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.
How to control your mind in trading
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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?
Benefits of consistent bet sizing when you’re starting out trading
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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.
If there is a secret to becoming a successful trader, this is it
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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.
Which do you prefer: the pain of discipline or the pain of regret?
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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.