, it solves nothing. It makes your life much harder too. And one of the ways that I learned to combat that and not just continue to mindlessly play the game is understanding, okay, am I upset right now?
You have to ask yourself that a lot, especially in gaming. Am I upset right now? Is this a good idea? And then what I do in particular is I actually meditate on it, kind of like you said, I really do meditate in between things like, okay, if I’m upset, I need to realize that and I need to figure out how I can reset myself. I think that’s part of the reprogramming aspect. And I’m not sure if it applies necessarily the same way to trading, but I think understanding when you’re upset in general is typically a good thing. And then also developing a strategy post recognization saying, oh, I’m upset. What do I do from here? And coming up with that strategy?
Well, there you go. I mean, there’s a good example of how it’s not really about any one outcome. I can see where it comes from when you talked about going on tilt, people can do that all the time, but that’s because they’re in desperate. They’re in desperation at that point. And I think a person kind of knows when they’re acting out of desperation, that’s exactly the time you shouldn’t trade. You should truly really try to figure out what is it actually that you want your money to do for you? Most people are going to say, well, I want to grow my account, but there’s so much more to it. It’s not just the number. What are you willing to do? I was talking with somebody who has a pretty tight stop on their equity and said, I said to the person, look at that point, it tells me a couple of things is like you’re till you’re scared to lose money.
And if you’re trading from that fear, there’s a saying on trading that you’re trading with scared money and it’s hard to win when you’re trading what scared money. You have to put yourself in the mindset that whatever your grubstake is, you have to be ready, willing and able to lose it all. And until you do that, you are absolutely trading with scared money. And I find it super difficult. And I think that’s one of the reasons why the smaller accounts gravitate to doing the shorter term stuff because they feel like they’re more in control, which is a fallacy, but nonetheless, that’s a strong feeling that they have.
And so you can develop bad habits when you’re acting out of emotion because you’re not acting out of expected values and investment finance, you’re feeding an emotional need more than a financial need. And in most of the times you’re cauterizing really good trades before they’re actually should be cauterized. But I don’t come to the marketplace see saying, I need this win or I need this dollar value because of course the market’s not going to give it to you. So kind of dovetailing this into another question that someone asked about focusing on your process. The goal is, lemme see if I can find it. Hang on a second, I’m just going to have to do this.
Yeah, I’m just going to hold up my drink here so I know where to cut.
Yeah, so someone’s talked about focus and goals and this and that, and it’s like, look, you need to know what you want your money to do for you, right? Because then you know, can better draw the boundaries as to what it is that you want. That where until you have a clear vision again of what you want your money to do for you as a human being, what financial and emotional needs will be set. I think it’s hard for you to pick that target point in the future so you can find yourself doing almost anything during the day because you’re in desperation as opposed to saying and coming to the that you have a lot more power than you think you’re powerless over the markets, but you don’t. You’re not powerless over your own behavior. You have to claim it, you have to own it.
And you have to understand that we are in a paradigm of personal responsibility. And as soon as you accept yourself as your own savior, so to speak, you’re going to let the outside world affect your inner game. And that’s nothing but catastrophic. That doesn’t work in trading. If you’re going to be a person who reacts to what happens to the outside world as opposed to saying, here’s my goal, here’s what I’m willing to do. Here’s the expected value of my trade and all I need to do is replicate my process over and over, that’s a much more healthy outlook because then it’s not necessarily any one trade that you care about, it’s the process of putting on those trades because the process predicts your behavior, it is your behavior, and that predicts where you end up in life. So when I say the goal is the process, it’s really the result of the process.
But on any given day, all you can do is follow your process. So I don’t want to sound like I’m talking out of both side, both sides of my mouth, but as they say, thoughts, feelings, actions, you have to act as if you’re in possession of the very goal that you want to achieve because otherwise it’s very difficult to know how to kind of wing it, right? Because the goals that you should be setting for yourself are goals that you haven’t set before. So you don’t know how to do them. And I’m not talking about getting a pilot’s license. If you want to go get a pilot’s license, that’s a goal that you know how to get. You got to go to a regional airport where they give lessons, pay your fees, pass the physical and all that, put your hours in, pay the money and get the hours, maybe get instrument rated, whatever it is that you want to do. But that’s easy enough to do. The kind of goal that you want to really have that’s going to change your life should scare the living crap out of you. And if it doesn’t, you got the wrong goals.
Now, you can use also the Kelly criteria, which you can look it up right there, is Google’s great. Just type the question and you look it up yourself. If based on what you’re willing to risk and what you think you can make from an expected value standpoint, you can actually calculate the number of trades that you would have to put on to get where you want to go. So I’ll give you an example. There’s a couple of metrics that you want to look at. If you’re newer, right? You want to make sure that you’re not making 15 bucks an hour because that’s minimum wage, and maybe sitting at your desk is better, making 15 bucks that way than working at in and out burger or whatever. I’ve had odd jobs over the years, so I’m not being critical. But you don’t want to turn trading into blue collar despair because you can already do that in other parts of your life.
So don’t enroll trading in your garbage. So have a stretch goal that should intimidate you. It’s going to leave a mark, it’s going to hurt. You’re going to have to challenge yourself. Now, if you’re a person who’s got a bit of an ego, you want to keep your mouth shut, then because it soon start pontificating about what it is that you’re going to do, people are going to hold you to it. So the best way to kind of dip your toe into this space is to keep your mouth shut. And don’t brag as market’s going to humble and humiliate you anyway, so I’m telling you it will. So don’t open your mouth, set your goal, keep it close to the vest, but just realize if your goal is to say risk 50 bucks so that you could make a hundred bucks, perfect, that’s two to one.
Different traders have different ratios in terms of asymmetry that they want in their payoff. I remember reading a lot of folks just talking three r and one R is an example I use a lot in the teaching. I remember reading Paul Tudor Jones had a ratio of needed five to one X before he would even put the trade on. So I think it’s going to vary from person to person. But when you put the dollar signs to that and you calculate your expected value, you can calculate how many trades you’re going to need to put on in order to hit your goal. So if you find yourself in a spot where you’re just starting and your gains and losses are so small, you might have to put on 4,000 trades over the course of the year to hit the goal. In my mind’s, Zion, that’s not terribly practical.
It’s a lot of work for small potatoes. One of the reasons why I advocate don’t necessarily sell your winners just because it’s the end of the day, you know, get paid a risk premium to have good risk in your account. How do you know if it’s good? Well, it’s going up as a simple rule of thumb. If it’s long and it’s going up, it seems to be a good risk. And you could also figure out ahead of time, what is the amount of money that you’re willing to risk in a winning trade or of the winning trades that you have in order to stay in the trades to let them grow to be even bigger winners. Because that too is learned behavior. You can learn to do it. If you’ve learned to cut your winners off at three R, you can learn to do it at four R, five R, six R, seven R and try it on for size. That’s the only way you’re going to learn. And I admit I’ve been, people are selling all kinds of crap on the internet. I don’t know anyone else who said that. The best trader teacher that you can have is you trading.
Even if you don’t know what you’re doing, buy one, share, learn from the process. Learn from being engaged. If are more sophisticated, trader, longer term, you have many, many years of experience and you’re already good and you want to get better, one of the things that you can do is learn to take haircuts on your capital so that this way when you’re really getting good, you’re not full of hubris. If that can be an issue and you start to feel feelings of invincibility, how do I know? Cause I’ve been there, I’ve had times when it was bad and I was only winning on two or three trades out of every 10. And in those types of ratios, list over what the market shows you, but you’re not really doing much more than break and even be and maybe plus 10, 12%, which you can get from passive buy and hold.
So then the question is, why are you doing all this work if you can’t outperform buy and hold? Because surrendering to the fact that you can’t create alpha, you can still get your money to grow and then free up all that time to go find something that you’d really be good at, which is part of life. There’s nothing wrong with that. Just because you’re a trader or not a trader doesn’t mean anything. But most people don’t talk about this. How do you fight off hubris? Well say that you are at 150 to 200% of your starting capital. Awesome. You’re doing well, you’re really lucky. You got good timing. I don’t know which it is. Could be all three. Of course, you tell everybody that you got skill because that’s probably what I would do too.
But in order to not get caught up in the hubris where then I’ve had other times in oh 5, 0 6 when China was buying all those commodities, six or seven out of 10 trades were winning and the winners didn’t, were more like three or four to one. They went also like 6, 7, 8 to one. So not only was the system more accurate because there was a deluge of capital coming into those markets, it was easy to take 10 cents at a copper over the course of a week. You could clip 60 bucks in gold, right? Sugar went from eight to 19, for example. So those markets were really good for the getting, but you can also get caught up in that. So one way to not get caught up in the hubris, if that’s also a trigger for you because it would be thematic in your life, is to say, okay, I’ve doubled my money.
I’m at 200%, but in order to kind of gauge my sense of hubris and my invincibility, I’m only going to trade 140% of my capital. So instead of saying I’ve doubled my money from say, 10 million to 20 million, I’m going to actually trade it only like it’s 14 million as opposed to saying I’m going to trade it like 30 million because that’s how you can get caught up. So you can get caught up two ways. Going back to being triggered and knowing what the goals are. The goal is to make sure you have small drawdowns. Obviously you have to be in it to win it, but you always have to make sure that you have really good risk adjusted returns. That’s the selling feature. It’s not that you’ve made 10 times your capital, because I find it hard to think that allocators are going to give you money if yes, you can double your money, but you have 60% draw down and a 10% chance of getting blown up and having total ruin, like no one’s going to ever give you money towards that because then you will lose all the money sooner or later.
If you trade long enough with those types of numbers, you’re going to really blast yourself. So I would develop a system that you’re compatible with and then replicate it and not worry about any one particular day because I know how these places work. They’re very political. If someone’s in a drawdown, you’re worried about the gossip. And that’s a failure on leadership when you think about it. There shouldn’t be gossip around. You should circle the wagons around the people who are in the drawdown, especially if they’re struggling and nurture them and love them as opposed to everyone not talking about the pink elephant that’s in the room because then it takes a special person to dig out of that hole.
So I mean, that’s what we encounter oftentimes with some of the institutional clients is that they don’t know who to trust because they know people are talking behind their back, which sucks. But that’s just human nature I suspect. But for better or for worse, I’m in Los Angeles. I’m not in New York, Chicago or London showing up at the local watering holes talking about who’s trading well and who’s struggling or who’s in drawdown. It’s all part of life. You trade long enough, you’re going to be in a drawdown. Doesn’t really say anything about who you are as a person. I know plenty of people who have been in very steep and protracted drawdowns, and that’s just their trading style and they learn to dig out. But I feel like if you’re getting triggered, there’s a deep emotional need that’s getting fulfilled by you actually getting triggered, allowing yourself to get triggered, and then going through that whole process, it meets some type of emotional need.
So you have to learn how to process those feelings, in my opinion, before you even put those trades on. I think it’s hard to do with a simulator, but I do think a simulator, meaning a simulator’s not going to cure you, but it can give you an idea of what you can expect if you put those trades on. So if you’re getting results and you’re in a draw down, but you’re still within the range of what you expected, you’re kind of in model. And so there’s nothing really to get upset about at that point unless you like getting upset. I don’t particularly like going off or flying off the handle because it doesn’t really serve me. It doesn’t help me get more creative. Anger is typically not a motivator for me.
I’m much more pragmatic at this stage. So I mean, it’s long-winded way of answering a few of the questions here. But the point being is that if you’re watching things tick by tick, your account’s probably too small or you’re trading something too big because there’s really no reason why you’d have to watch it tick by tick. Cause if you know what your price targets are, and even if you’re doing things like rookie traders are setting up their three R and their one R thing and you’re long, well, you could enter a sell limit above the market so that if it hits your three R number, you’re out and you put in your protective stop, one r below, and that’s that, and then the going to come to you or it’s not. There’s nothing really to get triggered. Just sit and let the market activity unfold. The best you can do is follow your rules because behavior predicts where you end up. If you keep getting triggered by stuff.
Look, if you have 30 years experience and you know how to read the tape, even in the a advent, advent of decimalization and the 8,000 algorithms that are running, then by all means read the tape and see where the day’s going. But for newer folks, I don’t think that’s something interesting to endeavor. You can certainly learn a lot about the markets and yourself in the process, but I think it’s awfully difficult to try to pull that off with limited experience because you don’t have a field yet, and it takes a long time. You might show promise, you might have good instincts and good intuition, but it still takes a lot longer than you think to develop a really, really good feel.
And just to touch on the process thing, part of the biggest thing about being a successful athlete and successful competitor, and I know this will for sure apply to trading, is having your process race morning. I did the same thing every race morning, the exact same thing. Every Saturday when I had a race, I’d wake up, I’d have a cup of coffee, I’d have eggs with rice. It was a six egg omelet with rice, I’d have a little bit of tri-tip with it, like three to four ounces, and then I’d go meet with my coach. We’d have our hour and a half of talking and prepping, and then for the last 10 minutes we did our strategy and that was it. Then I was ready to go, and throughout that process, I started to learn as I was developing it, how beneficial it was for me to do the same thing over and over again because you can’t predict how any one race is going to go you.
I mean, you could guess, but you know, have no control over a lot of these factors if somebody crashes in the first five minutes or whatever. So having that level of consistency in the morning really got me in the mental head space to kind of deal with any adversity, right? It’s like, all right, I had a great breakfast, I got to meet with my coach, hang out with my buddies. We talked strategy a little bit, and that was that, and that put me in a really clear and level state of mind where when I got onto the start line, I wasn’t jittery, my hands weren’t shaking, I was like ready to go. I wasn’t like thinking about the dude who I bumped into last race and how I could give him the elbow in a corner or something. It’s just about learning to deal with
No elbows in the corner, elbows to the jawbone. Dude, you got to be right
Here. I may have gotten a little bit
Better, and I’m Christian. I’m a Christian,
And it was just Easter, so we got to keep it Christian, for sure.
Next week I’m going to wear purple for Pentecost, okay, and I’ll button, first of all, there’s a special type of death people should feel when they button the top button and wear it like this.
Yeah, that’s
Special, dude.
Yeah, yeah. Look, there’s no doing that. If you’re Italian, if you button the top button and you’re Italian, you’re doing something wrong.
So what we’re talking about here is how important it is to have a process and trust the process because that’s when you can start having fun. Then you take solace in the fact that you’re addicted to your discipline. Not all the market activity, a
Hundred percent.
I don’t think it’s when people say, oh man, I’m a market junkie. I don’t think that’s a good thing. Actually, what you want to be able to do is put yourself in a spot where any given day is any given day. Monday is the same as Friday, is the same as Wednesday, and when you really get it down, here’s the beautiful thing. No one can tell whether I’m up a lot or whether I’m down a lot. Why? Because I’m just in the process, and that’s a good thing. Imagine if I was all brooding and stuff and pissed off because I was down. It’s childish. To me, it’s childish. At least I can explain my own behavior. If I was acting that way, I would say that acting like a petant teenager, and I’d say to myself, grow up.
And so I think a person’s mindset. That’s why I firmly believe that 80, 90% of this stuff is mindset. It’s not about let me review my charts and show you what I think’s going to happen. First of all, I don’t want that kind of traffic because then people start to follow up and say, Hey, are you still in that? Did you, did you add more? Like, I don’t want to develop that type of an audience. I’d rather say, go do it yourself. And when you run into problems, which are no doubt, psychological and mental, then come back to me because that’s the biggest part of the game. Even though I can’t sell it, right? I can sell you a system, and I’m smart enough as a writer that could come up with long form stuff with the video sales letter and get people to convert.
But the goal is to actually help people not sell shit on the internet. So that’s why this show is largely free. You can go take it and do what you want because you’re going to learn the most by doing it alone anyway, especially in trading. It’s not a group endeavor. Even if you’re at a prop trading firm, you are on despite what you think your resources are, because if you fail out, there’s about a million people who are going to take that seat. Despite the interview process and how hard it is. Most of that stuff is not predictable anyway. So if the firm is bragging about how hard their interview process is, call me because I’ll tell you how to crack the code. There’s whatever. I’m not going to get into calling someone’s girlfriend ugly. But most of that stuff is made up and it’s peacocking to make it sound like it’s exclusive or to make it sound like you’re interviewing for Amazon or for Google. One day we’ll talk about the interview process that I was went through on Wall Street.
Yeah, yeah, no, for sure. That’d be interesting. I think that’s a good place to kind of wrap up today too. We had a lot of good points, but I think one of the big takeaways is just develop your process and don’t treat it. Don’t go searching for that adrenaline hit or the dopamine hit. Just kind of do your process and trust that process and just go. With that said, guys, thank you so much for watching the video today. Make sure you like and subscribe, comment, and helps the algorithm. Press the notification bell and we will see you guys next time.
Thanks everybody. Thanks for being here.
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The post MMS EP #6 – Rewiring Your Own Programming appeared first on MartinKronicle.
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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The post How Indicators Can Help You Learn About Yourself appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. I appreciate all the feedback that you give me on the channel, in the emails and the comments. I think we’re growing at a good pace here. I appreciate the feedback very much. Gives me an idea of what you like. You know what you don’t like. Well, you know like everything but that you like certain things more than others. I got a nice comment from Bill and he asked, I’m going to read it, says, Michael, you touched on something. This was for the video, how I analyzed my trades, and I’m reading the comment here. It says, Michael, you touched on something I’ve been trying to work on and analyzing myself. I noticed I have triggers while trading that are simply in the wrong place or at the wrong time. Not sure if you might have a suggestion on how to reprogram myself in that respect.
Well, we consult to this and it’s a minimum three month program. So I don’t think I can give you a fortune kick, fortune cookie kind of statement that you can use. What you can do is take a journal and write down some things and then analyze the whole scene as if you’re a reporter for a newspaper or maybe even a detective. If you’re getting triggered, my guess is you’re watching the market tick by tick. So the question I have for you is why do you do that? What do you think you’re going to be able to get in process if you’re looking at all these charts or something like that, or your positions in real time? To me that’s like the worst thing that you can do because it could induce you, especially if you don’t have a lot of experience. It can induce you to do things that are not in your financial best interest.
But what might feel good in the short run. So it’s a super complicated question. I always start, well, what was your goal? What is it that you want your money to do for you? Because typically you can’t break that down to say, one minute bars or 15 second segments in the marketplace. You know, have to be able to conjugate what it is that you’re doing during the day with what your longer term goal is. Is it to grow your account? Is it to build up so much equity in the account that at a specific time in the future you can convert that to treasury bills and get 5% for doing no work and have a lot of passive income? Real estate doesn’t matter to me what it is, but typically when you don’t have a clear goal about what it is that you want to do, you can find yourself getting triggered like you are two, you might be internalizing that winning and losing somehow is a reflection of who you are as a person.
And that’s not the case. Really. Smart people lose money and really smart people who are super talented and who are even legends in this business, me have drawdowns, prot, protracted drawdowns that last for months and can go into the double digits. So I always find it amazing that people take losses so hard. I didn’t take losses hard to the extent that I knew I was on the path to finding out what would work for me. The only way to do it was trading with real money. And while I lost consistently, it told me what wasn’t working. So I didn’t look at it, it was tuition. I was looking at it like, okay, this process is steering me because I have to take some attempts to figure out what it is that I’m trying to do. Where’s my edge? Where’s my alpha? And you can only get that by doing.
So if you are getting triggered and it’s hurting you financially, then consider trading smaller. I do want to say something out loud. I know it’s going to piss a few people off. If you’re watching things tick by tick, I’m going to guess more than half the time. Probably 80, 90% is your account is underfunded. And that’s a tough spot to be in because in my view, you’re always going to be trading with scared money. Because look, if you have 5K and I know how hard it was to develop my own first to trade, you have to become a saver, which is the act of not consuming, then find a way to put that into an account. Then you have the account funded and it seems like it’s all the money in the world to you, but you have to be ready, willing, and able to risk all of that to figure out who you are.
You have a relationship with the market cause market’s a live-in breathing mechanism. And lastly, cause I don’t want to blather on and on about it because it does, there’s too many answers to this question. I don’t know who taught you the rules of money or finance and I don’t know who was entrepreneurial or not in your nuclear family or in your environment that you saw all the time. So just by being witness to all of that, somehow you were taught the rules of money and taking chances. You might have also been instilled about education and all this and that, and you ought to go get a job. And this is legalized gambling. I don’t know if there’s any of those biases or bigoted comments that come out of people’s mouths when they don’t know their sn from a hole in the ground, but they seem to have a pop popular opinions about what it is that you should be doing with your time, money, and your effort. Only the answer to that. So like I said, it gets steep. You might have had a overbearing parent who you can hear in the back of your mind when you’re doing all these trades and that’s affecting your self-esteem or how you feel when you’re losing money. It could also put you in a spot where you’re taking profits too soon. So I know a handful of people, and I mean a handful, not a lot, who are consistently profitable by trading in the short run. They have a knack.
The majority of people are going to have a very difficult time trying to do that in day trade because trading pushes your buttons.
If you have a fight or flight mechanism, it’s primal, right? We’re not built to take these risks on, I got lucky I was born this way, but it still took me over four years to figure out what it is that I could do. So I would look at your p and l, figure out the expected value of a trade stick with one ethos, one pattern or one trading style so that you can behave consistently because behavior predicts where you end up in life. So if you’re all over the place, as I like to say, you’ve heard me say it on the show, you’re going to get all over the place kind of results. And it’s very difficult to go to school on yourself and say, well, how do I make any sense out of this? Right? So it’s a super deep question. It’s hard to answer it just with one answer because any number of things could be working.
What I have found in for the hedge fund guys that we consult to that a lot of times it’s in their subconscious and you really need to develop, it’s what I call self-talk. Your inner voice. What is that? And who is that person? Is that, are you and your behavior kind of converging away from your inner voice? Or are you going towards it? Right? Because the smartest people on planet Earth, whether they’re traders or not, and they’re super successful, they have a very strong inner voice, they have very strong and powerful self-talk that propels them to move forward knowing that they have to take chances and they’re going to fail. Some of these people are going to fail publicly. I think Richard Branson just scuttled the company. He’s probably one of the most successful business people that you could ever read about. So does that mean he’s a failure?
No, doesn’t mean anything. So at any rate, long answer to it, what seems like a simple question, but the truth is, is that any of these triggers that you have, it’s hard to know how you were taught that because it’s behavioral, right? So you have to really look at who’s bugging me Anyway, I’m not answering the call. But anyway, that’s all I have for you. Please like and subscribe, keep the comments coming in. I really appreciate everything that you do for the channel cause I learn a lot about myself. I don’t have all the answers, but it’s really good stuff. Thank you.
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The post The Sneaky Way You Can Undermine Your Trading Profits appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So get some good questions about, I’m got a few questions. I’m going to come marry into one answer because unknowingly the folks who asked the questions didn’t know that some of the answers to these second and third questions would all kind of tie up. So the good thing is I can kind of marry ’em together and the question was in and around like, Hey, you know, poo poo, most indicators, why is that? So I’ll answer that one first, and it’s mostly because of my emotional constitution. I found that most indicators aren’t predictive. They only kind of tell you what you can already see with your own eye. And I emotionally don’t need, I can see my equity and I’ve adjusted my trading behavior to, based on what I’ve witnessed on my own behavior, which I can’t deny.
It’s the truth, but I don’t need the reassurance of the confirmation aspect of the indicators to tell me what I can already see my equity’s up. I don’t know what else I need to see to make me feel good about that. And obviously if I didn’t have good luck, good timing and a good analysis, the equity wouldn’t be up. It’d be some other reason. And I already made that adjustment, which I think we spoke about maybe Monday on not getting into my optimal size. In my initial foray on that trade, I didn’t put my optimal size on in one fell swoop. I kind of step into the water and I weighed my way into a bigger spot and then I can stay where I want to be if the market behavior which I’m powerless over unfolds the way I need it to. And if not, I get stopped.
But at that point, it’s just a function then of figuring out how much of the unrealized gains am I willing to keep at risk in order to stay in that Now optimal size, you see, some of you might be like, you’re doing it all wrong, you idiot, you don’t know what you’re doing. Why is that? Well, because if you looked at the dollar value of what I might be willing to risk in order to stay into the trade, that very well, very well might be the spot where you’re in fact taking profits. So my behavior might look like madness to you, but it’s not what’s better, it’s just better for you. So we talk about attitude, you talk about your approach, you talk about your market feel, you talk about how you create your alpha and how do you do what it is that you do to make your money knowing that you got to sleep at night.
So most of those indicators, I can’t think of one that I really would say recommend. You’d want to put this on the chart. Yes, you can use atr, but that’s really just to give you an objective measurement of what the vol is over any say 20 day period of time. And you can use that uniformly across all the instruments so that it’s a forced sense of objectivity. You’re not kind of guessing. It is what it is. The calculations are clear on how you can do it. And ATR been around since 1978, so it’s not necessarily new, but again, when you look at the history of markets, it’s not really that old
Either. Having said that, I’m going to have a good buddy of mine, his name’s Brian Shannon, you probably know him. I’ve known him I think probably 20 years by now. He just wrote a great book and I’m going to have him on the show and we’re going to speak about indicators using his AV W, which is what the book is about. And we’re also going to probably have a strong conversation on volume because volume can tell you a lot depending on where you are at the chart, right? So we’re going to talk about when actually when is an increase in volume good? When is an increase in volume bad? When you conjugated with the chart, what happens if volume is contracting and the charts going up and all these different combinations, you can’t do it verbally, right? You have to see the video of it and see the chart.
And what we’re getting at, and there’s probably a good discussion that we’re going to have using real life examples and examples from his book about looking at price and volume because the two institutions leave footprints and as what you probably consider yourself as a smaller speculator, it’s important to know what the institutions are doing because they’ve got the money and if they turn the light switch on and you’re nimble enough, you could be the mouse that’s tapped dancing between the feet of the elephant, you see? And that’s good. So when you see enormous amounts of buying pressure coming into a marketplace like that and you have a position on, and the institutions are just getting warmed up because they have so much money, it doesn’t make sense for some of these places to have 25, 50,000 share positions because it’s not going to move the needle if the stock doubled or tripled, it wouldn’t move the needle.
You see, that’s why a lot of these bigger hedge funds and CTAs don’t trade some of the softs because the volume and the open interest just isn’t there. And if they bought the whole market a who’s left to sell to, that’s the whole other question. But how does that serve you right now? Again, you can do in commodities, they have something that’s completely foreign to the equity space where you call cash and carry trades. So you look at the carry charges from one expiration to the next, and you might be able to, if you have the money to say buy back in the day, the commodities corporation guys did an example of this using pork bellies, which don’t trade anymore because they could buy the futures and stand for delivery and then sell them in the physical market and make more of a spread. So they bought physical, sold the futures against it, and they would basically, so it’s a cash market trade in the physical business at that point. You’re not just trading futures. So they’re all these different ways that you can make money based on the spreads and what the margins are and based on where the volumes are, but also based on if you have a certain amount of volume, you definitely want to know meaning, excuse me, vol, I misspoke. If you know what your optimal position size is, you
Need to know what the average volume is for that particular instrument because you don’t want to be the whale. There’s no nothing to brag about. If the things trading a hundred thousand shares and you got 20,000 shares, that’s problematic, right? Because if everyone heads for the door at the same time and you got a lot of inventory, you’re going to find it hard to get out of that position without an enormous amount of slippage in skid, which makes a losing trade even worse. So be mindful of all of that. I know that’s a lot to think about. Trust me, when I tell you make enough mistakes, it becomes second nature because you’re like, man, that was stupid. Not doing that again, makes no mistake. Make no mistake about it. I’ve lived it so I’m not immune. Having said that, volume’s important. And so to me, if you understand the volume of the, the volatility of the instrument and how that movement can affect you based on the number of shares that you have or the number of standardized contracts that you have, you can kind of understand what the volatility to your portfolio is going to be.
And that’s an important thing because you want to be able to be in winning trades, let them be volatile and still sleep at night and not have any hair trigger response on your trades. Because if the move’s going to be 50 bucks and you took $12 out of it, that to me is something I would reprimand a trader on because you can’t feel good about taking only say, one fourth of the move. Now granted, there’s certain circumstances where that night that might not necessarily be the case, but over hundreds and hundreds of trades, it makes no sense to me to get into a winning trade at theorize that trade and then watch the bigger make, see the thing move three times your gain in the same direction when you’re already in the winning trade. So Brian and I are going to talk also about staying power and how to position size so that you can take the risk home with you.
I’m not trying to convert anybody, but I do know if people talk about risk and reward, you are not going to get paid if you don’t have the risk in the portfolio. So if you have a trade that’s working in your favor, you might as well stay with it, at least to some degree. My thing is to be in a winning trade and then to add to that winner, some people would look at where I’m getting in and getting out and then being like, all right, well, not where I’m getting in and out. Some people might look at where I’m adding to my second, third, fourth, fifth, sixth unit. They might be like, that’s where I’m taking profits, especially if they have that one R to three R kind of a deal that I’ve spoken about. You risk one R, whatever that percentage that is, if it gets to three R, you take all their part of the trade off, that’s awesome. If you take all of it off, I can tell you right now with a hundred percent certainty, you’re never going to have a five or a 10 hour winner unless of course you have a name
And you wake up and there’s a takeover. But you can’t run a trading business based on guessing what instruments you’re trading and where, when or what and why and how takeovers could happen. You can look at unusual option activity to kind of see, but even then it’s kind of hard to figure out why were people doing what they do. That’s the big mystery. So any rate coming up on 10 minutes, don’t want to blather along here, but we’re going to have a fairly substantial discussion on volume coming up. And to me, if you look at the upward trend, you can measure volatility somehow so that you can know what the optimal position size is and optimal doesn’t have to be all in one day, but then you understand how volume works. To me, that’s about 95% of what you need to know. Then you do this more and more and you develop a feel.
As I said, I think last Wednesday when we talked about the sudden passing of Michael Marcus, you want to kind of understand how other people are going to behave. And that would probably go onto the chapter called Market Feel, where a lot of it’s just on based on an innate ability that you have that’s not necessarily attached to some type of an indicator. Sometimes you hear people say, yeah, the tape’s heavy, right? That’s kind of what they’re getting at. It’s not just that things are down, it also takes into account the sentiment. It also takes into account if small or intraday rallies, what are they met with to sellers show up to beat it down, do they have any staying power? So that would be very, very helpful. So I wouldn’t necessarily worry about chart patterns or indicators. I would take a look and see who cares about the name at key inflection points on the chart.
The only way to do that is to conjugate it with volume, and we’re going to talk about that with my good buddy, Brian Shannon, and look at his book. I don’t have any financial interest in his courses or in selling the book. I’m just doing it because he’s a buddy of mine. And yes, we’re friends, so it’s probably going to be a friendly chat. He’s a very talented guy. You could see him. Alpha Trends website is alpha trends.net, and he’s all over social media accordingly. So hope that helps a lot more to talk about. Looking forward to it. Please like and subscribe to the channel, and please send me any constructive criticism of what you’d like to see or what you’d like me to talk on about. If you disagree with something that I’ve said, please let me know too, because usually that’s, that happens when I don’t give enough context, right? And if I want your opinion, I’ll give it to you. No, just kidding. Just kidding. I appreciate y’all being in here. I appreciate how you’re helping grow the channel, and I’ll see you next time.
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The post What Do Your Indicators Actually Tell You? appeared first on MartinKronicle.
Hi everybody. Michael Martin. Thanks for being here. So question came in about how did I analyze the data right from Monday’s episode about my being wrong and then figuring out the wrongness was because I was early to a trade that eventually worked out, right? I say early means wrong because I don’t know at that moment in time if the name’s going to go up. So the best I can do is manage risk in the here and the now. I don’t get to manage risk using what I think is going to happen next week. I have to look at largely the price right now, you see? But so then the analysis comes down. Yes, I kept very accurate records, but you can also think about it from base theory, more conditional probabilities. What’s the probability of event B? If we can observe the probability of event A, so I knew what my overall losing percentage was, and I don’t have positions that jump through stops and this and that.
So my largest loss and my average loss are the same thing. Why was because you take them religiously. So there wouldn’t be, if I was risking two bucks, I wouldn’t have a $10 loser. I would just stop everything at two bucks. And so that’s both your biggest loss and your average loss. And so you want to watch that in your own behavior and see if you break your rules, does it tend to benefit you? Because in the short run, it might feel good emotionally to take that risk to try to earn your money back. It’s typically something people do at the wrong time when they’re losing money. The time to trade bigger, or maybe more frequently is when you’re in a crazy winning streak because then the market is saying, we are absolutely amenable to your trading style. Again, the emotional benefit of trading smaller at the beginning for me was that if I got stopped out on any one particular day, it wasn’t a big deal. And it doesn’t mean I don’t care about the money, especially when it’s other people’s money, but I would rather lose less money much more frequently, right, than lose a lot of money as frequently. So you can look at conditional probabilities and say, again, it helps to do it with a simulator. If you’re good with spreadsheets, then by all means, but you can think of again, what they consider conditional probabilities. It’s in the world of statistics, but it doesn’t get beyond say, using algebra, which I presume most of.
Again, what is the probability of event B happening, right? Given the known probability of event A, which you can observe. So the event A for me was trading and using my optimal position size on the initial entry, I found out that yes, I could make money, but then I have to conjugate a few other things. I am going to have a larger drawdown, both in magnitude and
Duration to recover. So I’m saying, okay, finances can be defined many, many ways. Applied microeconomics, you could say it’s the time value of money. If I’m going to see a 50% mover, I don’t want to see that if I’m trading 70 cent dollars. Do you see what I’m saying? I would rather start and have close to my highest equity point to see that move if I’m in a big draw down and then the move comes in, right? I talked about what happens in, if you sold a house for half a million dollars and you put the money to work on October 1st, 1987 versus it clearing escrow on November 1st, 87, it’s the same trade that’s the same liquidity, but there was a big event that happened in between, and that’s a 28 whatever percent haircut on your capital if you were just doing the market stuff, at least by the Dow.
So you don’t have to go berserk on the math, but you do have to analyze your own behavior. If you want some private stuff, then shoot over an email. But please just ask one question. I don’t need the backstory, just ask the question. If I need more information, I’ll ask you. But when you send me a block of email with no spaces and stuff like that to be, I’m telling you now it’s tldr, I’m not going to read it. I don’t have the time for it. Because in order to understand the backstory, you’re kind of making the miss miss the assumption that I need all the background to understand what your issue is today, which typically means you’re dealing with some form of regret.
How do I know I’ve been there? So I don’t need the reasons why you feel regret. I just need you to answer the question. If I need more context, I’ll get it from you, but you can shoot that over because studying your own behavior to me is the quickest way to get to success because only why you do stuff the way that you do it. That’s alpha. You just want alpha to be positive though, not negative. So by all means, think about conditional probabilities. Think about the emotional payoffs. How could you trade maybe and make as much money but doing it slightly differently than you’re doing it today? For me, that meant cutting my initial position sizes to a point where I could afford to be early and wrong in the way I look at that word and still have some of those trades come back and work and work out for me as opposed to being super prudent.
Kudos to me for getting stopped out. Granted was in a big drawdown, but it could have been much worse if I didn’t stop it. You see, if I didn’t stop my equity at that point. So be kind to yourself and learn from yourself because it’s improvement, it’s progress, not perfection. And in trading, I don’t know too many people that didn’t have to go through the rigmaroles of paying some form of tuition. And it’s not just financial, it’s emotional tuition. Cause you don’t know what you’re doing that makes you feel insecure. That could hit your self-esteem, at least it did for me. And so you have persistence and determination and, and to me, when you add persistence and determination, what you’re really speaking about is a person’s resiliency, attitude, and resiliency, right? Resiliency. If you don’t have it, you get pissy because you’re losing money. You can really shut yourself down and end up.
You don’t want to be your own worst enemy is what I’m trying to say at the end of the day. So you can study your own behavior and see what works for you. Otherwise, market’s hard enough. You don’t want to beat yourself up, take your punches from the market because guess what? You don’t have a choice. So it appreciate, again, the questions. They’re all pretty good. They get me thinking on things of where, especially on the margin to equity one, there was a time where I thought that was actually much more material. And it happens a lot when you’re speaking with institutional allocators. They’re like, what’s your daily? What’s your margin to equity? And I personally think that’s a stupid metric. Daily vol might matter because they’re looking at you as maybe one of many, many traders that they have or portfolio managers in their stall or at their horse ranch, so to speak.
So they need to make sure that everyone plays nice in the sandbox and that they’re not actually adding extra risk by adding you among the people that they allocate to. So that might make sense, but again, if someone starts talking margin to equity rules, it doesn’t really make a lot of sense. You really have to look at the results and you have to look at drawdowns. Anyway, please like and subscribe. I’ll keep trying to come up with good stuff that meets your needs that’s also very timely based on what’s going on in the market. And I’ll absolutely respond to all the questions that you send via email or through the comments themselves. Thanks for being here, folks. I’ll see you tomorrow.
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The post How I Analyze My Trades appeared first on MartinKronicle.
Everybody, it’s Michael Martin. Thanks for being here. Most of the time I’m doing these daily five to 10 minute monologues. Sometimes one day gets a little longer than the other, but I try to keep it short and sweet, make my point and be done. As I like to say, if I can’t say it in five minutes, I can’t really say it. Very rarely do I interview folks just because I way of doing stuff, and this is kind of a bit of a niche, and I don’t think you need to have a lot of discussion about the psychology or the emotional intelligence around trading. But every now and then I have a guest on, and that’s going to be the case today because he’s just written a great book.
The problem with trading books anymore is I feel like they’re an amalgamation of things that have already been said and someone’s kind of putting their take or their understanding. And I’ve written a book, right? It’s hard to, it’s easy to write. It’s very, very hard to write well. I’m going to let the public figure out whether or not my book is well written or not. It’s not for me to say I wrote the book I wanted to write, but having said that, there’s some new work and I want to have the author on – Brian Shannon. But before I get there, I want to stick to this other point real quick, and that is a lot of the trading books today kind of take what’s already out there and they kind of reword what’s already there. So there’s not a lot that’s new, and so it makes reading trading books for me anyway, not all that great. I got Trader Vic’s book “Methods of a Wall St Master.” Victor’s a good friend and partner of mine. I have Chester Keltner’s book, “How to Make Money in Commodities,” cheesy Title notwithstanding.
There’s a great book on the evolution of Keltner channels and this and that. I have Edwards & Magee, so I have a lot of great books and I think over time it might be too easy to say, but my good friend Brian Shannon just wrote a book on Anchored VWAP and I think it’s great. It’s a great book. It’s a book that you can have as a reference book to understand what anchored VWAP is, but it’s also a playbook in that there are at least nine strategies in there on how you can take VWAP and kind of use it in your own trading. Now there’s probably a hundred ways you can use it. He discusses nine. We’re going to talk about those today. Stay tuned. Here’s Brian Shannon.
Hey everybody, welcome to this show. We’ve got my good friend here, Brian Shannon, who I was trying to think, I must known Brian for about 20 years. I know we met in Malibu at Near Pierce Brosnan’s house near, yeah, way past Zuma Beach, way back when. And then I know I saw you because I had to admire your work. And I think I ran into you at an event where either you were speaking or we were both speaking or we were speaking, but on different days. And I remember going up and saying hi to you.
Folks, today we’re celebrating Brian’s new book. And I do mean celebrate because this thing, as I mentioned in the intro, is ass-kicking. I think, as I mentioned, if you’re a newer person and you’re looking to try to figure out where is your edge anchored VWAP is a great place to start because it really tells you who cares and at what prices. Brian, congratulations on this great book. It’s your second book. I have the other one too somewhere. It’s in my bookshelf.
So yeah, thank you.
Please go buy this book. It’s the best $60 you can spend. And we’re going to talk a little bit about it today. There’s a lot in it. It’s very pithy, but man, congratulations. I know you’re getting a lot of good press and from people who know, know the difference too. It’s not just these books on technical analysis where man, people send me review copies and it’s like, okay, I saw this in Edwards Magee. I saw this in Chester Keltner’s original book. I saw this in Welles Wilder’s original book, or I saw it in Bella’s book The Playbook. So this is all original thought, man. So that’s kudos to you because it’s really hard to do. It’s very well written.
Thank you, Michael. That means a lot coming from you, especially, I mean your stuff. And I knew when I sat down with you today that we’re going to, I don’t know what we’re going to talk about yet because we haven’t discussed that, but I know it’s going to be thought provoking because when you dig into it, you dig into it and I know that you’ve read it and that means a lot.
Yeah, this thing is dog-eared to the max. I got, I’ll have to get another copy to actually hold because this thing is beat to crap already. There’s so much in here, folks. It’s almost like where do you start? But the point being is, and I mentioned this in my blurb, here’s another thing about this book. There are more people who have written blurbs in terms of the total pages than there is the index. To give you an idea of what high regard people hold Brian and his work, and I’m not even exaggerating the who’s, there’s a, who’s who of people who know their crap and have stepped up. So in my comment, I said, “institutions leave footprints,”right? And that’s one thing that a mutual friend of ours, Scott Kaminski had taught me way back from when he was at Tudor, and he’s like, small speculators, of course they matter.
They’re important people, but it’s the institutions who can really push things around. Especially in the equity space. In futures, it’s a little different because the cash market drives futures. But in the equity space, there’s only one instrument of Tesla. It’s not like natural gas where you’ve got 20 years of depth on the calendar. So this strategy, there’s se, there’s several trading strategies in here, but what it does is it marries price and time. So Brian, I’m not going to hamhock my way through it because I know what it feels like, but tell everybody why it’s important to marry price with the volume,
Price, volume and time actually too, because timeframe is different for everyone. I might use it for swing trades, but it’s also very applicable to the one minute scalper where you can anchor from the 10:35 AM low for the S&P for the SPY, and then anchor it from the 11:27 high and find value in it. Really, it’s amazing how well it works, how accurate the support and resistance levels are. I don’t like to use them to be a place to blindly buy, but as a level of interest, if you draw the anchor anchored VWAP in the correct places, you’re going to find it to be amazing in terms of where the supply and demand is. It’s simply, and that’s what it is, it’s a representation of supply and demand from any start point. And it tells you with 100% accuracy, who’s in control? The buyers are sellers and no other oscillator or indicator that I’m aware of can do that.
And folks, if I had to go back in my painful 35 years, some are more painful than others. And even to this day, you know, don’t get ’em, right. Yeah, you absolutely want to know who’s control of the instrument buyer or seller, because if one of these people who want to buy value and get the baker’s dozen and buybacks will make sure how you have a plan for that as opposed to a hunch. Human beings, and you could read this in simple heuristics that make us smart people suck at predictions. So no matter how smart you think you might be, and I have amazing intuition, nothing is more powerful than looking at this because like I said, institutions leave footprints. And by using anchored VWAP, the way I looked at it and it was just hit me last night, I was rereading the book just to fill my brain before I go to sleep. It’s forced objectivity…
And it, it’s a hundred percent objective too. And I mean, the only subjectivity comes from where do you set your anchor? Yes. And if you follow some guidelines there, it’s really not that difficult. We want to measure who’s in control from the Federal Reserve report announcement. Yes. Who’s in control from the earnings report from whatever that gap was that occurred three days ago? Yes sir. Who’s in control? Are they defending that level or is it being rejected? That tells us something really important about the unfolding psychology of that market.
