Good morning, this is Michael Martin, thanks for being here. So a couple of things, I need to do some housekeeping. About half of you are not subscribed and it would help me get really good data if you would subscribe because then I can kind of see better analytics in my YouTube dashboard about the types of things that really, really resonate with you.
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I was thinking about the topics that I was speaking about this week and there’s one psychological thing that I left out. I wanted to isolate it in one particular episode and that is, especially if you think about what I was speaking about yesterday and yesterday’s episode coming towards the end, I was always in control of managing the risk. I didn’t know what was going to happen any more than you might know what’s going to happen.
But I was betting my biggest when I was trading my best, right? And then when I come into a losing streak, I cut that way down to almost a nibbler. And that’s just I think the way pros do it. But the interesting thing that I didn’t mention that I want to highlight today is that, yes, it’s aggravating to get knocked out of otherwise good positions, right? Especially if they don’t happen all that frequently.
But I don’t look at that as suffering, right? Because everything that I do is intentional. All my entries are calculated. All my exits are also calculated.
The number of contracts or shares that I ever buy or sell is always calculated. I never typically want to scale out because I’m not one to have regrets, right? When I think of people scaling out, when they’re scalpers, yes, they’re measuring ATR or they know what the size of the move is. And so when they see that kind of range break, they’re taught to sell the piece and then trail with a runner because that’s typically what you do when you’re scalping.
That’s not I was never really a scalper. Sometimes you turn into one because that’s just what the was showing you that particular day. But psychologically, I never gave that pain or the aggravation or that frustration a voice.
It wasn’t allowed in my house. Just never allowed it because that’s to me is victimization on some level. And I was like, Michael, you’re too powerful for that.
I have too much personal power. I get to calculate what market I’m going to trade. I get to observe the vol and my account balance.
And I can calculate what’s decent position size for where we are on the chart. I calculate where the entry is. I also know given all those, if I do get filled, I have a strong idea, an exact idea of where my protective stop and my initial exit is going to be if things go south quickly.
And I was reared in commodity futures markets, which you have unlimited loss potential regardless of whether you’re long or short. So very rigid risk management systems are absolutely mandatory from day one. It doesn’t matter if you have zero days experience or Michael Martin kind of experience.
So I was reared in an environment to respect the risk. I also didn’t have a lot of money. I had 5K at the time, which is about 13,000 in today’s dollars.
So I didn’t have a lot of money to lose before things would get very constricting. Right. So I never gave the whatever the negative stuff that you might be feeling with losing money or things not working out your way over any particular window of time.
A couple of things. One, don’t become a complainer. Right.
It puts you into a negative energy that somehow you have no power and you do because you have full discretion and you get to decide exactly how things should go in your account with no one else. That means you’re responsible for everything. If you’re losing, you got to sit back and stop trading.
If you don’t and you continue to lose, you can’t complain because that’s what losers do. They bitch and bellyache about why things, why does this always happen to me? Like, stay away from me. I never knew of anybody who became a victim or acted like a victim that became a great success.
They looked at losing and losing streaks the way I did, which are learning experiences. When you watch the markets long enough, you find yourself, you know, having hundreds of doubt like this. I have millions of observations of like how markets unfold, looking for convergence and divergence between the fundamentals and the technicals.
Right. You know how to use, you know, if if the price movement is kind of like an opening statement in a court of law, the volume has to kind of be the evidence that confirms it. Right.
Then this with futures, there’s open interest, which you learn to read as well. Then you kind of see, OK, well, what how about the fundamentals matter? Marketers will kind of tell you that you just have to trade a mechanical system, but they fall short in many ways because they don’t really teach you when and what and how to scale up and how to interpret the movement in the fundamentals, which if you’re trading any type of physical commodity, the seasonality absolutely matters. Right.
It’s just that it’s harder to sell that to you because you had to do more work. Then you have to understand the economics of it. Right.
It gets it gets tricky. So I can’t package that and sell it to you as a box of crap for three K or whatever, five K, doesn’t matter what the price is. So one thing that you can do is take a time out.
Like I was speaking about this one particular person who had reached out and had lost, you know, upwards of 50 K. And I was like, just take some time off, put some distance between you and the market, recollect yourself and recalibrate your system. Go back to what your goal is and think about what it is that you want. How do you want the market to help you? If you think of yourself in partnership with the market, it starts to alleviate the antagonism that you might be feeling if you’re in that window of space.
You’re in control. You get to decide everything. But the market has more buying and selling pressure than you’ll ever have.
So you have to respect that. Right. There’s certain people that I know here in California that like to surf, but they can’t go to Maui and surf the pipeline because they don’t have the skills to handle.
You know, they measure the waves by the back end. And if it’s a 20 foot wave, it’s 30, 40 in the front. They don’t have the skill for that.
So they have to build up to it. In the meantime, they can enjoy what they can enjoy, just like we can with trading. So trade within yourself.
Right. In golf, we talked about Tiger Woods and having coaches. Most of these guys know how to generate enormous clubhead speed coming through the ball, keeping their bodies close to their body, swinging inside out, perhaps getting a draw spin or some type of overspin.
But they know how to do it with such power that they kind of the quote is to stay within yourself. When you stand with your feet wider than your shoulders and you know you want to tee the thing up and crush it. This is an emotional thing, right? It has nothing to do with playing good golf, right? It’s just like I want the validation of hitting a golf ball, golf ball far.
Well, good for you. You could do that at the range. But I never I don’t.
I think if you reconsider how things are going, you can start to think about yourself as being more in control. And you are both at the same time a pilot navigator of where it is that you want to go. It was important for me to always know what my initial goal was, and that was the driving force.
