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Hey everybody. I’m Michael Martin. I’m a Los Angeles based trader of stocks and futures and options. I also run a consulting practice where I help institutional and retail traders figure out what’s not working for them. This is my list of the top five reasons why traders lose money. First one is they don’t have a set plan as to why they’re getting into the trade in the first place. Sometimes they’re getting tips from other people or they have the fear of missing out. They see other people succeeding with the names, so they just jump in when they really have no business when being in there. At the end of the day, I think traders trade their personalities. That comes through loud and clearly. The macro aspect is that they don’t know their “why.” They don’t know why they’re trading. They don’t know why trading can help them.
They don’t fully understand that. And so we spend a lot of time trying to figure out how do you want trading to serve you? Typically not about the money. The money is like the runny nose of the cold. It’s a symptom of a process that can work over longer periods of time. And so when you don’t know what that why is you’re kind of just throwing darts basically. The 2nd reason is, and this could still be number one, is that they don’t use protective stops. The markets can move a lot faster than you can think. I know it might not seem that way, but when I see people consistently losing money and losing money or more money than they thought they could lose, it’s because they didn’t protect their capital. They didn’t think it could happen to them. I didn’t think the thing could move this quickly.
So use your protective stops. I’ve said before, there’s two payoffs to every trade. There’s the financial, which is easy. You could do the math in your head. There’s also the emotional and the psychological. Both are at play at any given time, and you need to be aware of that. We spend a lot of time thinking about how you perceive risk. What does risk mean to you, right? It could mean opportunity, but it also means emotionally. It means the uncertainty and the probabilistic outcomes of the traits that we’re all involved in. Another reason (#3) why people fail, which is related to the no protective stops, is that their position sizing is all over the place. And this is where personal biases come in. AI is going to change the world, supposedly it’s going to, but no one really can predict. But everyone’s caught up in that the same way they were caught up in Bitcoin and anything that’s become mummified, the GameStops the AMCs. So you have all of that. And so people come in with their bias, and while I appreciate trading against the crowd and having an idea of what they’re doing, the best traders are consistent in their position sizing so that this way, they don’t let their fear or greed overcome them because every trade represents whatever their R is, their risk unit, one half of 1%. So this way, if I’m super gung-ho about GameStop going up to $400, or Bitcoin going to a $1,000,000 or Nvidia going to a $1,000 a share, at least from where we are right now, I can temper that and keep my bias contained inside my risk unit. This kind of helps protect me from myself. That’s the whole point of having constant or consistent position sizing. So losing traders are all over the place. Now look, if you’ve got 10 years of experience of doing it a certain way and it’s working for you, you have really good intuition and creative skills, then stick with it. But most people don’t. Two traders are independent thinking. So the #4 reason why people get blasted is because they don’t have a spine to make their own decisions. It doesn’t make them bad people, but it makes them bad traders. This to me is a trait that would keep you as a bad trader, relying on other people. You’re subscribing to newsletters, you’re on Telegrams, you’re in Discords, you’re in some kind of chat group.
It could be on Slack, I don’t care where it is. But you’re effectively relying on other people to generate your trading ideas. Let’s take a case study. You get a newsletter every week about the top 10 picks. Okay, great. Well, which one are you taking? Are you going to divide your money equally? Are you going to divide your money in half and then put 5% increments on each of the 10 names and leave half in cash and then other 50% invested? When do you get in? What’s the entry price? Because you can’t trade the same number of shares or number of contracts for everything. You’d have to adjust it for the volatility of the underlying instrument to take into account the personality of the instrument that you’re trading. So that kind of is related to position sizing and no protective stops and that you don’t have set entries.
You’re relying on other people to come up with your ideas. And that means it’s very, very difficult for you to figure out when to get in, when to get out. Now you’re looking for a treasure chest every week or every day you’re on social media trying to see what other people are doing and what they think. And the best traders have conviction. They know who they are as people. They know what they can do, and more importantly, they know what they can’t do. And if you’re not at that spot, start small trade 10 shares or something, trade one micro contract or something and get a feel for what it is that you’re doing. But ultimately, in this business, if you’re going to make it for 10, 20 years, you have to be an independent thinker. You have to be decisive. You have to think for yourself.