And anyone who’s watched this show, first of all, if you’re watching my show, thanks for being here. Psychology really runs everything. I know that technical analysis and having CMTs and CFAs, I always celebrate that level of intelligence because it puts you in the upper echelon. But at the end of the day, and today we’re still mourning the death of Michael Marcus, a mentor of mine. The thing that he pointed out to me is like, you can no support and resistance and all this stuff, but you have to anticipate how the crowd’s going to act.
It’s crowd behavior, fear and greed and everything in between. You have to answer the question, what would these people do at certain key inflection points? Anchored VWAP gives you a, I’m a visual learner, so it absolutely would give me a visual indication of who cares at what price. And that’s important because I don’t want to be on the wrong side of the trade. Why? Well, because most of what we do is highly levered. And so when things get ugly, they go from like, eh, not so great to ugly very, very quickly. And so what I have found just in the short time that I’ve read this book is I’m looking at it and applying it to my own models, which I’ve evolved over decades and seeing how I can exact a little bit more of an edge. Because even if I can pull out an extra 20 basis points, when you do that with leverage and then compound, it could mean a big deal.
We’ve mentioned, or I might have mentioned in my remarks, the art and science of the technical analysis. Now the equation for calculating this is not, it’s publicly available, no different than trying to calculate the numbers for the day’s range that goes into the average true range. But picking the anchor is really the art of it all. Now you can use news, you can use price gaps, you can use high volume days, you can do earnings. So you do have to go in there and kind of massage what you’re looking at almost on a chart by chart basis. In terms of volume, what I, I’m going to show, we have a few slides I’m going to show eventually when we get into it. I used a 20 day simple moving average on volume and I looked for stuff that was more than 1.5 times that number. These were 4x. So we will hit the standard. Now again, Brian, you mentioned in this book, cause I didn’t have time to do all of them, but there are nine different ways that people can use anchored VWAP as a trade setup.
Yeah, I mean there’s probably a hundred of them, truthfully, Michael. And yeah, this was just to get people going in the right direction. The most important part is just simple support and resistance, a level of interest. And then it comes down to where do we anchor from to see if that level does in fact hold us support or as resistance. And then when we can combine it with fundamentals as well, an earnings report, it all goes back to, like you said, the psychology. It’s the psychology of what are people doing after that earnings report. But then you look at the earnings report and say, Hey, wow, that’s pretty, they sold how much of this stuff and they made how much money? Well, I look at that and I look at it kind of the fundamentals that is, I don’t care what the fundamentals are for me personally, but I look at the fundamentals and say, this is going to get growth managers interested in this stock because compared to the other merchandise out there, the other stuff isn’t doing as well on a fundamental basis.
So I know that there’s going to be a potential source of demand from the people who do look at fundamentals. And then I look at the pullback to that anchored v a and I say, well, there’s a potential demand from the people who are buying and they want to combine the technicals and say, I want to buy it this price, this average price since the earnings report. So it is always all about psychology and trying to get into the head of the participants and find the reasons maybe fundamentally, but then where and when with the technicals,
Right? Because then at the end of the day, you might have strong opinions about what the merchandise that the company is selling. You might have strong opinions about the merchandise that’s for sale in the marketplace. But ultimately I have found, yes, when I first started, I had good hunches and good intuition. But here’s the thing, I had no technique. I had really good intuit to, I was a diamond in the rough. I had good intuition about what I thought was going to move, but I didn’t have great risk management. Probably for the first three years, I didn’t have any idea about entries. I didn’t even know what the hell breakout was. Brian, full humility. And so what happens when you’re dealing with traders, somehow we all have to come down and face uncertainty. Really, that’s what it comes down to always. How much are you willing to risk to be in the trade in the first place?
And then when you have winning trades, how much of those unrealized gains are you willing to risk in order to stay in a winning trade? Now, some of you might peel off a third and all this and that. I’m not going to get into that cause that’s a personal preference, but what Brian’s saying is absolute gospel in that you can’t fight the tape, you can’t fight the fed. But when you’re looking at anchored v a p where it takes price, time, and volume all in one snapshot, I think it’s better than almost any other indicator because you can see it all in one snapshot and it’s pretty much black and white. You might feel strong feelings, you might disagree with what you’re seeing, but if you’re just starting out, in my humble opinion, you do that at your own peril. You can’t fight what’s objective and what’s out there.
If you’re marrying this up with MarketSmith and volume and you can see short interest or earnings dates, you can see all this unfold and marry it all together to have one really, really powerful system. You get to see, for example, if you’re bullish on a news report, that might come out as a surprise. Well for one, what’s happening with volume on that particular day? Because if big news but the thing isn’t moving, maybe it’s already priced into the market, not even with the price but with the volume because whoever has the stock is going to hold pat.
Yep.
Earnings. You get to see how material, because listen, if you’re dealing with big, big companies, I had a, we’re going to talk about some short interest. I remember back in the mid 2000s when Netflix, where you were still sending the DVDs in the mail, they were supposed to lose 8 cents and they made three and that stock was heavily shorted and the thing gapped. So then the question is, is the gap going to stick? So you have to use that perhaps as your anchor.
So Brian, when you are doing all your studies here, I want to talk to you because since this is your material, how hard was it for you? And this might not be the best worded question, but in choosing the anchors, right, because that’s really the art of it. You have to take chances, you have to invite that vulnerability, you have to invite that uncertainty and really kind of pick and choose in a very subjective way as to where to set that anchor.
Do you do it in one particular manner consistently or do you kind of say, well, I’m going to look at a gap on this one. I’m going to look at a high volume day on this one. What would be the best way for say a beginner to look at setting that anchor? Because I think that’s where, in my humble opinion, someone might be a little skittish as to like, okay, I like this, I like the idea, I like the ideology of it, but setting that damn anchor, I’m going to sit here and be like, ready, aim, aim, aim, aim, and never should or get off basically. So where should someone start if they were looking to set the anchor and keep it simple just to get going?
When it comes to trading stocks that I think that most people start out with somewhat of a fundamental background. So earnings reports are really, earnings are what drives prices. At the end of the day, it’s all about future expectations. Is this company going to earn more, therefore the valuation is low today compared to what it might be. So we’re buying the stock today. So I think that when you look at what comes naturally to people and what they’ve been, I might argue brainwashed into thinking about stocks is that it’s all about the fundamentals. If you start with earnings reports, especially the ones that get a strong reaction either up or down, yeah, because sometimes we’ll see that the stock will miss numbers, the stock will gap down, and then that day it kind of is under the daily v WP for half the day, then it surges above it and goes on this incredible tear for the next week or two. That becomes one of the best anchors because it’s something that you’re already familiar with the fundamentals of the earnings report and it gives you the opportunity to look at the stock and say, I don’t have to buy it on day one of the earnings report, but I can wait 3, 4, 6 days, let it settle down a little bit and then see if it’s above the v a. Is it holding from that level or is it just crossing back above and buyers with regained control. So definitely earnings would be the first place to start.
Yeah, because man, when I grew up and stocks were still trading in 8ths, there was the number, then there was the whisper number, and then you’d go out and get other ones research and you’d realize, okay, for all the smart analysts out there, the predictive value of any of this information is zero, right? It’s really informative. It’s really, and they’re very smart people. I’m friends with a lot of those I teach.
I teach them. But here’s the thing, folks, if you miss a day, it’s not the end of the world. Yes, if you’re sitting there watching one minute bars, it might be painful because you kind of missed your moment in that regard. But think of it this way, if there’s a stock and you can go to most of these places and rank the top performing stocks, some of them are up 800%. So guess what? If you bought it at $8 and it went to $16, there’s still a long way to go. Of course you don’t know it’s going to go there, but don’t feel like you missed out or that you have to act impulsively. I think that’s one of the benefits of this book is that it has a built-in pause function in that you can see thing up, see things objectively, one good or one bad day. I know that people say if you missed the 10 best days, this and that, but guess what? Good days and bad days are clustered. So if you were so unlucky to miss the 10 best days of the S&P, chances are you missed eight plus of the down days too. So you have to be super careful.
Also IPOs…
Absolutely. I’m not an IPO O guy myself, but for example, if you looked at the duress within crypto, you could go back and look to see when Coinbase for example went public and how that’s holding up. You can see any other big inflection points. When did FTX go broke? When did SBF get indicted or arrested? So you can just see those, did those news events have an impact, right? Because you don’t know why people do what they do with their money. No, they say fear and fear and greed, but it’s really the news, especially if these investors don’t have a daily methodical process that you know and I would have day after day, we know, okay, some days this isn’t the right environment to start rolling the dice. There’s a lot of fear pervading we are kind of like every day is unprecedented times, but it’s hard enough to make money in good markets.
This doesn’t seem like it’s a good market.
If crude’s up $5 today, mind you. So again, this is objective and its dynamic. So you let anchored VWAP do the interpretation for you. This is a great way for as far as I’m, because people always ask me what’s the best indicator, what’s the best indicator? And I’m like price and volume for the most part, but all the other stuff really just confirm what you can already see. And I don’t have that emotional need to see something on my chart that confirms something that I can either see on the chart or even better in my P&L because if I’m in the right trades, they tend to start making money right away. And if not when I’m wrong, it’s usually because I’m early. So I had to cut my position sizes down by 90% because I was getting in with these full risk units and I was getting knocked out and I was in 20% drawdowns just because of bad luck, bad timing.
So I was like, okay, if these names are eventually going to make money, I need to find a way to have more staying power. I got to hunch, and I haven’t proven it yet, but I’m going to come back. Maybe I can have you on a couple months. I’m going to go back and look at my own trading ledger and see if I was able to deploy some of these techniques, how I can improve my own stuff just as a case study because I don’t have all the answers. All I have is my own humble experience.
Well, they’re not all in that book either. Michael is as good as you saying it is. They’re all, the answers aren’t in there, nobody has them all yet. We’re all searching for that elusive edge and me managing risk when we’re wrong because we’re going to get it wrong a lot.
And again, I’m using a lot of leverage and so when I get it wrong, it can be a little bit more painful than it might be for other people. Of course, I don’t recommend that you do things my way. I have also stated on the show that if you have a cash account, call it $50K, doesn’t matter what it is, but you can’t trade, say $10,000 of that cash and get it right. By all means don’t start using leverage. The only time you can start using leverage is when you absolutely know you have a definable edge and you can look back objectively and look at your own trading results and see that whatever it is that you’re doing, even if it’s rolling the dice, that somehow by the grace of God you do have positive expected value based on all your rules. If you don’t have that, that then leverages out of the question. I know.
No, it reminds me, there’s a long ago I read one of Martin Pring’s books and I got the line from him is when you commit your money to the market, like it or not, you commit your emotions as well. And I like to add on to that. If you leverage your money, you’re going to also leverage your emotions and you’re going to find yourself doing really stupid things at the worst times possible and selling when you should be buying more and in the opposite. So leverage, yeah, you’ve got a good handle for it, but a lot of people aren’t. Take a lifetime to get there.
Well minutes seems like hours and hours seem like weeks. So all there, these are hard earned learned lessons. No one has it easy. It took me for people like man, it’s taken me so long, I want to make money. I want to be a trade already. Well it took me four and a half years to figure out my backside from a hole in the ground. So if you’re within that four and a half window and you have even a small amount of respect from what I’ve been able to achieve, you’re right on target, you’re not going, the markets aren’t going anywhere. They will be, as long as issuers need to raise capital, there will always be a secondary market in trading. They’re not going anywhere. So I have a few slides to go over some of the trading techniques. I think Brian says it best so I’m not going to steal his thunder and try to replicate the whole thing.
So I came up with a couple of themes, right, because that’s good. I’m going to share my screen here and go on. There it is. I stole this, this from your site, Brian or your Twitter feed. So I’m kind of sorry but I’m not sorry because I just like the graphic looks very good. Thank you folks. You can get the book at Amazon. I don’t have any financial interest. I don’t use affiliate links because that shows that you’re broke and you need the $4 on the sale. I don’t.
So the first very simple example here would be Alibaba. It’s in the news any given time for one reason or another. Fundamentally what we’re looking here at the 52 week high, I anchored this one on the big gap and the breakout, you can also trace down and see that the volume was a multiple of the lavender line, which again, just for a footnote or a key so to speak, is a 20 day simple moving average on the closing volume.
So the green bars are up the red or down. This is from Barchart, I just use it because it’s one of the few places that has Anchored VWAP that you can overlay. And so I did the overlay just to create some support and resistance. I know some of you might be using a 20 or a 50 period exponential or simple moving average. But Brian, when you look at this just on this simple example of anchoring to this big breakout on a high volume day, what are your interpretations for the newer trader? How could they use this?
Well, so when I looked at that, Michael, it looks like if I’m looking at this correctly, there’s that other gap four days ago.
Yeah, right
Here. At least both earnings reports.
Yes
They were. They look about three months apart. And then I would say probably that low was an earnings report. If you go back to that big red volume bar, yeah, that was probably another three month ago event. So it looks like it gapped up on that where you have it anchored when it got back below that volume weighted average price and it was a little bit of a battleground there for four or five days right here and then as it broke below and then five days later it rallied up towards the AVWAP and got sold off hard would’ve actually I’d anchor another one from that gap down because that would tell me this.
From that gap lower, that was another significant event, a change in the psychology of the market that the sellers took control. And I would’ve anchored it probably about four or five days later or after it broke down below that day consolidation, I would say that was an important event. So a lot of people say when do you anchor it? Where do you anchor it on the day of a gap? I like to, but I also want to see how it trades around that level as well. So the brilliant, now the new gap from four days ago, that becomes an important level that I want to measure against. One, I want to see that a natural pullback in here. If it could hold above the VWAP that you have drawn in there, that’s great. And then I would want to see maybe it comes down below the anchor from four days ago and then starts to consolidate a little bit and then begins a new move. So this is a new momentum campaign right here. It appears with that huge volume on that gap. So that’s clearly a new level to anchor from.
And so this is where we go into multiple timeframes. If you’re looking at you want to conjugate to make sure that if you’re looking at intraday, five minute bars, 65 minute bars, you want to make sure that there’s an even number of bars and that’s in Brian’s book as well. And then conjugate the trend action among those different intervals because one day trend sure can be powerful, but you put the odds in your favor by looking at multiple timeframes. And that’s Brian’s first book, multiple timeframes. So talk about the importance of looking at anchored VWAP, not just this a daily chart. Yeah, talk about looking at it at intraday levels and even at various intra 30 minute bars, 65 minute bars, stuff like that.
Sure. Let me go ahead and share my screen. Sure Michael. And I’ll pull up a couple different timeframes and we can look at that together. So for Alibaba, here’s our weekly chart, and on this weekly timeframe I’ve got the 10, 20, 30, 40 week moving average. That pink line is the anchored v a from the beginning of 2022. So I just have blue is this year’s anchored VWAP. So I always have the year to date and I keep the prior year on for about the first three to six months of the year. But what’s most important here is the anchored VWAP from this peak. That’s the number one thing I want to look at. So from that large decline, then you’ll say, well, it’s all the way up at one 40 and here we are at 99. That’s not really too helpful. So I want to do what I call the handoff.
The last time that VWAP was touched was right here on this gap lower, and that still doesn’t provide a lot of value. So I’m going to hand it off to this next control point where you saw another big decline. And there you can see that one, this one right here, held resistance there and kind of in there as well. So now if we go down and anchor to this next level, and I’m going to just color that, I’ll color it red so we can see it better. So we’re fighting with that one. So what we’re starting to see is some of these longer term volume weighted average price levels are holding the support, they’re flattening out. And just if we just clear that all up, look at this daily chart, we’re still in a big range, right? If they didn’t scare you out, well then they’re in the wear you out phase. And realistically,
Well said,
Realistically for a larger term, stage two uptrend to begin, we need a higher high like this, right? Yeah, yeah. Otherwise this is a move within this base still. And you could then even look at that and say, well, that could be a shoulder, that could be head, and this could be the bottom of this right shoulder, fine. Sure. So traditionally people want to buy above the neckline. I want to see it go above the neckline if it’s extended pull back test and then buy over here, love it. And then set an anchor to this point because if this is an important low, so we’ll do is we’ll take a look at multiple timeframes. So that’s those drawings on the left are the daily timeframe. So I’m just going to clear that up. And on the right is a 30 minute timeframe. So this is the anchor from that earnings report right there four days ago.
And so far you can see it was defended on day two, it opened at that level and then buyers came in and scooped it up. Now on a short term timeframe, I look at it and say it made a high two days ago. So now what we’re seeing is the range is so far, maybe it’s going to compress between these or pinch. And then if it doesn’t pull back, then as it gets back above here, so this is the average price since that high, if it gets defended from the sellers and then energy gets compressed, well I want to buy here with a stop under here. What I would actually prefer, Michael, is that the stock, because it’s had this big run recently from this low, yeah, I would prefer that the stock kind of does this, pulls back a little shakeout, comes back in and then does that, grabs a lot of stops, brings new short sellers in test this level, and then perhaps we could come up that right side and get back above this anchored view app, which might look like this.
Brilliant. Exactly right. So if you chart on one screen just for a second, what if you can just go to the left screen? Yeah, yeah. So folks, if you’re looking at this chart here, I don’t know if you can see my cursor, but if you look where Brian, if in the far left top left corner you can see the numbers come down from say 300 and now it’s down below 100, it’s come back two thirds. So some of you write me and say, you know, hate the feeling of missing winning trades. So you have to operationally define what that means, like a winning trade. I figure if you got into this trade on the breakout and made even $10, but then we’re in the sidelines only to watch it recapture the highs of 300, I’d say that that’s not a good trade because you left the majority of money on the table.
And if you’re newer and you want those, see remember there’s two payoffs to every trade. There’s the financial P&L, but then there’s the emotional P&L. If you miss where Brian’s drawn the neckline here at one 20 to one 30 and it goes, you catch the breakout say where he was saying after it does a little breakout and creates some stages, call it circa 140. Yes, exactly. He had the last time. If it goes from one 30 back to 300 or one 40 to 300, what’s the difference? And the answer is ret, it’s there is no difference. So you can’t worry about a $2 move, $2.
Again, if you’re new to trading, it might be an emotional win for you, but it’s not. When you’re looking at the chart of Alibaba that Brian has here, if you’re in a winning trade, then by all means keep some of the good risk on. And so it gives you some context here that when you miss a trade or an entry, you’re never really out of the trade because if the campaign is more meaningful, there’s plenty of times to get on board. Anchored VWAP is a great spot to look and see where that spot is and it’s objective, which is great because it doesn’t make you have to sit there and have to make a decision when you don’t have any experience.
That’s something interesting there too, Michael, I didn’t mean to interrupt you, but you know it from the beginning of its IPO, the anchored VWAP had been important as support and resistance for the first couple weeks. Then as support, then resistance. And we saw the same thing. We saw a shoulder, a head, and a shoulder over here and it broke above that VWAP from the IPO, it came back and tested it, held perfect support at that and a multi-year rally. Now if you look at the anchored VWAP from the IPO, it comes in exactly as the same place as the anchored VWAP from the all time high. So what I just drew in unintentionally is probably where if we saw a real big rally, it would find supply and see that pullback and that pullback would likely come down to the anchored VWAP from this low, which might end up looking something like this if I can draw it properly, something like this.
So would then again, kind of pinch between those and then buy as the, a lot of people want to buy the breakout right here. I want to buy the resurgence of momentum right here where I can see the higher high on a shorter term timeframe and sell some to the breakout chasers. That’s the way I like to look at it. Buy some in here and sell some at this point, right? So anyways, that certainly looks like it’s going to be an inflection level, 144 if it can. That’s a long ways away from here. That’s a great trade-in and of itself.
But this is the beauty when you’re trying to play Columbo or detective as to where things could happen on the chart, you put up the indicator like this and again, it gives you information, it gives you data that you wouldn’t see certainly on any of the financial channels and you probably wouldn’t see unless you’re following alpha trends, for example, on stock Twitter or Twitter for example. Or you get Brian’s end of the day note that he does. So this is all very powerful stuff because now part of a traitor’s job is to have a sense of imagination. You have to have a sense of anticipation. So all this stuff could at the same time get you slightly excited about maybe putting this name on your wishlist, but also give you a moment of pause that you don’t want to get ahead of yourself. Because again, it’s hard enough to make money in good markets.
I don’t feel we’re in a good market. Two, I admit that you only need three or four markets in a year to make your year right. You’re not talking about diversification here, we’re not talking about buying the s and p, we’re talking about being able to find a couple of good moves that you could have a solid position in to make all your money. That might happen for some of you. But I like this. I like idea though that it forces you to be objective and that it forces you to take a moment of pause because this isn’t randomness, this is longer term stuff you’re looking at. Again, generally speaking, shorter term timeframes, the data is much more random than when you’re looking at a longer time series. Now, we could spend four hours talking about randomness because it’s all around us, but sooner or later you’re going to have to develop a trading edge.
And if you don’t have a trade point in putting on risk, unless again you want the action, action means I want the emotional feedback from the market or the potential to make money. This is objective in that it can give you that moment of pause. If you’re at a stage in your career where you lack discipline, you lack discipline, and you don’t have a trading edge in this type of an environment, just go be a philanthropist and give your money to a schul at church because at least you can direct where you want it to go. It’s too easy to lose money. This is excellent an analysis as far as I’m concerned, I Can I take back the screen?
Okay, boom. So let me go my zoom go. There it is. Share the screen. We’re going to go move on to the next one. So thank you for that because you took the id an idea, a starting point and really evolved it, which is kind of exactly what I wanted. Now we’re looking at one that’s always in the news Tesla. And what I did hear is I did actually anchor the last four earnings reports. Oh, nice. Now Brian, what’s that?
Nice. I like it.
And so again, I stole this, this from Brian. I didn’t come up with this. This was one of the, that he mentions in the book. And so I anchored the last four because people have strong opinions about Elon Musk, which I think cloud’s judgment,
But in both ways.
Exactly right. He’s a polarizing figure, right? Yeah. So you have a polarizing CEO who can’t stay off Twitter. You have a company that’s in an exciting field. We always have fossil fuel arguments. You have the convenience of electrically charged vehicles, but if you don’t have your own charging station, it is a pain in the as at best. So what I did here is I went back to Market Smith and I learned, I looked and saw when were the earnings reports. And so I anchored on all of these earnings reports. The last four, I colored them differently. They also happen to have high inflection points. When you look again, this lavender line is a 2020 day simple moving average on the volume.
And as Brian suggests in the book, if you’re looking at volume as being a place to set the anchor, you want to think about 1.5 times. So the green bar or the red bar, right? Because either one, you’d want to see that this be one point minimum, 1.5 times where the lavender line is. But nonetheless, what I like about looking here is that we call into sharp relief in a very visual way. Something that Brian referred to in the book called The Pinch. And the Pinch is kind of where the price set of the instrument in candles settles between two different anchors. Is that right? Would that be a fair way of saying it?
Yep.
So interestingly enough, the earnings-anchored VWAP from a year ago is the solid blue line, and this is through last night. Cause I wanted the charts to be as recent as possible, but not so recent that I put the whole thing at risk because I didn’t have the charts ready. So I like to be prepared like a day or two in advance. So let’s talk about the pinch here, Brian, because you can see there’s a couple of spots here. Without getting confused, I have a sense that you’ll do a better job of describing what’s going on with the pinch and the width of the pinch lines.
Yeah, that’s key is the width. So what we’re looking at is there’s really kind of introduced this or expanded it to a lot of people is from contraction comes expansion when you have that compression of energy that the stock is resting after a large move and it’s building energy for the next move. Maybe we’ve attracted a lot of short sellers who think, hey, the stock’s up from a hundred, the low this year it’s doubled. I’m going to short this thing. So it brings in a lot of short sellers. Other people are maybe some long sellers are getting out and giving it to other longs, new longs in here. So what we see is a compression of the energy, the volume is building.
I’d really like to see it get a little bit more compressed and pull back maybe towards that middle line where the red and the green from last quarter and three quarters ago are. But it’s really amazing when you look at that blue line look at first how it acted as resistance the whole way down. And then we saw some higher lows in June last summer and then it poked up into that anchored. And then as it got above it, the buyers took control ahead of the earrings report and then the next one, it broke down below it and it, it’s just amazing to see how these levels, so that orange one from two quarters ago, that call to the pullback. What I’d also like to show you, Michael, is if I could take the screen here too, is expand on this even a little bit further with the idea of the pinch from highs and lows. So that’s something that we can easily anchor to different earnings reports. Sounds good. Here I’ve got a 20 and a 50 day moving average.
That’s great. They’re right next to each other. The twenties starting to curl back up the 200 day moving averages above the high last year March is right there. And that was perfect twice, maybe three times after it had been support previously and then resistance as well. And now we know that this was an important low. So look at how from that low, we saw buyers here, buyers here, and then we had a shakeout and now we want to anchor to this point and look at how this anchored VWAP is now holding. So what that tells me is we can use that. So when the buyers take control from this high, we buy above here and now we set our stop At that point, our stop would go under this level as it rallies up, we now have our stop raised up under this shakeout low and maybe it can build and do this, but that’s how I like to combine them from multiple points, highs and lows. Because you can see that they’re just so damn accurate that you just can’t deny it.
You can’t deny it. And again, it’s objective. So for the newer person or for the person who’s super experienced working at tutor, a lot of information, you have good instincts, you have good intuition, you might be reading lots of research, you might even be people in the business. This can help quiet the chatter because they always say the committee’s in session. So this might help quiet the chatter because it kind of streamlines things. Brian, I want to talk to you about something that’s kind of like at the heart of making and losing money because for all the entries and exits that are out there, we make and lose by our position sizing.
Now. So when you had some of those other charts, I didn’t want to interrupt you, but the way it looked, that big breakout bar, it would seem to me with the line being beneath there, I might be able to, I don’t want to say cheat, but trade the thing a little bit bigger and have a tighter stop because I have that line right there. I have that anchored VWAP right there. And if that fails, that tells me something much more loudly and clearly than any analyst or anybody could, since it’s kind of harder to read tape now that stocks don’t trade in eight segments. So maybe I could trade it a little bit bigger, not be in cavalier or anything, but am I onto something…?
That’s exactly how I look at it. So the way I view it is that’s the money management aspect. Risk management is, hey, my stop is 20 cents away or is it 60 cents away? Well, if it’s 20 cents away and I’ve still got to say I still want to risk $2,000, well that means I can do 10,000 shares if it’s 20 cents away. But if it’s 60 cents away, I’m only going to do 3000 shares. But is this market that we’re in, is it convincing enough that I want to take that full exposure? So I will always look at it and I always like to have a really tight stop because a really tight stop says to me, I can get in with my maximum share size and still risk the same dollar amount and I’ve just got more upside. And if I’m buying it right as it’s starting to move, not three days later when it’s breaking out, that’s when I’m selling some to the breakout chasers. It’s lonely when you buy that first little higher high on a shorter term timeframe,
It’s lonely. That lonely feeling. It comes with a lot of doubt. Am I the only one who sees this? It’s so obvious what’s going on? When are people going to join me? And we all have the same anxieties when we hit that buy button and commit our money.
That’s what keeps us human and that’s what keeps us me defensive in the trade. And when I see that and I start to see, hey, now the volume’s coming in. Now it’s up to daily R2, I’m going to sell a little bit here just because I was uncomfortable to start with. So I want to reduce my anxiety in the trade. I want to take a little bit off just in case it fails. I’ll most likely even raise my stop at that point. And then I’ve in a theoretically risk-free position theoretically because we never know what’s going to happen and right bomb might hit their headquarters or whatever it is. So absolutely Michael, it’s about getting as big a size position as possible by looking at those shorter term timeframes and really trying to find that inflection point and be ahead of the crowd.
Anticipate, okay, well if it gets moving here, the breakout people are going to be buying it in three days. So I want to be ready to feed some out. Not necessarily just throw it to them automatically, but start watching the tape real carefully. And if it just keeps running up there and making two minute candle higher lows, that’s kind of one of my default scenarios is that it, I’ll use that as a stop for that first third. But it gets me to say, here are the levels. Just like any successful trading strategy, here are the levels where I want to take risk or where I want to put it on or take it off.
Well said. My head is swimming with ideas because when I’m, everything to us is largely systematic. So I don’t think I’m not infallible, let’s just get that off the table. But because everything is so kind of systematized on my end, I don’t really have faulty analysis because everything is highly regimented. Of course I can evolve my system and again, I’m not infallible. I can be a bonehead like anybody. But I did notice when I looked over the past couple of years, which has been true, a hallmark of my own trading is that when I’m wrong I tend to be early so I can anticipate what I think is going to happen. Unfortunately for me, my P&L gets chopped up because the crowd doesn’t see things the way I see it and the crowd’s always right. If I go outside and it’s clear blue sky here in Los Angeles, but there’s a thousand people around me who say, man, it’s cloudy and overcast rain’s coming, guess what?
Rain’s coming because it doesn’t matter what I can see, I can’t fight the tape. You see what I mean? So I’m going to look at this and go back and say, okay, I’m not really a short term trader only because when I put on a trade, I don’t care about a $2 scalp. I want to make $50/share, 6,000 bucks and I want to have all my money in one name. Again, I don’t recommend that for people who don’t know what they’re doing, but you can have, I’m not bannonballing in or cannonballing out like Brian talked about 20 and 60 cents stops. There’s an inverse relationship between position size and where you replace your stop. I’ve adjusted my own trading to kind of scale in with 10 basis point style positions so I can just keep buying, buying, buying, buying. Guess what? If I do get knocked out early 10 times in a row, which is very, very unlikely, but it can’t happen.
I still have 99% of my starting capital. So I have all my money emotionally speaking. So you have to evolve, not you, Brian, but well I guess all of us, we still need to evolve cause the market’s going to try to steal our money and induce us to do things by pushing our buttons. I want to come back to this cause I don’t want to keep you on all day, but there’s just too much, too many gems here. Let’s use this same chart and we’ll talk about the blue line, which goes back a year, Brian, and talk about the handoff as it might relate to say this six months ago, right? Because look at the blue line, as Brian mentioned. It act as resistance and then through here through the next quarter, people were anticipating good news. Probably we had lower lows. We kind of held the line here until we finally broke through. But then after this breakdown from last October, you could see that the blue line, there’s so much distance between the blue line and the actual price that Ryan discusses in the book, something called a handoff. So Brian hit the handoff maybe even as it relates to the last two reports. That would be the orange and the lavender or this, yeah, I guess that’s lavender.
Sure. So actually right there in October, that gap down looks like October 1st. That was clearly we broke below what had been support from that first earnings report. That was an important event right there, that gap, right? I would anchor one right there to kind of see how that price responds around that. And it kind of looks similar to your orange one in that it offered a little resistance. And then when we jumped back above it here late January, that’s kind of been holding a support as well. Very similar to the orange. And the longer these things build because they’re cumulative, the more likely they’re going to kind of come together in the same place anyways, right? Yeah. Because the data from 200 periods ago has now just a 25 basis or 50 basis point weighing in the calculation. Not really. That would be a simple moving average.
But when it comes to volume in that, we’ve got to put that in. But you know can see where the heavy volume periods are going to have a much greater impact on that wick VWAP waiting, which is why we see the volume weighted average price from the beginning of this year becoming so important right now because we saw so much volume after that. That’s the psychology of the crowd from the beginning of the year. How well are they positioned? Are the buyers feeling good? Are the short sellers feeling anxious? And how does that equate to what’s the next potential trade out of here?
Yeah, I don’t want to get into it right now, but this is amazing stuff. I did get a reader question from a video that I had done a couple weeks back. “Can you help me better define what support and resistance is?” I would say don’t try to draw horizontal lines because you want something that’s much more dynamic. I would anchor this VWAP and do what Brian says. Look at the gaps. They don’t necessarily have to be high volume days, but they are significant in terms of price. And then just kind of see where is it holding, because that tells you what the institutions are largely doing more than say the smaller speculators. I’m going to move on now. Brian also talks about among, again, he, there’s, there’s ways to use this. He mentions nine in the book. One of them spoke about short squeezes and if you go, it is publicly available.
I think the exchanges have to report the numbers every two weeks. For example, top five that’s currently, I think as of Friday’s closed, this was number three on the list. There’s the BBBY, which at 50 cents, not sure why anyone is still short. I mean what’s left, but who knows why. Here we have simple 250 period simple moving averages and the closing price. And in the bottom here I’ve trailed this and looked at the short interest. Yeah, so it tells you a lot of stuff too. As the bottom of the market was, the bottom range here was consolidating. We actually saw PE shorts adding to their positions. And even as the market rallied, the price basically doubled. You could see that they added to their shorts. It wasn’t until we had a recent selloff that market has kind of placated. So when there’s 43 million shares short against the float, and if you do the math, it’s 52%.
It’s not the highest that I’ve seen. But nonetheless, it’s high. And Brian goes through a system, if you will, a set of rules that are objective that you can follow if you want to look at how to play a short squeeze without getting into guesswork or having hunches of what you think the company’s going to do and this and that. So I went into a different program here Barchart just because it’s publicly available and you don’t have to make a subscription. Again, this lavender line here is a 20 period simple moving average on the volume. That number is 12, excuse me, 12.8 million with 46 million shares outstanding. So you can calculate the short interest and I anchored it to these, the low and then the recent highs. So Brian, improve this chart for everybody.
Well here two things. First, Michael, as I mentioned, there’s two types of short squeezes that I consider. Two types of short squeezes. One is a knee jerk short squeeze. It’s a stock like Carvana. If you scroll back up to the top frame, you see that Carvana was $200 and something dollars, the $400 level for more than a year ago. So the shorts have been correct. They have this right that that’s structurally they are correct in here. But short term we get these knee jerk short squeezes where the stock goes from
Here and here, right from $4 to $16 a share. I don’t care what your cost basis is, that hurts when you’re short. So you’re going to scramble and get and cover some. Now, longer term, who knows? They, everyone says this company’s basically dead. They’re, they’re the next bankruptcy or BBBY probably first, which is why it’s at 50 cents. But I personally, if there’s rumors of bankruptcy and that sort of thing, I don’t think it’s a good stock to trade long. So I’m not going to try to participate in the short squeeze here because who knows, maybe they’re going to default on something and they’re going to file one day. But what you’re seeing here is that from that low, the buyers have been struggling to hold on to control, but they’re still below the anchored VWAP off that peak. So from that point where the average short seller from that point at the top, the sellers are in control the average price from the low they’re at about break even.
So this is really kind of looking a lot more neutral than anything to me. There were some fantastic moves. If you just look at the big volume spike, low volume pullback there in early January, and then another push on big volume. So I’m not sure I could really improve on your chart here, Michael, because it’s it. It’s just one of those emotionally driven ones at this point. I think where a structural short squeeze is one where you’ve got a stock in an uptrend and the shorts of still being stubborn and they’re fighting it and fighting it and losing, that’s a losing game.
So one of the things that I’d point out is some of you might be into trend following and buying an end day breakout and being the variable that you can set. It could be five days, could be 20, could be 19, could be 55, doesn’t matter. There’s some popular ones out there and you have these nice round numbers. This, you can’t see it here, but this is zero because of the number 10. And if you look back X amount of periods, you might look at this as a breakout. So the question though is do you want to buy the breakout? If you look at this as being a bit of a trading range, the anchored VWAP numbers kind of create a dynamic trading range.
So we talked about position sizing and taking chances. You’d have to do this enough times and test it to see if you’re going to buy a legitimate breakout, say at $10.25 cents, maybe $10.50 cents, for example.
You’re still within a range where there’s a lot of overhang, there’s a lot of inventory where the people are at home saying, please, God, if it goes up a little more, I’ll just sell it at close to break even. Or I’ll sell it for X amount of dollars and take my loss and walk away. This might give you a moment of pause to say, yes, there could be something interesting if they refinance their debt or they can convert their death equity. Who knows what’s going on. This absolutely tells you what the market thinks about those plans and all those news reports, especially when you see the garbage on PR news wire or PR web or things that come from the company or people who are promoters.
Right, exactly. So on this one, Michael, when you look at $10.20 cents per share, here’s two questions I answer before I put on any trade one, where has it come from? So if you look at the low four days ago, it was $7.20 cents per share. And if it breaks out at $10.20, that’s three points on a $7 stock. That’s 42% or so. Yeah. So it would’ve run 42% in four or five days to break out. That’s asking for a lot for it to be able to continue after a 40% rally in three days. And then where does it have the potential to go before it’s likely to encounter a source of supply, which might be strong enough to become resistance. And that would be, I would look at it and say $11.41 cents that anchored VWAP from that peak. That’s where I would expect to find supply. I would expect the shorts to defend it like they did for the four days after. So my reward potential in my mind is about a $1.20 up to that $11.40 level my risk, however, it’s just rallied 45%. I’d have to look at it on a much shorter term timeframe to really kind of determine where that stop might go. So I’m going to share it on my screen to show you.
Can you let me take a look at that sharing? There we go. So here’s the way I look at it is look at the personality of the stock. We’ve had a couple of these runs up to this level, quick ones, and then what happened? Then they get the shit kicked out of ’em, basically.
May not happen this time, but when we anchor it from that peak, what do we have? We have this. That’s where I see the potential price target to be. Yeah. So now I’ve got these higher lows and I’ve got these higher highs. Is this this higher? Is this low now kind of going to be the turning point where it goes lower. So I want to look at it right here and say, if the buyers are taking control today, I want to see that this stock. If it gets punched back by that, or if it does this, then I would be more willing to buy here on anticipation of that breakout. So I’m ahead. I can sell a third here, have my stop under here, and if it rallies up towards that, makes this high or low, raise my stop to this point as it breaks out and I sell a third, and then look for maybe holding the two thirds up to there if it makes a nice pattern, unless it does this and breaks a higher low. So it’s about the definition of trend. If it’s making the higher highs and higher lows on the timeframe I engage, then I’m willing to hold it. But if it breaks down and makes a lower low prior to hitting my price objective, I’m getting out right here. I’m going to listen to the definition of trend because I’m buying this emerging uptrend.
Brilliant. So folks, again, if you’re just starting out, this gives you a roadmap of how to marry, how do you feel, right? And how to temper your emotions by looking at the facts and then being somewhat reasonable. Like Brian said, you’ve saw a 45, 42% move off the lows here. Let me just get back onto the screen and we can keep moving along here. Bang. There we go. Brian was saying in the last few sessions we had a strong move. Percentage wise, you always want to think in terms of percentages. Yes, you have to price the risk in terms of dollars and cents when you put your orders in, but the way you can gauge the actual magnitude of the move is to think in terms of percentages and what Brian is saying.
You’re asking a lot of the stock when there’s still a lot of overhang that things already moved up quite a bit for who knows what reason. So the thing here is to demonstrate that just because something has high short interest doesn’t necessarily mean that it’s a good trade. You still have to interpret what you see in terms of the price action, because as Brian has said, a million times only price pays. I like to say only now after having read his book only price, volume, and time really tell you the truth, right? And you have to develop your own opinion. You can’t be, and this is my, I want to say this actually stopping. I want to look into the camera. Traders have to be leaders. It’s hard to be a follower in this business because you have to be decisive. We live in a paradigm of personal responsibility. This tool of a anchored VWAP really can help you do that so that you can kind of come into your own.
If you’re trying to be like, I follow so-and-so’s action alerts over here, or I have this discord that I’m involved with here. You wake up every morning and what effectively your life looks like from my standpoint is that you’re a Jew on Monday. You’re a Christian on Tuesday, you’re agnostic on Wednesday, of course, on the weekends you’re satanist or you’re agnostic. So it’s very difficult to have the word. The fancy word is apostasy. You can’t juggle philosophies. You have to pick one and know that it’s yours and then own it, and then replicate that day after day after day and focus on the process. You can’t look at any p and l. I know some of the short term people like, man, I didn’t make my 500 bucks today. To me, that’s a little too anal. If you focus on the process, you’ll get the results, especially if it has positive expected value.
I’m reminded of this knowing that Bill Dunn (now retired) is one of the greatest traders ever and was purely systematic. Had three years in a row where he was effectively down 15% and he’s well in running well, or he was, he’s since retired, but he was well into nine figures of assets. Let’s look at one more, Brian, then I want to let you go cause I don’t want to hog up all your day here, but such pithy stuff. We’re looking at another stock that’s kind of breaking out. We have simple 50 and 200 day moving averages on Crocs.
Back in the day, it was a bit of a fad because it only had one product. Now they’ve broken out again, just for this and that. I’ve put in short interest. It’s 7 million shares. This one’s about a four point something short interest ratio. And then when we look at Crocs with respect to the earnings, we have a little bit of a handoff action here. But in this case, unlike the Carvana, we have some different price action. These are earnings. The last four earnings, the volume also is massive when you think about it as a ratio or a reflection of the average. Again, this is a 20 day simple moving average of volume. And we see the handoff here. We see the big volume day. We put in 52 week high, and then what we saw was a breakout, but then we saw the reversal.
So Brian, what do you think of this?
Look we got here. I mean, look at that, that red one, which occurred near the low, which was when we had the handoff from the purple, which is just crazy. But the pullback there to that red one, perfect bounced in there. And then just three weeks ago, another perfect. It pulled back after that earnings report, it found buyers at that prior earnings report anchor. And now I, I’d love how you put the one on the peak, because from that peak, we saw that volatility and we saw the sellers come in and profit takers come in and take control until it touched the prior anchor. And now, as it’s gotten back above the anchor from that prior peak, that earnings report, it tells us again that the average short seller from that peak is now losing money. The average price this stock traded at since that earnings report is $123, basically.
So the average short seller’s down about three points and going, scrolling up to your previous chart, this is what you have potential for a structural short squeeze. In other words, the shorts are fighting this uptrend. Look at how that earn, that short interest is as high as it’s ever been and the stock, so they added to it after that earnings report. Well, we can then take an anchor from that and say, we can look at the number of shares. I can’t really see it from here. Let me expand this screen. It looks like maybe there was 5 million shares. You mean here? Yeah, if you look straight down at the purple, there were about 5 million, maybe five and a half million shares share.
Yeah. Okay. And that the last report, 7 million. So it tells me they added about one and a half million shares from that earnings report. So the average, so we know now basically that 1 and a half million shares are down about three points. That can’t feel too good. That’s that’s a crummy feeling. So now we have the potential of a structural squeeze. If this doc continues to pull back in the next day and a half and finds support at that $123 and then bounces from there, I think the shorts will start to get a little bit more motivated. They’re going to try to push it back down underneath that average price and take back control. But this thing could get away from them pretty quickly in here. And you could see Crocs, I think, make a run, maybe even for those highs from 2021, which are up near $180.
So again, folks, these aren’t trading recommendations as much as they are educational to take the ideas that Brian has written about very eloquently in his book and show you what it looks like in real time. So again, I think in terms of percentages, as soon as Brian said five to seven, I’m thinking 40%. That’s a massive increase in short interest when the stock wasn’t really at best, it’s kind of channeling here, it’s a $20 range, but again, they did win on the day. This is clearly a reversal day of Victor Sperandeo’s written extensively on 2B reversals, and then is another one here where the sellers took over and whatever gains we had for the day were relinquished, relinquished either because new shorts were entering, right, or there might have been some day traders in there. But nonetheless, it gives you some sharp relief that you can see how the dynamic of the anchored VWAP, how it access basically support and resistance without your needing to step in and draw lines using your very subjective ideology, especially if they’re horizontal. This takes into account price, volume, and time in one fell swoop and calculates the number for you. So at that point, you’re just basically interpret interpreting what you can see, but it’s very, very objective.