So then I could always say, like, OK, I need to grow my 13K and today’s dollars multifold, even though everyone around me is saying you can’t time the market, you got to buy those epic bullshit that everyone parrots. They don’t know what they’re talking about. You say to yourself, hey, I can completely.
Sorry, coyote outside yapping. At the end of the day, I knew what my goal was, is I had to give myself some breathing room because then I knew at that point I could take more chances. I could take bigger chances because I even though I didn’t quite know what I was doing, I know in my life I always hit my goals and I always figured always figured things out.
So I knew it was a matter of time. So at the beginning of my trading, it was about having staying power. How do I take sensible risks? Now, in retrospect, they weren’t that sensible.
Why? Well, because with my 5K, I had 5,000 long market value of stock that was marginable and I would rip out 2,500, which was under Reg T to buy futures contracts with super tight stops. So I was levering as much as I possibly could. In my estimation, I was trading probably notional values of 10, 10 to 1. But I also knew that I could probably add between 200 and 500 a month from the commissions and fees that I was earning from being the financial advisor into that account to cover losses and the commissions, which were even working at the firm, we didn’t get really big discounts too.
I wasn’t there to trade my own account. But there wasn’t an online brokerage community. The discount brokers were like few and far between.
And if you did open up an account at like Schwab or Kennedy Cabot or Waterhouse, you’d have to send the confirmations to your boss anyway, because that’s the rule. And they really frowned upon that. They wanted to know exactly what you were doing.
So it was very tricky to try to trade and trade away from the firm because they were going to see it anyway. And if you did that and didn’t report it, you’re likely to be in a tough compliance part. But the main thing was to not give the victimization a voice.
It never had a seat at the table. I was like this is I’m bringing I kind of believe in a Buddhist way that man is the cause of all his own suffering. I absolutely believe that.
And that goes with like I said in the previous episode yesterday or the day before that I think we live in a paradigm of personal responsibility. If things aren’t going the way you need them, you need to take a pause and recalibrate. Right, which is probably a better word than recollect.
You know, you might not be collected in the first place. So recollecting is out of the question. So I haven’t gone through the first level of collecting.
But these are the types of things that the pros think about and say, I need to take measured risks. I have to take good risk. But risk is like fire.
Right. Firemen aren’t arsonists. They don’t love fire.
They’re better equipped to deal with fire than we are. They’re trained to deal with it. So when we think about risk, we have to think like, am I using my cash? Am I using borrowed money or implied leverage like with futures? And then am I trading bigger on top of that? So I’m actually trading on a notional value.
I’m trading my account as if it’s maybe 10 times bigger than it actually is. That’s all doable and it comes with having experience. But you have to understand if you’re not aware of that math, it’s incumbent upon you to know that stuff because it’s not the market’s fault when you lose money.
It’s your fault. So you have to figure out, do you have such a thing as an A setup, a B setup, a C or a D setup? And if not, why not? If you really just trade one setup and that effectively becomes your de facto A setup, but you’re in a losing streak, what is your rule to manage a very soft emotional touchdown inside of your drawdown? Because if you train the consistent risk units across every market, you’re not getting the best of it. You could be oversizing when you have suboptimal payoff.
You might have a window of time where the trades that you have are not in fact positive expected value. Now, in my experience, they don’t tend to turn on a dime, but losing streaks happen, right? That’s just the nature of how these things work. But the minute you become a victim and you bitch and bellyache, that’s when you’ve lost.
And that’s when you realize that you don’t really have any personal power. So I would take a time out, recalibrate what it is that you’re doing, revisit what your goal is and what it is that you want your money to do for you. And how do you want trading as a practice to serve you in your life? What big goals and dreams do you have that you want to fulfill from the money that you’re going to actually earn from all your trading activity? Because having the money in and of itself is kind of sterile, banal kind of stuff.
The money is the money. If you can attach an emotion to it, like you want to pay off your mom or dad’s mortgage, you want to pay for your sibling’s college education. So it doesn’t matter to me what it is, but find something that’s emotionally moving.
I have a lot of those things in my life. So the money is important. It’s not for me, it’s for what I can do with it.
It’s tool, it’s leverage that I can put a lot of wind in other people’s sails. So find that emotional attachment to the money and that’ll help you control your behavior better and keep you in the power, right? And in a powerful mindset rather than being a victim and a boohooer. Because first of all, no one cares.
No one wants to hear you boohooing, right? I immediately cut people off to a point where people think it’s almost curt. I’m like, listen, I’m not here to listen to your bitch. I can help you fix some things.
Let me hear what it is that you’re trying to do and this and that. But you have to stay in control, right? Otherwise, you have a fundamental misunderstanding of what trading is. Trading is about having personal responsibility for every single part of the action of the trade, from the calculation, the screening to know what you’re going to be in, to what your bet size is, your entry, your exit, do you scale out, do you add to your winners? That’s all stuff that you should know.
And if you don’t know, in all due respect, you’re not prepared, right? Remember, victorious warriors first win, then seek battle. Why? Because they’re prepared. So you have to be prepared.
There’s episodes that we’ve done in the last two months that talk about epic preparedness. You need to know what you’re going to do at every key inflection point that the market could possibly show you and be ready to know exactly what you’re going to do. Then be emotionally and psychologically okay if any of them occur, because they all have a probabilistic outcome, right? Anyway, great question.
I hope that helps you. Please let me know what you think. Please like and subscribe and get your free copy of my book.
I’ll see you tomorrow.