And the last one (#5) is kind of like a little tongue in cheek, but is that they take their winners too soon. In order to make money, you’re probably going to lose more frequently than you have winning trades. And so therefore, you need to let your winners run so that there’s several magnitudes of, there are multiple of the losers. That’s the way the math works. It’s called mathematics of expectation, mathematical expectation. So you need to think about on average, which is a weighted average of what you’re going to make per trade. Now, winning streaks and losing streaks can happen for sure, but in my experience, the hardest trade to make is taking the winner. And I would say that that’s true in my life as well. That’s why I stick to rules. I don’t want to have regrets. I was texting Peter Borish recently about something. He had sent me a picture. He said, how’s it going? I said, oh, I’m aggravated today. This is just a couple of weeks ago. And I was in two trades and my rules got hit, and I got taken out of the winners only to watch the things go up the rest of the day. And I said, it’s still aggravating for me. I was in the winning trade. I would’ve have preferred to stay in it, but I like to adjust my protective stops as I’m making money.
So if the thing does do an about face, at least I get knocked out. Have it made something, and I won’t get into what he said because it’s probably private. But he basically said, Hey, just take the win. And it is the best you can do. But if you don’t have a set plan on taking winners, you can say, okay, I bought the Nvidia breakout at $505 or whatever it was. I took it out at $550. And that’s great. So how do you feel at $720 ? What was your rule for getting back in? So you want to be mindful of when you take winners and make sure that you can weather the storm and stay out of your own way. That’s the moral of this story, is staying out of your own way. Let the market do the work. I’m not one to scale out of winners. If I’m in a winning trade, I prefer to stay in it for as long as possible anyway. There’s probably five that might mean something different for you. You might have your own things that you’re dealing with. This is just a conversation starter to keep you thinking about trading at your best. That’s what I hope for. Even if your styles are drastically different, I’m always here for you. If you like this video, check out this one.

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Hi everybody. I’m Michael Martin. I’m a securities trader in Los Angeles. I trade stocks and futures and then options on both from time to time. So in a world that we live in where everyone’s making millions of dollars and there’s all these gurus talking about they’ve made X amount of money, I thought what I would do is offer a gesture of humility. Talk about one of my worst trading mistakes. It’s actually funny to think about now. It wasn’t so funny at the time. Now mind you, it wasn’t my biggest loss, but it was a mental error that got me thinking too. I was too relaxed, I was too casual and I ended up losing some money. Personally, I can set the story for you. I was trading wheat futures at the time, and this goes back to the early nineties, so I was just a couple years in the business.
I always was one to want to take risk home overnight over the weekend and coming into this window of time, we were in the end of June, the wheat contract had gone from four to four 40, so it was up 10% in a very short period of time. So of course I was happy. I mean, I’m generally placated no matter what happens, but the thing is, we were coming into 4th of July weekend and if I remember correctly, it was going to be a four day weekend. And normally, like I said, I really like to buy things Friday at Friday’s close. I like to take things home over the weekend. But for this period of time, again, I didn’t have a lot of experience. I was overthinking things. I was up 10% with obviously the leverage. So the account was burgeoning and a lot of clients in Chinatown, and so I remember the setup saying I probably should pair or take the trade off, but since I’m at the wirehouse, I hadn’t moved out on my own yet.