I love it. And if anyone does take this as a recommendation, which they shouldn’t make sure you have a stop near about 119, because if it gets below 119, I wouldn’t want to be long at it anymore.
So again, we have to determine who’s in control of the instrument. I think some of my, this is, and I want to speak to the short term folks because I hear them griping a lot about slippage and skid. Some of the best trades I’ve ever had in my life had the worst slippage in skid. Why? Well, cause I was clever enough to be buying when there were other buyers who had much more muscle than I did. You see? And so that becomes an actual leading indicator for me. It’s like the worst to fill, the better of the trade. I know it sounds kind of weird because some of you are very sensitive. If you’re buying a thousand shares or something intra day, you might be using day trading, buying power if you have more than I would as a $25K. So a $0.10 move might rock you on a couple thousand shares because of how you look at your P&L and what you’re looking to do intraday, right?
But from my standpoint, where I’m even buying futures, I want to hold the positions for weeks and I’ll come back and we’ll have Brian on to do a little deep dive. Maybe we could talk about some commodity stuff here to Ford been doing equities, but I don’t look at slippage and skid as a bad thing because I want to be buying when there’s other buyers. Like Brian said, it’s a lonely feeling when you’re B, you’re the only person buying that breakout and you’re around saying, hello, Hey, hey, did you get any of that? Are you in that? What do you think of that trade there? So what do you do? You start going to social media to look for other people who are bullish to support how you feel about being in the trade. So anyway, Brian, we’re coming up here on hour and a half. I feel very guilty. I mean, I kind of feel guilty because I’m a kind of gentler inner voice, but I love the idea that we can go on and talk about this book till we’re blue in the face. Maybe I’ll look at a couple of other examples and have you back on.
Be my pleasure.
Yeah, it’s good stuff, man. I really wish you the best with this. The people are raving about it. It’s already got over 105 star reviews. Yeah, I think in my interpretation of this, this is a good reference book to have on your shelf, but it’s also a playbook in that you can come in here and start the process again. Brian delineates nine setups, if you will. There’s probably maybe a better way to say it, but nine trading techniques, nine different setups that can get the juices going. And then, like I’ve said a million times before, folks, the best teacher of trading is you trading. Yep. You people can kind of lead you in the right direction, but the only way you can calibrate if the goal for the trader is to have a system with which she or they are compatible, you have to actually do it because that’s the only way that you get the emotional intelligence. The book here and the tactics that Brian speaks about is very salient because it gives you a very objective way of looking at price and volume in time without having to make a lot of decisions and starting to second guess yourself, you see? So I would recommend that you get it if you don’t know your trading edge, this is a good place to start. Very well done, Brian. Excellent work, buddy. Thank you.
All right. Well, I want to call it a day here. Brian, I’m going to have you back on the show. We can take this and maybe do a part two or a deeper du. Sure. Nuts and bolts for folks who want a part two. And I’m always game for that too because look, I don’t have all the answers. All I have is my 35 years experience, but I’m not infallible, so none of us are.
Amen. Brother, great book. Thank you for being here, Brian.
Thank You, Michael. I appreciate it.
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The post Brian Shannon – Using AVWAP Analysis For More Profitable Trading Setups appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks again for being here. So the next question that came in was like, can you speak to margin to equity as a ratio? So a lot of folks look at, alright, let me give you some context. If you are a commodity trading advisor and you have 15%, so a million dollar account, you have $150,000 committed to margin for systematized CTAs, you would be, I would think, towards the upper boundary of committing margin. Because when that all that margin means is it’s 15% of notion of a notional value. So the question then becomes, if you had a million in cash, what is the actual notional value of what it is that you’re trading? Because therein to me is a good measure of leverage. It’s not just the fact that you’re putting down 18 K to trade one of the nqs, for example.
It’s what is the notion of value work out to be based on the amount of money that you have in the account because the margin is controlled by the exchanges and they use a SPAN calculator that takes into account liquidity and also volatility, and then they set what their margins are, they can change it at any given moment. The fcms and the clearing members can then use those as the lowest number. Sometimes they make them stronger, but they can’t go lower. So unless there’s some funny politics going on, there’s really no way to say, well, you’re going to take trade the NQ and take it home with you that you cannot have 18,000 a margin. Now if you create spreads, you’re simultaneously long and short the same instrument if two different extra expiration months. So for options folks, it would look like a calendar spread, right?
So that lowers your margin. Why? Well, because you’re simultaneously long and short, the same instrument of different expiration months. So they’re highly correlated. This is what Bruce Covner did if you read about some soybean trades in market wizards is he realized that I think it was the July, November bean spread was acting and trading like an outright so cleverly he decided to put on the spread because he could put more contracts on why? Well, because spread margin might be only 10% of what the directional outright for one contract would might be. So if I’m long, long July, short November, that might only be $1,800. If I was going to trade July long on itself might be 18,000. So he was like, I can put on 10 spreads as opposed to one outright and have the thing net perform like I’m 10 directional units. I wouldn’t recommend doing this.
He ended up giving back quite a bit of money in doing it, but it was a good learning, a good learning situation. So when someone asked me again about one of my better trades, I found myself in a spot where I had an account that I think it was like a 401K rollover thing. It was like 50 K and I traded some sugar. I was trading much larger. I think the account had an almost 40% draw down. Now I think I had maybe 30 million in client assets at the time. I had over 10 years of trading experience. I had already been in the trading tribe, for example, and I think in 2004 I was ranked number one as far as emerging CTAs. I don’t know if they were emer established CTAs at the time, but I was doing as well as I could possibly do.
All my pistons were firing in the right direction. I was trading again very large, and I remember there was a time when in that sugar trade in the early part that I had, I don’t know X amount of contracts, I was in a 40% drawdown. So the 50 K was 30 K and of the 30 k, 20,000 was cash and 10,000 was unrealized gains and sugar. So it was a good, I’ll do a case study on it one day, but it it’ll be in order to do it right, it’s going to be like four hour program and I don’t have the time for that right now. But when you see the confirmations, which I st, I still have from my clearing member, which was Edn F Man at the time, you’ll see I’m taking lots of small losses, small losses, small losses, small losses. I just got a big number of them in a row.
So you figure if you’re trading 2% risk units and you have net 20 losers, you can see where your drawdowns are going to come from despite some of the gains. So you go to school on yourself, you’ll learn. This kind of helped me to cut my thing that I talked about yesterday so that I wasn’t losing as much money. It also showed that you got to pull your weeds and let your flowers. There was no reason to sell the sugar because it kept going up. And so I didn’t emotionally want to go for that win. Now at the same time, I was fully loaded. I probably had 50% of my account balance was in margin to hold those sugar trades. So the margin to equity ratio isn’t necessarily a risk management tool because I was not risking 50% of my capital. I was never going to let that the sugar long position go against me to take out all of my margin.
What your margin is, just like Mickey’s finger, when you go to Disneyland, it says you got to be this tall to go on the ride. So you have to meet the standard. And that’s just because the exchange, knowing the volatility and the volume or what they estimate to be the liquid, you find out volume isn’t liquidity the hard way. So they figure out, okay, what the numbers are because they want the market to have integrity at all times. So if they let somebody in who’s too small or if they don’t put exchange limits as to the number of contracts that you can have on the same side of the market,
Which would be long futures, long calls, and short puts and aggregate all that you might find the marketplace itself doesn’t have the most integrity because any one player could either really screw things up or take advantage of and push the market around, at least on the future side. Remember, it’s the cash market that drives futures not the other way around despite what you hear from the politicians. So you cut your position size, you want to be mindful, right? Because you can’t buy more contracts than cash that you have. But mind you, the way the accounting works at the fcms because somewhere, somewhere, somewhere, no matter who you’re using, the money is custody that an fcm and then they mark everything to the market. So now you have a big position, 50% of your cash is in margin. As that contract goes up and up, your open equity, your open trade equity increases and that creates more buying power.
So your risk isn’t on or necessarily the margin that it requires to hold a big position. Your risk is the distance between your entry and your exit multiplied by the number of contracts and getting to that spot is an art and a science onto itself. If you’re using ATR based system, it’s all calculated for you. The volatility takes into account the dollar amount and the percent of your account that you’re willing to risk and it calculates everything right down to a T based on the volatility again and the amount of money that you want to risk on your account.
So to give you some context, say you had a million dollars in your account and you are risking one half of 1%, so 5,000 bucks. I think if you look at the 20 day ATR on the nq, the big NASDAQ futures contract, and I’m not saying to buy it or to sell it. I think the volatility on that using the 20 day ATR is about 5,200 bucks. Call it 5k. Now, if you are running a strict system and said, I have a million dollars, I want to risk one half of 1% and you took the ATR and you multiplied it, I think the multiplier is what, 20? It would come in at 5,200, but 5,200 is greater than 5%. So the amount of contracts in your risk unit at one half of 1% would be zero. And that’s doing it strictly and very puritanically using that model.
If you’re like, okay, it’s close enough, I can buy one contract that’s 18, right? Thousand dollars as margin. So it’s almost 2% of a million dollars to control one contract, and if it moved one ATR against you, that would be 5k. That would be your daily limit. So I don’t know if 2% is a lot or a little to you of a million dollars for example. So suppose you had a bunch of different contracts across several instruments and you edit all that up. Then you also might have stocks and regulation T. So I think your margin equity ratio is something you want to be mindful of, but I don’t necessarily, it’s not a tool that’s going to help you manage risk in a very long-winded way, right? Because there’s lots of ways you can look at it to try to say, what information or data can I glean from this and use to my benefit?
I have never been able to use margin to equity to know and to say this is a big position or it’s a small position. Two margin values can increase overnight. And even though you have the cash, so say you have a million dollar account, you get a hundred K in margin, one contract might go completely berserk and so they up it from say five to 8,000 per contract. Since you have so much, much excess cash, you’ll just see now you have 150 or whatever the number would calculate to in terms of committed margin. It doesn’t change where your stops are. I will say this though, and this is kind of related but not related. If you find yourself where you’re close to getting a maintenance call, you never want to add money or try to create a spread on a situation, don’t get cute, especially if you’re kind of newer to the game, which means for me, less than 10 years, when you think of how market cycles work, six months, a year, three years, not enough time, it definitely matters, but it’s not enough time to get a full or to really thicken your skin.
So if you put yourself in a spot where there’s a maintenance call on your equity, you have to offset contracts. Or if the exchange came, comes in and then your clearing member comes in and they increase the margin substantially for your position, then by all means cut it in half or more if you need to bring that number down. Certainly if the position is losing you money and you find yourself coming into a maintenance call, the best thing to do is offset the position. Don’t ever meet a margin call with cash or add even other securities to your account. Always just offset what’s losing you money. I know it’s, it’s not really related, but it’s kind of related as we’re having this discussion here on margin to equity and this and that. So anyway, hope this helps. Hope that answers the question. I think you probably knew a lot of this inherently, but if not, might be good to hear it. And as always, thanks for being here. Please consider liking and subscribing. Leave a comment if you want. Cause I look at everything and it gives me good feedback on what I’m doing and what your concerns are. This question actually came from a comment, so this is one way that we can kind of have an ongoing conversation and keep things moving, hopefully in a direction that’s meaningful for you on the channel. All right, appreciate y’all being here. I’ll see you tomorrow.
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The post Risk Management And Understanding Your Margin To Equity Ratio appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. Happy Monday. It’s a good week. It’s kind of like I have the extremes going emotionally. I’m in morning over Michael Marcus, but baseball season started, so I have two extremes happening in my brain. Thanks everybody for subscribing to the show. I appreciate it. And leaving comments or up arrows and subscribe cause I get some good data from that. And I seem to be building some momentum thanks to your feedback because then I know what it is that you like. Who needs to sit and listen to me even for five minutes. If it’s on something that you don’t care about, I’m not going to waste your time, even if it’s for five minutes. So I don’t want to waste my own time for five minutes either, bud. So couple questions came in via the comment section so I can address those because in my experience as a teacher, usually if one person’s asking, there’s probably a few other people who have a similar curiosity.
If nothing else you notice, I also get rid of that nagging cough. I’m sorry about that, but I’d rather do the episode and hack my way through it. I’m an ex-smoker rather than not create content. So one of the questions came in about, let’s just see here, I’ll read it from mat. This came in on Friday, this past Friday. Michael, how many trades weekly do you open, get filled on average? And the answer is actually very few, less than 10, mostly because I’ve realized that most trades are suboptimal. Even in the setups that you would look for or whatever trading rules you might have, if I do get filled between five and 10, it could be 10 orders of the same instrument. Now why is that? It’s because, well, it’s a longer story. Let me see, do I want to get into this now? I don’t. But I feel like I opened my big mount. So now I have to.
When you trade, you keep data, you keep your general ledger. What’s all, what are all your trades? And so what I came to find out with my own style, which is as unique to me as are my fingerprints, is that I have good instincts from a gut feel kind of a trading standpoint. But I noticed with some of my trades, I’d put the optimal position on all at once. That’s the old way. I don’t do that now, but then I would get knocked out a certain percentage of the time. In fact, half of my losing trades were ones where I got in with my optimal position, but then I got knocked out cause my protective stop got hit. And so I said, okay, well that’s half of my losing trades were trades where I got in and I got knocked out relatively quickly. However, those trades eventually went on to make money.
So I kept thinking like, okay, well how can I do this? I’m in a trade early that I had got knocked out of the old mic and the old, and then the damn thing would go work. So I said, hmm, I got to work on that. How can I make an adjustment to my behavior? Because my behavior’s going to predict where I end up at life. I don’t mind draw downs as part of life. You’re going to be a professional trader. You learn to live with losses and the frequency with which you lose otherwise you’re going to have a tough time. So then what I did is I adjusted right? Because my instincts were right, but my timing was bad. Remember, we can lose money, bad analysis, bad timing, just dumb bad luck. You’re going to get all three. So conjugate that with your emotional constitution.
Now you might not like it, but you know that that’s going to happen. So my take is like if you get pissed off about that, that’s your problem. That’s acting like a teenager as far as I’m concerned. I would never have any of my traders tolerate. I don’t deal with complainers because complainers complaining means you’re weak and it means you’re not in the solution. So we try to think optimistically. So I said, okay, well what if I took those trades that I, with my optimum position got knocked out on? What would happen if I held onto him a little longer? So you go through the back test and what happens? Well of course you get bigger drawdown. So instead of stopping and knowing, you know that you have all these trades, you get knocked out on your drawdowns bigger even though you might go make bigger money.
So now you’re looking at that ratio of what’s your best year compared to what your biggest drawdown is. For a lot of people, that ratio is one-to-one. And if you look at most even anything that’s trying to emulate like the s and p 500, those types of managers where the s and p 500 is their benchmark, I guarantee you very, very close to a one-to-one ratio. And these are people that are gigantic marketing people might have professional designations, they might have a mba and they’re super connected as human beings so they can get really good information that might be in that gray area of what’s public and what’s private. So then I said, okay, well what would happen if I took that same name but I cut my position size in half. I think that’s what I did and I back tested that. But then what did I do?
Because I’m not in my optimal position to start. I need to add in another leg. And I think we did a video on it. If not, I’ll try to do one. And I showed it. Someone asked, what was one of your best trades? And it was one of the best was in sugar of March of, I think it was March of the 2006 contract. I had chunks of that from 8, 9, 10, all the way up to 18. It was definitely the best trade of the year. I’ll talk about that account in a minute. So then what I said was, well, if I get into these positions and use the same criteria, but I’m trading half as big with the proviso that I’m going to add to the winner. If I’m early in my timing and I have bad, which is bad timing, my drawdown would be smaller. Why? Well, because my initial position now isn’t the
Optimal position. I’m going to have to work into that. I’m going to lose less money upfront when my anticipation or my intuition is off or if it’s good, but I’m early because early means you’re wrong. If I’m early and it comes back against me, doesn’t matter what happens tomorrow. Cause I can only manage risk in the ever evolved MoMA. Now I can’t come back and say, oh, I have my stops placed and I’m super close. I’m just going to adjust them because I know the thing’s going to go back up. I don’t give myself permission to negotiate with myself to abandon my stops. Those things are the only thing that’ll preserve your capital. And if you turn your back on your stops, you actually are betraying yourself. That’s my belief. You might think differently, but that’s what I would say. If you were working for me, I’d say you’re not doing yourself any favors by staying in losers, right?
And I’m not the only one to say that, right? Go read Ace Greenberg’s book, which I have somewhere. It might be in my closet if, yeah, it’s the rise and fall of it. It’s actually right there. It’s the rise and fall of Bear Stearns. Decent book rest is sole Greenberg Allen is dead. But he basically said to his prop traders, no matter what you think about a name, and it can be as blue as blue chip as something like at and t I think was the example, or maybe McDonald’s names that anybody who’s not even a stock or an investor would know. If it’s down coming into Friday’s close, which today is actually Friday, even though you’re watching this Monday, it’s two minutes to closing bell. If you have something that’s got a bracket around it, it goes, it trades. Doesn’t matter how blue chip it is because big losses have to have been small losses at one point and you just let them grow up.
So you have to conjugate that with your position size. So I went to school on myself and said, I can’t beat myself from trusting my instincts and getting into trades early where I had bad timing. That’s the way I use early. I’m early on the trade, it’s mean I got bad timing, but it eventually works out. Now you only know that after the fact, but if you keep the criteria the same, then you can go back and kind of lab test the thing. And I realize if I came in with half the position size and I was early, i e wrong, my near term drawdown was much smaller. And I’ve said to you, I say it to myself as almost a prayer, what you don’t lose, you don’t have to earn back. And once your draw down goes beyond 10%, now you’re putting more pressure on yourself to perform. You might be using more leverage at that point and you literally and figuratively dig yourself into both a financial and an emotional hole. And that’s not where you want to be. Feel confident even if you’re in your draw down. Why? Well, because the best you can do is to follow your rules. You’re powerless over the results. Just follow whatever your rules are. If they’re discretionary rules, then focus on maybe cup and handle I, whatever it is for you. Five and 20 crossovers, don’t care.
Doesn’t matter to me. To the extent that you’re successful is the only thing that I care about. I don’t have any judgment as to how you do it. There’s some people who just don’t like chocolate ice cream. So figure out what’s best for you. But you have to try that. So then a miracle happened, right? And this comes from making the attempts and feeling the feelings that go with the uncertainty of trying something new. Then I need, okay, well what’s the criteria for adding the second piece? Because it’s the two half pieces that make me into my optimal spot, my optimal position that I want to get in. But how can I do, how can I steal second base without taking my foot off first? That’s the question you have to answer because you don’t get reward if you don’t take the risk. And I knew that inherently, right?
That’s kind of how I’m built. I’m also, I tend as a human being, I would say that I’m slightly impulsive because I have good instincts and I trust myself super messy if you were on the outside looking in. But I typically trust myself. I trust my instincts, I trust my intuition cause I put so much thought into what my dreams are and then I start chipping away at taking action. Cause if you don’t try, you’re not going to get anywhere. So you have to invite the failure. It’s the only way to win. So then you have to say, okay, well I’m going to put a governor then on. What is that risk? What risk am I willing? What risk am I willing to feel as a tongue twister? What risk am I willing to feel and take on financially and the emotional stuff that goes with those positions?
So in that regard, I’m kind of fearless. I don’t have any problem with losing money. But I started testing and I tried it, found a good criteria to add to my winner. And then I found something else interesting is that if I actually cut what that optimal position size was by three quarters and thought about having 4 25 basis points st. That’s not 25 basis points. But if your goal was to eventually get loaded up to hypothetically a thousand shares, and you don’t have to use round numbers, you would think of four risk units of 250 shares. So what happens when you’re early, in that case i e early meaning wrong, you lose even less. Then you have to have the criteria to how do you add, you add additional risk units when it starts moving in your favor? Well, you have to pay higher prices. But my take emotionally is that you’d rather be buying when there’s other buyers than trying to buy on dips when people might be looking for liquidating to take some profits, day traders this and that.
One thing that you can use, I don’t like necessarily using indicators, but one thing you can do is watch the behavior of the instrument that you’re looking at. And I know a lot of you, because you e email me and messaged me privately are looking at Nvidia, not necessarily because of any earnings or whatever, but because of the promise of ai. And I think chat GTP adds to that fundamental chatter, that story, that rhetoric. Some people would call it drama. So that’s harder to gauge because it’s super subjective. You can believe what you want to believe and it comes down to religion. What are you? But for your faith, some people are like, I don’t believe in God. Well that’s okay. You wouldn’t make a good Christian or Deval a Jew. What doesn’t matter to me what religion you are. But what I’m saying is if you look at those names and how they perform, how do they perform if they’re making new highs coming into Friday, Nvidia, whether I like it or not, is a darling.
And it closed near the 52 week high Friday after a week of decent movement. So that tells you a lot, at least funda, you got to manage risk. But it tells you a lot fundamentally of what people think. They had every opportunity to sell the thing. It’s making 52 week highs, at least as of Friday. Nick closed near those highs as well. It’s, that’s kind of bullish at least doesn’t mean you can throw caution to the wind, but those are the types of indicators you can watch more than the indicator proper. It’s more like what’s the behavior of the instrument?
So then you find the criteria to say, well, I’m only going to take one fourth of my optimal position. I’ll have to find a way to add three more risk units in that regard. The benefit in the short run is that when I’m early, i e wrong, I have a smaller drawdown. That’s even better for me because as a trader, in my humble opinion now Mike Beore might say something different, and I don’t want, I know Mike for 20 years, I don’t, I’m not putting words in his mouth. I’m just saying that someone that we might have a different flavor and come to a similar solution, but in a different way.
So I would say again, what you don’t lose, you don’t have to earn back. You also then don’t have to go to bed Friday night or have any type of duress because now you’re in a drawdown and you emotionally need to win the money back as much as you need to win it back financially. That just puts you in a grind. And I know I’ve been there, it sucks. It’s the worst part of trading is that if you get into a drawdown and it’s too big, then how do you dig your way out? Because without discipline, you can start taking flyers. You trade too big. I got to earn it right back because I don’t like the feelings of being in the drawdown, and that’s just the way that it goes. So I would say, look man, take your time. Trade smaller. Most of the pros, if you read market wizards, write a lot of them said, take your initial size, cut it in half, and then cut it in half again.
Well, that’s what I just did. Then I have to find a way to add to my winners and build into that optimal position. And that gave me great solace because then I invested my gains into my protective stop. They weren’t big gains because I was only on one fourth my optimal size. But the key is, is that I got to manage the draw down. So that’s why so many people say, and I would advocate too, that even as a speculator job number one is to play superior defense. Forget being Michael Jordan. Think about Lawrence Taylor, the famous giant linebacker, probably greatest of all time. So focus on defense. That means you might have to be super selective, and that sucks because if you have the sense of urgency, I need to do executions, I don’t feel that need. That was the original question. How many executions do you need?
Well, I don’t necessarily have data that says I need to make 24 trades a week in order for me to hit my goals. I need to be super, super selective and buy into the winners that I already have. So that audience, that universe is terribly small for the thousands of securities that trade. It might be only one in a thousand name that you’re even looking at. So I would encourage you to be hypers selective. Be very vigilant. Don’t trade too big and give yourself a lot of outs. Because think about it, to be honest with you, now I’m looking at one 10th of 1% to one fourth of 1% as my initial risk unit. That means I could add 10 times to get to my optimal spot. But again, think about defense. If I’m risking one 10th of 1% on a trade and I’m wrong 10 times in a row, which could be a combination of a whole bunch of stuff, bad luck, bad timing, bad analysis.
It tends not to be bad analysis because I kind of sit and wait and wait and wait, but I’m, I’m not infallible, right? I’m not infallible. I can still make bad analysis, I suspect. But the point being is that if you’re risking one 10th to 1%, I could be wrong 10 times in a row and I still have 99% of my starting capital, or at least whatever that high watermark was. So therefore I don’t care about losing one-tenth of 1%. I’m very free. I’m liberated. I can put on any or all of those trades and it doesn’t bother me. Now as the first one-tenth of 1% risk unit starts to move and I start to add, I start to add, I start to add, I have small bits of capital gains, nothing close to what I’m working for. Some of you are like, dude, I’m done by four o’clock Eastern.
What are you talking about? 10% point 10 basis point risk units. I don’t have time to get on 10 trades in the same instrument during the day and say, okay, well I celebrate your style, whatever works for you. I’m just saying for me, when I was trading, yeah, I was trading 200 to 500 basis point risk units and you get all that goes with that, you get the drawdown and you get the upside. I’m going to talk about that tomorrow. So I wouldn’t look to optimize, I guess is the answer the number of trades that I put on, is it largely irrelevant? Think about it this way. Suppose you trade a sector fund and you just look at Nvidia and the sector of semiconductors. When the season is hot and people are rolling money into that sector, that sector’s going to go perhaps parabolic. But guess what?
When that sector falls out of favor, it doesn’t even matter how good the best name is. It doesn’t matter how strong that hor the best horse in the barn is because the sector sucks. You see? So if I was trading like that, I could easily be in a sector that’s super hot, like say the softs in the commodity space, were going berserk. I might find myself having 25 fills, but that’s just incidental because the sector is getting all that attention and I’m getting triggered, but I’m not sitting there saying like, I’m going to sit and do this. So the number of trades really don’t matter because then you also have to consider that I’m probably trading smaller, even though I have more money than probably the majority of you out there. I’m still trading as a percentage much more conservatively than you might be because that meets my emotional needs.
It meets my emotional needs that if I get knocked out because I’m early, meaning wrong, I’m not going to lose a lot of money and dig myself into a drawdown. So that means when I do catch the move, I can add into the winner and then the thing goes, you see? So think of that with your own trading and how that might make sense for managing the drawdown. Because again, if you don’t have plans on how you’re going to manage the drawdown, it’s going to manage you and that sucks. That’s not where you want to be. And you can avoid that if you know ahead of time how that market activity could unfold. And you also have a clear understanding that there’s two payoffs to every trade. There’s the financial payoff, there’s the emotional one. You got to monitor both. You have to manage both.
So anyway, I’ve been blathering on here almost for 20 minutes, sorry, but just when you ask me what I do, I’m typically very guarded. I don’t really talk about what I do. But to the extent that it can help you compare it to your own behavior, then you have something to go by. There’s a yard stick, right? So please consider liking and subscribing. If I’ve said anything on the show that resonates with you, go to bad, please leave a comment. I don’t have all the answers. I only have my own 35 years of very subjective experience and I’m happy to share that with you to the extent that it would be valuable. Thanks very much for being here, folks. I will see you tomorrow.
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The post Positing Sizing To Make More Money And Lose Less When You’re Wrong appeared first on MartinKronicle.
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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The post Why Most Traders Are Wrong About Portion Sizes appeared first on MartinKronicle.
Everybody, it’s Michael Martin, welcome back to the show. So carrying on from the previous few episodes. Oh, by the way folks, if you are listening still, cause we strip off the mp3 and you’re listening on Spotify or on Apple Podcasts or some other podcasting platform we do. We are recording these with video over on the YouTube channel. So come on over and check it out. So following on from yesterday, I think one of the, I was talking with a big hedge fund trader the other day and we were talking about why do people get so frustrated? And one of the things that came up was that a lot of folks aren’t actually doing the work. There’s a popular group of tickers that you can follow. Tesla’s one, Nvidia is the other one. There’s a couple of other ones. And I’m not saying to buy or sell them, you’d have to figure that on your own.
But there’s a bunch of popular tickers like Kramer used to call the four horsemen that included research in motion. Then they were the fangs. Maybe they still are there. But what happens is if you’re a follower, not a leader, you’re hanging on somebody else’s opinion. Someone who you’ve already made the determination that they’re smarter than you or they’re better than you. And so therefore you give yourself permission to be a follower and you give yourself permission to not do your own homework. And I think you rob yourself. If you don’t do your own homework, you rob, and I’m not talking about looking at charts. How did you know to look at the chart in the first place? Because it was on Kramer’s TV show or it was on fast money. You have to be better than that. You have to be an original thinker. You have to find the things that other people aren’t seeing themselves.
And if you don’t like that, okay, but sooner or later you’re going to come to that realization on your own. We live in a paradigm of personal responsibility and if you fuck up your trading, guess who’s fault it is? It’s yours and I, this is the same for me. No one’s immune from it. So if you’re getting or searching social media in Twitter in StockTwits or other discords because someone else has this trading theory, that’s great. There’s no evidence that that’s appropriate for you. It’s interesting, it’s infotainment definitely, and you get what you pay for. But when it comes down to putting your list together, you have to put it down for your reasons. The first reason is what’s my goal? What do I want my money to do for me? And the answer isn’t, I want to make money. The answer is paraphrasing, is that you want to follow a system that has positive expected value. That’s ultimately the feeling tone of what it is that you want to do, right? Also to consider is if you are a cup and handle person and you don’t find any trades in that space for the share price of what you’re looking for, then you have to sit on your hands because the minute you step away from that, now you’re doing
Else. You’re not doing trading, you’re acting out emotionally. So I think when you are super honest with yourself, you can actually cure all your ills or the nuances of your trading rules that don’t really work for you but might feel good in the moment, right? Because we’re pleasure seekers, we’re going to seek pleasure and we’re absolutely going to have pleasure by avoiding the things that we don’t want to feel. And the minute you can put yourself in the spot where you’re willing to feel every feeling that you can possibly feel good and bad or what you would call good and bad, I think then you’re onto something. Because one of the things that I learned from my mentors is that there’s no such thing as a bad feeling because all the feelings are trying to teach you something. Two, you have to get used to feeling comfortable when you’re uncomfortable. And that probably, I don’t know for sure, but I’m going to guess it has everything to do with the uncertainty that goes around trading. You got 40 indicators on your screen, let it go, man. Because that’s not willing to feel the uncertainty.
And once you start doing your own homework, you’ll have more ownership. And that can only be empowering even if you lose money because now you’ve accepted the responsibility that adding and removing risk from your portfolio is on you, right? Reminded myself here, if you can’t make money using cash, please for whatever reason, don’t start using leverage, right? I know you have to borrow and sell short in a certain type of an account, but at the end of the day, you shouldn’t be using Reg T and for God’s sake don’t even go close to day trading buying power. I know there are other traders out there who have known for a long time that start their traders at risking like 10 bucks a day. And that’s terribly bright because in the beginning it’s not about the money, it’s about finding the process. And if you can’t execute the process by making and losing 10 bucks a day or portrayed for example, then you really don’t have any business. Scaling up. Scaling up isn’t going to be the answer to your question of how come I can’t make money? You have to focus on the process, right? Trading small isn’t going to make you more money if you have a shitty process.
So ownership is huge. We talked about Bill Dunn last week, I think. Great guy, super bright, PhD level education. And he was a purely systematized. He was a hundred percent me mechanical model. And he had even still with his trading as smart as he was, right? And he’s terribly bright guy, he didn’t let his strong emotions override his signals. He didn’t let his intuition override his trading signals. Ultimately, people like that are going to model, right? They’re going to create a model based on a thesis, then they’re going to test that thesis. And it’s very scientific. If you’re a discretionary chart reader, you’re kind of shooting from the hip. And yes, you can do very, very well,
But you need a lot of instances to know if you’re, excuse me, if you’re onto something or not, you can’t say, well, if I have five winning trades this week, I’m going to start scaling up. Not enough data. So I think if you’re in that space, you need to do a little homework and come up with some very stringent rules and make it hard on yourself. Be your own ballbuster, is what I’m saying. If you let yourself off the hook, you’re going to test boundaries in ways that are likely going to hurt. You see? And there’s nothing I could do about it. I had to live it myself and there was nobody to help me. There was no internet when I started, so I had to fall on my face and get back up. And if I didn’t get back up, that’s when I was a loser because I quit and I was not going to quit.
But you have to understand that this is a long term game and it’s going to take you a long time to get it. You might intellectually understand what it is that you’re looking at it, but that doesn’t mean anything when it comes to the emotional intelligence that you need to execute those very rules. Those are completely different situations and environments to live in. So get used to feeling all of your feelings and listen to what they’re trying to teach you. They might compel you to do better research that you’re more prepared for the next day. And if you do that day after day, after day by June, July, August, whatever it is, we’re in end of March now. You’ll have evolved so much more as a human being because managing risk in the markets pushes your buttons into the fight or flight mechanism. It’s a primal experience. So you have to train your body and your behavior to behave different. We are the sum total of our behaviors. A lot of that comes from our environment. What did we learn? Who did you learn? Who taught you the rules around money?
Because if those folks weren’t risk takers, you might be trying to be an entrepreneur, which is a traitor, a business owner, a decision maker, a leader, but you’re working with a follower’s mentality, right? And that’s just never going to conjugate. That’s like saying, I should have went. It’s just never going to work. Anyway, I care for everybody. Please like and subscribe. Let me know what you think. Happy to do a deeper dive on this. And just remember all the failure that you feel you’ve, that you’re going through. I’ve already felt it before. So we’re very much alike. Just keep working, keep plugging away and don’t quit. All right folks, good to see you, and I’ll see you tomorrow.
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The post How To Separate Yourself From The Pack appeared first on MartinKronicle.
Hey guys, welcome back to the weekly segment that Mike and I have been doing here. I just wanted to say hello and thank you for all the feedback on the recent videos that it means a lot and we appreciate all the likes and the comments and the engagement. And one of the emails that I was actually looking through was something about mentors and what did you learn from your mentors. And Mike, I wanted to ask you, what have you learned from your mentors? Are there any specific takeaways over the years or did some really resonate with you? Some points?
No, I didn’t learn anything from those old geezers. I just had it all figured out from there. I couldn’t even say what a straight face, that’s a deep question mean. So by the time I met the folks who you would consider famous, the market wizards, guys, I was already a pro. And I had kind of learned the craft by myself having failed an enormous amount and taking, like I said, four and a half years or so to kind of really know what my skill was. Where did I, or how did I create what we call alpha, but I still garnered a lot from the generation before me because they had to withstand other storms. And the markets are constantly morphing to kill you and take your money. That’s just the way that it works. So it’s like you have the same tools that you can use, but if you look back on history, the things that they had to live through, for example, Victor Sperandeo, when he started trading, they were in a very bad two year bear market where the S&P got cut in half. So he had to learn how to trade in that type of an environment. Nonetheless, he became a really good short seller. Not because he wanted to, but because he had to. That was the world that we lived in.
For example, some of the guys who traded commodities, it was a cottage industry at that point. There weren’t too many other players, so you didn’t see a lot of the noise around the signal because there just wasn’t that many participants, not the big ones anyway. They were small speculators, there were hedgers. But as far as large speculators, the advent of the global macro hedge fund that would use commodity futures as part of its diet didn’t proliferate until really like to the eighties, eighties and nineties. But I guess if I could go down the list, there’s certainly a few of them that I’ve learned. I didn’t really learn trading techniques. It was all mindset stuff, because the trading is not terribly difficult. You have to add risk and you have to remove risk. So it’s not that hard you’re buying and you’re selling. But there were a couple of inflection points from Victor who I still work with, it’s life on life’s terms.
He didn’t have a choice in the matter when he started trading in the mid to late sixties. It was a bear market and you can sit and kick and scream about it, but that doesn’t change the fact that the tape’s heavy and there’s big problems. So this is also before inflation kicks in. This is also before the OPEC oil embark. So there’s a lot of different things that the market throws at you that you have to be able to be flexible and deal with and morph your style so that you can make money in any market environment. Most people are biased long, which can might become problematic in the next several years if the market gets really goofy.
From Michael and Ed, I really learned more about myself from Ed Seykota, from Michael Marcus. I had some pretty profound things that I learned, especially to separate the price from the chart. And what I mean by that is there’s actually real human beings behind the scenes that are buying and selling these instruments. And the chart simply captures their behavior. So instead of thinking and looking at the chart from the standpoint of this is a chart pattern that repeats itself because they oftentimes don’t repeat themselves the way you would think they would think about what the crowd is actually feeling because it’s their feelings that are going to affect their behavior. And behavior predicts where you end up in life. And most folks who are on the amateur side, they don’t do enough work. And it’s not because they’re not trying to just, they don’t know where to look.
So I don’t want to say that they’re lazy, but they have limited scope. They also tend to be followers. They subscribe to Discords, not then because they didn’t exist, the internet didn’t exist. But now they get other people’s research where those guys were, they were leaders, they were very determined, they were decision makers, and they did their own homework. And as Ed would say to me, live, they lived in a paradigm of personal responsibility. So they took ownership of everything that they did and everything that they didn’t do. And so that really stuck with me in that if I’m going to do this at a big level, I need to make sure that I’m not in the blame game. And that no matter what happens to my p and l, I’m the one who’s affecting the trade. So the buck stops with me. And if I make good or bad decisions, if I make and lose money, because don’t forget, I could make a bad decision and still make money.
So it gets very deep. I learned to understand how to read the crowd because that was separate from the chart. If you can anticipate how people are going to feel, when is the market frothy and go wrong, wouldn’t that lead you to believe that there could be the greatest amount of disappointment if things didn’t go as expected? And so how can you position size for that and how can you position yourself period, long or short given what you’re seeing as a reaction from other people? So I learned early on from Michael how to separate, yes, there’s price and volume and open interest, and that’s the word I’m looking for. Those are the cold hard facts. That’s the sterile part of it. But when you think about it from the human condition, there’s real people who are buying and selling maybe because of fear, maybe because of greed or something in between. You never really know what emotional needs are being fulfilled by other people. But I think that’s why it’s important to know that for yourself. And that was something that Michael was great at, and he made everybody pay, meaning that’s how he made a lot of money more than was ever reported in market wizards. That’s for sure. Because he could anticipate how people were going to feel.
And I don’t want to say that he punished these other people, but there was that mindset I always kind of had to feel that He was like, well, I’m going to teach them for taking the side of the trade. And more times than not, well, he certainly did very, very well for his skillset. He was terribly bright. He still is. I was a super educated, very intellectual guy, but his own trading kind of took off when he had that type of mindset. So I mean, I got a million stories, but I just don’t want to kiss and tell. It’s just that was probably the most profound lesson was to think of the market as a living breathing mechanism and think about why do people do what they do? And if you can anticipate that, why that’s a huge spot, I guess. So that there, there’s a lot of money to be made. Again, if you can catch a lot of people off guard, because depending on the type of market you’re in, you might find that the market’s heavily long. You might find that the market’s heavily short. And so what happens to those people if they don’t get their emotional needs met? How are they going to behave in the marketplace? And no one really talks about that. But that to me is a whole other skill that I think folks, if they split the, excuse me, if put the time in, that would serve them very, very well.
Yeah, it’s funny you mentioned learning a lot of mindset stuff from your mentors, and I think it’s kind of funny to me, I, I’ve mostly learned a lot of mindset stuff too. You don’t really learn fundamentals. You may go over them with your mentors every now and then. But for me specifically with cycling, we didn’t really go over, oh, here’s how you hold your handlebars. You just kind of did that stuff. Yeah, that’s like the very basics you’re supposed to know that. And then for cycling, and my career as a cyclist, the most important thing that my varsity coach ever taught me was, you know, have to work harder than everybody else. Because on Saturday, which is race day, your training days will show 100% if you put in more work than the other guy, you have the same biology. So it’s going to show if you ate, if you did your recovery, and he basically said all of that, dude that’s in your hands, you are responsible for that. I can show you what to do and I can lay it out for you. But at the end of the day, ganja, it’s on you.
Hey, we all got the same steroids.
We all do have the same steroids, man, that’s how you changed the biology a little bit. But yeah, right. To me, it was mostly mindset stuff as well. And I just thought, you know, mentioning that kind of funny, you know, would think or I think some people, when they think of the word mentor, they’re like, oh, he’s going to show me textbook. It’s like I’m back in class. But for me, it’s been quite the opposite in a really positive way.
I agree a hundred percent. I mean, look at, you can see it in the strategy of how certain traders have performed. I think Victor made 300% in October of 87, but Tony Saliba did very well. He was short. Tudor Investments made a lot of money on that day. And for that month, everybody who was anybody, it’s so far beyond Elaine Garzarelli or somebody who thought they were predicting the market, the pros who were totally on that, the system was cracking, and there was a lot of money to be made by being short when the market crashed. But why did some do better than others? Well, it comes down to self knowledge. It comes down to leverage. How much risk are you going to put on? And you can’t sit back and say, because one group, and I think I know my numbers, but I don’t want to mention any particular names beyond what I’ve already said.
One group who I know very well made 60% that day by being short bonds and being short S&P futures for the risk that they were willing to take. So you have to interpret this in terms of not absolute gains, and then ranking, you have to say for the risk that you’re willing to take. Because if you’re not looking at risk adjusted returns, you’re really comparing apples to oranges, even if you’re looking at the behavior of being short the market from Thursday or Friday before the crash in 87, which was on a Monday. And so I do think there’s another good example when you’re running a fund versus a prop firm like say, commodities corporation, which was trading, they were trading their own money versus tutor. Tutor did very, very well. They almost doubled their money for first, for five years in a row.
There was one year where it was like 98 point something or something like that, but I rounded up, you know what I mean? You can’t say that if you’re mark in your marketing materials because it’s misleading. But if we’re just talking with a can of beer, you could say that they doubled their money for quite, quite a bit of time. So I think that came from their mindset when they sat down and started thinking about building a track record and how could they attract more money, because that’s the business that they were in as they were attracting other money. You have to make money, but for public money, you also have to be concerned about drawdown, which are losses realized and unrealized from a previous high, right? Because that’s what the clients are going to look at. You’re only as good in Hollywood. They say you’re only as good as your last movie.
You could make money month after month after month, but if you have a 40% down month, that’s what the client’s going to remember, even if you were up 200% up to that point. So if you looked at, say, commodities corporation where they were making 10 to 20 x a year, which means you had a hundred K, for example, and you turned it into one to 2 million, that’s a whole other type of risk and reward. But they weren’t paid to be concerned with drawdown because the managers, there were three. There was the late grade Frank Vannerson, who later on went to, I think his company was Mount Lucas, there was Helmut Weimar, and there was Irwin Rosenblum. They made up the management committee and the diversification happened within them, and they allocated to money to the traders. And so the traders were diversified, not necessarily the markets, but they weren’t really paid to run money like a portfolio manager.
They were paid to largely cannonball. They were either completely risk on or completely risk off, and if they lost all their money or had a significant drawdown that precluded their ability to do what they did, they had to go and petition back to the management group to get another allocation. That doesn’t really happen at firms anymore. Today, usually you’re on a three month window, and if you don’t perform, they cut your risk or they say Byebye, you know what I’m saying? So you don’t have a lot of room. It sounds like a great deal. But once you get there, you’re like, okay, I got 90 days to make that happen. I have no place to hide. Be careful what you wish for, make sure what you’re doing. So I can’t go back and look at those guys and say, Ed and Michael, or Glenville Craig, any of those guys who made Bruce Kovner course made monster gains, they were highly levered positions and they weren’t diversified.