You can’t just make affect transactions in a client’s account. Everything. Either the client calls you and you have to market solicited, I mean unsolicited or you speaking with the client. It’s your idea. You have to market solicited. So there’s all this compliance that goes on. Nowadays we have full discretion, so as long as the client understands that we’re going to stay within our rules, we can buy and sell pretty much what we want as long as we adhere to this strict risk management guidelines that we promised them in the client agreement. So we had this week it was making a bunch of money. I was a little nervous over the four day weekend. I don’t know why I was, I should have just stopped and turned the screen off and gone for a walk like I normally did, but I figured, let me speak with the client. So I called the client on the phone, client’s on East Broadway in Chinatown, and I’m like, what do you feel? What are you comfortable with here? We could put in a protective stop, but that’s not going to mean anything. Over the weekend. We had futures, not options. And he’s like, you know what? You’re probably

Right. We should take it off. Let’s take it off. We’ll take our profits. But I think because the market’s moved too much, let’s go short. And I was like, go short. Maybe you got a point. Maybe there’s going to be a wave of profit taking because I can see things clearly. So we reversed course, we sold it, we took our profits. Who knows if it was the right call? Probably not, and we sold short. You had to mark the tickets in bushels at the time. So I think if I remember correctly, we sold 40,000 bushels, which is about eight contracts. So we sold eight contracts with a half an hour left in the trading day. This is me trying to get cute. So there’s a moral to this story, which I’ll get to at the end, and I should have just said to the client, I’m not comfortable doing it.
Let’s take everything. We’ll wrap it up, we’ll come back next week. But no, because I didn’t know what I wanted out of that phone call before I got on, I started letting the client come up with trading ideas, and that’s a tricky spot to be in because if the client comes up with an idea and you say, good, let’s do it, and they lose money, they’re like, why didn’t you stop me? What good are you? If they make money, they’re like, what do I need you for? You know what I mean? So you kind of lose either way. So I’m like, okay, we’ll take a smaller piece. The eight contracts were smaller than we would normally trade, and we went short half an hour left. It was going to be a quick little thing to take advantage of the fade. Now, I didn’t know about reversals as much as I do now, and there was no real reversal at that period of time.
I also didn’t have a lot of experience seeing how things can be really, really strong during the week and still close at the weekly high at Friday’s closed without looking like with the big green bar with virtually no wick. So we’re sitting there watching it again, we have a scalping, what you probably would know as a scalping position, I don’t really use this anymore. It’s either on either risk on or risk off, and nothing was happening. There was about 10 minutes left to trading and I called the client, I’ll call him Thomas, obviously he’s in Chinatown. His name wasn’t Thomas. So I called him up and I said, look, we got 10 minutes. I do not want to go home short with this. We’re not going to make or lose. It was probably one or 2 cents difference from where we had sold short and the traders calling me saying, what do you want to do here? So I had two phones going, one with the client, another one with the trading floor in Chicago, and he’s like, you know what? You’re right, just sell it. So I was like, okay, Frank, whatever your name, the trader, right? I’ll call him Frank. Frank, just sell it.
When you get a shopping delivery from Amazon Fresh or Whole Foods or Ralph’s or wherever you get your food, they don’t know what you have in inventory. If you say buy bread, buy milk, buy cereal, buy carrots, they’re just going to bring you what you order. So when I said into the trading phone, just sell the eight. That’s what the client said, which that’s not what he meant, right? He meant get out of the trade, but we were short. So I said, just sell it. He goes, okay, you’re done at 440, whatever the price was. And then I hung up the phones and it hit me a bolt of lightning like, oh my God, what the hell just happened? I saw that they would send you the execution on your screen, and then it said net position. So now I’m short 16 contracts with eight minutes to go before a four day weekend in a market that’s been going straight up all week.
I couldn’t just call the floor and reverse the trade because of compliance, so I had to run. I worked on third Avenue and the office was gigantic. It took up an entire city block, so I almost had to have a cab because I had to get to the operations booth on the caddy corner from where I was sitting. So no matter which way I was going to go, it was going to be a long way. So I remember I literally got up and I ran down to the branch manager’s office and hung a right. In the meantime, a new guy was walking through the front door. The doors were like mid-block, so to speak. We were on the 29th floor and the guy walked in and he had a big thing of papers, and I hit this guy like Lester Hayes or Jack Tatum, like a cornerback, cornerback blitz, and I took him out.