So you can’t compare the returns and say that they’re equal or one is better because the risk adjusted return and the volatility of the portfolio would be something that would give you a much more compelling understanding of what was going on with the risks that they were willing to take for the style of management that they exemplified. So I kind of thought about that and meditated on it quite a bit, because when you think about it, you have to trade to the sleeping point. Meaning if you’re so uptight about your positions and whether they’re working for you or working against you to the point where you can’t sleep, you’ve got to cut your size down, right? Because otherwise it’s not just bad to not sleep. It starts to affect your health. It starts to affect your performance, and you need to have a balance. They say, oh, work and no play make jacket though, boy, right? So those were very important lessons where it’s not the how to trade, what chart pattern are you looking for? When do you get in? It was more mindset so that they could manifest what they envisioned in their brain and then they could conjugate the dream, the daydream of what they wanted their lives to look like with the actual behavior that they could exhibit on each and every day, day after day. Does that make sense?
Yeah, no, that adds up. That’s like the examples you were using. That’s cool stuff to learn about. I didn’t know about all that stuff.
Yeah, I mean, because it’s like people, they don’t have a memory for history or they don’t know the history. So I was lucky to understand those business models. The business models are different. If you’re running a hedge fund, like Tudor had a hedge fund, and a lot of, I don’t know for sure cause I didn’t see their fund documents, but it’s not uncommon in fund documents to have a puke point. And the puke point is that if I lose 50% of your capital, I’m going to close up all my positions and give you back the rest of your money. And so they manage risk knowing that they have to take chances, but they also have to be careful that they don’t put on any one particular trade that could put them out of business. And when you’re dealing with commodity futures, anything can happen despite your best intentions, right?
Well, Commodities Corporation was funded and they had shareholders and they had proprietary capital. So the only way they could really go out of business was if they blew up. And so they kept us short, they kept the guys on a leash, but it was very regimented and very scientific, their process for how do those folks manage risk? And then if they did lose, how they would reapply to get more credit to go back and trade. They’d have to write papers, explain their position, explain what happened, what did they learn, how are they going to do things differently going forward? So another thing at Commodities Corporation, which was very different, was that they were given two different ways to make money. So all the traders would get an allocation, they could make money, and then they could choose one of two ways to get paid. They could get paid out based on their own profits solely, or they could pull them, waiters would pull their tips at a restaurant and they could be diversified. And so in scenario A, if you just are getting paid on your own production, if you went through a soft period of time, you might be in a drawdown. You’re not getting paid. Now, they might’ve had draws and all that kind of stuff, but most people aren’t working for the draw. The draw just helps you pay your bills. You’re really working for your profit participation.
And the guys that I knew never wanted to pool because they didn’t want to, I don’t know that they didn’t want to necessarily keep everybody else afloat, but because they did so well, if they took the pooled commissions, they would actually be taking a haircut on their own performance. So they decided to only rely on themselves. And so I wasn’t given that option in my own trading career. But again, I learned from a mindset standpoint to be self-reliant. And that’s super empowering if you’re willing to feel those feelings. So there’s no such thing as a bad feeling. All of your feelings are trying to tell you something. So there’s emotional intelligence and all of that stuff. Now also in the gaming community, there’s roles that people play and sometimes there’s super talented people, but there’s other people playing the roles that they want to play. And so what do you do? Do you bitch and moan and belly ache, right? Or do you be a good teammate? So isn’t that the same in that culture?
It is the same, but honestly, it’s mostly just bitching.
Really? Yeah. Oh wow.
Yeah, I actually, I was talking to a guy, I, I’m actually, I got, I’m in talks with somebody for filling a role on a team right now. And it’s a role that most people hate to play because it’s the least fun. It’s called controller. And the reason it’s not as fun is because you don’t have abilities that help you get kills. They don’t help you advance positions. So the, you’re basically not moving anywhere, you know, don’t have any additional speed or you can’t have any different movement factor. You have nothing different with your aim or anything like that. It’s basically just the ability to block site in an area. That’s what a controller is. And people never playing this role because it doesn’t look good on the scoreboard. You usually don’t have as many kills as some of the other guys. And people get really, really egocentric about it. And they’re like, why am I playing this role? And so that’s the most open role on professional play is controller at the highest level. It’s easy to fill, but any level below that is ridiculously hard to find a controller. So it’s mostly bitching. But yeah,
So that reminds, you talk about getting attention over the years. I would almost never talk about trading with these guys. It was more, again, mindset, being in the business, acting like a professional, and certainly doing a lot of listening because they had survived some crazy market times. They’d all had done very, very well. They made a lot of money. But the reason that all happened was because they acted consistently over decades of time. Yes, you can be in the right place at the right time and be lucky and do very, very well. But tried doing that for 30, 40 years. Victor started trading the year I was born.
So there was a whole bunch of experiences that he had that really thicken your skin. Another attribute from these folks is that I never heard them complain. I can’t think of a single time where I heard the guys complain about markets. And although at the beginning I didn’t fully know, later on I started to learn about how they actually traded. I didn’t ask ’em, they would kind of offer it up. Once I developed their trust and I didn’t ask them a lot of personal questions, I would do 2% of the talking to generate 98% of the conversation because I’m trying to learn and I’d learn more by listening than trying to impress these guys. So I didn’t go in there trying to be the young tur thinking who the hell I was and shooting my mouth off. I was kind of demure. The trading tribe was a little different because you had to participate.
So that was a little different. But I promise you this, I could never tell and call it a poker face. Call it, call it. Just having a good attitude, which we talked about on an earlier show. I never could look at them and say, oh yeah, he’s in a pissy mood. He’s going to draw down. I couldn’t tell. I couldn’t. And I’ve known these guys for 20, 30 years. I could never tell. So attitude again, people say discipline’s important, it is. But if you have discipline and a shitty attitude, you’re going to get the worst.
So what I learned is how did they carry themselves? Because their body language spoke a lot too. Because when you’re talking to someone on the phone, you can hear stuff, you can see their face in a little square, folks are seeing us today, but when you’re with them in the room, you can feel their energy. I, so I read their body language and it was always very telling that they always had, they weren’t cocky at all. They just were, I guess is what I’m saying. They knew who they were, which also means they know who they weren’t. And over time, when you do that day after day, after day after day, and that you can, the thermostat, your own behavioral and your emotion, your own behavior and your emotional constitution, then your own comes predictable. So they became self-reliant, didn’t have to worry about looking for miracles or getting a lucky break.
Lucky breaks happen over, you trade long enough, you’re going to be in the right place at the right time, but you’re also going to be in in the wrong place at the wrong time too. It’s just going to happen. You can’t trade for 50 years and not have that happen. So they’ve also reinvented themselves in many ways, how they make their money today is very different from how they made it back in the day, so to speak. And that’s probably a whole other conversation. But they’re always innovating. They’re always trying to improve based on their previous success and be resourceful and bring things together and try to add new elements to their models and how they make their money. So that was pretty fascinating too, is that they demonstrated flexibility of thought and that again, this had nothing to do with, do I trade march, April natural gas spreads, or do I do crack spreads in the oil market, or do I buy stocks with married puts or create synthetic positions?
It was never any of that. That’s all easy to understand. And so when I, I don’t really get this made, but I can’t tell you how many times I get questions from folks that are asking me about the how-to stuff. To me, that’s the, excuse me, that’s the easiest part of it. And all you have to do is try it. I can’t give you the answer. I don’t know what’s right for you anymore than I can tell you that you should quit all this valor stuff and focus on Cs. Go because I’m not you. And also it’s the worst thing for you because you shouldn’t be trying to hit the goals that I think you should hit, the goals that you think you should hit.
So that’s why I don’t do a lot of the how to stuff, because it’s very easy to figure out if a certain trading style is for you or not. And that’s to try it. Risk 10 bucks, go try it, see if it works, see if it fits, see if it feels good. And if it doesn’t feel good, try to figure out why. So going back to the original question, I would ask them about experimentation and they would take flyers, not huge ones, but that was the only way that they could figure out where the boundaries were with their own behavior was to try it in a small way to see if it worked. And I’m pretty sure that they all tested things in a simulator to see if the idea would work. They never had a hunch and then just went with it. They always had an idea of whether or not that certain type of trade, how would it have manifested if you had tried it for the previous 10 or 20 years.
And I don’t think today there’s a lot of folks who are looking at chart patterns and they’re not necessarily looking at the back test, which means they’re not focused on expected values. They’re thinking like, I’m going to put on this trade, this chart pattern’s a winner. I can, it’s guaranteed and if I put the trade on, I’m going to win. Whereas life doesn’t work out that way. You’re going to have a percentage of winners, you’re going to have a percentage of losers. And then it’s a question of how you can keep your losses small. And then when is the market telling you that you should take your winners as opposing, as opposed to you being in your own will and saying, I’m going to lift everything at say like a three R type of a deal, or I’m going to whisk risk a dollar to make three or four or five.
And then feeling good about that even after the name goes to 20. So most of those emotional lessons were much more valuable than any of the how to, because I know I could go into my account and experiment with the how to. And I don’t know what episode it was. I don’t think it was in a video episode, it was in a podcast only style one. I remember saying that trading itself is the best teacher on how to teach you how to trade, is to just do it. But I think there’s a lot of folks who don’t want to feel the uncertainty. And because they don’t like the feelings that they feel in their body when there’s an uncertain outcome, they’re afraid of what it’s going to look like. They don’t like the feeling of failure. I understand that. But until a person can embrace that, they’re not going to be able to invite all the reward that they want because just in trading, it’s the same in life. Reward and risk are related. Sometimes it can be asymmetric, sometimes it can be linear. But it’s true in trading and it’s true in life. You’re not going to get anything out of a search situation unless you try. And that means unless try means invite failure. So I find that the folks who actually grow fastest in this business are the ones who are the most willing to invite failure into their life very frequently and very soon.
Does that make sense?
Yeah, definitely. I mean, anytime you add the opportunity to fail, you add the opportunity to win too. In professional gaming, we talk about the EV of plays actually. So if I were to do a specific course of action, we talk about the EV from that and what could happen there and the rate of failure or the rate of likely failure. Cause it’s nothing certain. Everyone reacts independently. And yeah, it’s really big to understand that risk and reward are correlated and it’s pretty good to sit down and think about just so you can understand your own mindset going in. It’s like, I will learn a lot if I win or if I fail. Yeah, it’s just about doing that and getting that experience.
Yeah, but the culture of trading is like you need to have these hot keys and this mouse, you need to have this type of trading account. You need to have X amount of monitors. That’s the external part of the business. The internal side is much more where the money’s lost and made. It’s your inner game. Lucky for me, I was born with a strong inner voice, doesn’t mean that I was immune from the perils of the market. It doesn’t mean I was immune from the ability to act like a bonehead myself, but if I can take credit for anything, it’s that. It’s just like they say in jujitsu, a black belt is a white belt who never quit. I never quit. I just said, I got I’m, I know I’m going to figure this out. I have to try a few different things on the menu to figure out do I want fish or chicken or beef?
You know what I’m saying? You don’t know until you taste it. So I think that’s where people can actually be their own best coaches is to just embrace the suck and be in it because there’s no other way to go around it. And that is probably the biggest takeaway that I could get from any of the folks that I was associated with or who kind of coached and mentored me. It wasn’t the how-to stuff. There was no magic bullet. It was all the magic formula of what made you tick. And then how can you replicate that thesis, that behavior day after day after day, no matter what’s going on in the market. And no matter how you feel, because behavior predicts where you end up. So I think I could go on and on, but I don’t want to be judicious of everybody’s time. Maybe next time we’ll think of I, I’ll think a couple more specific examples, but I don’t know if it would actually enhance anything that I’ve already said. I think you just have to embrace it, invite the uncertainty, because that’s where the rewards are. They’re all bundled together. Sometimes the coin shows up not the way you want it to, but risk and reward come packaged together, even though you look at them as separate outcomes, the ex-ante part of that before the fact, the risk and reward is bundled. You don’t know which one you’re going to get.
And so in being able to deal with that uncertainty despite how you feel, puts you in the mindset of a pro, because the pros aren’t afraid to feel those feelings. They know they’re responsible for their own behavior regardless of how they feel. So that’s why I always tell folks, if you’re having a difficult time, some take some time off because if you’re not in the right mindset, that’s when you can put yourself in a spot to lose a lot of money. Because if you’re not in the right mindset, you might put on a trade that has too much risk, you might trade too frequently. Just so that you can get yourself to the point of winning so that you can feel the feelings that you like to feel when you win. I would tell people to feel placated and then get to the spot where you have, you’re at the zero point, you feel the same because the expected value of a trade that you feel the same way when you offset a losing trade, then when you offset a winning trade.
Because if you’re putting on thousands and thousands of trades, what the hell do you care about? Any one particular trade? What makes it so important? Is it because you want a peacock around the office? Is it because we’re at the end of March and you know, need to get paid out? No, those are extra trading. Those aren’t part of your behavior. That’s all an external factor. So this is where journaling comes in when people get super clear about the why do you do what you do? And I would say, why not? How? Because how questions are analytical. Why questions force your brain to actually come up with the answer. So when I have my book and I have it right here, I have a whole page of why questions, why questions that I ask myself, but I never answer them. They just go into my subconscious.
So folks, to wrap it all up, I would say embrace the uncertainty because that’s where the magic is going to happen. How do you behave in those moments of uncertainty? Because that’s what traders do. And if you don’t like those feelings, then either don’t trade or learn to get comfortable with that. And that’s kind of like the biggest takeaway I got from all those people who I’ve known for decades and decades who’ve been trading for even longer than I’ve known them, is that they were comfortable in their own skin. They knew who they were, they knew what they could execute, and it didn’t matter what the market environment was, right? Ask yourself good, open-ended, why questions about why do you do what you do? And then listen inwardly for that answer, you can journal about it and then go to school on yourself because only you know yourself.
Very true. It’s a good takeaway I think. Thank you guys for checking out this video. We really appreciate it. And make sure you like and subscribe, comments, help the algorithm as well. And yeah, we’ll see you guys next time.
Thanks everybody. See you with Brandon next Wednesday.
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The post What My Mentors Have Taught Me & The Main Tenets from Michael Marcus of Commodities Corp. appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So I’ve already gotten some good feedback from yesterday’s video on process and goals, and it’s very difficult to stop thinking about the results of your trading and focus on the process. Why is that? Well, think about it. When you go to school since kindergarten, you’re graded on correctness. You’re graded on accuracy. And so even your conscious and your subconscious mind are so geared up for that. You know that you have a paper due, read the book, write the paper, do the first draft, do the amendments, have someone proofread it, whatever your process was. But you were always doing that for the grade. No one ever, I can’t recall having anyone really teach me how to study. And that was different from my sons. But when I went to school, it was more like you were supposed to know, read the book, what was the book supposed to tell you?
But it’s much more scientific these days. Nowadays you have a process to be a student. So they are of course concerned with the results because they want to get good grades, the students. But at the end of the day, being a student and being in that hierarchy of needing to get the good grade so that you could pass your overall grade and get graduate to the next level all the way through high school and then through college, if you go there, it’s, it conditions you to think about the result. Now, some people don’t care necessarily about the results cause they just want to get through and they want to get it done. So they do the bottom line behavior that they know they can get away with to get through it. Now, if you do that in your trading, you’ll certainly, you’ll make a little money, you’ll lose a little money, but you’re not going to have a really good career because the people who really smash it in this business obsess in many ways.
They’re looking for nuances. And when you trade and you look for the results, you can internalize it and start to think that you lost money because you suck. And that’s not always the case. The market is in and of itself as a living and breathing mechanism. So you’re going to evolve. And so is the market. So think about it like how you’re in a relationship. If you do something for your partner and you don’t get the result that you want, do you throw a temper tantrum because you didn’t evoke the response from your partner that you wanted? Or did you just do it because you wanted to do it out of the goodness of your heart because it made you feel good?
And I’m not Dr. Ruth, you know what I mean? But I’m saying is that you can micromanage yourself and brow beat yourself to the point where you start to second guess yourself quite a bit. So the question came in from somebody who is it? I don’t know their name doesn’t matter to me, but they went under productivity and they wanted to know what can I do to change from a results-based mind to a process-based mind? And I think you actually have both at the same time. It’s just your focus goes towards the result of the day. Now for day traders, they look at the day’s work. For folks who have longer time holding periods, they might understand that the results might not. They might show up in clusters. You might make money one or two days out of the week, and that will offset all your losses and commissions and slippage and skit and then some.
So I think one way you can change your mindset is to think again, how do you be a good student to eventually get the grade? You have to focus on the process. For me, I went to a school where we had to read books and write papers, and that was a pain in the ass because reading I could read pretty quickly, but it still was very time consuming. Read a book, write a paper about what it was about or what did you think the author was trying to get across about this XYZ theory or read two books, then compare and contrast them. And so for me, writing, writing is easy, but writing well is fantastically difficult. And I don’t even consider myself that great a writer takes a lot of time. What I was good at though, cause I could type with 10 fingers, was to get my ideas out on paper and then reshape them.
So I made my money in the edits, not in the first drafts. There were kids that I went to school with who could just puke out really good stuff on the first draft and kind of go with it. At least that’s what they said. But I think it’s interesting, and for some context, I think it was Vladimir Nabokov who said, A writer is someone for whom writing is more difficult than it is for other people. And if you’ve ever had to write something and make it super clear and instructive, you might know what I’m talking about. So what I would do is if I was a student of trading, and I guess I still am on some level, I would say, here are my systematic rules, or here are the chart patterns, right? Cause if you trade a system, it’s just you hit the button, you get your orders, you enter the orders of the market comes to you, and it doesn’t. And if you make or lose money, everything is parameterized out. It’s mostly for the chart readers, which is probably 98% of the people out there. What’s your process for screening? What charts, what specific and sole chart pattern are you looking for? Because if you’re one of these people who are trying to trade 15 chart patterns, I think you’re going to have a hard time, especially if you’re just starting out.
So focus on one thing and learn to do it very, very well. That in and of itself is a process. So at the end of the day, you
Can say to yourself, did I win the day? It has nothing to do with making money because you’re powerless over the results. All you can do is focus on your process and hone that process so that you can repeat it, hone it so that it’s very economic, so that you can go Pareto. They talk about the 80 20 rule, but they also talk about Pareto efficiency. So if you need five units of work and 10 units of time and you get X, Y, Z output, how can you decrease those inputs to get the same output? Or how can you maximize the inputs that you’re going to put in terms of time and money to get even better results? So think about, excuse me, what can you repeat? What can you repeat every day? Whereby at the end of the day, after the trading, regardless of the p and l, you followed your rules because that’s really the best you can do.
And I can remember being angry from trading and losing money because I wanted the validation. I wanted the validation to be able to say to myself that I was getting and putting points on the board for all the work that I knew I was doing. And I think I’d expressed once before how much I actually had to eliminate in order to become successful. I had to get rid of interbank Forex, I had to get rid of options. I was making money in stocks, but I was much better at commodity futures. So I had to trim and take a bit of a haircut in the short term on my stocks knowing that I was going to come back and focus my process and learning commodities. And that was really a godsend because commodity traders really have to appreciate and manage the risk. And when you go from commodities to stocks, you have a very strong sense of how to manage risk because of the leverage involved.
So that was just one of these little hidden blessings that you can’t really anticipate until you’ve been through it. But I would absolutely make sure that you think about what is your daily process, write out the steps, and then if you did get a signal that you put the trade on, and if you followed that all the way through, then to me you were true to your goals, you put the trade on, that’s the best you can do. Whether it goes up or down or whatever, you’re powerless over that. So put in your protective stop. I don’t say the guy talks about the guy or the gal talks about stop loss. I don’t use that type of language. Cause I say protective stop because there’s three ways you can use stops. And I want to always coach my brain to think in abundance. So if you keep saying losses and losses, I think you tend to manifest the things that you think about. And so I just think about a protective stop to protect my capital, whether I make money, because I can use a stop to make money and I can use a stop to minimize my losses.
So maybe what you do is you write out what the steps are in and of itself, that’d be great homework because then you have to show yourself that you have absolute clarity about what it is that you’re doing it, what you’re doing. Now, if you have several chart patterns and you can’t get clear on what your process is around one chart pattern, then you need to stop trading immediately. Because if you are not clear, how the hell are you going to ever raise money from other people? Or if you’re going to become like Sybil, she had what, 17 personalities, what are you going to be a Jew on Monday, a Christian on Tuesday, a Muslim on Wednesday? You can’t jump around.
So focus on one thing and then execute on it and get consistent and then call me in three months. Because you can’t do that for a week and be like, yeah man, I got it. It’s just not practical. It’s not enough time. So focus on one thing, focus on the process. Stick with executing that process day after day after day. Keep your losses small. Only lose what you can afford to risk and measure the results for sure. But grade yourself not on your p and l, but on your ability to check the box. Did you follow each of these steps all day long for that one pattern? Because if you can’t do it for one pattern, there’s, there’s no chance in God’s green earth that you’re going to be able to do it across five different chart patterns. Right? It’s just not practical. Anyway, please, I can subscribe. I appreciate the feedback, FEAS. Appreciate the comments too. I don’t have all the answers. It’s, it’s good to hear from everybody. I appreciate the feedback and let me know what you think. I’ll see you tomorrow.
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The post How to become a process-oriented trader appeared first on MartinKronicle.
Everybody, it’s Michael Martin, thanks for being here Today. I want to talk about goal setting. I get lots of emails and questions about setting appropriate goals and are my goals good, right? Are they bonafide, are they achievable? Are they feasible? So I have a lot to say about that. And then as I’m looking here, I have all the episodes to this week kind of written out. I’m going to record ’em today and then drip ’em out. I don’t actually record every day. It’s not, that’s why I’ll have this shirt on this whole week. So I’m recording everything today. I also want to thank you all for writing in and leaving the comments. I, I harvest a lot of good data from that. And in fact, I can know at least at two episodes last week had come from either follow up on previous episodes or comments on them. So it gives me good information. So please, if you can leave a comment, like and subscribe, of course, cause I get good data on that too, and that helps me craft the episodes that I think are going to mean something to you. So also, don’t forget if you’ll check out the links below, I’m giving away the audiobook version of the Inner Voice of Trading, which you can get for free. I’ve been doing that for how many years now? I don’t know.
And I think it’ll be helpful for you. Can you get it for free? It’s like a 500 megabyte file. So it’ll take you some time to download it. But you can play it on your handheld, your smartphone or your notepad. It works anywhere. It’s just MP3 files. So basically any downloadable audio file. I stream most of my stuff anymore now. But anyway, I wanted to talk to you about goal setting because I had a lot of trouble setting goals. I hit all my goals, but the way I did it was a lot harder than the way I would do it today. So I think when I think about changing my life, because that’s what goals are for, to bring you into a state of existence, then that’s different from an earlier period of time. You can define what that period of time is. It could be last week, it could be last year, it could be last decade.
Doesn’t matter to me. It’s all bonafide. So my intentional work these days, because intentions, equal results. So I try to be hyper aware of what it is that I’m thinking and certainly what I’m feeling. There is no feeling that I’m unwilling to feel because as Ed and Michael taught me that all those feelings are trying to communicate with me. So I have to listen inwardly and see what they’re trying to communicate. Where can I break down old belief systems, things that I picked up from my environment, my sister and my parents and my friends, and any other part of that’s my nuclear family. And then other parts of extended family and friends. You pick these things up, you can pick them up subconsciously, but then it also can show up in your life. So we want to have goals so that we can constantly measure effectively our behavior, right?
Because we have thoughts that could be the ideation or the goal itself. The feelings are attached. How am I going to feel in executing this goal, in trying to achieve the goal, right? Because there’s going to be failure along the way. So how do I process the feelings around failure? Because that’s going to indicate certainly the relative strength of my, what’s the sticktuitiveness, right? My persistence, my determination, and then the actions. Because based on how badly I want to achieve what it is that I want to achieve, I’m going to have strong feelings about that. And I can actually manifest what I want in my life by feeling as if I’ve actually achieved the goal today, even though I actually haven’t taken the first step. So it’s very powerful stuff. And those feelings are actually what motivate you to take the action. It might mean picking up the phone, it might mean sending out emails.
It might mean tinkering with a trading system. There’s so many different moving parts and I’m not here to judge and tell you what your goal should be. I’m just here to help you achieve them. Cause I think the more clear you get on what it is that you want to achieve in your life, the closer you will be to actually achieving it. So I’ll give you an example, especially coming through January, we’re still in the end of March, early April, and people would start the New Year’s with having goals. I want to lose 10 pounds, I want to make more money. And when you think about that and it gets super deep, losing 10 pounds, don’t lose 10 pounds at a good weight for me right now. I don’t want to lose 10 pounds. It’s not a good look. But say that was a goal or you wanted to make an extra 10 K a month in your trading, for example, a hundred thousand a month.
Doesn’t matter to me what the number is. That’s just a number. And maybe there’s a good feeling that you can associate with having achieved that. That might be a milestone for you. If you’re making 50, 60, 70 K a month and you want it to ratchet it up a hundred to 50 to a hundred percent, then by all means go for it. But the thing if you’re just starting out that you might benefit more from is think about your goal in and of itself is not the end result of losing the 10 pounds. But think of it in terms of I want to have the right diet. Because if you have the diet, which is the process, you’ll get the result. You might not get it overnight. You don’t want to weigh yourself every day because it’s this not enough time to see any meaningful change. So think about attaching a goal to the process that you know can execute.
And that was the point of today’s episode, is that there are a lot of folks out there who say, I want to make an extra 10,000, extra a hundred thousand a month in my trading. And so for those folks, if they’re already making decent money, they probably already have that process. So now they can scale it maybe, right? Or they can add other instruments, or maybe they can better qualify the names that they have on their watch list and do it that way. Maybe they could learn to trade in the pre-market or the aftermarket. Again, doesn’t matter to me. There’s all million ways to do this business, but I have found I’ve done better when I didn’t just take some inanimate object, losing 10 pounds, make extra a hundred k, because that in and of itself is just a number. And so how do you get emotionally attached to that number?
It’s like, well, you have to love the process through which you will achieve that you have to, the feeling of being on a diet. So that means you have to learn to the feelings of doing without the things that you would normally want to have if you’re trying to quit smoking. What does it feel like to not have that cigarette in the morning with your first cup of coffee? What does it feel like to not have the cigarette after the meal, after lunch, and especially dinner, then you could be vaping. It doesn’t matter to me how you get your nicotine. I’m just saying that in and of it is a ritual. You wake up, you have a cup of coffee, a cigarette, this and that. So I think in order to hit the goal of not smoking, yes, of course addict nicotine can be addicting, but you have to be in love with the process of quitting smoking.
What does that actually feel like day to day? Minute to minute? Cause if you’re crave a nicotine, it could drive you nuts, right? I’ve seen it happen. And if you want to make more money, you have to look at the process by which you’re making your money right now and how can you expand that? A good example, which I’ll talk about, I don’t know if it’s I’m going to do it tomorrow. The next day, are the limitations of limit orders. So if you’re trading with R and you’re risking one R and you know, take your winners at three R again, that’s great, congratulations. But then you have to figure out what the frequency, how many trades do you have to put on at that three to one ratio in order to make what you’re making? What’s your size? We talked about scaling last week. We’re probably going to do a follow up this week on scaling as well, because scaling as a discretionary chart reader, very, very different than if you were using trading blocks or mechanica or because those are the portfolio simulator trader engines that you could use to systematize your rules at the portfolio level.
And then I know, I think Ninja Trader has something, and I’m not making any judgment, but you can only test one name at a time. So you, there’s trade offs. So if you want to make more money, then you have to look at the process of how you’re currently making money. And that’s a little tricky because for the newer folks, if you’re not already, if you don’t already have a system then saying, I want to make 10 K on the year. If you’re just starting out and you got 20 K and you want to make 10,000 or 50% rate of return net of commissions and fees and trading losses, you might want to set a goal around having a process that you could follow day after day that has positive expected value. That would eventually, if you replicated that process day after day after day, yes you’re going to have losers.
But if the system has positive expected value, then it’s just a matter of time before you make that money. Then you could gear the leverage to say, okay, well of course you measure that by drawdown, right? What drawdown can you withstand? And then you put the model to work and you see what’s the Johnny McGorry with the results. Then you have to trust the system to work. We talked about system hopping and the detriment to changing gears. I think that was in the title of the video. You can go look it up. Like what happens when you change gears? Because you might run a fully system, automated system of trading rules and your five, six losers in a row, and then all of a sudden you get frustrated and you abandon those rules to try to say something else just in time to miss the next five trades, which might have all been winners to bring you back to break even.
And then some, for example. So when you think about setting goals, don’t come up with a number. Of course, that’s the fantasy. But then, and even if you do, I’m not going to fault you, but say, okay, well what’s the process that I need to follow? Sorry folks. I have, I’m overcoming a bit of a chess cold here, so I sound a little foggy. Hello little froggie. And so my voice is kind of cracking, but I don’t like to miss putting out content for you cause I know it’s very helpful for all of you watching. So think about the process that you would need to develop and then follow in spite of all your feelings to get to that number. Because the number, people look at the number and they’re like, oh, okay, I’m just going to follow this and I want to make 10 k because that’s my goal.
But you have to be emotionally connected to what it is that you’re doing. You have to love the process. And if you don’t love the process, it’s not going to be too long before you just abandon the whole thing altogether. So take the time to put together the process that you can follow so that you don’t beat yourself up. Because what happens, you set a goal, I want to lose 10 pounds by January 21st, you’ve already abandoned the process. And that could also trigger feelings of shame, a right of humiliation even within your self because you didn’t follow through. It could affect your self-esteem, right? So you want to think about putting together a process that you can follow day after day after day that again, that has positive expected value so that if you just stayed out of the results, because so many people that I hear from are results oriented and that can cause them a great deal of emotional discomfort and frustration and aggravation.
And there’s probably a million feelings that you could attach to it. But the thing is, is that you want to stay focused on the process and stay out of the results, focus on the process and stay out of the results. Too many people, especially if they’re day trading, they’re watching their p and l and if they make money, they figure that was a good day. If they lose money, it was a bad day. The reality is that they’re both good days. As long as you’re following your model and you take your losses where you’re supposed to take them, then those results are within model, as we would say they’re within model. So you on some level could anticipate the magnitude of your loss, the size of your average loss, and then also the frequency with which you win and lose. Then your biggest winners. So you can get all that data.
I’ll do, I’ll do a video on how to, a deep dive on expected values because that’s really what makes the world run in terms of trading is understanding the math behind it. So you have, in your goal setting, you might want to investigate something like base theorem or expected probabilities. What’s the probability of event B given the known probability of event A and then expected values or mathematics of expectation where you’re winning and losing percentages. Then you also know the size of the size of your average winners and losers and you can figure out expected values and whether or not you should follow that model. And so that’s what I think newer traders and more sophisticated traders alike should focus on is when they think about goal setting or things that they want to achieve, think about the process, not necessarily the result. And that’ll help you get your mind going around, what is it?
What is it that you need to do each and every day to get to that end point? And I do this for the consulting clients. If you’re here at point A now and point B is the end result of this process that you want to follow, what would it look like if you went beyond to say point C? Because in my way of thinking, cause I’m very resourceful and I know everybody, I can actually have, here I am today in point A, point B could be the goal that I’m working on achieving. And then what am I going to do once I get to point B? What not only what is my life going to look like, but what can I do resourcefully at point B, having achieved that goal, what other pieces can I put together to take it to the next step? So while I don’t have the goal beyond my goal necessarily set in stone, oftentimes that third second goal can pull me through the first one that I want to hit using the letters that I had. The seagull can pull me through the big, the point B, or at least get me going in that trajectory. It’s never as going to look as clean in practicality, right? In practice, when you execute the way you could very eloquently say it or write it out clearly on a piece of paper, shit happens. So here’s my thought on that. The process by which you go to achieve the goal can be amended or it can change, but don’t change the goal.
Change the process to write the ship. If you get a little bit off course, adjust the process, but don’t change the goal that you want to achieve. Don’t quit on yourself. This is a hard business and you have to have an enormous amount of staying power. And if it was easy, everyone would be doing it and not. The way I survive is I just keep things super simple. I can’t get distracted with the new curve ball of the day. I know there are people who are a lot brighter than me. They have different, I’m good at math, but the type of math that I need to do it I do is far below what anyone who had a degree in quantitative finance, I don’t need any of that. Excuse me. So I understand differential equations and all that, but I don’t need it to do what I do. If you grew up in New York state like I did, anything that I use is not beyond ninth grade math. Maybe a little bit of statistics. So I don’t know where statistics might show up in high school for you, but most of the math can be done with algebra
And it’s very basic stuff. So as you set your goals,
Take the extra step and say, okay, here’s this number. Why did I arbitrarily pick out a hundred k? I want to make a hundred K more a month. Maybe you do, maybe you don’t. But what is it that you need to do in your process to manifest that? Because without the process, nothing’s going to happen. You’re going to have point A and point B, but there’s no line straight or otherwise or crooked to get there because you don’t have the process. So I would absolutely focus on the process to get where you want it to go. More will be revealed, but I can share with you this, if you don’t take action, it’s not going to come and kick you in the ass. You got to go get it. So you have to invite failure. And a lot of really, really smart people, the folks that I went to school with, they’re not used to being wrong because they’re so bright as students anyway.
So if you are one of these folks that I grew up with in my classmates were terribly bright, how do you process the feelings around failure? Because they can stall you or derail you. So you have to account for that things. It’s not like they’re going badly, but they might not go as smoothly as you hoped. But that’s the whole point of journey is not necessarily to arrive. You’re going to learn a lot about yourself, impress yourself. If you run and have a 10 million line of credit at tutor, for example, how can you go to your risk manager and say, I want 20% more. What does that look like? How’s that conversation go down?
Or any other type of, maybe you’re at a prop trading firm and you want more, want more capital or buying power. Many places use different, I call it credit because it effectively is a line of credit from the assets at the firm. Anyway, those are my thoughts. It’s a longer episode than I typically do. But goal setting to me after having, I think I said that one of the most important trades, yes, discipline is important, but I think attitude. If you have discipline, but a pissy attitude, then your discipline’s going to get subverted. You have to have a good attitude and then you have to have a goal. But the goal has to be based on a process. Please like and subscribe to the show. I’ll be back tomorrow and the rest of this week with some more episodes. Please like and subscribe. Send me some comments, feedback. I don’t have all the answers. I just have my own very subjective experience that I’m happy to share with you. And I appreciate you all being here very much. Thanks. Thanks so much. I’ll see you.
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The post How successful traders make more money appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin, thanks for being here. Please like and subscribe. If you can leave a comment, I always read them and gives me good feedback on what you think of the content. Get a lot of questions on scaling up, and I know it comes from folks who have smaller accounts sizes because they don’t like being small, they don’t like having small accounts. They know that obviously trading larger can bring greater gains. Of course, my thought process is, you know, could end up losing a lot of money by scaling up too quickly. This is a tough one because I think it’s why a lot of folks actually don’t make it, or they curtail their growth and they stunt their growth by actually growing too quickly. So say you had say 10 K and your account’s up to 11 K, you’re up, you know, have an extra thousand.
Now your position sizing should grow and your scaling should grow as a percentage of your assets. I don’t think you can go from trading ones to, you know, have to remember going from ones to twos is a 5100% increase. So in my experience, I haven’t seen folks emotionally they want to go from five to 10 or from 10 to 20 contracts, but I think it’s much more gradual. So if the volatility of the instrument stays the same and your account grows from say, 50 K to 60 K, so now what’s your risk unit? If it’s a percentage of your overall assets.
So then the number of contracts that you would have in your risk unit would have to grow proportionally with what that risk unit is. So you’re, yes, you’re trading a thousand dollars risk unit and then all of a sudden your assets grow from 50 to a hundred K and you were risking say a thousand dollars at 50. So now you’re risking 2000 at a hundred, you’re still risking the same 2%. So the number of contracts that you would have into that risk unit might grow. It might not grow by a hundred percent. Volatility can change as well. So the key is to start with what is your risk unit size? What is it of your overall capital, of your overall account balance, whatever it is your asset under management and know what that number is. Usually it’s a fixed percent, right? So if you’re trading, say one half of 1% on a hundred K, you’re risking $500.
If your account drops and you’re still trading that $500 number, you’re actually taking more risk. So if most folks that I know who are in the pro space are always thinking in terms of percentages, so that this way any loss is always the same percent, even if the dollar sign is different. So if you’re looking at trading, who knows a thousand dollars and that’s just your risk unit. No matter what your account size is, you might want to translate that and see what percentage it is so that this way you don’t amplify your position size is too big too soon because what ends up happening is, in my experience and from the folks who write in is they’re like, yeah, I was in a losing streak. I went from 50 to 40,000 and I’m going to wait and see if I have five really good trades or five winning trades in a row that I’m going to scale back up.
And my whole thing is, it’s almost, you shouldn’t even have to think about it. You shouldn’t have to come up with a rule like that. You can think in terms of saying, Hey, I’m going to trade one half of 1% of whatever my account balance is at any given time. And then I can look at the volatility and see, multiply that through the contract or calculate where my stop is on my protective stop is on my stock positions and then multiply it out by the number of shares. But before you worry about scaling up, I would more recommend again, have a good attitude always, and then two, scale up proportionally, right? Because then no matter what happens, if you’re making money and your account is up, you’ll, you’ll be trading bigger. By definition, if you’re in a losing streak or a drawdown, you trade the same percentage, but the number of contracts or the number of shares that go into that trade will be lower.
So this is one of the ways that you kind of stay sane through the whole thing is that you only actually trade bigger when your account is up or you’re on a winning streak and you deliberately end up trading smaller when you are in a losing streak. The goal for me would be to behave consistently, because if you get tied up in like, well, I’m tired of trading two contracts or two cars, I want to go to fives. So this is an ego thing though, right? It’s not based on the math that’s in your account. So you can stay emotionally or grounded and have a plan for scaling up. That’ll happen organically based on the performance of your trading. And that’s really two pieces of advice at once. Because if you are in a losing streak and or in a drawdown, I would absolutely haircut your capital to make that financial and emotional impact smaller on you, if that makes sense. Because ultimately I think it comes down to ego is that the folks want to grow their accounts too quickly and they trade and they want to increase their risk unit size to get to a bigger
Level, but they do it too soon and that puts them in a precarious spot. So you really have to think about risk units based on a percentage of your asset or as a percentage of your account size, and then go from there. I know with commodities it’s a little trickier because they all have different standardized units and if you look at the volatility, you really have to kind of create a spreadsheet. So I’ll do that for you guys and talk about it on another episode on what the math would look like cause it’s harder to visualize just in an audio format like this. Anyway, I appreciate you being here. Please leave a comment if you can always make a suggestion because I’ll do what I can if it’s something that you’re working on and if you work at an institution and you’re going through draw down, I can go through some specific examples on how you can haircut your capital in order to get your feedback underneath you and get back into the swing of things. Otherwise, thanks very much for being here, folks. I’ll see you tomorrow.
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The post The best way traders scale up appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. If you get a chance, please like and subscribe. I get some good data based on, based from YouTube, based on the show. So I get to see what it is that you all like and hopefully create more videos like that. Last thing I want to do is waste my time creating stuff you don’t care about. Or even worse, waste your time creating videos that you don’t care about. So I’ve been answering a lot of questions. I’m getting a lot of them, which is great. So I might have to actually increase the length of the show a little bit and answer two questions in the same lesson. Otherwise they start to back up. And then I have the people waiting too long to get the feedback. So the first one is, what do you do do during the day?
All right, so what does your trading day look like? And I get up super early California time. I typically just take a look and see where my levels at are anything, are any of the instruments that I’m looking at, close to the levels of where I would get in, where am I moving my stops to? And then once the market’s open, I’m just babysitting a book of stop orders. Basically. I’m not sitting there looking at short term one minute bars or what have you. Price is going to go wherever it’s going to go, whether I’m watching or not. So don’t typically sit and watch. Sometimes I’ll put an alert in that I’ll trigger before the actual stop price that I can see. Cause I typically don’t like to add orders too far away myself. Then I answer, read a mail if I can or create videos if it makes better sense to do that.
I’m also working on Victor’s going to teach a day trading class. So we’re working on building the guts of that out. Cause we want it to be very substantial and in order to do anything right, it’s going to take some time, some experimentation, a little bit, build it out, maybe provide too much information at the beginning and then get some student feedback and figure that out. So we’ll air to this air to the side of putting too much as opposed to too little. And so that takes time to put together a good course because it’s one thing to have the information, but then you have to deliver it in a way that makes a lot of sense. So that’s what I’ve been working on these past few month or two behind the scenes. And the other one email that I got was, could you say something about adding to winners? And so I don’t think adding to winners is a form of greed. I think it’s really just another way to look at risk management. There are folks who, so first of all, let, let’s take a step back. Adding to a winner is a systematized or a rule-based ideology
That you would acquire more of what’s working at higher prices, some quantity of that at even a higher price than you first had when you acquired the instrument, whether it’s commodity futures or stocks. So then the question becomes by the time you’re going to stop adding to the winner, are you going to add Once you’re going to add several times, you have to take a look and see, okay, well what is it based upon? What is the rule for adding to the winner? Is it going to be X amount of dollars or is it going to be some type of a ratio of the standard deviation or maybe all are part of the average true range? So I think a lot of it depends on what kind of risk you ultimately want to have by the time you’re done adding. So if you put on your optimal position size at the beginning and you’re going to add to winners, what is that going to look like if you add a second, third, or a fourth, what we would call a risk unit, your first piece would be your first risk unit.
For some folks, that’s what they’re just risk on, risk off, risk on buy it long, sell it long, sell something short, buy it to cover. So they’re not really cannon ballers, but they have their set position size, they add the risk and they remove that exact risk and that’s it. Then there’s other folks who say, okay, well I’m going to put on my first risk unit and then after say one half of an ATR goes by or increases in price, no matter what, I’m going to add my second risk unit, then I’m going to have to adjust all my stops because now I have a position that is larger. Could be fractionally larger, it could be twice as large. So it all depends on what you think your optimal size is going to be. Some folks don’t have, like I said, they don’t have to add to the winner because they’re executing with their optimal position.
Size, risk on risk off. Folks like myself realize that we’re not really looking for a short-term move or a swing kind of a move. So I have my optimal P piece on it swings to where I need it to go, I offset it, I make my money. My way of looking at things is that I can anticipate something at 20, going to 40 or 50. So for me, it doesn’t make sense to get 20 to 22 because I can withstand the swings in the short term and not panic. If what you might have as a price target is something where I might be adding risk because I would much rather have smaller risk size at the beginning and add along the way so that if my timing is good and I do get lucky because no one can predict the actual magnitude or the duration of the move.
Every once in a while you’ll find yourself in a spot where that exactly happens. It goes to 25, 25 to 27, 27, 31, 31, back to 28, 28 to 29, 28, 29, 27 back to 30. And I would prefer to stay in that whole time. It doesn’t affect my intestinal constitution, but everyone’s different. Some folks would be much more happy buying a risk unit and then offsetting it with a winning or a small loss. For me, I would start much smaller perhaps than many of you, but I will keep nibbling and adding in so that by the time it gets to 25 or 30, now I’m fully loaded, I know where my stops are, I have my gains reinvested into my stops and then let the thing run. So it’s a different style. So I think the way you figure out how do you add to your winner in a long-winded way is to figure out after all the adding is done, what’s the most amount of risk you can withstand, right?
Because this isn’t a day trading tactic. Adding to your winners is at least an intermediate, if not longer term type of trading strategy. Now, maybe during the day some of you can find inflection points and add a little bit more. That’s more of a victor strategy than my own because again, my ethos wouldn’t be one by which I offset the trade at the end of the day. Unless of course there was like a reversal or my stop got hit or my exit criteria got hit. But that would be incidental. It’s not my intention to do that. So you might find it easier to add to your winners if you trade smaller at the beginning, right? Because I think unless you’re trading your own money or you’re at a prop desk where you’re paid to take gigantic risk, you don’t really get paid to offset the risk. At the end of the day, you get paid to take bigger risks.
So conjugate it with where do you see how lo, what’s your holding period? Something that you would need to know, maybe from observation you could go back and look and say, okay, well here’s some of my past trades and here’s how I could have done if I had added to the winner. Now you could say, I’m going to add equal amounts, kind of like what the turtles did. They added up to four units directionally the same size. There’s ways to do it where you’re pyramiding, where you do put maybe not your optimal size on it first, but you put a larger risk unit on, maybe that’s four gold contracts for example. And so if you add, you might add one or two. So it’s proportionally smaller. That’s why they call it pyramiding, right? Because the higher up you go, the smaller it gets. And so
That might be a way to look at it and then see how many times can you add, right? So systematized, I know folks that add one extra risk unit. I know folks who have traded up to four and I know there have been times in my own trading where I had, I just kept buying, I had 5 67 directional units all going in the same direction. So if it’s not going up, don’t buy it in the first place. So you have to do some experimentation, you have to feel the uncertainty. You might find that yes, if you buy 24 contracts at 20 another four contracts at 22, your break evens at 21. So maybe you know want to say, okay, I’ll buy two contracts or four contracts at 20, but just one more at 22 so that if the thing does pull back on me, I don’t have losses on my second risk unit that will all have offset the gains that I had in my first risk unit.
So you can do it again, we are talking about systems and discretionary. I mean on some level everything is discretionary because even for systems, you have to choose the inputs. So that’s a discretionary element. Then you typically don’t use discretion in the execution of those rules. Whereas with discretionary trading it might be discretionary as to what trading. Trading say chart pattern, you’re going to look at that particular day, you might have had one or two losses and you decided not to put on your third trade. That’s a discretionary decision. So you have to really do some experimentation and see what feels best for you. Where can you add the risk and actually stay with it and feel good about it emotionally. Because if something goes up, and admittedly it’s harder for you to add that risk unit there because you’re used to offsetting the risk, you know, might have to start trading smaller at the beginning. Benefit is trading smaller at the beginning or when you first add risk is that if you’re wrong, you’re not going to lose as much. So your losses will get smaller and your average loss will trend smaller as well. But you have to then condition yourself to hold onto the risk longer, I think, and then let the market do the work for you. That would be, that’s how I would approach it and then try to trading it in real time.
And that’s all I can really think. Cause that’s actually what I did. So there’s some theoretical things I can teach you about, but it’s much more powerful to tell you what it was that I actually did. Now if you’re using the same risk unit size all the way through and you’re adding 2, 3, 4, 5, 6 risk units and you really catch one, yeah, you’re going to make monster gains for sure. But if there is a whip saw or if there is
A pullback or if there is a wave of profit taking, you might find yourself having had a winning trade all of a sudden now you’re, you’re overall in a losing trade and you’re fully loaded. So you don’t have that much room to give before you have to undo the entire position. So again, it comes down to your emotional, the emotional constitution. There’s not one way that’s better, there’s just that. This is how people develop their knack. They know what it is that they can do and they kind of stick to it and they replicate that. And that becomes kind of who they are as a traitor and they’re able to replicate that behavior over and over and over again. And they understand that sometimes they’re going to have some gains that they give back. They’re going to get knocked out flat. They might have small winners that end up being small losers, but they know more times than not when they really catch a good move, they’re going to make 20% rate of return on their portfolio perhaps.
And then that’s kind of what they do it for. So they know their why, right? And then they know their craft on how to get to it. So if you’re feeling a little antsy about adding to winners, maybe try trading smaller for your first risk unit so that when you add your second, maybe now you’re doing, instead of buying say four contracts all at once, you buy two and then you add two. So you get to four, right? Then you add a fifth at the end. I don’t know, you can back test the stuff for sure, but not having a simulator, you’re going to have to just go out and do some trial and error and some experimentation. But those are my thoughts. Again, please like and subscribe, leave a comment if you’d like. I read them all and if you have a suggestion for a show, I’ll be more than happy to do it if it helps you. Thanks for being here folks. I’ll see you tomorrow.
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Hey everybody, it’s Michael Martin. Thanks for being here. While you get a chance, please like and subscribe to the show. Leave a comment if you’d like, because then it gives me good feedback as to where I might’ve hit it, done it well, or done it poorly. For example, in the show, got a question about what’s the best attribute that a trader can bring to the table from, say a personality standpoint if they want to be a great success in the market, is they have to be math whiz and they need to know how to code and python or rubion rails, whatever that it might be, or just have a great feel for the market. And the answer probably won’t surprise you. In my humble opinion, the best thing that a trader can bring to the table is actually a good attitude, which probably makes sense because I don’t think you can do anything in life as a profession if you have a poor attitude.
It’s okay to be in a bad mood once in a while, but you have to watch it because ultimately you get what you think about. And if you’re walking around pissing and pissing and moaning all the time, you just get more of the stuff that makes you feel that way. So my take is because it’s such a game of failure like baseball and that you’re going to be wrong, some of you probably have very accurate systems, but for the majority of traders, in my opinion, they’re wrong. More than half the time could be 50 to 70%. And so if you know that from a mathematical expectation, you could also set up, say, an emotional expectation that’s attached to the results of your trading. Now, if you’re doing it by hand and you’re discretionary, you have to keep a trade ledger of all your trades and then download them into a spreadsheet or keep it going and then see what’s your winning percentage.
And then when you win, how big, what’s your average winner, and then what’s your average loser? And from there, you can calculate the expected value of what it is that you’re doing with the trading system, it’s a little easier because most of the software will calculate it for you and give it to you on the results page and do it very, very quickly and very, very accurately. So that’s one of the benefits I have in the software. But I think having a good attitude is important, especially when the markets are crazy, when you feel fearful when you’re losing money. Because if you know the expected value of your trade and what your winning percentage is, you can actually use that data to help you create a good attitude. Because if you’ve back tested your system for 10 or 20 years, for example, and you’ve seen that you lose 50 to 60% of the time, that just typically means that every other trade that you put on is going to be a loser on average.
And so having a good attitude and not becoming emotionally invested in the outcome of any particular trade, even if it’s your favorite setup, to keep your head on straight and have a good attitude and just say, Hey, it’s just one trade of hus, hundreds or thousands of trades that I’m going to put on. And no one likes losing per se, because you can’t be really good loser, but you kind of have to learn how to lose well so that you don’t go on tilt, right, and maintain a good attitude and just realize that your next winning trades around the corner, and it might take a couple of small losses before you catch one that really goes right. So that to me is the biggest thing I think is having a good attitude. When I look back and see what I was struggling, it was my belief, it was my vision that I had for myself and where I thought I could be once I got it down.
And that kind of pulled me to that goal, to the completion achievement of that goal, even though I had no proof. So it’s a little trick you can play on yourself in that, think of all your successes that you want to achieve in the future, but think of them as if you have them today and speak in your inner voice in the present tense as if you’ve achieved what it is that you’ve wanted to achieve, whether it’s making X amount of percent or a dollar amount of money or other types of goals that you might have. Usually it’s attached to a process, and usually your goal is in and around what it is. What is it that you want your money to do for you, for example, right? Because accumulating wealth is one thing, but if there’s no emotional attachment to it, it’s a lot harder to achieve when you can get excited about what it is you’re endeavoring because you can see what you can do with your ability or with your new found capital as it’s grown over the years.
I think that can help you keep a really, really good attitude because you know that you’re just one or two trades away from getting into a winning streak that you’re at any given time. You could lose money, but it could also be just bad luck and bad timing. So you try not to internalize the results, right? Because if you just follow the process and the process is bonafide, the process has positive expected value, then it just pays you on average to take those trades day after day after day, even if you find yourself taking small losses.
So if you know you’re going to lose, what you can do is kind of mentally prepare yourself for that ahead of time, maybe even Sunday, just say to yourself, Hey, here are my rules. Here are my setups so far for Sunday night, Monday morning, and here’s what I’m going to do. Here’s how I’m going to win the day is I’m just going to follow my rules and I’m going to stick to my system. And even if I lose money, I want to be able to look myself in the mirror and say that I kept my discipline and I didn’t get knocked off balance because I had a losing trade, or the market didn’t set up the way I needed it to or the way I wanted it to. It’s on it’s life, on life’s terms, and you just have to have peace around it. And sometimes it can be super aggravating and it’s not bad to get aggravated, but it’s what you do with that aggravation.
That’s where you don’t want to go on tilt. You don’t want to get into revenge trading. You just have to be completely placated and say, okay, win or lose. I’m going to get out of this situation exactly what I want. So if I want to get super, really, really angry, I’m sure you could find a way to let the market help you get into that anger and let that teach you what it, let your anger teach you something about yourself and your own behavior. It never paid me to get super angry because I only ended up hurting myself. And I think that’s probably a truism for most people too. Regardless of what your credit line is or how much money you’re running in your own account, if you’re not like at a hedge fund or a prop firm before the risk manager comes down and say that they’re cutting your risk by 30%, sometimes that’s just the way it goes.
So you got to make hay with what you have and stay in a good mood. I know it’s easier said than done, but whatever it is that you can do to keep a good positive attitude on things really is worth its weight and gold. I can’t think of another mental criteria or personality trait. Obviously you have to work hard, but you have to work smart. Putting in a long hours isn’t so virtuous if you’re not spending the time wisely. Cause a lot of folks just like to rack up the hours and see like, wow, I’m putting so much time in. But you know, have to get results. You have to get the results from the time that you put in. Otherwise you’re just going to find yourself putting a lot of time in and not getting any results, and then have nothing to show for it.
And then what happens? You get frustrated, angry, bitter, resentful, everybody else is winning, but I’m not. So it’s a very tricky deal. I live more like a hermit monk and I, I’m not engaged with other people cause I don’t want to hear how they’re doing, good or bad. I just want to focus on what I know I can execute day after day and therein is my discipline and my strength. So I hope that helps. I think attitude, whatever you can do to keep your attitude high and keep yourself esteem high in this very arduous practice, because sometimes, look, you might lose 10 in a row. There’s other times when the markets might be on fire and very amenable for what it is that you do. And you could be cranking. You know, I’ve had 15, 16 winners at a clip, and it happens, right? It’s random.
You can’t predict it, but you just take the trades and the market’s like, okay, we’ll go with you. Other times it’s like you can’t do anything. So if you trade long enough, you’ll kind of see one of everything. So just take it in stride and realize that the main thing is that it’s a marathon and you have to be able to come back and play tomorrow if you let your attitude fall by the wayside and start taking actions on the feelings that you don’t want to feel. You could put yourself in financial harm by losing more of your principle, and then you’ve got to dig out of a deeper hole. Remember, after 10% the rates of return that you need, meaning after a 10% drawdown is if you keep drawing down 15, 20%, you know, need a big, big winning streak to get back to break even. So be comfortable taking these small losses because the small
Losses are much easier to recover from than if you’re going to take a larger destabilizing loss, right? Because you’re acting out of emotion. So I would actually take solace in that and keep a good attitude and say, Hey, I’m doing just what I promised myself I was going to do, putting on all my trades and I’m losing good. I’m taking small, consistent, small losses, none of which could ever hurt me or put me out of business. And even if I added them all up, if you’re risking say two tenths of 1%, you could have five losers in a row and still have 99% of your overall capital at work, which effectively is all your money. So do whatever you can to keep a good attitude. Keep the comments coming, folks, keep the suggestions. I appreciate the time that you put in and I will keep making videos about the things that you think are important, at least for my experience to see if you can’t help you on your journey. Thanks for being here, folks. I’ll see you tomorrow.
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The post What is the best attribute to have as a trader? appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So I got some follow up on my video that I did while back on getting a feel for the market and whether or not you’re supposed to develop a feel or be purely systematic, that’s a very personal decision, right? Because your trading style’s going to be as unique to you as your fingerprints are. And it’s really not for me to say which one is best. I know people who are great discretionary traders, and I know some really good system systematized folks as well. Systematized would be, at least in the modern definition, someone who’s taken data price volume in futures. You can look at open interest change in price, standard deviation, average, true range, this and that, and tries to organize his or her orders by just using those data points to calculate what’s the highest expected value of a trade that they can get.
And so that takes a good amount of time because you need several, you’ll probably need two decades of data. 10 years is good, but then you don’t have oh 7, 0 8. So you really have to go back 20 years from today, take you back to oh three and see how robust your system is. How can it withstand shocks to the system? Because if you’re going to do pure systematic trades, you’re going to let the computer calculate your entries and your exits, your position sizing. It’ll also calculate where your protective stop is based on your predetermined criteria. It can also help you calculate when at what price to add to your winner and how much of it will you add, right? Are you going to double your position or will you do more of a pyramiding style edition? Whereas chart readers are discretionary and they are looking maybe for a particular type of setup.
They might have one chart pattern that they trade really, really well, and that’s all they’re looking for. It can take more time to do it that way because you have to do it by hand. I suppose. Some of you can program it, but then again, you have to have programming skills or at least the wherewithal to go hire a programmer. And again, it’s not to say one is better than the other. What is one that’s best for you? Because I think when I looked at some of the comments, the folks who have a system also have a feel. It’s just that they aren’t going to change their behavior from day after day after day. Whereas I think folks who are discretionary chart readers need to bring a lot of discipline to the table because that’s where if you don’t have hard and fast rules, you can find yourself taking flyers. And that’s really not where you want to be. I think it’s not a cardinal sin because you have to experiment, but if every day you’re taking flowers because you don’t have a system that’s a different
Ball wax. So I would say do what feels best, right? Because you’re not going to be successful at something that doesn’t feel good. The simulators that you would need to back test are, they’re not necessarily cheap, but they’re not expensive. But you also need the data. And the data is typically a monthly subscription fee, right? Because you want to stay current, which brings up, I’ll kind of add this into this episode as well, is that people go indicator crazy. I found that when I was starting out, I didn’t know what I was doing. Probably you might feel, or even if you’re working at an institution and you’re going through a losing streak, you can still have that talk creep up in the back of your mind as if you don’t know what you’re doing. And so when folks send over charts to say, Hey, can you help me understand what’s going on with this chart?
And I see five or six overlays, it reminded me of when I was younger and I was starting out, I used to look at those indicators because I wanted to something to help me take away the uncertainty, right? Because that’s where, that’s what happens. And that can amplify your behavior. If you don’t like what it feels like when you have to feel uncertainty, you might override your rules. You might interject a rule or create a new one on the fly just because you don’t like how you’re feeling in that particular moment. And so as I got older and I got more experience, I was eliminating indicators. I found that the majority of ’em didn’t work, but they made me feel good because they could kind of confirm things that I could already see in the price. But it gave me a reassurance. As I got older, I started to understand that I didn’t need the reassurance because I could see it in the price, and I built more confidence in myself. And so the way I reacted to that was to drop off indicators so that now I don’t even have any, I know some of you like them, some of you swear by them, and I say more power to you. It’s not calling your girlfriend ugly because you’re using indicators. It’s just that for me, I don’t need them.
But I think the less you can rely on those indicators, the quicker you will be to develop your own instincts and your own ability. That’s my experience. The more I stopped relying on other people and out things that were external, I got to hone my own instincts and my own ability in trading the markets that way. It does take time, which can be frustrating because folks want to see success and they want to see it now. They want it fast because the, there’s uncertainty about the trade, but then there’s also uncertainty of how long is it going to take till you make it to hit whatever goal it is that you’re trying to hit. So be mindful of the indicators of why you’re using them. How do they fulfill you emotionally as opposed to financially? Cause I’ve just found that the majority of ’em are not necessarily, they’re mostly lagging indicators in many circumstances.
And so I would just prefer to let the price tell me what I needed to know. But anyway, I hope that gives you some clarity. There’s no judgment. It’s really just two different approaches to the markets. Maybe it’s a budget concern, maybe a, you would much rather kind of figure it out on your own. So I don’t say that one is better than the other just because I’ve seen people fail with both. I’ve seen folks go out and spend thousands of dollars on simulators and then subscribe to data feeds and then work and just they couldn’t get it to work. And it was very, very frustrating. And then I’ve seen folks who with a lot of hard work, but not a lot of the technological stuff, just develop really, really good instincts and trade off the charts or chart patterns. So it’s really, I wish I could remove that uncertainty for you, but that’s part of the joy of it, is that you get to figure it out.
And just remember, the uncertainty could be perceived as risk. And without risk, there’s typically not reward, right? So you don’t want to go taken on excessive risk just for the sake of doing it. It has to be measured, has to make sense. But anyway, those were the key similarities and differences that I saw between discretionary chart reading and folks who were purely systematic and trading with systematized set of rules. The indicators can play a role in both, but in my experience, I haven’t been able to test to see what is the magic indicator that works all the time, very few of them. So I just chose not to use any of them. Anyway, just my 2 cents. Please like and subscribe and keep your comments coming. I appreciate the feedback. Gives me good ideas to create more videos for you. See you tomorrow.
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Hey everybody, it’s Michael Martin. Thanks for being here. Happy Friday. So a question came in on what do I do to prepare for Monday, being that it’s the end of the week and everything. So it’s interesting, I tend to think of Sunday night, start my prep, prepare my preparation for Monday day, right? And then when I get to Friday night, you always do like what we call a checkout. Make sure all the orders are either filled or canceled and that if you did get filled, how much do you have at what prices, right? And then if there’s anything left in the portfolio, you have to bring that to the trader’s attention because someone might have fat fingered something and someone else’s trade ended up in your account. That’s a pain in the ass. So you got to get that fixed quickly. So we call that the checkout here.
So you do that and then I review the orders, see what happened, why didn’t they get filled this and that. Sometimes it’s just simple that the price never traded at or through the stop. So the order never got done. So what I try to do just right then and there is I spend not a lot of time, but probably 10 or 15 minutes going through everything because of whatever didn’t get done. Friday is likely going to be the same order I enter on Monday or Sunday night, depending on whether I’m calling it into the desk. Sometimes I do that, but I very rarely execute things like on the keyboard, so then I don’t have to do a lot of modulation. I’ll think of creating the same list. If the prices are in the neighborhood of where my levels are at likely whatever, the orders that were entered on Friday and weren’t filled, we’ll also get entered again Monday.
Not all the time, but very close to it, close to all the time. Then what I’ll do is very quickly Sunday night is I will come back and do some review and see if there was any movement in things that where I didn’t have orders and then harvest more or by orders or moving my protective stops. So that way come Monday morning, I’ll have everything that carried forward from Friday as well as the new developments all on one piece of paper. Double check the math on everything. And then again, depending on how busy we are, call the orders in the night before for outcry only or just wait until very early Monday morning and call them in that way. That’s just my style. It’s how I do it. I’ve been used to doing it the same way for a long time. It works for me and that’s part of my ecology. Same thing for you is I just tend to try to be as prepared as possible because when I think of preparedness, right, we talked about that all wars are won before the battles are fought. Victorious warrior first wins and then seeks battle. My whole thing is to try to be as prepared as possible so that my instincts are as sharp as possible so that I can see things that I otherwise wouldn’t miss, that
I would’ve missed. And that includes stuff like being hydrated eating very healthy, having good energy that way, not jacking up on sugar or Coke or C, caffeine. I was going to say cocaine not during the week. Then there’s rest and sleep. I’m in la local stock market opens regular opening bells at six 30. Cocoa opens at five in the morning. So the idea is is that when you’re up that early, you got to be sharp. That means you got to sleep well. It also means I can’t and I don’t drink, right? I don’t drink at all. I don’t never really had a taste for it. Certainly in LA we’re all in cars driving around back in New York where pedestrians ha hailing cabs and going in subway trains. So you could drink then and not necessarily worry about it. But now even with Uber and Lyft, you’re still in a car.
But I just found that maybe I’m a lightweight, but I can still feel like if I have one drink, I can feel the effect of it the next day. And since that doesn’t help me trade better, I just have to make the decision that the night before doesn’t work for me. So I just try to keep all my faculties. Some of you going to sit back and say, what I need my beer at the end of the day, I need whatever, this and that. And so those are choices that you make. I can’t judge you based on that. I just know for me, it doesn’t parlay into excellent performance cause I feel sluggish, and that’s kind of how I build out my routine is I try to get some of the work done actually Friday so that I know I’ve wrapped up the week as best I could.
Leave it behind me, do a little preparation for Monday, and then enjoy some downtime with virtually no exposure to the markets or the data or anything. Say for a brief little window Sunday night to round out the research and the prep for Monday morning and then it’s all systems go and I have solace and I have self-esteem and I have the confidence that I did everything that I could for the time that I had to be prepared. And that’s the best you can do. That’s how you win the day. Then the second part of that is consistent behavior. So you just repeat that process over and over and over again over weeks and weeks and weeks, and you’ll develop a really good track record because behavior predicts where you end up. Anyway, it’s been a long week. I hope you had a good one. Hope you have fun plans for the weekend. Please like and subscribe to the show. I enjoy doing it. Happy to help you. Please leave a comment or suggest a topic. I’ll be happy to cover it. Have a great weekend, folks. I’ll see you Monday.
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The post Preparing for the upcoming week appeared first on MartinKronicle.
Hey everybody. Michael Martin, thanks for being here. Got a ping from someone about listing your best trades in your worst trades. And so ganja and I actually did an episode on that, talked about it. What most people think about is their biggest gain is that their best trade and is their biggest loss is at their worst trade. Not always right. Sometimes you could be in stuff and there’s just good news announcement thing blows up. You make a ton of cash for reasons you didn’t even know, but you’ll take it. Same thing on the downside. So when I think about this, and I certainly know after whatever, 30 something years of trading where some of the milestones are, they don’t have a lot of value looking back because you can’t sit there and talk about glory days, right? Bruce Springsteen sang song about glory days, it’s over.
It’s in the past. Doesn’t necessarily help you even trade here today in the ever-evolving moment of right now. So what I tend to do is not even think about that stuff because so much of it is good luck, bad luck, good timing, bad timing. My analysis is largely the same on every trade. And so what I do is I just try to say, okay, how can I perform consistently? And that’s really the message here, is that if you look at a bell curve and you say, okay, on this end of the bell curve is where your big losers are on this side of the bell curve, when you look at the normal distributions, where your outliers, your winners, your big winners are, when you think about everything within one stand, the deviation of the mean, that’s where the majority of your behavior’s going to come in.
And I know folks who’ve done very, very well just hitting it straight down the middle, right? So think about, I would let go of the best trade career trade kind of a thing because it’s a maturity thing. Let that go and fill your days with concern about can you behave consistently day after day after day after day after day, right? Because if you’re not running a systematized set of rules with a simulator that will help you calculate your orders and adjust your position sizes and calculate your entries and your exits, you’re a discretionary chart reader. So that makes it harder because every day you have to kind of think by the seat of your pants and go with what you think you know how to do. That might be a certain type of setup, might be a certain chart pattern. It doesn’t matter to me.
It’s all legit. It’s all works. But your goal is to obviously make sure that you find a set of rules with which you’re compatible. Those rules have to have positive expected value, and then to the best of your ability, screen the universe so that you know can put on those trades where you affect your edge each and every day. And if you can’t, you sit on your hands. That to me is the most important part of the trading, is your consistent behavior where the numbers fall afterwards to a great degree. We’re all powerless over that. So I wouldn’t lose a lot of sleep or fre about not having what you think
Is a career day or a career trade. If you’re in the game long enough, I promise you it’s going to happen. Don’t know where, what, or why or how it’s going to happen as I didn’t know it for me either. It just happened. And so focus on what you can do day after day after day and just stick to your knitting, because that’s really much more predictive for your career than any one particular day, even if you made a hundred percent in a day, right? So that’s it folks. Please like us, subscribe to the show. Leave a comment if you want, and if otherwise you can suggest a topic, I’ll be happy to get to it. Thanks very much for being here, folks. I’ll see you tomorrow.
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The post Why your biggest gains might not be your best trade appeared first on MartinKronicle.
Hey everybody. Michael Martin here. Thanks for joining the show today. So I got a nice email from somebody with expressing a lot of gratitude, which made me feel good. I appreciate that. Put a lot of work into the show. And the question was, can you elaborate please on what your take is on a person developing a feel for the market and how do you go about doing that? So that’s the million dollar question. Developing a feel is something that comes over time for most people. I do think that there are folks who are very insightful that can do it maybe more quickly than others, but it’s not something that I would think that you could develop over the, say, the course of a week or a month. It comes from a lot of time of observing, watching other people behave because that’s really what markets are, right?
You’re not really trading the instrument, you’re trading other people trading the instrument. So it’s kind of like poker on in that level is you’re playing the table as much as you’re playing the hand. So developing a feel, how would you go about it? So I think if you are on the short end of things and you’re day trading or swing trading, say stock index features, see the E mini or the Nasdaq, this and that, and you just focused on those two markets, I do think that’s the quickest way to develop a feel is by studying one instrument over maybe multiple timeframes every day. And just be prepared to do that for as long as you possibly can until you develop the feel. What’s the feel? I don’t know. The feel could probably be more like your sense of imagination, your sense of intuition. Can you foresee certain events coming to pass and then have them actually happen? So it’s not necessarily prediction, but it is anticipating how people are going to behave.
I have a good sense of knowing when to get out of a trade. It’s a natural ability. I was definitely born with it and I worked on it to hone it, to get it to be even better. So I was lucky in that regard. I needed to work on my sense of intuition, which is strong, but knowing how to hold the leash on that because your intuition could get you into situations that you don’t want to be in or that you could be early for. So then I had to learn to modify my position size because sometimes my intuition was right, but I was early and there was more volatility in the short run before what I anticipated was going to happen happened. And so I had to learn to better position size. So again, going back to why is trading difficult? This is all these moving parts that are in constant flux that you need to measure and interpret and conjugate with your emotional constitution so that you can set up a trading plan. I think if
You’re looking across many, many markets, say you’re following 2030 stocks for example, it might be something that you can do to develop a feel for a certain sector of the economy, maybe even a certain stock. But the more specialized you become, the more time it takes. The other side of that is the more you want to say be a sniper and have a developer feel for a certain market or a certain segment, you have to almost do that by forsaking everything else because there’s just not enough time in the day for you to be able to focus your energy on that one particular instrument or maybe even that one particular sector. So there are trade offs to be made.
I know folks who would get a chart book and graph paper and they would plot the price movement of the e mini on five minute increments. Now, of course you can get it all on the screen, but I have found that when you can take a paper to pen to paper, it becomes much more organic and it’s like taking notes. There’s a new form of ownership because how do people learn? There’s really three ways People learn to learn something, they learn it by hearing it, they learn it by reading it, or they learn it by writing it. And so I know reading is a big deal. Hearing it. Again, I don’t have media on, so I don’t let that into my world, but when you write that stuff out, you can kind of develop a feel that you wouldn’t get if you were just looking at the chart on a screen, for example.
So if you did that, you might notice that there’s certain tendencies. Obviously everybody, including my dead grandmother, knows that the open and the closed tend to be where there’s lots of volume. But then how does the thing behave during the day where the levels hold? And then think of those levels in terms of percentages. If there’s a big move up, how much does it typically retrace on a percentage basis before it kind of consolidates and then resumes the move. Those are all kinds of things that you can observe and see by hand and develop an enormous feel. I do think, excuse me, the more names you add to that list, it’s harder to develop that feel. It requires more work. I’m not saying that you can’t do it because I’m in no position to tell anybody what they can or can’t do, and my goal here is to help put some insight on some things, help you develop the confidence, because once you have confidence, there’s no stopping in you. So a lot of the work that we do on the consulting side is to help people see and feel and figure out where do they have skill so that they can focus on the skill, build confidence, then fill in the gaps with places where they might be lacking or they need to beef up a little bit.
And then once in a while, we do have to share some trading tactics but a lot of times the mindset work in a lot of ways has nothing to do with the trading ability. So having said that, I think it can be done. It just has to take, it takes some time. You can definitely develop a feel. I think one, another last thing that I’ll say is that if you keep some kind of trading journals, and I’ve got, let’s, well, not trade, I got journals for everything, but I’ve got one here, two here, I’ve got a third one here. So I’m a note taker. I’m a person who writes stuff down because even though I have a mind, like a trap, there’s a slangy expression out there that goes along the lines of a short list is better than a good a long memory. And so I tend to write things down.
It also helps me shape my ideas from over a longer term timeframe other than say something that I could execute right here, right now. So I feel in the end, you could definitely do it. Just know what the trade offs are. Also write down in those journals, what do you think you’re anticipating is going to happen, and then by when then what would you do as a trading tactic? How would you express that risk in your portfolio? Right? So that’s my thought. Please like and subscribe to this show. I appreciate all your comments and I’ll see you tomorrow.
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The post How to develop a feel for the market appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So today I want to talk about order execution. I get lots of stuff behind say, don’t mention my name, but I wanted to just tell you about this scenario that happens a lot. And of course I’m talking about what happens when you’re trading 10 or 20 contracts of a call or a put, and there’s a 50 cents spread in the option and it’s time that you want to offset the position. You bought it, now you want to sell it. So you put an order in right at the middle of the spread between the bid ask and it sits there. What do you do? So it’s a very interesting question because the way I look at things is if you’re fighting for an extra 10 cents, it might actually cost you more money in getting that fill than just getting out.
What do I mean by that? Well, for the options players out there, you know that you’re dealing with the volatility and the momentum so that the thing gets to a point where you want to take your profits. You almost have to put yourself in the mindset that you’re just going to get out at say the sell price and not even worry about trying to improve the price. Because when the momentum stalls and the security starts to go the other way, meaning the underlying market makers aren’t stupid, they’re going to sit there and they’re going to make you pay. And it’s not necessarily intentional. I don’t think they’re being mean. They just know the market. And if you got yourself in a spot like that where it’s time to move inventory, I would say just get out. Because if you’re trying to fight for 10 cents, you might see a 30, 40, 50 cent move in the option price just because the momentum stalled in the underlying. So it’s a little bit of a trickier thing that options traders have to deal with differently than say, stock or commodity futures traders who are looking directionally and kind of can get out super cleanly. The spreads are very, very tight in this bid esque spreads of course, but with options, it’s a little trickier.
It depends on the month if you’re going further out in the expiration. So you have all these things that make it not illiquid, but certainly not as liquid as if you were trading the underlying security, for example. So I wouldn’t get cute and try to fight over five or 10 cents on the trade. And if you do the math and you think about it like say you have a put one, one put or a call and you’re fighting for 10 cents, when you think about that, when you multiply it out, it’s not a lot of money. So you kind of have to think that with options especially, there’s going to be a different level of slippage or skid, so to speak, in around how you’re not able to improve your price. Now maybe, you know, have really good sense of timing and you can do that for sure, but just remember that there’ll be a time if you act too late, it’s difficult to maybe split the bid ask from the market.
So I would definitely look at that if that’s an issue for you, and be prepared to sell a little bit more sooner than later. Because once the market stall, in my experience, the folks who are clearing your trade on the other side or the market makers, they don’t have any incentive to help you improve the price when they know the market’s already turned. And that’s nothing personal. That’s just business because those market makers are paid out of a bonus of what they earn because they’re marking things up, marking them down when they move it from inventory. So you can sell, save yourself a lot of aggravation by just understanding the dynamic of how that works. And that if you constantly find yourself in a spot where you’re putting in those types of orders and you’re not getting filled, your instincts aren’t serving you well, you’re not getting your orders in soon enough.
So you have to figure that at the end of the trade, there’s going to be a little something that you’re going to leave on the table if you don’t improve your instincts to get out sooner, right? Because if you wait for the market to turn and then you put that order in and then you expect the market maker to split the bid ask you might be inviting yourself in for a lot of frustration. And the last thing you want to be doing, let’s face it, you don’t want to be sitting in a trade for 30, 45 minutes waiting to get a fill, right? Because at that point, when it’s time to take the profits, you got to move the inventory. So for me, if I had that much money in gains and I had carry in 10 or 20 contracts, I’d probably scale out a 10 at the market for sure and see what’s happening with the rest, and then if I can improve my price or what have you.
But you know, only make your money when you actually lock in the sale. So I wouldn’t get cute with that because depending on what type of price movement you’re looking in, the underlying, you’re put in a position where you might have to act a little sooner than you might want to. So that comes up a lot for folks, especially in options because the spreads tend to be very, they can be wide there, wider than in other instruments. So that’s what I’m saying is just be prepared for your order. Maybe sell half upfront and then see about improving the rest, break up the order, see about it that way, and just don’t start to freak out if you can’t get that filled because your timing might be off and you might have to anticipate a better sense of when it’s time to leave or move that inventory for you to lock in your profits. Anyway, appreciate all the feedback on the comments section. Please like and subscribe to the channel. I’ll do my best with all the questions and the comments. For sure. Thanks for being here, folks. I’ll see you tomorrow.
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The post Overthinking your order entry to your detriment appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. Thanks for being here. So Ganja tells me there’s a lot of emails asking about the program and the course with Victor Sprank. Is there any more information? Not really. I’ll try to reiterate what I know here. The big question is who’s doing the teaching? Well, he is right. That’s why it’s, it’s his class. He’s doing the teaching. I will be there. We have a good foil for one, another one and one equals three, where he’ll run the lessons and I will be there to help field questions and otherwise, there’s a few things that I’m going to teach, but the main material, the majority of it too, is being taught by Victor. That will include his proprietary trading rules that he uses himself. So there’s not too many people at his level who will come out and explain and speak exactly what they do, especially for the day trading community.
So if you’re into the short term stuff, the day trading, the swing trading, for example, this might be something that you could benefit from. I know he’ll be talking about his expertise in super low risk entries, how to look for certain reversals and trade off of those. Depending on what your core position is he is an enormous amount of experience with options. We’ll probably keep a day a watch list of things that meet the criteria so that we can kind of follow the program and the trading rules over a longer period of time. This isn’t going to be like a one day or a one weekend masterclass, whatever that might mean, where people come and pay a bunch of money for a couple of days and then it’s over with. This is going to be more of a longitudinal study to actually help people shape the rules so that they work for them, because every rule needs maybe a little bit of a tweaking so that it fits your personality, your temperament, maybe your account balance, your holding period, this and that.
And so that’s going to be all Victor teaching that. And then the follow up will be, at least on paper right now, it’ll be every other week. So effectively twice a month, we’ll have live calls with Meet you and Victor, following up looking and doing some postmortem breakdown on trades. What worked with it didn’t all this and that. Victor’s a Fed watcher, so I’m sure there’ll be some chatting about interest rates in the economy this way. And then using that as a global macro theme to kind of come down to see what you would actually trade, right? Because we have the confluence of high interest rates and still the threat of inflation plus in concert with the slowing economy and then all the interest rate stuff, and then commodity prices, and then
Cryptocurrency. So all that stuff will play a role in there and we’ll have lots of discussions. There will be, those events will be recorded, and then I will upload them into the cloud, into the membership portal that I’ve been maintaining. So folks can go back in and stream and watch. If they can’t make a particular call and in the event that we have to travel for client related stuff, we’ll just bump it a week and extend the program an extra week. The thinking right now is that it’s going to be roughly a full on 12 month program where you learn all the salient points of things very, very early in the program. And then the ongoing part would be more of the fulfillment, getting you in tune the ongoing coaching and the mentoring, and getting access to Victor and myself and doing a lot of q and a.
What are you looking at? You can send stuff in probably beforehand. It’s harder to do that stuff on the fly. But if you sent in questions about things that you were looking at. So I suspect folks who trade interest rates, currencies, stock index futures, whether it’s NASDAQ or the emen you could also do this with stocks and futures. So I think it’s a very well rounded program from what we’ve developed over the last eight weeks, and it’s going to be exciting. We’ve done this before, we’ve started doing them in 2005, but we did them in person, which was much harder, right? Because it was also more expensive because there’s lots of bills, there’s travel, there’s room rental, there’s all that. So this is going to be delivered online. So folks in any time zone can participate if they want. And like I said, if they have to miss, it’ll be recorded.
But this’ll be great because it’ll be real live examples from what’s unfolding in the market right now. And you’re going to get Victor’s insight on stuff. What would he look at? What would he pass on? How would he trade it? How would you position size entries and exits the whole kind of a deal and see his way of thinking? And then what we can do is tweak it so that it fits you right? Because it’s just like when you go to the store and you buy a suit. The suit might overall fit good. Say you’re 44 but the sleeves might be a little long. They have to be brought in, right? Maybe you want a cuff on the pant so you can do a little tailoring to the rules and create a nuance that’s appropriate for you. So we’re excited about that. It’s been a big hit.
Like I said, we’ve been doing it for over 15 years. This’ll be the first time that we do it online. So we expect to have a very eclectic audience of traders who trade many, many asset classes. How do you find out about it? Well, you can reach out via the blog if you want to be put on the short list, because this is not going to be like, it’s obviously out in the public, but we don’t want to make it 70 guys. So that’s too much to manage. So we’re thinking of keeping it to a smaller group just so that there can be more interaction between the participants as well as Victor and to some degree myself, and kind of keep it as our own little proprietary tribe, if you will of traders who are building their track record. They’re looking to get funded, or they’re just trading their own money and they want to have a really great life of running their own money and all the great liberties and freedoms that come with being a trader and a capitalist.
So that’s all I can tell you. As we’re sitting here right now the best way to know is to download the free copy of the audio book of the Inner Voice of Trading, and then I will most likely send out at least one email to give folks a head a heads up that there’ll be some limited spots open for this program. If it’s a good fit, it’s a good fit. If it’s not, then no hard feelings, as you know, don’t, I’m not a big emailer. If you’re subscribed, if you don’t have the audiobook, then you could just go to Martin Chronicle and reach out to me through the contact and we can have a conversation about it then. Anyway, that’s as much as I know right now. 80% of it, so is going to be definitely Victor teaching. I’ll be there to moderate and to chime in and probably talk about some of the mindset stuff when it’s appropriate to do so.
But this is a course that Victor’s going to teach. So thanks very much for your interest, folks. Please like and subscribe to the channel. Leave a comment if you want, and like I’ve said a few times before, if you want to suggest a topic, reach out and I’ll see what I can say about it. If I have anything, any experience, I’ll be happy to do to address it. Otherwise, I just kind of defer and say I’m an idiot. I’d be wasting your time. So thanks for being here, folks. I look forward to catching up with you next week. Take care.
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The post Victor Sperandeo’s new daytrading course appeared first on MartinKronicle.
Hi folks. Michael Martin. Thanks for being here. So I want to reiterate something, even at the risk of sounding something perhaps a little bit repetitive when you are in these systems and you’re trying to trade them, I would trade them super small at the beginning, maybe again for three to six months, just to kind of see how it works and how you can get your spirit kind of connected to your trading rules. There might be small tweaks to make, but I want to stress how important it is for you to trade the thing. Take your trades to have to discipline, to actually put on the trades. You don’t have to risk a lot of money, but the goal is to develop that consistency day after day after day. So that might mean putting on trades even when you’re in a drawdown.
So excuse me. So you might find yourself very frustrated. The pro trader is going to put on those trades no matter what. That frustration’s not going to get in the way of good discipline, right? Because that’s where behavior predicts where you end up. But I mentioned a few weeks back about keeping your draw down small. So I want to just highlight that again for five seconds. And that is whatever you don’t lose, you don’t have to earn back. So I like the idea of starting small and losing small bits of capital frequently so that when you add that all up, you’re still only down maybe one or 2% to your capital. That means you have worst case, 98% of what you started with. Now that doesn’t sound so sexy, but it does a lot for your mind because if you’re putting on those same trades with bigger risk units, you could otherwise find yourself down five to 10%.
Now that’s the point where you start to get and put more pressure on yourself financially. Why do I say that? Well, because at about 10% you need what? 10, 11% to come back to break even. It’s when you get between 10 and 20 that things get super dark and it seems to really start to accelerate against you. And you want to try to do everything you can to not even decelerate your draw down, but you don’t even want to get to the point where you have to decelerate it. And the only way that you can do that is to trade small, keep your losses small, and then when you find yourself in the draw down, don’t quit and don’t stop taking your trading rules and your signals, but take a haircut on your capital and trade it smaller. So that might, I know this kind of sounds crazy, but this is really how people manage their p and l really well is when they find themselves down, say one or 2%, they might start, instead of saying, I’m trading 98 cent dollars, at that point, I might start trading 80 or 75 cent dollars just to deliberately trade it smaller, to let the market and my trading style kind of get together and have some chemistry start to dig out.
You put up 3, 4, 5 winning trades, then increase your size back
Because the more you can keep that draw down low, I mean that to me is the Huges selling feature out there because you can lead and say, I do 26% combated annual growth rate, or I can make 20 times your money. That’s all great, but the allocator that’s worth his or her salt, it’s going to come and say, well, what’s your worst draw down? Why did it happen? How long did it last? What did you do? Did you change your behavior? So you’re going to find that people are going to more grill you about how do you handle those moments in time where you you’re not necessarily struggling, but you’re in that drawdown phase of your track record and everyone has ’em.
So those are very important questions to ask if you’re going to seek public funding. And it’s very, very important I think, for your mental game because you can trade like a banshee. Maybe you’re doing 20 trades a day, I don’t know who’s listening. It’s hard to tell. But if you do all those trades on and you’re only losing nickels and dimes, it gives you so much more opportunity to emerge from that quicker without having done any real lasting damage to your mindset. So whatever you do, whatever you system you’re trading, whatever chart pattern you’re looking at, whatever setup you’re doing, make sure you’re prepared, pref, preferably the night before, and know exactly where you’re going to get out and what the dollar values are. Me, myself, I double and triple check the numbers. Spreadsheet calculator, but then you do the phone execution. The folks can read the order back to you and sometimes find the errors too or if there are any, or just to double check the math. Anyway, please like and subscribe to show, and kind of keep doing it this way. And if you have any suggestions, throw it in the comments or reach out to me through the blog. You can also get a copy of the audiobook version of The Inner Voice Trading for free at Martin Chronicle. Go help yourself, and I appreciate you all being here. I’ll see you tomorrow.
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The post The importance of trading with smaller position sizes appeared first on MartinKronicle.