The papers went everywhere. I didn’t even have time to stop and say “I’m sorry,” because I had to get out of this trade and I’m going to tell you why in a couple minutes. It wasn’t just that. Now I doubled down on my short, so I get to the operat operations booth, and in those days you could still smoke in the city, and there was a woman sitting behind the glass and had to cut off glasses, and I’m banging on the thing frantically, I’ll call her Theresa, that’s not her name, and I was like, Theresa, I got to unwind this trade. I made a big trading error and she turned to me and she looked and she said, “booby, I’ll be with you in a minute. My daughter just broke up with her boyfriend” or something like that. So now I know why they call Depends, panties like the ultimate stop order, the bladder control, they work like a charm. I vacated my bowels right there on Third Avenue. So long story short, they did the right thing. They reversed the trade. We got out of everything. Then you got to go back and read the tape and say, okay, well look at the timestamp for the trade. What was the price? That’s what the client has to get. So if the price was different, I have to eat the error, right? That’s only fair, right? Then we have to offset the ones that the trade that we didn’t want to be in. So that also could be an error if it moved up. I’ve got to cover that. That goes into the branch error account. So I have two errors now that I got to take care of.

In the end, it was $1,250 about, if I remember, which was very painful at that time because if you remember, my account was underfunded. It might’ve been a lot of money for a newer trader. At the time, it was probably like $5 or $6k, and I was doing decent in commissions and fees to help pay my bills, which were hard, but that was a big hit to have to take. I had to call the client and tell ’em like, I made a mistake. They didn’t want to see you don’t want the paperwork to come, and they’re looking at it like, what the hell is this? I said to call the client right away and say, Hey, by the way, on that trade, I made a stupid mistake. I fixed it. It’s no error to you. You’ll see the paperwork’s going to come. They’re still going to get all the trades occurred in their account, so they’re going to get the trade confirmation, the memo as the trade memorandum confirmation.
And so I went back, man, I felt like a complete idiot because I didn’t, there was really no reason for that error to happen. It was a moment of weakness that I could have easily avoided. I wrote about this in the Inner Voice of trading, I’m pretty sure, so it might sound familiar to some of you. If you haven’t gotten it, you can get the audio book version for free. The link is in the description of this video. And so, man, I just remember feeling like a complete idiot because I lost $1,200 and there was no reason for me to even be in that trade. I shouldn’t have gone short. I should have had a plan because I was always the kind of the boss. I always had trading ideas, and that’s why they liked me. I made the money when I went out on my own.
All those people came with me. They were the founding clients of my CTA, so I did very, very well for them, and the client was like, you’re idiot. We laughed it off. They knew there was no financial responsibility on their part, but it was very humbling lesson for me that if I’m going to act like I have to adopt more professional abilities in my trading, so there was no more shooting from the hip. This is why I learned in that lesson probably going all the way back then, which is over 30 something years ago, that I don’t fade strong moves trying to get cute with the market. So when you hear me say that in other videos, this is what I’m thinking about. I know some of you might have a great sense of timing and you can nail that trade. I have pretty good intuition too, but for me, I would much rather catch the meat of the larger move than try to fade something with a scout position and make nickels and dimes.
It’s just not worth it to me. You might feel differently, and I respect that, and if you’re nailing those trades, I’ll be the first guy to stand up and say, rock and roll. It just doesn’t fit my temperament here. So it’s not like it’s a better strategy. That’s just not compatible with who I am, and that’s just the way it is. But if you’re doing it, smash it, then do it and make sure you’re levering it as much as you can. So I talked to the branch manager. The guy was a sweet guy. He was a really, really good guy. I liked him a lot. He taught me a lot about sales and marketing, and he had come up through

EF Hutton, so he knew all the guys from Hayden Stone. He knew Dick Donchian, he knew about because they were at Hayden Stone by the way, but they all became one company. When Sherson Lehman bought Hayden Stone. They bought Loeb Roads, they bought Hamill and Company, and that all was inside. Eventually Shearon, Lehman Brothers and then Sheasron Lehman had purchased Smith Barney and merged because Sandy Weil and Jamie Diamond wanted to have a salesforce. What we called, you should know this, they wanted distribution. So that’s what financial advisors are considered in management. It’s distribution. And so that acquisition, we were acquired by Shearon, and it was a real culture shock. They did things very, very differently. So that’s one of the reasons why I left, but that’s neither here nor there. The guy that I rolled over and took out with the cornerback blitz at the front door, his name, I’ll call him Peter, I came back.
So now I’m down $1,200, and now I’m thinking I’m going to get sued. I ran this guy over. My footprint was across his face, and I went back and I apologized and I spun the story. There was something going on in a client’s account. I didn’t tell him it was my fault that I didn’t know how to handle, and it had to be handled before the end of the closing bell, and I had to go speak with an operations manager immediately to make sure that the client was going to be whole or this and that. He never asked what it was, which was fine. So in his mind’s eye, he saw that it was a great sense of urgency. That guy ended up coming and becoming a client of mine and had 10 different accounts with me. So there’s the corollary later on. These clients, they went out and bought real estate. Some of them still have money with me. We have long, long relationships. So what did I learn from this? One is stay with the trend. Don’t be afraid of taking risk home over the weekend. You could always cut your position. I could have sold Decembers against my Julys and created an intra commodity spread to manage the risk. I could have sold futures and added call options.
More importantly, what I did learn to do though was I created these buck slips, and so now every order that I have, I write it out by hand and I say, here’s my entry. Here’s my number of shares or contracts. Here’s my protective stop. And that’s done for every order. I never do anything like hair trigger response. I know that’s a sensitive expression for most guys. I don’t shoot from the hip or just see something and double click the mouse. I always do something very, very intentionally and deliberately. That’s why I like to do my preparation the night before and have my orders ready. Sometimes I cancel ’em. Sometimes things move overnight. So now they’re not in the neighborhood of where I need ’em to be, but that’s fine. So I’m just editing the menu, so to speak. I know what my menu is for that day, but if the things fall away, I’ll say, okay, let me come back Tuesday.
If it’s Tuesday night, let me come back and see what we’ll do Wednesday. So no more fading moves. Write down your orders. When I call them in, I still do a lot of phone execution. I’ll read it to, I’ll say, okay, I need to buy 15 New York Gold. I’ll say 15 “1” “5”, because 15, if you’re saying it fast, it could sound like 50. So I’ll buy 15 New York Gold at X, Y, Z price on a stop, and I’ll say, read it back to me. So then they read it back to me. I put a check mark next to it. Then they enter the order and I say, okay, well what’s your ticket number then? Because they could have 50 CTAs calling in, and it’d be like, oh, it’s ticket 219. So I’ll write ticket 219. I talk to Gerard, blah, blah, blah, and then I’ll leave it in.
Then I wait for the phone to ring. If the phone rings and they say, I got a fill, I’m like, perfect. I already have my protective stop order written out, and I’ve double checked the math 10 times till Sunday, and I’ll say, okay, thank you. What’s the price? I’ll write the price. Sometimes it’s a blended price. We have sufficient slippage and skid to get our orders filled most of the time, and I’ll say, okay, I have another order for you. So I’m going to sell one five New York, and here’s my protective stop. Thank you. What’s your ticket number? This and that. And that has worked like a charm. So I don’t really make errors. It’s not that I make money all the time, and as far as like, well, what’s your biggest loss? Everything now is proportionate because it’s largely the same percentage at risk.
The numbers are obviously much larger, but the percentage of risk hasn’t really changed at all. So that’s that. So you learn from your mistakes. Obviously, that was a painful lesson to learn. It cost me some money. The branch manager said that he would eat half of it, which was a very nice gesture on his part. So it ended up costing me six and change, but I still had to do probably 1200 or so in gross commissions to offset that, right, because of the payout. So at any rate, in a world where everyone’s doing nothing but printing cash and showing you their Instagram reels and videos about how much money they’re making, I learned as it said, more from my mistakes many times than I did from my winners. So I thought you’d appreciate that story.