Hey everybody. Michael Martin, thanks for being here. I wanted to clarify and kind of add new information to an episode I’d done a while back, couple days ago and that is about system hopping and that when you get frustrated and you’re not getting the results, you want to try something differently because you’re desperate to win or you’re feeling strong feelings about putting points on the board. And that’s a tough spot to be, and I didn’t really gloss over it, but I did say that when you’re starting out, you don’t really know what your edge is, so you’re trying to figure it out. The thing is, is that you can jump the gun too quickly and abandon an otherwise good system because when you began trading it, it might have gone in to draw down right away. So this is another benefit of back testing, is that you can montecarlo the simulations and change the start date.
Think about it, and I’ve mentioned this before, suppose you sold a house, came in to say 500 K and escrow settled October 1st, 87. You put the money into the market crashes. Later that month, you’re down 28%, 30% on your money just because of bad luck. Now, that same house got delayed and it said everything cleared. November 1st, 87 market crash happened. You invested the money. Then if you kept it going to today, obviously the results would be very different because in the first instance, you start with a 30, 30% haircut, and in the second instance you didn’t. Now that doesn’t say anything about the rules of the system, it just is a function of bad timing. So when you’re trying to think about who do you want to choose as your role model, how do you want to trade?
You can overthink things and internalize the losses as your fault or your analysis when the reality is is that markets ebb and flow and sometimes your trading style is just not going to work with what the market is showing and vice versa. And so although you’re compatible with your system, it’s not necessarily compatible for that brief moment in time for the market. And so that’s where drawdown comes from because you have false breakouts, you know, have all these different things where you can put risk on, doesn’t work out. You take consistent small losses death by a paper cut, so to speak, and then you wait for the market to turn. That’s the mark of a waiting for that market to turn being in a drawdown that in some cases it could be six, seven months. Now those of you who are doing short term trading are like, that’s never going to happen to me. Well, I hope it doesn’t. But it doesn’t. Just because you’re trading short term doesn’t mean that that can be the case. So excuse me. So just be mindful of that. When you’re looking at the system, you’re looking at your p and l for validation that you’re onto something.
But what I’m saying is that if you’ve back tested the system and it has positive expected value, what you might see in real time from the marketplace isn’t necessarily going to meet your emotional needs because you might just be bad luck or bad timing where you know, get into trades that have small losses and you start off in a drawdown. So what happens is if you start to system hop and jump to another system, you don’t give yourself the opportunity to let that other system kind of kick into gear. And I don’t know too many people who can on a discretionary basis run several different systems. It is possible if you’re running a simulator where you can have, for example, it’s not uncommon for many pure system traders to have a longer term, maybe even a trend following system that could be say long only even.
And then they have a shorter term reversal system counter trend on top of it. So the net effect is that it smooths your equity curve. It takes out some of the bigger whipsaws up and down, for example. So it’s not uncommon in that environment to run a blended system, but that system is grown together, back tested together, run concurrently, and that was deliberate. That’s intentional. What I’m talking about is when you’re a discretionary chart reader and you think you have a trading edge and you’re putting on trades, but you’re in a drawdown and the results that you thought you would see from your hypotheticals or from what the other folks who boasted about the trading rules were telling you, when those results don’t show up for you, it can put you in a tough spot to both overtrade, take flyers, abandon the system, and try something differently.
And that typically doesn’t end up working out because every system, no matter what you do, whether you’re following certain chart patterns or whether you’re trading certain mechanical rules, every system is going to be subject to some type of a drawdown, right? So the question is how do you deal with the drawdown? Maybe we talk about that on another episode because it’s going to happen. And what you don’t want to do is let the results or what happens in your outside world affect your internal world. You want to actually start and ideate what your goals are. And we spend a lot of time doing this on the consulting side because people think they have goals. But when I listen to them, they’re absolutely not goals, they’re tasks. And it’s one of the reasons why people don’t have the success that they want in the marketplaces because they’re not actually clear about, not necessarily what they’re doing, but why? What are you doing it? Because it very rarely comes down to making the money, but you typically don’t want to look at the results
Of your and L in the short run, and I have that come back and say, oh, I have to adjust the system, I have to change this. I have to go the other way, or I have to create some kind of overlay. Those acts of desperation typically might maybe give you a shot of confidence in the short run, but they don’t typically pan out over say two or three days because you’re acting at a desperation. And that’s typically not, obviously not coming from a place of confidence. So if you’re going to run a system, then make up in your mind that you’re going to give the thing three to six months to play out because you just don’t know when you’re starting out anyway, where you are in the market cycle of things for your particular set of rules. Hopefully it’s good timing and you start making money right away, but that’s not always the case and we’re powerless over what the market does.
Just so just try not to internalize what your p and l is because those results might still be in model, even though you’re in a short or a small drawdown, which doesn’t feel good, you want trading profits because then it validates what you’re doing. Maybe it validates who you are as a person and you need that for your self-esteem. I get it. Been there, but just be mindful that the short-term trading results just might be bad luck by timing. Finally, I’d like to say make sure that when you are attempting to do this, trade it super small because in the beginning, you know, have a certain size grub stake, which might be hard to recoup. So I can remember reading stories of certain prop firms when they were starting people out and giving them live accounts. Their daily limit on their capital was literally 10, $10.
So it’d be like buying a hundred shares or something and risking what, 10 cents or something like that. So you know, can deploy that same type of B ideology in the beginning just to get all the moving parts going so that you can get comfortable with it. And if you do come into a drawdown, it’s not going to really hurt you. The key is to get to the point where you can execute that system period after period and do that consistently because consistency is what’s going to reward you, the discipline of that behavior, not necessarily the outcome of any one particular trade, unless of course you don’t put in your stops and you take a big hit. But normally those big hits are coming from trading too big rather than an outlier event occurring. Anyway, that’s all I have for you today. Please like and subscribe to the channel. Appreciate it and you can leave a comment if you want. I see everything and try to reply If you have any questions, if you’d also like to suggest a topic for the show, I’m happy to do that. And thanks very much for being here folks. I’ll see you.
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The post How changing gears can hurt you badly appeared first on MartinKronicle.
Hey everybody, Michael Martin. I got some great feedback from those of you who listened to How to Control Your Environment episode, and some of the feedback was really good. Some of it was good, constructive criticism, and one of the amazing things is like how do you control your environment when you’re trading and try to keep things peaceful in serene and still be in the zone? And my whole take is like, well, that kind of answers the question itself. It helps me get in the zone. If I have CNBC blasting every all day, or even on mute, there’s still data coming from that isn’t particularly helpful. So the way I look at the TV, for example, is that it’s like that annoying per, I’m trying to have a conversation with a person here, and there’s this one annoying person over here who’s getting under my skin or keeps interrupting me or otherwise.
So how do you put yourself in a spot where you too can actually have the TV off? Not on and muted but off. And I think that comes down to the quality of your preparation, the period before. For me it’s usually the night before again, because the markets I’m in, Los Angeles market’s open super early. I think it’s hard to be that sharp at 5:00 AM That’s just me. So I like to do my analysis the night before, write it all out, double check the numbers, keep the TV off, because I also don’t want, and this might be tough for the day traders out there because you’re looking for a catalyst. So the TV is a good spot because it’s a one-way conversation. It’s a lot of, well, I don’t know if they’re catalysts exactly right, but it’s certainly noise. It’s up for you to figure out what the signal is.
And I’m sure there’s a few of you watching who kind of know how to listen with a certain type of an ear to kind of hear the money. But for me, excuse me, I find it a complete distraction. And so I don’t even like to see the moving images or what have you on it because it’s data. I don’t think it’s information or signal for me. And so that’s why I’m able to have peace around it. I know many of you though, are looking for catalysts and don’t know where else to find it. So you have the TV on. But to me, I would say you have to find a better place to source your ideas. To be frank. If you’re waiting on news headlines I guess you can surely develop a skill. But then the problem is that how do you get away from that? How do you get away from the TV and your screen and make money? You see what I’m saying? Because if you did it my way, you know, could put in your stop orders and then turn everything off and then let the market come to you. There’s really no reason to sit there all day. It might feel good. You might feel like you’re in control, but I don’t feel like you’re actually in any more control than I would be. So
Two, I set the ringer off on my portable devices, smartphones, what have you. I don’t need people checking in with me. I don’t find it flattering if people call or text or do whatever to ask me my opinion on anything in the markets because it’s like, what the hell do I know? I know what I know and I know how to do it. How that relates to anybody else, I don’t know, might be interesting. So I don’t typically want to have folks calling me during the day, which could also be a problem for clients because they might want to chat about the markets. How are you doing? Why are we in this? Why are we not in that? And I just don’t like having those chats, so I don’t have those people as clients because I don’t really want to talk about the markets at all. I don’t find it entertaining or informative or anything like that. Don’t, there’s really nothing that I could learn about myself from someone else as it relates to what I should be doing right now. I’ve got a pretty good lock on that. So I think it depends at the end of the day, what level of peace that you want. I don’t want a lot of outside stimulus coming in because I just need to focus right here. And so
Whether it’s going to the tweeting platforms, some of the discords, having the TV on, you’d mean there’s just so much extra out there that you can block out and retain all that mental energy. And I think we also talked about mental capital and all of that’s kind of tough. Everyone has a certain amount of energy that they can go through their professional day with before they start to need nap or have to take a break or walk away. It’s hard to be intense for 12, 15 hours a day. You typically need some cool downtime. So one of the ways that I can modulate that for myself is I just don’t let a lot of noise in, so then my brain doesn’t have to process stuff that has nothing to do with my risk management. You see, and I find there’s a lot of solace in that.
There’s people out there listening to this today that’ll be like panic struck. What are you talking about? I can’t trade without having a TV on. I can’t trade without real time quotes. I can’t trade with one minute bars. Well, you probably could if you would just take the time to train yourself. You probably don’t want to, which is the issue in and of itself. But then the question becomes, how much of your environment do you need to control? I like to have a lot of peace and a lot of solace around stuff. I don’t need excitement. I don’t need high energy. I don’t need music on in the background. I don’t need to love myself with food. I just want my space and I want it nice and quiet so I can think.
And if nothing else, when an order does get filled and they call me with the fill prices, I can think clearly and know how to put on my stops, my protective stops without making any errors, right? Because that’s another part of this is that if you have so many distractions going on, sometimes you make a boneheaded mistake. Could be fat fingering, a ticker could be doing the same thing with your keyboard when you’re entering in a price and all of that stuff is avoidable and it’s all the trader’s own fault. So that’s just my 2 cents. I might sound a little puritanical around it, but I’ve been around enough to know what makes me tick and what I like in and around my environment. Then when there’s times when the markets are closed or I have no positions on, then it’s a different story. But I just want to have all of my faculties focused on one thing, and I don’t want outside distractions to kind of get in my way or start up my thought process going down a rabbit hole because something came across the tv.
The opportunities that I see come from my analysis and the work that I do at night and the preparation before. Some of you might do it differently. You might like to do it in the morning, but then again, what happens if you’re 15 minutes before the market open and you don’t have any ideas? Are you going to force trades? That’s kind of why I like to do it before, because then if I know where my entries are, and I know it’s like say you were taken, I know where my levels are, but the price in the current market might be quite a bit of ways from where my levels are, where I would want to get involved and ed or remove the risk. And so on those days, there’s really nothing to do but sit on my hands. So I like to know that the day before, I don’t, I don’t want to wake up.
I mean, it’s not that I don’t want to, but it’s a lot better for me if I know the night before that the next day is going to kind of be light. Because then I could say, okay, well how can I reallocate my time, do more research, do some different back testing, right? Use my time productively so that all comes down to it too. So controlling my environment impacts my time blocking and how I control what it is that I do during the day. Anyway, I appreciate your feedback. Please like and subscribe. Maybe leave a comment if you want, and if you want to suggest a topic for the show, by all means reach out. If I have something that I think I can say intelligently about it, I’ll be happy to help. If not, I just kind of say I don’t have any experience, so I don’t know what I’m talking about. But any rate, thanks very much for being here, folks. I’ll see you tomorrow.
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The post Studying the quality of your prep work appeared first on MartinKronicle.
Everybody, this is Michael Martin. So another thing that happens that doesn’t get spoken enough, spoken enough about is your environment. And that can be anything that you can pick up on your senses. It could be things that you see, things that you hear for sure. It could also be you have a neighbor who likes to cook, so you’re constantly smelling things that they’re out on the barbecue. If they’re grilled onions or steaks or chops or whatever, you know, can smell that. That could trigger a response perhaps even subconsciously. So what I like to try to do is I know that I don’t want to hear other people talking when I’m trying to be in the zone, especially when I’m doing my preparation. I don’t want music on, I don’t want the TV on. I don’t want the TV on muted. I don’t want to hear any or see any other type of stimulus than what it is I’m trying to focus on.
That’s puritanical. I understand, but that’s just how it works for me. I grew up playing guitar. I’ve been playing for almost 50 years now. So I don’t need to hear music to take me in a different direction. I don’t need to calm myself or love myself with music. I don’t need a fucking diet Coke sitting here. I don’t need to love myself with food. I’m just trying to zone in and do my research so that I can be prepared. And I know what that feels like. I know what it is to do it, but I know what it feels like to have done a thorough job and to know that I come into tomorrow with the peak confidence. So that’s what I mean when you say, I say control your environment. If there’s a person who talks too much because they’re a nervous talker, tell ’em to shut up or find another spot, right?
Because that’s how I’m built. As you can imagine. I don’t make for a great employee talking to people that way. So that’s why I work for myself because I don’t want to have to take into account what somebody else’s needs are when they’re trying to do their research. It’s none of my business. So I just know that I’ll be as amenable as possible to make sure that I don’t encroach on someone’s boundary to adversely affect them. But in the same breath, I do a lot of work to make sure that nothing infiltrates my space when I need to do that preparation. Because in my way of thinking to me, the preparation is the key to all of my success. It’s not sitting there and watching a level two or watching time in sales. I know people like to do that. I just don’t see the wisdom in it from my style. So I’ve created an ecology and an environment for me that helps me thrive. And I control that and watch that with great discipline unto itself. And no one gets in the way if someone says, Hey, I have to talk to you. And I’m the same way with the things that I’ve taken on in my life.
So for example, every night, except for Saturday, because the class is in the day, I have Jiujitsu class at six o’clock, and I don’t care who you are. I don’t care where you live at six o’clock Pacific time, I’m in the GH and I’m in my class and I’ve been doing that six days a week for five years and nothing gets away. Someone says, let’s go out for a drink or say, I see you at seven 30. I don’t drink, but I’ll meet you. I’ll meet you out at seven 30. Can’t do it. And Saturdays, the class is at 11 till 1230. And so then there you have it. But most weeknights, I can’t meet you for dinner, can’t meet you for drinks unless I can see you at seven 30 because nothing gets in the way. I don’t book calls, I don’t take calls.
Not from anybody, not from prospective people who want to work with me, not even from existing clients. So I lock in that time and I protect it. I actually put it in my calendar six every night, 11 o’clock on Saturday so that there’s nothing that gets in the way of the things that I need to do to have a good life and hit my goals. So the same thing comes down when I’m trading or when I’m doing my preparation for the next session and I’m looking at everything and I got a lot of stuff to go through. So we have systematized stuff, we have screeners, but then all that stuff has to be broken down. Then we have to compare and contrast and make sure that we are not getting style drift where you might have anything where you’re on the same side of the trade, whether it’s a directional trade and an underlying stock, or whether it’s an option strategy with that particular same underlying stock, or if it’s a multiple option position, like a spread for example, or a broken wing strategy.
Using options on that same underlying. So net, when you look at all that stuff, you have to say, okay, well what’s your net exposure? What’s your portfolio heat? Which is something I spend a lot of time on. What’s your portfolio heat? And then with the futures, it’s the same thing. You might have trades long and short in a particular commodity, but then you have seasonal spreads. You have things that most people don’t know how to look at. So we look at that as well. Cause it’s harder to systematize. We’re kind of systematizing it more and more. But it’s harder to put three different evaluation tools together when we don’t own them and then bring it all into one place. So there has to be a requisite amount of work on my end to kind of pull that all together. But again, excuse me, when it comes down to my environment, I need to keep my environment as clean as possible because to me, where I perform, I don’t worry about the execution because that’s easy. You type in, it’s basically sending an email. What’s the ticker? What’s the quantity? What’s the price? Time enforced, good for the day, good to cancel. So it’s like sending an email. You get the recipient, you get your subject, then you get the body. Maybe there’s an attachment, three or four
Fields hit go motors in. Nowadays you can adjust your stop by just dragging something on the screen. So it’s easy peasy to me. The work is done in the preparation. That’s where you’re culturing your pearls. And so when I get to doing that work, that’s where I don’t want to be involved. And I actually used to wear, this is the funniest true story. I have lots of different headphones and things and earbuds, but one of my earliest pairs of bows, quiet comfort, noise canceling headphones, I’d actually put them on, turn them on, but without the cord, right? Cause at the time, they weren’t Bluetooth. You had the damn cord that would come in and put the jack in your device. So I just sit there for the noise canceling part. Cause I didn’t want any background noise to infiltrate what I was trying to do to work on.
So they call that focus man. That’s extreme focus. So you should do everything you possibly can to protect that space because that has a lot to do with the level of the quality of work that you can do within that timeframe that you’ve set out for yourself to be prepared for the next day. If you turn that into a fuck all, then so be it. But then you’re going to get those types of results. So draw really good boundaries with yourself and don’t give yourself permission to let any idiot come walking through your space because that’s when you have to be your most focused, right? Anyway, please like and subscribe to show. You can send a comment in. I appreciate that. I see everything myself, and if you want to suggest the topic, no problem. I’d be happy to address. Unless as long as I have something intelligent to say about it, I can give you my take on it. Or maybe where you can find a more resourceful answer. Happy to help you. Either way. That’s all I got for you folks. Have a great weekend and I’ll see you Monday.
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The post What’s happening in your environment? appeared first on MartinKronicle.
Hey everybody, it’s Michael Martin. So with all the stuff that we’ve been speaking about, the feelings that you do want to feel, the feelings that you don’t want to feel, you can imagine there’s a committee in session in some people’s minds, right? So when you’re looking at trading and your preparation and your research and how you have to get all this stuff done, you also actually have to build in time for escapism. You need to be able to get away from the market and conserve your mental capital because the minute you start to go downhill on that, the trading stuff doesn’t typically get better. Your tradings tends to hurt and get hurt, and it kind of sucks away from your ability to perform at the best, at the best of your possible ability, at the best of your ability. So just one second and then you’re depleted and you’re trying to do something that’s super stressful, super hard, but in a mindset that you don’t have the mental energy to kind of stick with it.
So there’s a very delicate balance of wanting to work hard and also to work smartly. Take your time and make sure that you plan in time to get away from everything. Doesn’t matter whether you’re new, doesn’t matter whether you have 15 years of experience. Find something to do to get the market off your mind, get your mind off the market and preserve your mental capital, because once you get burnt out, it’s awfully difficult to play catch up ball in and around that space. Anyway, short lesson. Maybe I’ll talk about it more tomorrow, the next day. But again, you have to be the steward in the century of what you let into your brain that might include people and otherwise, but take care of your brain, take care of your mental capacity so that this way you can always perform at the highest level. Thanks for being here, folks. Please subscribe and like the show, subscribe to the channel. Consider leaving a comment if you’d like to have a discussion. And if you’d like to, of course, suggest a topic for the show, go reach out through the blog. No problem. Leave a comment and I’ll try to address it. Thanks for being here, folks. I’ll see you tomorrow.
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The post Is your inner voice undermining you? appeared first on MartinKronicle.
Everybody, it’s Michael Martin. Thanks for being here. So I get a lot of emails from folks who are frustrated about what they’re doing, and they’re ready to throw in the towel and shape and turn things around. They want to fix things. They get frustrated that they’re not making money. They put a lot of faith into a certain technique or chart pattern, did a little okay, but in the end, it doesn’t leave them fulfilled. They’re not making money. They’re frustrated, and even in a short window of time, like a month, they’re ready to change gears. And so you have to understand that when you change gears, you’re kind of getting the worst of it. One of the things that Michael Marcus showed to me is that you could find five, we named five great traders that we knew who were all legendary. And we said, okay, imagine if you could trade like any one of them.
The idea was to find one role model, and certainly he was a role model for me. But then the next would be if you wanted to trade like Ed Seko Monday, Michael Marcus Tuesday, Bruce Kaner Thursday, you would effectively get the worst of all of them because what happens is everyone has a certain style that’s unique to them and is unique to yours. Yours is as unique to you as your fingerprint. And so what happens is every style of trading will in fact, in fact, have a drawdown. What’s random when you look at the simulators is the start date, a lot of them will default to January 1st. Well, guess what? That’s not the first day of trading for a lot of people. When’s the first day of trading? Well, it’s probably the second day or the day that the account is funded. So that could be June 13th, it could be August 2nd, it could be September 25th.
Doesn’t matter what it is, but you’re not going to typically trade on a calendar year basis. So with each of those styles and techniques and tactics and emotional intelligence, each of the people might have drawdowns that occur at different periods of time. They might have different magnitudes. They obviously all know how to make money because they’ve done, but the idea is that if you’re going to try to do that, you really have to pick one and stick with it. Why? Well, if you remember, there’s a paper out there that I think Tom Baso wrote that said you how you want to buy a CTA when they’re in a drawdown, because that’s kind of like pulp buying on a pullback. If you have a commodity trading advisor or anyone for that matter who’s trading a purely systematized, not a single discretionary trade in that system, look at what happens. You trade it, markets are amenable. You harvest some cash markets kind of turn, you still follow your rules. You could get into a drawdown, right? But then you recover. So when you think about it over a 20 year period of time, you’re going to have an equity curve where there’s spikes, trust, spikes trust. And then basically the idea was that as long as the manager followed his or her or their rules day after day after day,
You actually buy the CTA on the dip because you know that the drawdown is within model. Hypothetically, anything that has a 20 something percent compounded annual growth rate is probably going to have a 20% drawdown, certainly 15%. So then you have to say to yourself, okay, if the manager’s in a 10% drawdown and they’re purely systematic that we know in model that it can get to 2022, they’re down 10, the average is 15. You could take a flyer and invest money with that CTA while they’re in the drawdown because the recovery part is kind of on its way the bottom of whatever that drawdown is. The problem is, is that if you’re doing everything on a discretionary basis and one day you want to trade like Tony Saliba and do options and butterflies and broken wing strategies, no problem. But then the next day comes and you want to trade your half a million dollar account like it’s 2 million because you’re afforded four times leverage with day trading, buying power.
That’s a different mindset. And I’m not saying that you can’t get there, but that’s years of training and mental preparation and insight on the marketplace. So I think if you’re going to system hop, which is a way of saying, I’m going to trade different styles and different techniques, at least at the beginning, you’re going to get the worst of it, not the best of it. It might seem like being flexible is a good thing, but what ends up happening is you can’t predict where your trading style is in the market in an ex anti, excuse me, in an ex post after the fact kind of understanding. So the only way you can do that is to actually put the trades on now would take a special type of intelligence to understand when someone’s model is going out of favor. And that’s probably not a skill a person has within say, the first three years.
Maybe there’s a super sensitive person who has great feel could be the case. In my experience, those people are very few and far between. How do I know? Well, because I’m one of those guys and it still took me quite a long time to eliminate the garbage that was taking up my energy and my time so that I could focus on doing one thing and doing it very, very well nowadays. Yeah, okay. You might be able to shorten the curve because when I started, there was no internet, there was no wireless technology, there was no discords cords.
Anyway, that’s the world that we live in. You get an 18 year old kid who doesn’t know, was asked in the hall of ground, have 90,000 members in a discord, and you got a guy with 35 years of experience of knocks, and you can get 1300 followers on your channel. So that’s the way the world works. So my thesis is pick one thing and get really, really good at it, and don’t start hopping from system to system because you get discouraged. How do you know? Well, you got to look inward. You know, really have to look inward and think, did you give the system or the rules that you had wanted to trade the at first?
Did you give them enough time? Because just because you went into a drawdown doesn’t necessarily mean that the rules are crappy or that the system isn’t worth following. We talked about that, right? Someone comes in, they don’t do any research. They come in, they put 25% of their countdown on one name, they make a bunch of money, and they’re like, straighting, easy when they just got rewarded for what we would call bad behavior. So it’s possible for you to do hours and hours of work and preparation and put trades on and finish the week down one and a half percent. That doesn’t mean it’s not a system to follow. That’s the hard part. So you really have to investigate and manage your own expectations when you look at what’s, what is the behavior that went on with that system. So those are my two thoughts. Don’t want to go on and on and on, but there’s a lot of ways to look at it. This is certainly one way. There’s probably others. Thanks for being here. Folks. Please like and subscribe. Do you want to take a minute, leave a comment. That would be helpful. If you want to reach out through the blog, you can also suggest a topic that I’ll cover here in the future. If I think there’s anything I could say that’s halfway intelligent, that’s worth your time. Thanks a lot for being here, folks. I’ll see you tomorrow.
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The post When you change gears for the worse appeared first on MartinKronicle.
Hey everybody. Michael Martin. Thanks for being here. So one kind of theme I get in many of my emails is around holding periods and the uncertainty that goes with that holding. And that’s tricky proposition, right? Because you have to feel all kinds of feelings that you might not feel comfortable feeling. So let’s use the concept of R, right? R is your risk unit. It could be a dollar amount. I tend to use percentages, but you can do what you want and say that you risk one R. And whenever you are up three R, you are lifting the trade you’re going to offset. It could be day wise, could be several days like a swing trade, maybe it’s longer. But the idea is is that you’re probably on the shorter end of the holding periods, maybe intraday to one or two days, and your goal is to try to hold the position longer when it’s winning.
So tactically there’s a couple things you can do. Very simple. That is as the thing moves in your favor, you can adjust your protective stop. You could do it several ways. You can set it up so that you trade with a trailing one stop, no matter where the top tick might be. In the near term, you have a one R stop below. As the market moves, you could do it manually and way to couple of one R in the money, even though three R might be your price target, so to speak, or the level that you’re going to be looking to remove risk. And so once you get to say one R of unrealized gains, you can adjust your protective stop and move that to break even. Some people like to call that a free trade. I myself do not, but I understand why they say that at that moment in time you could also sell piece of the position so that you locked in a profit and if the other piece comes back and knocks you out, you get that that is a break even.
So you can do nothing necessarily then make money on that trade. But since the question starts with how can I hold longer, I take that to mean how can I hold my position longer and make more money, right? Because why would you want to hold a position longer to invite the propensity for the thing to move against you? It wouldn’t make sense, right? So I can only assume that that means you want to hold the position longer so you can make more money, which is what you should be thinking. And so aside from the tactical things that I just mentioned, which I don’t necessarily think and terribly new but they’re effective, you have to remember, I’ve mentioned this before, if you have it set up in your mind that whenever you have an instrument that you’re trading, could be a stock, could be futures contract, and you get to plus three R and no matter what, you take those positions off and you remove the risk like clockwork, you guarantee
That you’re never going to have a five R or a 10 R trade. So just be mindful of that. It’s stunts. You are taking profits even at three R, someone who’s a smart alec can come back to you and say, Hey, you’re let taking your profits too soon, even at three R. And so you remove the possibility to have that outlier move in your favor. Now, if at one at R of profitability you decided to remove half the position and keep the rest, then maybe you let that grow. But just be mindful of your behavior is that there’s nothing wrong with taking your profits at three R, but just realize what’s, what does it do for you? How does it serve you? Because there’s pros and cons to it. So one thing that you can do that might make sense for your style of trading, since there’s a million different people watching this show here, is to go back and look at just even the last month or two, if that’s your style, to kind of day trade, swing trade and remove everything at say three R.
Go back and say, look at those names that you had been in that you took off profitably at plus three R and just see where it went the next week, the week after that or what have you. So we’re not saying that you can be a day trader and hold overnight or go intra day and then all of a sudden try to hold something for two weeks because it’s probably not congruent with your personality. But you could certainly learn a lot because again, the feelings that you don’t want to feel have as much control over you as the ones that you do. So what happens at three R, you wake up and all of a sudden you’re like, oh my God, the thing’s going to go back down to my entry point and my three R of unrealized gains is going to go away, will go away.
It’s not terribly logical or practical, but if you’re in fear of letting your winners go back to zero, I guess that’s a feeling. In my experience, it doesn’t typically happen that way. But again, if you’re trailing your stop all along the way, the thing could reverse on you very, very quickly and you can still get out. Heck, you could set it up so that once you get to one R in profitability, you could trail with a half an R, right? Trailing stop. So there’s a million ways to kind of carve it out and get the technology to work for you so that it does it automatically and you don’t have to worry about it because ultimately you don’t want to burn yourself out mentally when you’re in a winning trade. So for a lot of people, they talk about the pain of winning, and this is the toughest trade is how to take profits. So what I would do is go back and look at the past two months or so, or even the past year, depends how much time you have, depends on the relative strength of how you want to look at this and get your answer. And that’s really very personal decision. But you might be able to see that we’re not every time, but maybe 10 or 20% of the time when you lifted the trade at three R, it in fact went to five R or plus
Now certain simulators out there that when they show you this simulation, they can actually break it down and show you the bell curve of the distribution of returns on a per trade basis and then group them and show you that yes, the majority of them kind of hang out by the mean that are minus a half a percent or whatever your main stop is. That’s going to see a lot of activity on your losing trades so that your winning trades might be anywhere from lose a half percent all the way to make 3%. You could see that’s going to be probably the biggest area under the bell curve. And then as you look at the outliers, you should have a short one on the left side because most of the time you’re going to get stopped out. So there’s no real reason for you to take a 10 hour loss unless you were trading way too big or there was a gigantic gap against you, which will happen one in 5,000 trades.
Not anything that I worry about and I’ve been trading a long time. So then you think, okay, I just want to extend my winners. Why? Well, because I’m already in the winning trade, right? I did all the hard work, I did the analysis, I got my entry, I got my position size right. Now it’s making me money. How can I learn to be more abundant and let the market do the work for me? So the best thing that I could do is treat every day it’s a new trade. You wake up, there’s the open, you’re up 50 cents. Okay? So that’s your entry on the day. Where’s my risk? It’s going to be based upon what am I willing to risk out of my unrealized gains in order to stay in the winning trade? Now, sometimes you might get, might get knocked out at two R, sometimes it might move up, you get knocked out at four.
But the idea is that you’re in the winning trade. All you have to do is kind of sprinkle it with a little water, fertilize it, and let the thing go. Now, maybe that’s with a whole or part position, but that’s one way that you can train yourself to hold onto those positions. Maybe consider selling half, raise your protective stop to break even, and then let the rest of it run so that you might have like a 5, 6, 7 R trade on half of your original position and try that for a little while and see how that feels. And then learn to hold them longer. Because there’s nothing wrong with taking profits on the day, it’s just that tomorrow you have to recreate that whole process. And that’s a lot of work. It’s a lot of mental energy. And in my opinion, if you’re in a winning trade, there’s nothing that says you can’t extend that trade and hold onto it as long as it’s making you money because you get paid to have risk, right? Overnight and over the weekend tend to be very important times. If you have risk premium in your portfolio, you get paid for it. So try those two examples and see if they fit. If it doesn’t get back to me and I’ll see if I’ll, I’ll come up with another idea. Anyway, please like and subscribe. Consider leaving a comment. I see everything myself. It gives me good feedback on the contents of the shows. And if you’d also like to suggest a topic, I’d be happy to listen. Thanks very much folks. I’ll see you tomorrow.
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The post How to study your feelings around uncertainty appeared first on MartinKronicle.
Hey everybody, Michael Martin. So I got another great ping the other day from via email and said, you know what, Mike? I was reading and listening to the audio book version of the Inner Voice Trading, which of course you can get for free at Martin Chronicle. I said, can you talk more about compatibility? Because that really could mean a lot of things to a lot of people. So I was like, okay, compatible kind of means compatible. But I can try to break that down and talk about that as it relates to your trading rules and this and that. So first of all, trading rules, trading system trading tactics. In a lot of ways, all of that stuff is kind of equal because it becomes you have to operationally define what you need that because there are some folks who run simulators and that’s what they do.
They just trade data comes in, they hit go, the engine spits out the orders. So there’s discipline involved for the work that has to be done. The calculations are done by the machine. There’s no questioning or overriding of the system. Those orders go in. So that’s one process. Reading through a chart book could be your own, could be one you subscribe to, certainly is another way. You need to use your discretion as to when you would get in or what your prices would be, this and that. So that’s another style. Then there’s the screeners that you could use. Could be something at bar chart or finance. There’s Market Smith. There’s a million of them out there. I don’t have a preference. I don’t typically do endorsements, but so that’s another way to kind of screen. Then you have to again, go through the process of making that decision.
And so ultimately people tend to do that and migrate towards the parts of them that feel good. We’re pleasure seekers, so we want to do things that make us feel good. Compatibility, meaning, you know, can get along with another person or another process or something like your dog or whatever. I don’t know. But the takeaway from me on that, when I go back to using that as a say, the thesis for my book, is the goal for the traders to develop a system with which she or they are compatible? No, that’s not necessarily intellectual. So compatibility is a feeling tone. I think I use that expression a lot. It’s like in music, in study jazz, there’s 12 chromatic notes. You could play pretty much any note over anything. The question is, is that tone compatible with where the rest of the song is going at that moment in time?
And in jazz, there’s kind of like no mistakes because the improvisation, you can look at it and say, okay, well he chose that number because it was shocking or because it fit in, or he did it the way he bent the note or the way he sustained it or the way it was played softly. So there’s all that little nuance and I think that nuance comes into compatibility. There’s parts of your process that you probably really like. There’s other parts that you know have to do so that you like them because that’s what pros do, right? Yesterday we talked about the feelings that you don’t want to feel, right? So that’s compatibility too. You’re compatible with not wanting to do certain things, but that might be biting your nose to spite your face, to shut you down. So when I think about compatibility, I’m not thinking about whether someone’s a straight out systems trader or whether someone is a discretionary chart reader.
Those are both two approaches to the markets. Neither one is better than the other. There’s one that’s best for you, but there is something about either of those processes that you might gravitate to if you’re a person. For example, and this is not scientific, but I’m giving you an example. If you’re a person who likes doing like sudokus or crossword puzzles or things that you have to figure out, you might be inclined to look at chart patterns to figure them out in the same way because of the feeling that it gives, you have a sense of accomplishment, for example. So it’s not just economic utility or pleasure. There’s a sense of achievement in that you were tested and that you satisfied the crossword, for example. I think when you look at stock charts, it’s something similar. You are looking for opportunity, you’re being entrepreneurial. You like the feelings of carving it out of stone and creating an asset out of thin air, making money from say, trading.
So I feel the compatibility when you’re looking at it, I think it’s more feelings and emotional and psychological based than it is necessarily intellectual. You have to understand the intellectual aspects of what’s going on, but it’s compatible with you because of your emotional constitution. Does that make sense? So there’s some folks who are like, yeah, I’m really bright. I’m really well-read, but I’m not going to trust anything other than the computer to do all my research for me. I’m going to take myself out of the equation. I don’t want to become emotional. I’m like, become emotional. I think that’s great. Anyway, fe for some folks, that’s not the way they want to approach the market, but whatever. I’m not here to judge the process. The key is to do it and to repeat it and be consistent. That’s when you’re onto something. So keep that in mind that I think the compatibility part is more of a feelings based thing, rather than having a judgment on saying discretionary chart reading is better or worse than, say, building a completely mechanized system through like a simulator and running your business that way. I don’t think one’s better than the other. I’ve seen both work very, very well. I’ve also seen people fail at both. I’ve seen people go out and buy simulators and the data and run the system and see that it has positive expected value, but they can’t find a way to pull off the trades. So again, you know, have to figure out what’s best for you. Just make sure though,
You go back to the other thing that I’ve said, and that is we don’t get paid to know stuff. We get paid to execute. So when you think about compatibility, there might be things that actually feel good, but if they don’t make you money, then you’re going to have to pivot. That might mean embracing feelings that or some of the feelings that heretofore you haven’t want to feel. Does that make sense? Because you have to measure your progress and we get paid to execute. So you don’t have to necessarily do it on one particular day, but you do have to conjugate what’s your process versus what the results are. And I typically don’t focus on the p and l because you want to focus on process. If you’re watching your p and l all day, I think that can kind of distract you and make you nuts.
The key is to stay in the process, follow your process, and the results will follow. Might not happen on the day that you need ’em or want ’em to, but they will happen. I think though, in conclusion, you can kind of see how the compatibility part is more about does it jive with you as a person for who you are? And so chances are there’s not a lot that you need to necessarily learn to make it compatible. You kind of know ahead of time based on how you’re built and what it is that you like to do, whether or not that that would be a process or a system that you could follow, add infinitum. Anyway, please like and subscribe, leave a comment if you can. I’ll respond to everything. That’s how I learn and shoot over any type of topic you’d like me to cover if I haven’t already done it. Happy to look, thanks for being here and I’ll see you tomorrow.
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Everybody, Michael Martin. So I got a great email from somebody who wanted clarification on something and it was on a line that I use a lot, and that is the feelings that you don’t want to feel have as much control over you as the ones that you do. Now, I didn’t come up with that line. I’m certain it was probably Ed Seko or somebody along those lines, but it struck me as something that makes a lot of sense. And the question was like, can you explain it a little bit more? See how does it manifest in someone’s day? Well, I know somebody who likes the action of the markets, has a good feel, but doesn’t like doing all the front end work, which to me is really the trading part. The trading part is more about preparation. The execution can be automated or delegated. So to me, trading happens when you’re doing your research and you’re getting prepared for the next day.
That to me is where the money is, and he doesn’t like that part of it as much. So he constantly finds ways to kind of say, well, I’m going to allocate from five to 8:00 PM or six to 9:00 PM every night and look at my charts, look at my setups, look at whatever, and there’s always a ballgame on or something to distract him. There’s phone calls coming in, he’s getting pings. And so what ends up happening is the quality of his work is low because he is not focused. So then what happens is how does that play out? Well, the feeling of the feeling that you don’t want to feel has a big impact on you. He doesn’t like the feeling of missing out on the game. He wants to see the action. He wants to be able to talk with his friends about the game, doesn’t want to miss any very important text messages or dms or pings that you get.
And so he lets that into his world. So the quality of his analysis is lower than it could be if he had put his full focus in. So then what happens is the next day, and it doesn’t happen day after day, but there’s oftentimes days that’ll go by where there’s a lot of stuff that’s right in his wheelhouse that he missed out on. So then what happens? He gets frustrated. So now you have a situation where because of the reluctance to do the work on the front end isn’t getting done that the payoff, the emotional payoff for that is frustration. Now for other people it might be anger, aggravation, who knows? Doesn’t matter to me what it is, but it could be anything that evokes you, a strong feeling that you think you don’t want to feel. So I went back and I said, I think if maybe you did, you’re in California markets close at right around, well now it’s about one o’clock when I’m recording this. So the markets close locally at one. A lot of time between the close for equity markets, some of
The futures markets are already closed, but you have so much time, you could go grab a bite, go for a walk, take a quick power nap, come back here at two o’clock, come back to the desk, and then still have a couple of hours to do the preparation for the next day long before it kind of gets to that five to six so that he can have the best of all the worlds. But the way it’s set up right now is to frustrate the guy to miss opportunities. So I’ve missed plenty of opportunities. It’s not the end of the world. What you don’t want to do is make it a habit of missing out on these opportunities when you know had the time to put the work in to put the names on your screen and to have your wishlist set up for the next day.
Now, whether you do that the night before or the morning of if you’re a shorter term player, again, doesn’t matter to me. But the idea is, is that the analysis the work has to get done, and you have to be in tune with that work because that’s also what starts getting you in the mood over the feeling tone of being in that trade and then being able to execute it, right? Because that’s the whole key. We could sit, excuse me, and analyze this stuff forever, but ultimately we get paid to execute. So that’s where the money’s at. And to me, it starts with the preparation. And if you don’t like the preparation, then you got to farm it out or find somebody else to do it, because that to me is where you harvest your ideas, some of which end up becoming very profitable trades. So that’s one example.
Another example real quick is super simple. You don’t like the feeling of doing all this analysis. You finally put on the trade, you’re in the trade. Maybe it’s up slightly, but not enough because now you have all this judgment of how the trade should have performed once you put it on and you don’t want to get knocked out of the trade. So you forsake putting in a definitive protective stop on your capital and you’re going to use a mental stop. So then that just opens up the door for so many other feelings. So ultimately the feeling that you don’t want to feel controls your behavior, but it also tends to invite other feelings that you also know that you don’t want to feel. So you have to kind of judge them, be the judge and the jury and say to yourself, well, which ones do you want to feel?
Because if you don’t want to put the work in ahead of time, then for me it’s like I don’t want to entertain you being frustrated because that’s an easy fix. You can put the work in, and if you don’t want to do the work, that’s cool, but then don’t bitch about it because now you’re playing a victim and you set yourself up for that. Same thing with stops. It’s like you don’t get to choose how the thing is going to move once you’re in it long or short, it’s life on life’s terms. So if it moves in your favor, great, but you still have to put your stop in. And if it moves enough in your favor, you can keep adjusting it up. But saying to yourself, I don’t want to do that because I don’t want to get stopped, and worse, I don’t want to get stopped and have it rebound and go back up, so therefore I’m not going to put the stop in again.
So your unwillingness to feel that feeling of say, frustration or aggravation or whatever it is for you, or that you’ve wasted your time on all the front end analysis only to put a trade on and have it lose money and knock you out in 15 minutes, I understand all of that. But again, we talked about it a million times. Your frustration or your aggravation can turn into Deon, right? So just be aware of that. Yes, the feelings that you don’t want to feel have as much control of you as the ones that you do, but in my experience, until you’re willing to feel all of your feelings, the ones that you don’t want to feel and you want to avoid, they end up putting you in a spot where you have to invite other feelings that I don’t think you’re going to want to feel either. So that’s why it’s important to just put your orders in, do the work, and try to figure out what are these feelings trying to tell you? If you don’t want to do your preparation for several hours, then change the time of the day that you do it or break it up, do a little, and then do another half at another time.
But either way, it’s something to look at because I think it’s true in life, not just in trading. But at any rate, that’s all I have for you today. Please like and subscribe to show. If you leave a comment. I see everything. I’ll reply if you want to suggest a topic for the show. I’m happy to investigate new topics that I’m not thinking of myself. But otherwise, thank you very much for being here, folks. I will see you tomorrow.
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Hey everybody. Thanks for being here today. So before, I forgot to say it yesterday, but if you would please consider liking and subscribing to the show. It means a lot. It helps YouTube understand who’s liking the show and what messages are resonating with them, and then it actually helps expand the audience. Whereas the podcast platforms are happy to host your show. They don’t really do a lot to help you grow the show, and so YouTube does a much better job. Plus, I think there’s times when I’m going to be able to illustrate stuff. You want to be able to see it on camera. So we talked about being able to focus on one thing and excel at it. And for me, that started with the process of reducing the chores and the tasks and the studies of course, because I had been inspired by folks who could trade any acid class long or short, but that takes a long time to get to that spot.
So by focusing on one thing and excelling at it, that’s where you could also obviously develop your edge and then you’d want to trade when you can replicate that edge over and over and over again. But I think I would be remiss if I didn’t say this is one of the reasons why it’s very, very difficult for a person to be a successful trader because all the feelings that you feel in your body are fight or flight and trading has a way of pushing your buttons to make you feel like you’re under constant attack. You can self-doubt, right? You can have no confidence. I don’t know what I’m doing. I’m afraid to put on this trade. I see other people are going long that e many, should I do it? And if so, is now a good time? Is this a good price to do it?
So when you have all those feelings running through your brain, those aren’t necessarily ones of that could build your confidence. Those are the ones that kind of undermine you and let you negotiate with yourself that you’re not going to enter the market with stops. You’re just going to buy spontaneously out of emotion using market orders. You’re going to use a mental stop to protect your capital, not actually put an order in. And then there’s, right, so there’s the breaking of those bad habits, and then there’s the doing of it every day because it’s one thing to get it done for one day, which is great. I mean, so many people have an issue getting it done in any one particular day, but it’s when you can do it day after day, week after week that you’ve developed that discipline. And I think that’s when people will kind of know that they’ve kind of made, it really comes down to your behavior more than the results of your behavior. Of course, you have to make money, but when I was eliminating those other asset classes, like my days, I freed up a lot of energy. I freed up a lot of time, so I didn’t have to spend time trying to hunt through options trades. I could
Use that time and that mental energy, which is hard enough to come by into things where I knew I had some skill and that allowed me to develop the skill even further. And so that’s why I think when you think about developing your craft and really getting good at it, you want to try to specialize as best you can. Give you an example. I know people that trade opening ranges on stock index features for the first 90 minutes, and that’s their trading day. And if they don’t see what they’re looking to see in that window of time, they turn off the computer, come back tomorrow. I also know people who are really good at trading the clothes, and that’s what they do. They just look at whatever market they’re looking at. Could be sugar, could be stocks, could be gold and silver, could be stock index futures, but they’re really good at knowing how to close trade the clothes.
Then there’s other guys and gals who look at scenarios where you have extreme overboard or oversold conditions, and they’re good at timing a mean reversion, for example, using stocks or options for example, or futures, commodity futures as well. And so it takes all kinds. You can really figure this out for yourself and figure out what one do you want to excel at? Which one come na, which comes natural to you? Which of these feels good? And then when you kind of look at your results, do you realize, am I doing this because it feels good, but I’m not getting results? Or am I doing this because I have a bit of a knack? Then you go through that stage, which is frustrating because it also takes time. Again, why is it hard to become a successful trader is because all of these feelings, they don’t meet your needs.
You want to have success and you want to have it now. You want some sign from heaven that onto something. And it’s always life on life’s terms. And what happens is people tend to want to gravitate towards things that have more certainty because when you’re trading, you don’t get a paycheck. It’s really you and your ability. So all those forces and those pressures can play on you in such a way that they can actually stop you dead in your tracks and freeze you. So that’s why it starts with the goal setting and the planning. Where is it that you want to be in six months? How do you see your life being different from where it is right now? And then can you set up daily behavior that you can execute a little bit on day after day after day? Manifest the abundance, be prepared, be ready to win. Envision where you
Want to, and then despite whatever you’re feeling or whatever you’re going through, just focus on the abundance that, hey, it doesn’t look pretty. It’s awfully messy and ugly, but I’m doing it and I’m doing it every day, and I take solace in the fact that I’m doing it every day and I’m not quitting. So in conclusion, I would say focus on the process. Don’t necessarily look at the results. You can always gear down your risk and trade and risk just a few bucks. I’ve read stories where there’s certain prop trading firms where they literally gave the person a $10 limit on the day. So if they can do it, so can you, right? But just realize that it’s very difficult to have staying power if your discipline’s all over the place. Usually folks, like I said, they find or they gravitate towards one type of setup, one type of a trade, one type of a timeframe, maybe even one instrument or one asset class could be tech stocks, it could be the softs in the future’s market.
Doesn’t matter to me what it is, but that’s where you might find your edge, is where you think you have that natural ability, right? So be open minded that way. Anyway, like I said, please like and subscribe, leave a comment. If you want to reach out through the blog and give me a topic that you’d like me to cover, I’d be happy to check it out, see if I have anything halfway intelligent to say. If not, I’ll say so. I don’t have all the answers, I only have some of them. I appreciate you being here, folks. I’ll see you tomorrow.
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Hey everybody. Happy Monday. So I got a good email about how to manifest abundance. Now, unfortunately, this could be a four hour video, which I don’t have the battery live for. I got some new cameras there that are super high end. So I think the abundance for me can come from when.
To me, it starts with the discipline of everything. It starts with, okay, where you are right now is point A, point B is where you want to get to. Oftentimes you have to take steps towards that point B and not even know what you’re doing and kind of figure it out as you go. That’s the scary part. But the good news is if you can do that shoulder well for you in your future, because most folks overthink things and they can’t take that step. And so to manifest the abundance, you have to have a sense of imagination where you can figure in your mind or create that environment that you don’t currently have physically, but that you want spiritually, for example. And then it’s comes down to sticking to, excuse me, your discipline. Because in the discipline as Jocko, Jocko willing, excuse me, likes to say the discipline equals the freedom.
I think that’s true in that you can take solace no matter how any day or trading week went, you can take solace in the fact that at each and every instance, you just followed your rules, that’s the best you can do, the outcome you’re powerless over. And so when you can take solace in that, it helps you build your confidence. And I’ve said before that once you instill confidence in somebody, there’s no no stopping them. There’s really no stopping what they can do. They can carry themselves great distances that they might not even thought about when you feel them full of confidence. Now you can do that for yourself when you just follow your rules and keep things very, very simple. When things get super complicated or you start taking flyers, there’s a part of a maturation process that you go through where you see, okay, I can do that because there’s no one stopping me, but I know I can’t fool myself.
And so I think one of the ways to manifest abundance then is to stick to your discipline and repeat that process day after day. Think about what the end goal is and then behave the way that you want to as you go to achieve that goal. Then to me, the abundance will show up because you’re not undermining yourself by doing things that aren’t part of your bigger plan. Obviously, putting those plans together is a lot of work in the one-on-one. For example, coaching where we typically have weekly Zoom calls that can last 60 to 90 minutes. I’m still going to do three or four hours of work in preparation for the client before we even get on the phone, and that’s my end. I’m the person guiding it. So for the individual, for the student, the client, it takes a lot of time to get clear, but my experience is the folks that are willing to do that end up behaving better because they know what behaviors they have to exhibit to hit their goals, and they know what behaviors they have to put by the wayside or not shine the light on so much because although it might feel good, it doesn’t necessarily add up to profitable trading.
Good question. Awfully difficult to answer it in a short video here. But those are my thoughts on how you can start to manifest abundance in your life is to start with your plan. Stick to it. Marry your discipline up with your behavior every day. Don’t go outside the boundaries of your discipline and then watch as you keep your losses small and you let your winners run. That’s kind of how it all works in from a 30,000 foot view. Anyway, please like and subscribe to show the channel. You could leave a comment below That would help. Or if you’d prefer to reach out to me privately, you can do that through the site. Suggest a topic. I’ll be happy to cover it here. Appreciate you. I’ll be in here, folks. I’ll see you tomorrow.
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Hey folks. Happy Friday. Another place where I see people leaving opportunity for ajak things that make them feel crazy is when they don’t have a set plan for the full trade. So professional traders will know this probably doesn’t come as a shock. They’re confident in that they know what their edge is, they know how to express that edge. They might even have it and focus on, say like the E mini for example. The course that I’m doing with Victor Sprank is going to deal just with day trading and swing trading setups in stock index futures and otherwise, which is certainly a certain style. But, and around that, those people are very prepared. They know where they want to add the risk. They know how much risk they want to add. They know where they’re going to get out if they’re wrong and if nothing else, they know how to assess the situation as they’re making money.
Do they sell a piece, raise the stop to break even? Do they just hit a price level and puke out the whole position? Do they do it more like me where I don’t lift any or remove any risk, but I do adjust the stop because I want to piecemeal my way into a trade to get to my optimum size. Different shapes, different flavors for everybody, but one of the things that I hear from a lot of folks, especially when they pinged me on social media or they write via email, is that they put on a trade. It started making money and they didn’t put in their protective stop because the thing didn’t make enough money, didn’t go down enough, but they were at a spot where they didn’t want to remove the trade because they were focused on the promise of it. And those are like, I think I’ve talked about it before.
The four worst words in real estate are like five worst words, honey, I love this place because now the person’s emotionally invested in the home and has nothing to do with finance anymore. The worst thing you can do in the trading market is a similar expression. It’s like, well, let’s just wait and see. Let’s see how it pans out. That’s not what a pro would do. A pro might be mindful in watching the market activity to go down so that he or she or they can apply their known trading tactics that are congruent with where their trading edge is, but they’re never
One that you were willing to take because that’s a smart thing to do. Another thing you could do is deploy a time stop and say, okay, normally when I put on these trades, they work out within three minutes, and if that’s not the case, then the trade goes. If you’re a longer term trader, you might say, I put on a trade and it works out between one and two days. I start showing money. This thing’s kind of been plus or minus 50 cents, so I’m just going to offset it. But ultimately, you don’t want to find yourself in a place of complacency because preparedness is like, I know my list. Here are the ways I can express my edge. Here’s where I add the risk to my portfolio, and here is definitively how I remove that risk. There’s nothing left to guesswork, there’s no deferring the feelings that I don’t want to feel because you can only manage risk in the ever-evolving moment of right now.
I can’t be in a trade neither, plus or minus any amount of money and then be like, well, I’m just going to figure it out along the way. Again, when you’re beginning, you might be in that space. It’s a little more difficult, but if you want to align your behavior with a role model or somebody who as a pro, I guarantee you that’s very, very close to what they’re doing, they’re always thinking about how do I manage risk? Because if I don’t manage the risk, it manages me and then my life is in total chaos because I’m constantly looking at the market. Forget for feedback. If my names are up, I feel good. If my names are on, I feel bad. That’s not the pro way to go about it. So be prepared. Always have an action plan and know what you’re going to do ahead of time.
That can give you the sense of confidence that you need to carry you day after day, week after week. Anyway, thanks so much for all the comments and the feedback. I appreciate that. Please like and subscribe to the show. If you leave a comment, I’ll respond. If you want to reach out through the blog and give me an idea for a topic to cover on the show, I’ll be glad to check it out. I don’t have all the answers, but I have a lot of experience that I could speak to. So anyway, hope you had a great week, folks, and you have fun plans for the weekend. I look forward to some time off, and I’ll see you Monday. Take care.
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So where can we find examples in our lives when we are inviting feelings in our lives that are trying to communicate with us, and sometimes we don’t listen to them? Well, in the trading space, if you’re forcing things and you’re not trading with your edge, which admittedly can be in the beginning because you’re trying to figure all that out. That’s why it’s important to take very rigorous notes on everything from the setup. And if you look back several months, I did this long episode on a Wednesday about all the feelings that you feel throughout the entire process. You know, have your preparedness where you’re doing your research and your preparation. There’s a feeling that goes with that. There’s a feeling that goes with, you’re going to bed at night with your game plan in your brain or not if you don’t have that game plan.
So there’s a different feeling for that, knowing that you have to do it in the morning. Maybe it’s excitement, maybe it’s anxiety. Then there’s the morning of the person who wakes up. Has their plan all set? What do they feel like in the morning as they’re looking to engage with the markets? What is the shorter term person who is looking for their edge the day of, or looking for scenarios where they can affect their age, their edge, the day of, the morning of, right? So then you put your orders in. There’s the feeling tone that goes with that. How does that reward you or make you feel emotionally? Then there’s the managing the trade part where you added risk to your portfolio, long or short. Now you’ve got to manage the risk. There’s a feeling that goes with that. Then there’s the after, right? You offset the trade for a gainer loss of say, in the day or the next few days.
Does it matter if you’re a day trader or a short-term swing trader? So there’s all those feelings and if you line those feelings up, you have your emotional model. So what’s one thing that you can do to tidy that up and to kind of listen to what your feelings are trying to teach you? Well, couple things. If you’re a short-term player, you might consider having ideas or at least a theme, right? They don’t have to be trade ideas, but what’s the theme? Have the theme going the night before so that as you watch whatever financial news, or if you’re look, you got a stream of a discord or something like this, you’re not becoming emotionally invested in the fact that you might not have a trade idea for that particular day. So then you hotwire your system and you put on a trade because somebody is speaking about it on television, and you need to put on a trade that typically doesn’t work out. So you have to listen to what your feelings are trying to talk to you about at that moment in time. You can basically say, Hey, I have to do more preparation, or I have to expand the names that I’m watching. I have to expand my screener to include different capitalization because I’m limited to the number of names that I
Have. I feel like I’m missing out on opportunities. There’s nothing wrong with missing opportunities. But what you don’t want to do is act out of emotion, because that typically might solve a need in the very, very short run, but it’s typically not a positive one from a financial standpoint. So at the end of the day, you need to make sure that you’re prepared for what you want out of the market, both financially and emotionally. Another area where you could find yourself having animosity towards the markets or anxiety or otherwise, any feeling really is, for example, when you don’t use protect, you don’t use stops. Pro traders will see what their levels are and they’ll try to execute around those levels oftentimes by putting in, say, a buy stop above the market within a certain spot where they want to acquire and add risk to their portfolio.
Other folks try to sit there and do it in real time and put in market orders, and oftentimes they’re pushed beyond where they want it to get in because there were there stock ahead. So you might consider using your stops because it’s a form of discipline, and ultimately discipline really pays off very, very well in trading because it stops you from taking flyers. So you could enter your buy stop to enter again, process your feelings around paranoia and people running stops and then trapping you in this and that for the handful of times that will ever happen, you will have made so much more money by being disciplined and putting in your buy stops to get into the market super fast and relying on the technology. It might also include a step before you put in your buy stop, and that is to put an alert on your marketmind, and that says, okay, if you’re looking for the stock to be at like say 102, for you to start adding risk, you put an alert on the market minder at say 1 0 1, 1 0 1 50, so that once the price trades added through that level and alert will go off and say, aha, we’re kind of in the neighborhood now of where we might want to add risk to the portfolio.
So then I can go in and add my stop protective stops. Kind of go without saying as well, you need to protect your capital. No one wants to lose money, but the best thing that you can do is learn how to manage a book of stops every day. You want to add risk long, those are by stops. Once you get filled, you automatically know where your protective sale stops are, and then you’ll have a rule that says, once I start making money at a certain level, then I’m going to adjust my protective stop to a minimum of break even. So this way, I can’t necessarily lose, I didn’t make enough money to take it off the table, but I still adjusted my stop to protect my capital, and that’s a pro move. So those are just a couple of examples of how you can listen to the market feedback and get closer and closer to being prepared, being able to trade and execute your edge. Please like and subscribe to the show, appreciate you being here. Leave a comment or you can reach out through Martin Chronicle you want. If you want to suggest a topic that I haven’t covered, I’m happy to help. Thanks very much for being here, folks. I’ll see you tomorrow.
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The post Make note of your feelings when you trade appeared first on MartinKronicle.
So how do people go on tilt? How do they freak out? How do they dig themselves into a ditch that they don’t want to be in? Well, you can figure it out. Today’s Wednesday. We talked about preparedness. We talked about creating your list. We talked about putting yourself in a spot where you’re only looking at tickers, be them equities or commodity futures where you can affect trades, where you know, have an edge. Obviously with that edge, there’s positive expected value where over longer periods of time when you put on those trades that you’ll make more money than you’ll lose. Now, how do you put yourself into a spot?
How do you put yourself into a spot where you can be in the zone and avoid frustration? Because you can see now that if you are trying to get prepared, but you’re focusing or you’re preparing on the wrong things, you can see where all these other emotional outbursts can come from. You can find yourself in a lot of frustration or anger. It doesn’t necessarily have to always come out negative, but if you force a trade or you force a situation, even in life, it doesn’t feel comfortable. So you need to think about if you’re doing your preparation right in Victoria’s War, Victoria’s Warrior’s first win and then seek battle. And then you’re trying to isolate those instances in the marketplace where you can affect your edge when you trade. Anything beyond that will help you harvest feelings that might be trying to communicate with you, but have really nothing to do with your trading successfully.
So in your need, for example, to feel as if you’ve made it as a trader, for example, which is a strong pull for everybody, myself included, because you need that feedback from the marketplace. You might find yourself putting on trades or doing things that don’t really fit with who you are because you want the result. And you’ll hear me say it, you’ll hear a million people say it, who are at the pro level that you want to focus on process. And then the fundamental I said price, moose first, fundamentals follows, but you focus on the process, not the results, which is very hard at the beginning because if anyone says, Hey, how are you doing? What’s the first thing you think about your p and l, how you did that day? And that’s a kind of short term way of looking at things, and I don’t advocate for that. What I totally support is you having a daily process that you can follow and that you can replicate because that’s where your success is going to come from, following that process period over. So for some of you who are very, very active in the marketplace, if you go back and look at what those losing trades were, for example, where in those trades
Were you able to affect your trading edge? You could also look at your winners and say that I got away with something here, or was this due to my trading edge, right? Because you can have a situation where you do everything wrong, but you put on a trade, you make money thinking like you’re onto something. But in fact, it’s really a process that you shouldn’t be following and getting rewarded for that can lead you down a path, not fortuitous say. So this is how you start to harvest emotions and feelings is when you go outside bit, you know, do behavior that’s not consistent with what your goals are, which is why when we do consulting, the first thing we think about are goals, and they’re not goals. I want to have this or I want to have that. It’s a whole unique way you’re looking at it that helps people organize their behavior and keeps their behavior congruent with what they want out of their life, at least professionally.
So think about that. Make sure that you’re only trading when you can affect your edge. And if you’re doing something beyond that, realize that you might be looking for some kind of emotional fulfillment for that particular moment in time, which you might be able to get doing something else in your life. You don’t necessarily have to put money to risk when you know don’t have an edge, because chances are that in and of itself is a game of negative expectation, right? So it’s hard to make money when the odds and the payoffs are against you. Anyway, please like and subscribe, leave a comment. Otherwise, if you want to reach out privately, you know where to reach me. I appreciate you being here, folks. I will see you tomorrow.
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The post Creating your trading zone appeared first on MartinKronicle.
So we talked yesterday about preparedness and setting yourself up for instances where you could express your edge, and it’s only in those instances that you actually want to affect a trade. Why is that? Well, if you think about how casinos work and how they have a mathematical edge on the majority of the games that are there, you have negative expected value yourself, even though you get a lot of economic utility, i e, pleasure, from perhaps playing craps or roulette or something like that. Whereas games of skill, like say blackjack or poker would give you a better opportunity to make bank, if you will. So we talked about a chart pattern yesterday. We could pick out anyone head and shoulders, up or down, doesn’t matter. Breakout trades. It’s what uniqueness you bring to the table in the execution of that order that helps you understand what your edge is, right?
Because if you look at it, think of it this way. Imagine a stock trade was almost like a car accident. There were 10 people on the street witnessing the car accident. Now my police friends tell me, if you ask 10 people what happened, if they watch the same damn thing, you’ll actually get 10 different answers. So they have to kind of come up with a consensus estimate. I hate that word because it shows too much group think. But for your situation, you need to witness the marketplace, see what’s unfolding, and then know how to, with a tactical and a fundamental understanding, know how to execute that particular trade. When you’re in the moment, you are in the zone and you know that you are not putting on the trade because of the emotional payback more than the financial one. And it’s a place, it’s a feeling tone where you can exist, where anytime an idea, a ticker or whatever comes into that unique scenario, you’re right there and you can nail that trade.
Now, they don’t always show up and be winning trades, but it’s that one spot where you know, see what you see and you know, can execute it. And it’s not forced. It’s an opportunity because there’s a million different answers as to like, if you ask somebody how to define their trading edge, most times it’s a feeling tone. It’s like I’m looking at the chart, I know it, I just know it and I feel it. And I believe a lot of the best traders work that way. They develop a strong sense of feel for the marketplace and they know how they engage with the marketplace, and they know when that’s a favorable opportunity to do so. And also when to sit on their hands. So as we talk about this, it might take you a while to define what your trading edge is, right? Maybe or what it was, and you lost it and you’re trying to get it back. For me, it took four and a half years for me to figure out that I knew what I was doing. And I’ve
Described that scenario enough. Not to bore you here, but ultimately you want to be prepared. You want to investigate those scenarios where you know can affect your edge, and that becomes your wishlist. Are these names that I’m watching in my watch list wishlist? Are these trades that I know I can execute, right? Because then when you have the patience to sit on your hands and wait for those opportunities, that to me is when you’re acting like a pro. You’re not trading just for the action, you’re trading for the overall experience of it, which of course, when you can exercise your discipline, that gives you feedback, of course from the marketplace. But ultimately, you got to make money right over the long haul. So do that study, those setups really fall in love with the idea of understanding and coming to terms with what your edge is.
That’s one of the things that we do here, is help people find what their unique skills are so that they can ratchet those up, scale and leverage them, because that’s when you know you’ve got momentum, you’ve got your edge, and then that’s when you’re basically unstoppable. Remember, everything that you do is as unique to you as your fingerprint. And although we might trade similarly, there’s always a nuance or so that would make it unique and different, and that’s a selling feature. It’s also what makes you use. So celebrate that. Anyway, please like and subscribe to the show. I appreciate you all very much being here. Any suggestions, you know where to reach me through Martin Chronicle, leave comment below. Appreciate you all very much. I’ll see you tomorrow.
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The post Trade only when you know you have an edge appeared first on MartinKronicle.
Hey everybody. Michael Martin here. Thanks for joining me today. Appreciate all the feedback too on the YouTube channel. Everyone’s comments, please like and subscribe to show. I’m going to be doing a lot of work here on YouTube. Got a lot of reader response too. Reader, viewer response, I suspect. So today I want to talk to you about preparedness and I moved the mic here from the side because apparently if I’m looking in the camera and the mic was over here, that gets a little bit of a echo thingy, so try to take out the ambient noise in the post-production. Anyway, if you remember art the inner voice of trading, there was a chapter where I wrote and I talked about preparedness. And the quote that I used was from Sun Sue’s book, the Art of War in the chapter around preparedness. And it said The victorious warrior first wins and then seeks battle.
And I think that’s one of the reasons why they say all wars are won before the battle’s fought. And it got me thinking about trading in that. I know in the different cultures of trading, say longer term folks versus shorter term folks, that when they do their preparation is key. The shorter term folks are looking the day of the morning of what are the key elements? What are the catalysts that could move security one way or another? What type of announcements might there be? There’s far too many just to lay out, whereas longer term folks who are looking for setups that conjugate with say the weeklys or the monthly charts, they can oftentimes do their preparation at night and come into the morning and know exactly what’s on their list, what their levels are. They can enter their orders on the screen. They could do it over the phone if they’re so inclined and work with executing brokers that way.
But the key is in all of that analysis, regardless of when you do it. So if you do it in the evening, I tend to do it in the evening because then I go to bed with a piece of mind saying, at least I have an idea of what I’m looking at for the next day. Again, I know shorter term folks are looking for those daily catalysts, so it’s kind of right up to the moment for them to actually find those that morning. That to me is doable, but it also kind of creates, or it can create stress for the folks who are just starting because it creates a sense of urgency. And if you have, say two hours until the opening bell and you don’t have anything on your screen, you might, not everybody, but you might feel compelled to just put on a trade or to pick something out because you feel like, Hey trading, it’s Monday through Friday, I need to have activity. That of course isn’t the case. And sitting on your hands is oftentimes the best course of action for any particular time period could be for the full day, might be for the week. Which brings me to the point of preparedness, and that is you should only put on a trade when you can express your edge.
Now, it might take you a while to figure out what that edge is. If you look at say, even a chart pattern that’s very popular, like a cup and handle, there’s still 10 different ways to enter trades. Just looking at that chart pattern. So it’s what you bring to that chart pattern or that setup for if you will, that is what is unique to you and how you create your alpha. So the preparation, if we take a step back to me, should be everything that you need to do to find those instances where you can express your edge. So we started with preparedness. What do you do to reduce your names? What’s your watch list? How do you screen this and that? How do you soon it will be for you to enter the order. Is the price action in the market right now close to where you are in your own your, is it in the neighborhood of where you would enter an order?
Right? Cons, considering that you probably don’t enter in the market, you’re probably entering with buy stops above the market. Sell stops below to either protect your capital, minimize your losses, or perhaps to enter the market short. Either way, the goal is to do whatever you need to do to prepare to get your mindset right as well as your setup, right? Because you should only be putting money at risk when you know can affect your edge. If you can’t, then you’re doing that trade for a different type of a payoff, and we’ve talked about that till we’re blue in the face. There’s always two payoffs to a trade. There’s the emotional and there’s the financial. So we’ll talk more about that. But remember, don’t put on any trades until you’re affecting your edge in the marketplace. And if not, then that’s when you need to sit on your hands or you need to develop another edge because otherwise you’re putting on a trade for a different feedback mechanism that might not necessarily be financial. Please like and subscribe. It helps to me grow the channel and leave a comment too. I don’t have all the answers, but I’m happy to learn from you all as well. I appreciate you being here. Thanks very much for being here. I’ll see you next episode.
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The post How being prepared creates confidence appeared first on MartinKronicle.
Hope you’re doing well. Hope you had a great week and you got fun plans set up for the weekend. Kind of chill. So while I was away, even though I wasn’t away, I guess I took a trip, but say December and January, I get a lot of a, if you just scroll through any of the social media stuff, now you see everyone’s got a funding account. Everyone wants to help you pass the challenge and this and that, as they call it. As far as how the business works, right? There were a few questions of how does it work? How can they guarantee you money? How can they give you your share of the profits? Do you trust the system, this and that? There’s probably a two hour episode on funding accounts. This is not going to be it but I think what happens is with these funding accounts is they do have a line of credit or capital somewhere, and what they do is they bring in cash and they promise you a share of the profits.
Now, the rules are oftentimes they’re very clear, they’re not convoluted, but the rules that they want you to go through in order to pass the hurdle of actually getting to the point where you can trade what they would consider real capital, even if it’s not real capital, real capital though, meaning you trade it, you make money, they’re going to give you a share of the profits. Maybe those profits are funded by everybody else who’s paying a monthly number to get approved. So to me, that wouldn’t be a Ponzi scheme. It would just be saying, here’s revenue from one area that’s going to pay off other people. And everybody knows the score. So everyone knows that coming into the situation. So that’s interesting as a business model because I don’t know if there’s actually any risk being taken in the markets. Everything is basically a form of paper trading and then people sign up for these monthly tiers.
You get a $100 K up to $500 K. Every company is different. Some of them are trading American markets, other are trading the binary options overseas or foreign exchange interbank. So there’s lots of different platforms. Do your due diligence and then realize whatever the rules are. If they lay out the rules very strictly, here’s what you need to do and the minute you breach one of those rules, you kind of have to start over. Which means for a small fee or maybe even a monthly renewal, you have to come back and pay that number again.
I’m not saying that that’s what they’re betting on, but I can intuit because trading is so difficult that that’s likely what’s happening is that a lot of folks are saying, I could spend a $100 a month, get access to $250 K in a paper trading account, and if I do strike it and get lucky, I will go through an evaluation period and maybe they’ll actually give me real money to trade to make some money. So I add basically, I don’t know, a little bit more than a cable bill to my monthly expenses in my household in order to get access to these trading platforms. So I know a few people who are really good at it, and I’ll probably bring them on to help everybody out. They’re kind of tricky. As I mentioned in one of the shorts, is that for folks like myself who grew up trading around positions we would add and add and add and add and add as the thing was going up. And you might have a situation where 40, 50, 60% of your account is tied up in margin for one particular instrument, not on day one, but over time.
And so even though margin to equity ratio is not a great risk management tool when you have bigger positions on and larger unrealized gains and there’s a pullback, it might be greater than what these funding companies are looking for. So an example might be, say you have a $100 K account and by the grace of God you find yourself up $30 K on any one particular day. And the way the rules are written is to say you need to make, I’m making these numbers up, but they’re kind of like in relation from what I’ve read, you might need to make or show that you can make 9% or $9,000 but not have more than a $3,000 drawdown from any equity peak, right? So say you strike it and you do very, very well. You’re up $20, $30 K in the account. You have to always remember that whatever that peak was on your equity is starts where the drawdown is.
We talked about drawdown and going on tilt this week. Excuse me, by as far as the funding is concerned, you might have the emotional constitution that says, I’m up $30 K, I’m going to risk $5,000 of my $30 K in unrealized gains. I’ll stop myself out at, I’ll reinvest my gains into my stop and get taken. At plus $25 K, which is still a great trade, it becomes a question of how much of your capital are you willing, how much of your unrealized gains are you willing to risk in order to stay in that trade with the same position? The answer is different for everybody. For me, it’s typically the whole thing. Because I’m not trading for 10%. So the thing is, that type of model that I’m already comfortable with emotionally in my own body after 30 years or plus of experience, that wouldn’t work for funding these funding models because if I was up $9K, the $3,000 is one third of that.
But as your account grows, you’re up $20, $30,000. That $3,000 pullback is now just 10%. So that to me is not as material. So you might say, I’m at, I started with a $100K, you’re at $130K, but now whether it’s intraday one day or several days, you have $3,000 to play with basically despite having hit your mark and made the $9,000 to pass that part of the test. Now comes the tricky part. If you read the fine print on a lot of these things, they want you to trade. Some of them I think want you to trade every day, or they want, and you look at the calendar month, they want you to trade a minimum of 10 days out of all the days that you could possibly trade over that rolling month, depending on when you started.
So now you’re at a spot where you’ve made money. You only have $3 K to play with, but now you got to be careful because if you have still seven days, six days left, that you have to actually trade and put on risk. You have to do, so knowing that you only have $3,000 to give. So then you’re like, okay, if I was trading the big, if I was trading like the ES or the NQ’s or the big natural gas, whatever it might be, now you have to think about trading smaller the minis or the micros, right? Because on some level you kind of have to play poker with your track record in order to pass the evaluation. You’ve made your $9K, you’ve eclipsed that, but now you can’t lose more than $3,000 and you still have six days where you have to trade. So if you trade the same contracts, that, excuse me, made you money.
So to me that’s the tricky part is that you might be more in your own emotional constitution, be willing to risk more dollars right out of those unrealized gains in order to stay in the winning trade. But because the trading rules are set up in such a way, you have to alter your behavior. So that to me is trickier to do for the folks who’ve been around longer and kind of have their system and their way of doing things all lined up. So that might be something to just be aware of is that you might have to act more conservatively so that you pass the evaluation period of time after which the rules change. Again, some of them have like you just need to stay a $100 profitable above a previous mark. The rules are all over the place, but nonetheless, I think they do generally give you, because they’re clear and the terms are written out in black and white that it’s a fair scenario.
I don’t necessarily know that that makes for good trading, but I do feel like there’s a way for you to kind of modify your own behavior in the short run just to get through the evaluation period of time so that you can get to trade the capital. But just remember that it seems to be three to one. If you look closely, you know, might have to make $9,000 on paper with no more than a $3,000 drawdown. And I think as you go up to higher levels of capital, you can trade more contracts for sure but then also the dollar profitability as well as whatever that drawdown is also increase. So I would start small. I would not trade the full, whatever they say, the maximum amount of contracts that you can trade, I wouldn’t go anywhere near that because even if you haven’t made any money, you have a drawdown from your starting capital.
So if you start with a $100 K, you hit $97K and you have to reset. If you go to $110K and you go to $107K, you have to reset. So you have to be super conscious of where that drawdown is and then how you’re going to break up that capital. So say you’re up $30 K and you still have six days to trade, so now you have $3,000 to risk and you have to break it up over X amount of days because there’s a day requirement, there’s a number of days that you trade requirement, I guess, in order for that model to work. So now you might not find in your own way of trading that those are barriers or constraints that you would put on yourself. So that’s what makes it a little bit of Jacqueline Hyde is that you might have to become a different person in order to pass these trading challenges, so to speak, in order to get funded to where you’re actually trading and making the money.
I don’t think that the rules are unfair. Again, they’re written out, they’re clear, everyone knows what they are ahead of time and so that makes it fair because you have the right to not participate. I would like to learn more. I don’t have all the answers, but from what I can see from the outside looking in, it seems to be working. I know a few people who have gone through that process and I’ll share with you what they did to succeed, how they did it, and then maybe to some extent if I can get them to be here, I’ll get ’em on the show to walk through what steps they took in order to be profitable. Anyway, it’s been a good week. I hope you enjoy the new format. If you’re still on Spotify and Apple Podcasts will still be there.
We’re going to definitely beef out the YouTube channel going forward and as always, if you have any thoughts or concerns or things that you’d like me to chat about could reach out to me on MartinKronicle, I’ll do that.
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The post Getting funded and passing the challenge appeared first on MartinKronicle.
Thanks for being here. Happy Thursday. So one of the things that can drive you crazy and to avoid going on tilt is if you’re looking at your P&L all day, right? Because the P&L doesn’t necessarily reflect whether you’re smart or you’re stupid or you’re making good trades or bad trades. A lot of times it’s just what the market is doing. And so you can exacerbate that by trading more frequently and trading bigger size. So coming out of this period of time, yesterday we talked about trying to avoid tilts. Sometimes that’s that’s a lot easier said than done. What you want to try to do here when you’re coming out of Draw Down and you’re fighting off potential Tilt is not actually look at your P&L because that’ll drive you crazy and only get you emotionally invested in whatever that’s showing you.
And again, you might have done everything perfect. Say you’re trading cup and handles. You might have handled the trade absolutely perfectly, but in this particular instance, the handle never formed and the thing sold off. You took a small loss, you could have, in other words, you’ve did everything correctly, but the market had other plans for you on this day. So what I would do is of course, look at your behavior. I would look at your daily behavior and say, am I doing everything that I set out to do? In that case, you win the day, you’re putting on the trades, they’re on your watch list, you have the right setups, the market’s going to go where it’s going to go. The best you can do though, is do your preparation and then put those trades on. So they say focus on process, not the results over longer periods of time.
I know for day traders, this is probably driving you crazy because it’s like, well, I need to show, I need to see results this today. Well, maybe you do, maybe you don’t. But I think within reason, you have to know they’re going to be days when you’re down. So I know some folks, they start trading and they’re risking $10 a day, and why do they do that? Because in the beginning it’s not about the money, it’s about the process. And that’s when you can start to take a little solace and say, okay, I have a hunch and I’m coming out of this draw down. My behavior is consistent. And then once the behavior is consistent, you can get yourself to a spot where maybe then you can start to unwind the techniques that you had used tactically to decelerate the draw down. Maybe it’s this way, it depends. See camera’s looking at me. But yeah, you want something that kind of goes down and curves and gets more flat from having looked like it really accelerated and put yourself in a spot where all I can control is my behavior. So each and every day, that’s what I’m going to actually measure. If the dollar signs of what you’re making or losing are tweaking you, then you probably need to change your size. Another little trick there is to not necessarily think you make or lose $500. Don’t internalize that and say, well, there goes a steak dinner at Peter Luger’s, a nice bottle of wine or a new pair of Golden Goose sneakers, whatever it is that you’re into.
This is trading capital and it’s not your spending account. So whatever money you lose really wasn’t going to be earmarked for consumerism anyway, right? So you don’t want to bring that, I don’t want to think that that’s irrational, but your mind can spin out like that and think about all the money that you’ve lost. So to wrap it up, I would just say when you’re coming out of that draw down and you recognize that your behavior is consistent, right, and you can see that the market’s about to turn, which you can have a sense of, then you can go back and say, okay, I’ve been behaving consistently.
My P&L is improving a little bit.
Now I can go back to saying, well, I had haircut my overall capital to 60%. I’ve recovered a few percentage points. Now I’m going to go back to trading all of my capital. I’m still going to trade only say one fourth of 1% risk unit and try that for the next week. See that everything is consistent, and then you go back up to trading your full risk unit. If that’s your style, if you trade your optimum size in and optimum size out, then you’ll be getting back to normal. But that’s really what I would do is I would reduce my position, reduce my frequency, and then if I needed to, I would take a haircut on my capital, whether the storm lessened, the acceleration of the drawdown, and then as I got back in groove, I would start to trade a hundred percent right?
Maybe add another setup back to the mix, and then at the end, go back to increasing your bet size. So everything is very uniform and you have a plan for this ahead of time. Maybe you could even kind of write it out so that this way, if you find yourself in a draw down, you’ll already have some of these tools to kind of ruminate about before you even put yourself into a spot where you would see yourself being in a situation where you might lose your mind for a moment. It only takes two minutes to take a big hit after going on tilt, which again, it hasn’t happened to me, but I totally understand the emotions around there.
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The post Amending your trading process in a drawdown appeared first on MartinKronicle.
Thanks for joining me. So today we’re going to talk about what happens when your draw down continues to leak and you can’t take it anymore and then you act out of emotion. A lot of folks refer to this as going on tilt, and although I can’t say that I’ve blown up from going on Tilt, I definitely know what the damn feeling of frustration is that brings you right up to the edge of the bed on that. Just for me, it was hard enough to get my grub steak together in the first place that after losing money and being in drawdown, the idea of going on tilt and then me further hurting myself wasn’t something that I was willing to do. Maybe I’m lucky in that regard, but that was just my makeup on again because it was hard to get my grub steak together in the first place.
So I think what’s the definition of tilt? I mean it’s probably as unique to you as your fingerprint is, right? You can look and say there’s a clinical definition, but who needs, most people don’t care about clinical definitions. What they want is what is the process or the solution that I can use to overcome this, right? And so for me, when I come into the trading world and I think, okay, if I’m right four out of 10 times, I don’t have any emotional constitution where I’m built into the trade having to be a winner. To me it’s just all the numbers game I’m going to put trades on. Some are going to some lose every once in a while. One’s going to blow up and do a really good job for you and who knows, make you five or 10% or more on your overall P&L.
The key is to avoid the big smashing. So we talk about using protective stops, that’s a given. Even if you feel like, well Michael, I don’t want the stops to get run. Well, to me that was always the boogeyman anyway is my stops are going to get run. And for the one in a thousand instance where that would happen, the value of having that protective stop in stopping you from getting that big smashing is so invaluable that I would do it anyway. I think a general definition on going on tilt is where whatever emotion it is that you’re feeling, aggravation, frustration could be whatever humiliation has become so strong, that emotion is what eventually starts to govern your behavior That never really ends well. As you can imagine. Some of you might be in that right now or you might be approaching that spot where you’ve just had enough.
Those are the moments when you want to go have what Peter Boris and I call the park bench day, where you just go out and sit down and put some distance between yourself and the market because the goal is to come back and to be able to play every day. If you lose all your marbles, it’s going to be hard to do that. And if you put yourself in a spot where you’re down over 50%, you kind of have to put yourself in the mindset that, Hey, I’m basically going to start over. You know what I mean? Because at that point you’re so far away from where your original capital was, chalk it up to tuition in
The game. That’s what you have to pay. Everyone has their hazing that they have to go through in order to learn their craft. And that was painful for me too. I lost a lot of money when I was trying to do everything I was trying to trade. So this is where it came up for me, it might be in the book, is that when I first got to Wall Street, I figured because I had access, again, this is in a world where there’s no mobile technology, there’s no email, there’s no blackberries yet, and virtually no one has any internet. So your you trade station at your computer and your phone at your desk was basically your cash register. And so I figured because I had access to the markets and research that I would be able to trade anything any way anyhow, any time and still do well, which was of course ridiculous to even think.
So I feel like I did try to trade stuff and there were a lot of things that I was not even good at. I went and for example, the foreign exchange market, the interbank market was 24 7 and I found it very, very difficult to not have any downtime. So my foreign exchange trading was not good. I was a net loser there. So this is in the first two years of my trading, my options trading was really good and also really bad. I didn’t make, and nor did I really lose any money, but it took so much time to babysit those positions that I just figured at that point in my career, instead of getting all nuts about it and going on tilt, which is the theme today, I was just going to stop doing it all together. And so I put that on the side.
So right then and there, if you had stocks and commodity futures, you had equity options. And then interbank foreign exchange, I took off the last two and surrendered. That’s chapter two of the book. As I surrendered to the fact that right here, right now, I wasn’t a good foreign exchange trader and had options for what I learned because there was no one there to teach me. There was none of these online classes and this and that. I was mediocre at best, but I needed to reallocate my time. And so I kind of did a little time blocking and it showed that for what I was good at, now I could reallocate that time to where I showed some promise. I still didn’t think I was onto anything. I wasn’t like, yeah, I made it. I was almost afraid to do that because I really wanted to see consistent results.
That might mean months for you. It could mean years for me, it was years because in one month you don’t know enough. You don’t even, companies report earnings quarterly. So that’s almost like where you should start in terms of your trading. So my stock trading was okay, but I was still immature enough that I was listening to other people’s fundamental opinions about things like I was still in that world where, and so was the ax on a certain sector. And so whatever they said goes, and if they were bullish, then you were bullish or what have you. Or you would look for those things that would keep you in line with whatever this analyst was thinking. Then you learn the hard way that they don’t always get it right. And there’s normally for these types of analysts, they never met a stock they didn’t like because in those days, again, there wasn’t commission free trading and there wasn’t a lot of this fee for service kind of business where you could run a portfolio for somebody 10 million in charge ’em 30 basis points a year annually, pay paid quarterly upfront.
Everything was still commission based. To give you context, Waterhouse Kennedy, Cabot Charles Schwab, they were charging flat rates, maybe E-trade as well. They were still so very new at the time, or they were charging maybe 30 to $50 commissioned flat rate where a wirehouse where I worked and the bigger places might be charging anywhere between one to say 3% of the dollar amount invested as a commission. So the analysts in those days would make their recommendations because they needed people to buy and sell because that’s how the firm generated revenue was through the commissions on the purchase and sale of those securities, either on an agency or if we were market making or even trading 19 cun three. So at the end of the day, I feel like my equity trading when I stopped listening to everybody else got a lot better. But still in the meantime, that was the third asset class that I kind of put on the side.
Even though more I was making money, wasn’t making a lot, but I was performing in a way that you could at least look and say, A is making money net a cost. I had real skill in commodity futures. And so that’s where I ended up focusing all my efforts and I said, let me get good at trading one particular style in this particular asset class. And I was thinking maybe build a track record or have something along those lines and then I’d have something to show for my time. And then after years of experience, I could look at other asset classes and say, okay, at least I know I have something to fall back on. Then I can focus on maybe adding back another asset class or even a different trading style, which is kind of hard to do because you’re kind of like your trading style is really your personality and it’s difficult to do that.
So at any rate, that’s how I avoided going on tilt was I eliminated the things that weren’t working for me, but were still very painful. It sucked to lose money. I know that. But I didn’t want to let any of my own emotions come back to hurt me because I knew the market was trying to steal my, not steal my money, but there were other very talented traders who were on the other side of my trades that were looking for credits and I was trying to avoid the debits. So we all want credits, but it’s again, it’s life on life’s terms. So I took a big mental diet of my mind and said, okay, here’s what I’m good at. Here’s where I have no skill, and I can kind of come back to that as it relates to those of you who are day trading.
There might be just too much noise and not enough signal for you just yet. And so when you hone that down, you might be able to focus on one aspect of your trading that can turn that around. I just found in the short run when I was starting out, there was so much information, it was hard to categorize what was really material and what wasn’t. And so I kind of put the short term stuff on the back burner so that I could develop again, focus on one particular asset class, one skill, one timeframe, and get really, really good at that. Now, that takes a lot of inner fortitude in a lot of patience because even after having done that, there were days where I was looking at the ceilings saying, what in the name of God almighty am I doing here? Because I haven’t shown any, I don’t have any results.
I’ve put a lot of work in. A lot of time has gone by. I’ve again, I had to raise money from clients, which might be a little different from what you are doing. So there was that aspect of my day two, whereas that I needed clients to give me money and put money in accounts for me to trade for them. So there was that on top of everything else. So I feel like when you’re feeling overwhelmed, to me the best remedy is to reduce your activity, reduce your size, reduce your frequency, and just realize like I do when I go to the markets, I figure 5, 6, 7 times out of 10 I’m going to suffer small losses. So I know that ahead of time, as they say ex-ante. So I don’t become emotionally invested in the outcome of any particular trade because I know what the numbers are.
That doesn’t mean it feels any better for me. I’d rather win on all my trades, but that’s just not how it works obviously. So I think the best bet is to mentally prepare yourself that if you’re going to have, I don’t know how frequently some of you are trading, maybe one trade a day, some of you might be doing dozens of trades every day. I would just take solace in the fact that it’s a game of mathematical expectation and as long as your winners are many multiple, the size of your losers, you can make money here. Albeit having several days in a row where you might be losing that just might be the way that it goes.
So hopefully that helps if you have more specific questions about going on
Tilt to avoid it, obviously you can get into breath work, you can do meditation, quiet your mind, you could turn off the screen, walk around the block. You could limit your trading to the opening ranges, and if nothing’s happening in the first hour of trading, then you’re done for the day. You might do the same and trade the close. There might be that type of a deal. So I’d need to know more of information about your particular situation, but if you send over some more information, I’ll be happy to address it. I just know that that’s the way I avoided a lot of that grizzle of going on tilt and then making a bad situation worse because I was unwilling to feel their feelings.
Lucky for me, I was born that way where I wasn’t afraid to feel any feeling and so I didn’t fall into getting blasted in big drawdowns and then going on tilt once I was there. So I’m lucky in that regard for sure. I was born with that constitution, so lucky for me. Anyway, while you’re here, please Like and Subscribe.
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The post What triggers you to go on tilt? appeared first on MartinKronicle.
Hey everybody. Michael Martin. Thanks for being here. So let’s do a little bit of a deeper dive on the whole drawdown thing. I think there are four steps to managing the drawdown. The first one would be the more macro phase – you’re down four, 5%. Now I want to kind of take daily action to cut my risk while I’m still being true to my setups or my trading systems. So the first thing I would do is if you find yourself in a drawdown, that could be depending on your risk unit. If you’re trading, say one half of 1%, you’re down two and a half percent, you have five losing trades in a row, that might be the first indication. You could also use it as a percentage from your previous max, say 10% or 5% rather, not 10%. Then what you should do is like if you’re trading one half of 1% as your risk unit, consider cutting that in half.
Easy enough to do so if you were trading five contracts, trade two, if you’re trading 10, trade five, whatever it might be. The key is to cut your position size because you are whatever your trading style is for that moment in time, it’s not in sync with the market. Now the problem is the market’s the boss, so we have to be super careful that we don’t become bull-headed and want to put on size in the face of the market being going through some type of transition where it’s not playing nice in the sandbox with whatever setup we’re running. Two, you could also cut the frequency of your trades. That might mean for those of you who have a little bit more experience, you might be trading mean reversions. You might be trading breakouts, you might be doing option weekly option things. You might have several setups.
But the key is when you’re into the drawdown is I would reduce the frequency of the trade and then isolate it to whatever your best setup is. Because the goal is to become asymptotic with some level of capital that you’re willing to lose. So you want to kind of decelerate that process. The deeper into your drawdown you get, so that could be 3, 4, or 5%, cut your frequency, cut your position size so that by the time you get to 6%, you will have to have put on five or 10 trades to lose that next one full percentage point.
But that’ll do wonders for you from your confidence standpoint in that you’re still being true to your model, whatever your system is. You could be trading setups, you could be doing AVWAP, the whole racket. It doesn’t matter to me. The thing is that you want a small emotional touchdown to whatever that low of the drawdown is going to be, and then trade there to get back in the groove. Now, you might be doing the same thing from the beginning of the month to the end of the month, and the market’s what’s going crazy. That’s bringing on the drawdown. You can exacerbate that by staying and trading
Your regular size, or like I said, you can cut it so that you can get back into the groove with what’s going on in the marketplace. To me, the benefit of that is you lessen the acceleration of the drawdown, but then that also has a very appealing vibe to your overall constitution and trader psychology. When you’re managing risk in the markets by putting on trades, don’t look at it as emasculating.
The whole goal is to trade smaller, cut your losers much quicker so that they don’t have as big a financial impact on your P & L. But I think most importantly, it’s about getting into your confidence, getting your confidence back, right? Because once a person is infused with confidence, there’s really no stopping them. There’s no telling how high they can go and what they can achieve. But when your confidence is shot or when the markets are kind of crappy as it relates to how you’re trading, the best thing to do is to kind of cut everything down.
Some folks even take a haircut on their overall capital. So not only do they cut their risk unit size from say a half a percent to a quarter percent, then they drop it down and they just trade their best setup that they know and that they own, even if it’s losing the money. Then the third thing that they can do if they want to be hyper conservative is and say, okay, well I’m down to 95 cent dollars from my previous high, and for the next 5% I’m going to cut my overall equity and trade it as if I only have say, 60% of my original capital. So that means you’re trading, you know, went from one half of 1% of a hundred percent of your capital. Now you’re trading one half of 1% based on 60% of your original capital, which forces you to trade smaller.
Again, the goal isn’t to win all that money right back. The goal is to get into the groove of the market so that you can kind of groove. That’s the most important thing as far as I can see, because then once you do that, you definitely avoid the feelings of frustration and aggravation and if you find yourself over 10% down, because then it’s much more challenging for your psyche when you’re doing that, and it’s tough to play. Some traders are very good playing from a disadvantaged position, but I would just advise for most folks, don’t get there in the first place.
All right. Please Like and Subscribe. I’m going to put a lot of work into these shows and they’ll be available on YouTube. Spotify, I appreciate you being here. Please keep all the comments coming.
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The post What you can do to minimize a drawdown appeared first on MartinKronicle.
Hey everybody. Michael Martin, thanks for being here, trying something new this year, working on YouTube, putting some videos up. That’ll be give us a little bit more canvas to work with as opposed to the audio only platform of the podcasting world. So if you’re hearing us on Spotify, just realize that there are video episodes of the same episode over at YouTube.
So the first question I got in after this break was like, what do you do when you’re in a drawdown? And I feel like that’s a great question because everybody behaves differently. They also feel different feelings. Right? Now, if I’m in a drawdown, it doesn’t bother me because I know I’ve had plenty of times where I’ve had drawdowns and I’ve had to dig out and there’s no problem. You just have to trust in yourself, trust in your system. But that’s a lot harder when you’re just starting because you don’t have that after the fact experience.
So what is your self talk in that moment? So there’s a couple things you can do is obviously if you’re managing the drawdown as you should be from a previous peak, once you’re down, say 3, 4, 5%, I would really slow things down as far as the process is concerned because whatever it is that you’re doing is non amenable with what the market is showing us.
And so you can continue to bang your head against the wall if that’s what you want to do. Or you could sit on your hands for a while and let the storm blow over, so to speak. Now sometimes admittedly it’s not even a storm, it’s just the market environment that we’re in, false breakouts, etc. There’s a million things of why it doesn’t work. But I like to always think about drawdown as all of it’s my money, regardless of whether you’re dealing with unrealized gains or fully realized gains, whatever that balance is, it’s not the market’s money.
That’s one thing people will say, well, it’s the market’s money. I always look at it, whatever your equity is, the morning that you start trading or wherever your time zone you’re in, that’s your money. And what you don’t lose, you don’t have to earn back. And I think that’s important. I’ve said it a few times for your emotional makeup. When you find yourself in a longer drawdown, the idea of digging out for higher percentage rates of return can put a lot of pressure on you, and that could change your behavior.
Now, if you’re a steely-eyed missile man, you can find yourself in a spot where maybe that’s not the case. But again, for the newer folks, it’s important to understand that when you put yourself under pressure, you could inadvertently be putting yourself in a spot to behave differently than you had been behaving to get you in the place that you’re in the first place. So if you’re up and you’re pulled back a little bit, I would always think of it in terms of that diagram that they make about drawdowns. If you’re down 10%, you need about 10, 11% to come back. So not so bad.
But once you start getting into the 15, 20% type of drawdown. Now the performance that you need on your account is much harder. So if you’re down, say 20%, and you’re trading 80 cent dollars, you need a 25% increase from that drawdown just to get back to break even. So that’s why I say start flashing the yellow light when you get down 5%, because once you get down to 10%, you’re at 10 and you need 10 to kind of get back to break even. I try to avoid putting, and I would recommend that you avoid putting yourself in a spot where you need to really crank on the account because what you don’t know is how long this market environment’s going to last. And so you don’t want to be over trading. You don’t want to be trading too large when you’re in that drawdown. In fact, it’s the time to go the other way.
This way you preserve your capital. Now, that might be frustrating in and of itself, but I would rather feel frustrated by having to sit on my hands than feeling say, despondent or aggravated because I was in my will or in my ego and I started blasting trades out because I couldn’t bear the pain or the discomfort of being in the drawdown and I wanted to get back to break even as soon as possible, right?
That’s putting yourself in a tough spot. So I would flash yellow at around 4 or 5%, start cutting your position size and trade your best setup. If you’re only you’re trading one setup, then that’s it. If you’re trading several setups, I would trade whatever the one is that you have that’s the best one for you, and then stick with that.
I hope you like the new format. I’m going to put some work into it, and I have help designing and editing the videos for publication. And if you like anything about this show, please Like and Subscribe to the YouTube channel as well as whatever platform, because then it shares the ratings with other folks who might find that the message of this show really resonates with them. Going to try to keep these things bite size, so I look forward to your feedback. Keep sending in the emails with questions that you’d like me to answer. I’m here for you a hundred percent, and I’ll see you tomorrow.
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The post What happens in a drawdown appeared first on MartinKronicle.
So coming into December, which we’ll do later this week, it’s not uncommon for folks to become slightly reflective on how the year went in 2022. Did you meet your own expectations? Did you behave the way you promised yourself you would? And what would you like to do in 2023? How will you change […]
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Hey there. Happy Tuesday mo fo’s. So part of going on tilt can be avoided. If you think of the following, as I’ve mentioned before, every trade has two payoffs. The financial payoff and the emotional payoff. Now, when those things diverge and you don’t get the financial payoff, the emotional one can send you […]
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Hope you had a good week and you have some fun plans for the weekend. So while I’m here, please consider subscribing. I get really good data from the podcast platforms about what episodes you like. So that this way I can create more of them. And this way the show can kind of build […]
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Another thing I’d like to remind you of is about system hopping. If you’ve had a certain style or a certain trade or certain setup with you’ve been trading for a while and you come to find that it’s not working this short-term period of time, now is not the time to start trading another […]
The post The pitfalls of system hopping appeared first on MartinKronicle.
My good friend Thanh sent over a note and I thought it was worth repeating, and that is negotiating your stops. If you’re struggling and you’re tired and you’re frustrated, at this time of the year for one reason or another, now is not the time to start feeling anger and acting out. And I […]
The post Honor thy stops appeared first on MartinKronicle.
So I’d also like you to consider taking an inventory of what you’ve done for yourself over the past nine months – Q1, Q2, Q3 – and make sure that you’ve built some time in for some decompression and make sure that you build out time to take time away from the market to cool […]
The post How downtiming helps your trading appeared first on MartinKronicle.
I remember I forgot to look back on some of the episodes to see if there were any of those air gaps. So a couple snuck through. Apologize for that. Anyway, I want to talk about the concept of your track record. Some of you might be up, some of you might be down coming […]
The post Curating your track record appeared first on MartinKronicle.
So I want to talk today about hubris. You know, hubris is something that can pop up after you’ve had a winning streak or after you’ve avoided losses, whatever it is that makes you think really, really good thoughts. And I can remember this happening to me early on when I had put some trades […]
The post Within you without you appeared first on MartinKronicle.
So following up from the episodes from Monday and Tuesday of this week, you can look at, I think it was Tuesday. When you look at all the feelings that you have throughout the day, and then how those feelings repeat themselves, you can really learn a lot about your own behavior. Then when you […]
The post Going to school on yourself appeared first on MartinKronicle.
So I received a follow up email from a previous episode where the guy was saying he talked about isolation and my thing was like to just be a solo player, don’t get engaged with this stuff. So I received follow up. “Well weren’t you in the Trading Tribe? And so seems like it’s a […]
The post Learn to be an independent thinker appeared first on MartinKronicle.
So another thing that you might find and this is kind of and interesting way to look at the world…you might have the TV on in the background. You might have it on and muted. And even though it’s subtle, that could be affecting your psychology, especially if you’re trying to stay up on the […]
The post Controlling your environment appeared first on MartinKronicle.
So I got an email from someone who said, “Hey Michael I don’t know whether I’m spinning my wheels. How can you please help me to become more efficient in my day and help me know if I’m wasting my time or not.” That is the big question because we have to be effective and […]
The post Net profit divided by time appeared first on MartinKronicle.
I hope you had a good week. And then you have some fun plans for the weekend. So look, we’re about two weeks out from the beginning of Q4 – October, November, and December of the calendar year. And so now might be a good time to kind of reevaluate. What did you do in […]
The post Reviewing Q3 and prepping for Q4 appeared first on MartinKronicle.
So I got an email from someone saying, “Hey, Mike, you know the things that I’m looking at and my screens – they’re not working, nothing’s working, I’m looking at the name. So I’m wondering should I switch to options?” And my answer is no, now’s not the time to start trading a new asset […]
The post Working against yourself appeared first on MartinKronicle.
So I couldn’t help but notice with the current state of the economy, everyone’s shooting their mouth off about having opinions about what’s going to happen. And I find that all kind of interesting, but it’s kind of like asking somebody who their favorite rock band is, is what their favorite song is. It’s somewhat […]
The post The pain you get from jumping the gun appeared first on MartinKronicle.
So at the end of the day, you could also find yourself falling in love with the names that got you where you were, and the way I look at things like this, probably very different the way other people look at them. And I think of things as being ready to betray you. So […]
The post Be mindful that winners rotate appeared first on MartinKronicle.
So I got a good email from someone who said, “Hey, I’m having a really good year. You know, I’m up 50% and that’s annualizing a 100% so what should I do about it?” And I’m not sure that there’s anything to do about it. Congratulations for being where you are right now, I would […]
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So please consider subscribing to the show because it gets me really good data and lets me know the kind of things that you’re interested in so that this way I can continue to create hopefully valuable content, not waste your time, even if it’s only for five, 10 minutes a day. Also, if you […]
The post Considerations when backtesting appeared first on MartinKronicle.
So I was chatting with a consulting client about his experience in a how to training program. And I thought I might summarize it without mentioning any names to give you some examples of what actually happens behind the scenes that never gets really spoken about. So this is a cautionary tale for those of […]
The post Think twice before you buy the hype appeared first on MartinKronicle.
Everybody it’s Michael Martin. Thanks for being here. Happy Wednesday. So I’d like to respond to another email that I got from Vladimir. Thank you for writing Vladimir. And the question is “I have one thing to ask about camaraderie and trader expression from trader experiences and process. Everybody in every career has similar like […]
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I got an email from James and he’s trading part-time trying to day trade. He works nine to five. He’s got two small children in a smaller account that he’s done pretty well with. He’s still up handsomely, although he’s given back some and he said, “it’s proving tough to day trade under these circumstances. […]
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Thanks for being here. And thanks for all your comments and your suggestions. I appreciate the feedback. I think the show gets a lot better when the audience is engaged. It’s probably true for all forms of entertainment, but it means a lot here, because then at least I know I’m addressing issues that I […]
The post Evaluating your emotional portfolio appeared first on MartinKronicle.
So more on being the breakeven trader and this and that and what you can do about the emotional part. You know, if it’s, if it is in fact difficult for you to hold overnight or hold over the weekend, you could always cut your position size by who knows 50% to 90% just to […]
The post What happens when you try to intellectualize your feelings appeared first on MartinKronicle.
I want to thank Kris for writing in and everybody else who writes in that I can’t get to. So I want to segue from Monday’s and Tuesday’s episodes to what does it mean to be a breakeven trader, which is obviously better than being a losing trader, but there’s also a lot going on […]
The post How to stay a breakeven trader forever appeared first on MartinKronicle.
So the second part of yesterday’s email was the deeper issue is this. “After reflecting on it is that I think I am driven by fear of making too much too fast and then losing it all due to making impulsive decisions, driven by heightened emotions.” I think I answered that part yesterday. If you […]
The post How you could be limiting your growth appeared first on MartinKronicle.
I got a great, great email from someone named Kris. Thanks for writing in. “I recently found your show on Spotify a month or two ago, and I have since listened to dozens and dozens of episodes. [Thank you very much Kris.] And I am really grateful for the episodes you put out, especially the […]
The post How to scale up without thinking about it appeared first on MartinKronicle.
Everybody, Michael Martin hope you had a great week and that you have fun plans for the weekend. Today is Friday. And, so let’s talk about a lot of the things we spoke about this week. A lot of the answers to the questions can be more easily determined if you actually have a goal. […]
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So let’s talk about more reader questions – “But how do you find the balance between protecting your capital and not getting stopped out before a move in your favor is over?” Well, that comes from back testing. You can see how that would work. So once you start backtesting, you can look and see […]
The post How to manage your book appeared first on MartinKronicle.
So we got another good question. What would be your what constitutes good risk management for you? You know, spanning from the tactical to the emotional viewpoint, ie, you know, what do you do practically to assure you play superior defense? So you have to have a regimen. And the first thing that you want […]
The post How to insure you play great defense appeared first on MartinKronicle.
So I found two big gaps in yesterday’s episode, as I was exporting it and getting it ready for, uploading and stuff. And they were big ones. They were like two, seven second gaps, which would’ve been, sounded really weird. It looks like I’m having these big pregnant pauses to contemplate something. But I was […]
The post When you’ll know your system should be followed appeared first on MartinKronicle.
I received a great email from Stephano about opinions on some trading tactics. “First of all, I’d like to thank you for the great content you constantly provide. And the work you put on the show, this might sound rhetorical, but I deeply mean it.” Well, thank you Stephano. It is a bit of a […]
The post The best way to backtest your model appeared first on MartinKronicle.
So I wanted to talk about traders as a group of people. The best ones that I’ve seen are very, very independent thinkers. They don’t belong to chat rooms and Discords and morning clubs and looking at levels and having other people do really any other part of their researcher of their process. And I […]
The post The importance of thinking independently appeared first on MartinKronicle.
So I got an email from someone about losing money. They were losing money. He said, “Geez. I’m having a bad week.” And I was like “no you’re not.” If you’re running your system and you’re following your rules. You know ahead of time that half the time or more you’re going to lose money. […]
The post Why some people only see the bad in things appeared first on MartinKronicle.
Today’s episode is geared towards the newer traders. I got an email from someone about loving trading so much. They want to quit their job and trade full time. And my advice is don’t do it because a few reasons let’s say that you have $5,000 a month overhead. It could be tuition repayments, student […]
The post Quitting your job to trade full time appeared first on MartinKronicle.
The reason I bring up the idea of where the market’s going fundamentally is because that could impact your, it can blind you. If you start having very, very strong feelings. So we talked about emotional models. Let’s trace this one through you have very, very strong feelings about a trade, a certain market you […]
The post What happens when you think you can’t lose appeared first on MartinKronicle.
So today I want to talk a little bit about a bias that pops up. I overheard a conversation, and two folks were debating whether the market was back or not. So it got me thinking, I don’t know. I know that it’s up. What, 20% or so from the June lows. So then the […]
The post Your eyes see what they want to see appeared first on MartinKronicle.
So remember when I said there’s two types of feelings, there’s the ones that you like and love to feel. Then there’s the ones that you don’t like to feel. And I’ve said in the past that the ones that you don’t like to feel have as much power over you as the ones that […]
The post You goals come from your beliefs appeared first on MartinKronicle.
I want to follow up with this whole concept of learning a new skill around trading. And this applies to folks who are starting out and also some of the old dogs. I think it’s easy to understand things intellectually, but it’s hard to maybe pull them off as an endeavor. For example, around here […]
The post How to add a new trading strategy appeared first on MartinKronicle.
I wanted to follow up on a social media message that I got to clarify something. The comment was “I really enjoyed the podcast just wish you didn’t hate on day trader so much :)” And the reality is I don’t hate day traders. I’m friendly with many, many successful ones, but the part of […]
The post Knowing when to downtime appeared first on MartinKronicle.
So I got a good email today from actually I got it last night from Eric. He said how I’m having, I know that this is a, what I’m looking at is a bull chart pattern, but I’m having trouble staying with it. And I’m guessing what he means is that he’s having trouble being […]
The post Consistency comes from trust appeared first on MartinKronicle.
So why have I been talking about all this emotional stuff? It’s because it’s integral to you developing an edge. And you know, when you think about trading edge, it’s not necessarily, it’s not all tactical, that’s part of it, but ultimately how you play it, how you pull it off, comes down to you. […]
The post Developing your trading edge appeared first on MartinKronicle.
Think about setting some goals this weekend around the feelings that you want to feel, and also addressing the feelings that you don’t want to feel what’s going on behind the scenes there, because guess what? If you don’t want to feel a certain feeling right now, I’m going to bet a lot of money. […]
The post Planning for the feelings you want to feel appeared first on MartinKronicle.
So following from yesterday, this is what I think Richard Dennis was getting at in the first Market Wizards book. When he said something along the lines of saying “I could publish my rules in the Wall Street Journal, and no one would follow them.” There’s a certain curiosity to see how people might make […]
The post First dates and chemistry appeared first on MartinKronicle.
So you’re talking about relationships yesterday or the day before and guy that I know is going through a breakup. So it reminds me of match.com or any of these other dating apps, for example, some of them have an algorithm where after you put up your data, they try to match it up with […]
The post It’s not the chart, it’s you appeared first on MartinKronicle.
So your habits have feelings. And you relate to those feelings you’re used to them. There’s nothing that’s going to catch you off guard. People don’t like surprises. You probably don’t either. So when you look at what you do, it’s likely because you’re very, very sure and have great certainty about the outcome and […]
The post Your success and failure can be predicted appeared first on MartinKronicle.
So let’s go back to last week’s conversation. We looked at the emotional models that we run that show up in a lot of things in life. So not only do those models show up in your trading, for sure, they’re likely in other areas like relationships, friendships in your work, and you can learn […]
The post Being emotionally connected to your actions appeared first on MartinKronicle.
I hope you’re having a good Friday or you did have a good Friday depending on when you listened to this. So now, if you’ve listened to this week’s episodes, especially, I’d say from Wednesday through today, you can kind of better understand what I mean when I say “what is your, why?” Why are […]
The post How your actions serve you emotionally appeared first on MartinKronicle.
What would, so going back to yesterday’s lesson, what I would do is focus on one of the things that I mentioned, and that was, “what’s the emotional response when you put the risk on?” Is your right foot going at thousand miles an hour as you pump your heel down do you, do you […]
The post Emotions around managing risk appeared first on MartinKronicle.
So all of this has gotten me to start thinking about why do people do what they do? And the ultimate, my ultimate thought on it is that people are pleasure seekers. We do things to go towards pleasure, and we certainly do things to avoid pain. And I think from what I’ve read, people […]
The post Understanding your emotional trading model appeared first on MartinKronicle.
So yesterday’s episode, I was just re-listening to it got me thinking that trading conferences and expos aside, you can really get out of a situation what you want. Right. I mean, that’s “win or lose everyone gets what they want.” So I would say do your thinking ahead of time. Like, what is it […]
The post How you spend money can reveal your inner game appeared first on MartinKronicle.
So I got a good email about trading conferences. The email said “there’s a big one coming up and they are expensive and promote themselves as networking events. What do I think?” So look, I’m at a different stage of my career than probably most of the people listening. So you have to take what […]
The post Working intentionally: Getting what you want appeared first on MartinKronicle.
This is a computer generated transcript. So now when you put this all together, you can think of it as a theme – you don’t complain, you keep yourself in a good attitude, when you take action, you make sure that it’s conjugated with what your beliefs are. The whole process can become automated. And […]
The post How themes develop in your life appeared first on MartinKronicle.
This is a computer generated transcript. The best part of all this stuff that I’ve been speaking about this week is that you can get this on automatic pilot because you can make it habitual. Yes. I’ve said before that we are products of our environment, but when you start to control your environment, you […]
The post Making your behavior habitual appeared first on MartinKronicle.
This is a computer generated transcript. So you probably noticed that there’s not these long pauses in between certain parts of the show it’s because I found out where the technology is dropping the ball. You know, it’s apparently in the editing process, the CPU can only do so many things. And even if you […]
The post How do you know you’re on the right path? appeared first on MartinKronicle.
This is a computer generated transcript. So on the heels of the episode from last week, I think it was entitled, because I honestly don’t remember these things from one week to the next the one thing you can control, which was your “attitude.” You know, I got some feedback and say, well, “I’m having […]
The post How to change your attitude appeared first on MartinKronicle.
This is a computer generated transcript. I get a lot of great, I’ll call it reader mail, should be listener, email, but reader mail just sounds better. And it said, “Hello, Michael great podcast. I was wondering, how do you look at investing mindset? How do you look at an investing mindset vis-a-vis a trading […]
The post Which is more stressful – trading or investing? appeared first on MartinKronicle.
Hope you have great plans for this weekend. I’m chilling the most. So now you can see if you look at the way I think you can use a lot of this week to kinda set your goals. You can set your goals around things that you can control, which is your own behavior. Everything […]
The post How winning traders set goals appeared first on MartinKronicle.
So let’s keep talking about this. What is another thing that you can actually control? And I didn’t think about this until moments ago. That is your attitude. Having a pissy attitude because you’re losing money is only going to beget you more frustration or anger or more losing because you get what you think […]
The post Here’s the one thing you can control appeared first on MartinKronicle.
So I live in Los Angeles moving here from the Northeast. And the interesting thing is that there’s definitely a difference in weather. Northeast was brutal. That includes wind chill factor. Out here say, let’s say from November 1st, like election day through Valentine’s day, the next year, the worst it’ll get is like 50 […]
The post What trading is really about appeared first on MartinKronicle.
So got some feedback about the holding period thing from yesterday, and there seemed to be some confusion when you hold risk overnight, you’re not being reckless, right? You’ve probably been sold a bill of goods that it’s somehow, I don’t know. It’s crazy. It’s reckless behavior to hold risk overnight. And so I can […]
The post Increasing your odds of success appeared first on MartinKronicle.
Hey everybody. It’s Michael Martin. Hope you had a great time off. Hopefully for like 4th of July, if you’re in America, you might still be on vacation this week, either way. I hope you enjoyed yourself. I got a good email while, that week was on. And, the question was, “Mike, what is the […]
The post The one thing I did to become more profitable appeared first on MartinKronicle.
I’m getting some great data. So thanks to all of you who have subscribed or are using the apps, because then I get the data on what you like, that helps me make better decisions on what to produce for these episodes. So we’re on Spotify, Stitcher, YouTube. And so thank you very much for […]
The post Knowing when to take some time off appeared first on MartinKronicle.
So just an update on the mechanics of everything. I think I found the source of where those long pensive gaps were coming from. Apparently it has to do with the CPU and the processing power of any computer, particularly in that when it’s multitasking and then it’s asked to edit, it can kind of […]
The post How to optimize your efforts to perform better appeared first on MartinKronicle.
Yesterday I got an email that I wanted to talk about today and I appreciate everybody writing in. And the question dealt with like “why do you poo poo sitting in front of the screen all day when other people are doing it successfully?” And so I want to address that and I want to […]
The post Becoming a (more) profitable trader appeared first on MartinKronicle.
So I got some great feedback on some of last week’s episodes. And so I thought I would expand because a few folks thought they were missing the point. And so I thought, okay, well let me spell it out more. So the benefit of having a plan is that you’re on your way to […]
The post How to make your process is a feedback loop appeared first on MartinKronicle.
So I got an email from someone saying, “Hey, I am very, very frustrated. I have my list of securities and I’m going through my setups and da, da, da, da, da, and nothing is working” and this happens to a lot of folks when the market turns, they find that their strategy, although it’s […]
The post When you’re following 20 names but they’re all the same appeared first on MartinKronicle.
So successful traders are those that can align their behavior with their belief system. And so the belief system then becomes of paramount importance. It’s like maximize profits, minimize losses, but also minimize potential lost opportunities. Right? Because you have to look at the opportunity cost of not taking the right action. You know, it […]
The post How offsetting winnners too early kills your long term success appeared first on MartinKronicle.
So today is going to be super brief and it’s going to be a provocative question. It’s geared and aimed at those of you who are offsetting winning positions at the end of the trading day during normal trading hours, whatever that’s called my thought is that your fear of losing might be several multiples, […]
The post Don’t let small minded people shake you out of winning trades appeared first on MartinKronicle.
It occurs to me. Everyone wants to try to be immune from the emotional impact of making and losing money and trying to start your career and dealing with the uncertainty of all that. And the, maybe even the insecurity of having it. But man, if you go back and look at the folks, even […]
The post Don’t be a drama queen appeared first on MartinKronicle.
So we got an email about the sign or a picture of Paul Tudor Jones with something behind him that says “Losers average losers.” And the question was can I expand on that? And you know, I don’t know that I can, but it’s worth probably having a discussion on from a psychological standpoint. If […]
The post Having emotional integrity around your trading appeared first on MartinKronicle.
Hey everybody. It’s Michael Martin. Thank you for being here from time to time, which means a few times per week, I get a email from usually more than one person saying, Hey, I see hogs are inverted. How should I trade this? Or I’m thinking about getting long gold here. What do you think? […]
The post When you have a plan, opinions don’t matter appeared first on MartinKronicle.
Hi everybody. It’s Michael Martin. Thanks for being here. So I like to end the week on goals and stuff like that when I can. If you’re struggling, I got this I got an email about struggling and not having a, a clear picture. And so what we’re talking about here is, is you don’t […]
The post Envision your success then go get it appeared first on MartinKronicle.
Hey everybody. It’s Michael Martin. Thanks for being here. So today I want to talk about what I mean by not sitting in front of the screen all day. And that is the pros have a plan. They know exactly what they’re going to do and how they’re going to execute. Doesn’t mean they’re going […]
The post Why you need to use stops not alerts appeared first on MartinKronicle.
Hey everybody. It’s Michael Martin. So I got an email from someone who suggested I get clear or help them understand why I say you shouldn’t be sitting in front of the screen all day when you’re just starting. And the reason is, is because you don’t know anything and sitting in front of the […]
The post Succeed in trading by cutting your screen time appeared first on MartinKronicle.
I got an email Saturday about “Hey, you know, I find myself forcing trades in these markets.” And I said, wow, that’s great insight on your behavior. When the markets are the way they are, which are super tough, you know, for long, only traders, you can find yourself especially if you are a discretionary […]
The post You don’t have to trade every day appeared first on MartinKronicle.
So following on from yesterday, I guess the point I’m making is that many folks when they’re coming to the marketplace and even some very, very sophisticated folks, who’ve been around for a while, start to think like, ah, I’m in a draw down. I gotta find ways to make money. And if I’m allocating […]
The post Preserving your capital appeared first on MartinKronicle.
There’s really two types of capitulations that occur when people speak of such in the marketplace. The, the one that you can see that’s terribly skin deep and almost kind of banal, cuz everyone sees it after the fact is the massive deluge of selling – the puke point – the parabolic down kind of […]
The post Mental Capitulation appeared first on MartinKronicle.
Hi folks, happy Wednesday. So I got an email saying effectively through about 45 minutes worth of text, it was definitely a TL;DR scenario but I did my best. The author of the email said effectively, I’m afraid to lose money. I don’t know why that is. The money is incidental. It must have to […]
The post Your feelings around losing money appeared first on MartinKronicle.
I don’t really engage in social media or whatever. So what I’d like you to do, especially if you’re on the institutional side is like reach out via email. Let me know what it is that you’re doing, what you’re working on, who you work for this and that. Cause I have resources coming out […]
The post Focusing on the “Now” appeared first on MartinKronicle.
Hope you had a good weekend. So I wanna give a shout out to my good buddy Thanh. Who’s uh, good voice of reason. Good friend, appreciate the feedback on everything. So what I wanna do is I wanna follow on from last Monday’s episode, where we talk about majoring in minor details and how […]
The post Insulate yourself from losers appeared first on MartinKronicle.
I got an email from someone earlier this week and I didn’t get around to working on it until now. And it was, you know, look, I’m struggling in this marketplace. I’m long, only manager and nothing’s working in my business. So my thought was, you know, if you’re in a draw down and that’s […]
The post Small changes, big impact appeared first on MartinKronicle.
So I got some feedback as to, you know, some pro and con about, you know, getting off social media and the, the pro was that, you know, if you’re off social media, you miss out on all the good ideas. And I was like, but that’s the point. They’re not really good ideas when […]
The post Leadership and mental energy appeared first on MartinKronicle.
So there’s a catch 22 to some of this stuff that nobody has picked up on or called me out on. And that is this. If you’re only supposed to trade when you have a trading edge, why do you keep saying that? The only way to really learn trading is to do it. And […]
The post Discovering your trading edge appeared first on MartinKronicle.
So following on from yesterday, I guess in a, in a, in a way you can say that you don’t wanna major in minor details, you wanna focus on the three things that actually make you money. Uh, you know, I don’t believe in, in reading thousands of books on trading, I don’t think, first […]
The post Where to get the best trading education appeared first on MartinKronicle.
So I was talking with someone over the weekend and they were like, man, you know, I’m doing all this work and I’m not, I’m just not making any progress. And I can really identify with that. You know, when I grew up, it was working class and I basically had to do everything. And […]
The post Don’t major in minor details appeared first on MartinKronicle.
Subscribe to the show Don’t waste energy on things that won’t help you trade better. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Leave the debate to others and focus on what makes you money appeared first on MartinKronicle.
Subscribe to the show Blocking out TV and social media will help you think more clearly and thus, perform better. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Are you reacting or responding to market events? appeared first on MartinKronicle.
Subscribe to the show A different way to trade futures rather than directionally. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Managing risk in commodity futures appeared first on MartinKronicle.
Subscribe to the show It’s hard to see or find the supply numbers, but you can look at Commitment of Traders (COT) and the structure of the market. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post How to know if there is tight supply in commodities appeared first on MartinKronicle.
Subscribe to the show Over the last 14 months, DIS has fallen 50% to the $101 area. Its P/E is still 70. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post What to do in falling markets appeared first on MartinKronicle.
Subscribe to the show Testing a long-only strategy using historical data from 1995 to 2000 is misleading. How did it do in 1994 or 2007-2008? That would be meaningful feedback. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Test your strategy under the worst market conditions appeared first on MartinKronicle.
Subscribe to the show Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Trading strategies for this market environment appeared first on MartinKronicle.
Subscribe to the show Your job is to disqualify names off your watch list. You can’t love everything. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Checking items off your watch list appeared first on MartinKronicle.
Subscribe to the show Victor Sperandeo and Michael Martin speak about the outlook for stocks, bonds, and commodities for the remainder of 2022. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Victor Sperandeo: Thoughts on commodities and the markets appeared first on MartinKronicle.
Subscribe to the show Why sitting on your hands is one of your most valuable tools. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post The emotional benefit of sitting tight appeared first on MartinKronicle.
Subscribe to the show Imagine how you like your life to be and feel those feelings. Use the emotional connection to bring it to existence. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Envision your success then live it appeared first on MartinKronicle.
Subscribe to the show There’s a cleaner way to get access to professional management rather than ETFs. Click here to get your free copy of The Inner Voice of Trading audiobook.
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Subscribe to the show Things can get worse before they get better. Don’t underestimate neither the length nor duration of a drawdown. Click here to get your free copy of The Inner Voice of Trading audiobook.
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Subscribe to the show Traders trade. Everything else is an excuse. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Traders trade appeared first on MartinKronicle.
Subscribe to the show Failing to act is as bad as not keeping your losses small. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Complacency equals high opportunity cost appeared first on MartinKronicle.
Subscribe to the show Stocks and futures don’t just go up. Click here to get your free copy of The Inner Voice of Trading audiobook.
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Subscribe to the show How lack of decisiveness inadvertently proceeds failure. Click here to get your free copy of The Inner Voice of Trading audiobook.
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Subscribe to the show There’s a big difference between nerve and edge. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Have you lost your edge or just your nerve? appeared first on MartinKronicle.
Subscribe to the show Know what you’re getting into before you get into it. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post How to avoid bad analysis appeared first on MartinKronicle.
Subscribe to the show Uptiming and down timing can’t help you. Click here to get your free copy of The Inner Voice of Trading audiobook.
The post Seeing things in the data that aren’t on the charts appeared first on MartinKronicle.
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Studying trading and reading books won’t help you be a better trader.
You need to trade to get better at trading.
If anything, study yourself.
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The post Decisiveness is key to your success appeared first on MartinKronicle.
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What will all the money you earn from trading do for you?
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The post Understanding your intentions appeared first on MartinKronicle.
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When you can marry your best trading themes with exceptional data science, you get powerful trading results.
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The post Where to find the best trading themes appeared first on MartinKronicle.
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This is a huge blind spot to most chart readers
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The post Where to find your alpha appeared first on MartinKronicle.
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One way to stop killing time “studying” charts and decode the data for ways to create alpha.
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The post Decoding the markets appeared first on MartinKronicle.
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Adding risk with a focus on “not losing.”
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The post How the pros manage a trade appeared first on MartinKronicle.
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One way to let the market tell you the move is over.
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The post An alternative to price targets appeared first on MartinKronicle.
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Most data are random.
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The post Why daily news should not create urgency appeared first on MartinKronicle.
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Why being prepared helps you with winners and losers.
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The post Being prepared placates your emotions appeared first on MartinKronicle.
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These two things are critical to your success at any stage of your career.
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The post Overcoming the struggle and embracing uncertainty appeared first on MartinKronicle.
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Bring the game to your clients before they get it from someone else.
Make sure you’re articulating your thesis and strategy to your clients very clearly.
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The post The benefits of being proactive with your clients appeared first on MartinKronicle.
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Preparing yourself to win.
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The post Make sure you have your priorities lined up appeared first on MartinKronicle.
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Don’t be the person who can’t find the right place to start.
Just begin.
You’ll figure out the second step once you begin.
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The post When the grind is your orientation to trading appeared first on MartinKronicle.
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Your level of intelligence will not necessarily help you be a successful trader.
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The post Study yourself not more charts appeared first on MartinKronicle.
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Some shorter-term traders have a bias against overnight risk.
Risk means uncertainly.
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The post How you feel around uncertainty speaks to your style appeared first on MartinKronicle.
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Don’t trade bigger because you feel good, have a hunch, or have had a string of wins.
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The post Increasing your size should be systematic appeared first on MartinKronicle.
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Give yourself a very long runway.
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The post Transitioning to trading full time appeared first on MartinKronicle.
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What it looks like when you let your emotions effect your judgment.
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The post What going on tilt looks and feels like appeared first on MartinKronicle.
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If you can’t trade the unleveraged products with great ability, stay away from the leveraged ones.
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The post Leveraged Exchange Traded Products appeared first on MartinKronicle.
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The big difference between a winning trader and losing one is probably their mindset.
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The post Differences between winning and losing traders appeared first on MartinKronicle.
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The best way to know for sure is to test. Here are my thoughts on where to start.
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The post Where do you enter your Buy Stops? appeared first on MartinKronicle.
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Adjust your stops several times per day if need be.
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The post Keeping a greater portion of your gains appeared first on MartinKronicle.
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If you sit in front of the screen all day, it gives you a sense that you have to be doing something.
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The post The benefits of cutting your screen time appeared first on MartinKronicle.
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If wholesale costs are going up, retail prices will move likely in lockstep.
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The post The best cure for high prices appeared first on MartinKronicle.
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What do you think your emotions are trying to teach you?
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A 70-90% retracement is not a buy signal.
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The post If it’s cheap, it’s cheap for a reason appeared first on MartinKronicle.
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Setting price targets is cauterizing your gains.
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The post Take profits when the market tells you to appeared first on MartinKronicle.
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Trade your rules regardless of what the analysts are saying.
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The post Anticipating the best and worst of the markets appeared first on MartinKronicle.
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When volatility becomes too high, sitting on your hands and not trading is justified. In fact, most system traders have circuit breakers that turn their system on or off.
You have to trade your equity curve.
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The post What to do if you can’t take the heat appeared first on MartinKronicle.
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If trading is 75-80% trader psychology and emotional intelligence, then it stands to reason that you should be spending 3-4x the amount of time studying and working on yourself, rather than memorizing chart patterns.
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The post Spend 4x the time studying yourself over charts appeared first on MartinKronicle.
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The feelings you don’t want to feel have a much power over you as the ones you do.
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The post How do you feel about making and losing money? appeared first on MartinKronicle.
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It’s hard to calculate the exact fear premium in the markets in dollar terms.
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The post High prices cure high prices appeared first on MartinKronicle.
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Learning to trust yourself might mean letting go of things that at one point you thought were important.
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The post Learning to trust yourself appeared first on MartinKronicle.
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Adjust your stops and let the market do the work.
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The post Managing the Trade appeared first on MartinKronicle.
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Getting used to things being all over the place.
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The post Markets ebb and flow – this too will pass appeared first on MartinKronicle.
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Subscribing to premium newsletters isn’t doing research – it’s buying someone else’s research.
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When you don’t keep your losses small, it’s like going to work every day and having to pay your boss.
Mental stops will help vaporize your account. Put your protective stops in the market.
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The post Losses: working to pay your boss appeared first on MartinKronicle.
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How to playing superior defense.
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The post Determining what your time is worth appeared first on MartinKronicle.
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When you use a screener, you remove a great deal of bias that you bring to trading.
I call it “forced objectiveness.”
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The post How to remove emotional attachments appeared first on MartinKronicle.
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When people are in fear, they will hit the sell button indiscriminately.
It’s time to be proactive.
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The post How the market deals with Uncertainty appeared first on MartinKronicle.
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Now that the word “transitory” has been retired, it’s the “when” phase of inflation’s “if/when.”
Now the focus is on the number of interest rate hikes in 2022 and how many basis points per move.
It’s time to be proactive.
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The post It’s time to be more vigilant appeared first on MartinKronicle.
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Some rallies fade away. Some are just part of the trend.
Knowing which it is should dictate how your handle the trade.
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What do Jim Carrey and Richard Williams have in common?
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Planning to win.
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The post Developing a trading hypothesis appeared first on MartinKronicle.