How to make a living a trading, trading one only hour a day. Guess what folks? You can’t. I’m putting you on. The thing is trading’s hard. I know there’s a ton of videos out there that tell you how you can use AI for this and that, or you can just do this one particular pattern on one minute bars in foreign exchange, blah, blah, blah, blah, blah, blah. It’s all bullshit. At the end of the day, I’ve tried every damn thing under the sun to make money because I had to. I was broke and after 35 years I’ve really seen it never ceases to surprise me. The creative stuff that the marketers will come up about, just how easy trading is. It isn’t easy at all. It’s fantastically difficult. Trading is going to test you on every corner of your life, 360 degrees.

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You’re going to be constantly under attack, your money’s under attack and your emotional constitution is under attack, and if anyone tells you that you can hack a system or that there’s an easy way to go around this, there’s not. Admittedly, you can get some insight, right? Oh, but Mike, I know the guy. I’ve seen him do that. Well, that’s awesome. Does he have 35 years of experience doing it? I don’t care about how much money he made last week doing something because in the short run, we don’t know if we’re good or if we’re lucky, and that goes for me too. In the short run, it’s very difficult to tell. All I can do is act consistently day after day after day, and then after many, many years, I’ll be able to look at my scorecard and say, okay, am I happy with what I’m getting?
What modifications do I need to make? But to go out there and try to tell people who are desperate to make it that it’s going to be easy if you just follow this one particular set of rules is not genuine and it’s misleading. If there is a way to be close to that, it’ll be in your preparation, right? Because the actual, when you think about it, you put in a few hours of preparation. That’s probably a good thing. If you run a trading system, you don’t even need that. The data is uploaded into your server through whatever data program you’re using. There’s a good one out of Florida called CSI Data. Then your engine, whether it’s Mechanical or Tradingblox for example, knows where the data is on your machine. You just hit F9 or whatever it is to run the thing, and there you go.
You’ll get the results spit out within a couple minutes. That’s about as much as you would need if you’re running a system, if you’re a chart reader, you probably have your chart book or your flip chart or whatever you want to go through, and you can do that preparation. So that is maybe how you can do it in an hour, but it’s not from sitting at the desk for hours. The entering stop orders to get in and out of trades is actually very, very easy to do. That part doesn’t take a lot of time. What I think is insanely difficult when you’re starting is to actually put up charts in any different number of timeframes and sit there and think that you can kind of see patterns. That’s very, very difficult to do, and if you’re doing that and you’re looking at multiple timeframes, and if you’re looking for convergences and divergences, you need years of experience in order to pull that off. Granted, if you’re in some kind of training program, the numbers and the results may be different from you, but you’re also probably paying 10 K or more for an education to get that type of wisdom. Those types of programs didn’t exist for me, so I had to do it myself and I don’t regret it. I learned a lot about myself in the process. I really wouldn’t want to do it any other way, but I think it’s not genuine to say for those that the rest of us who have to do it by ourselves for one reason or another, that you can do that. Now. Also, for those of you who might live here on the west coast and the opening bell is at 6:30 am or you start to trade earlier in the morning and you think you can get a few hours of trading in, I think that’s very, very difficult. So I’m not telling you to stop, but I would ask you to be realistic with yourself that the particular setups that you might need might not happen with that two hour window that you have before. You’ve got to get on the road and get to work. If you’re working from home, then figure it out, but you put a lot of pressure on yourself if you’re going to constrict the entire day of trading from 6:30 to one into a two hour window in the morning before you have to do your thing for your employment.
It’s just not the way things work. If it was that easy, everybody would be doing it and it’s not, especially on the short end. The estimation is that 94 to 95% of the people who try to make money trading in the short timeframes don’t make it. They don’t show up on Instagram. They don’t show up in social media because it’s humiliating and emasculating, right? Let’s face it. Are we going to say, “Hi, I’m Mike Martin. My expertise is in tax loss carry forwards. It’s like it came natural to me. I didn’t even have to try. I could lose money. It was nothing.” You know what I’m saying?
So yeah, “How I blew up my 401k in 25 easy steps.” You could have some fun with it, but I don’t celebrate the pain that people might be going through if that’s where you are. I know what that’s like. I thought wrongly that I could follow some gurus. I wrote about it even of one particular guy who I liked. I knew him very well when I worked at the wire house, and I wrote about that in The Inner Voice of Trading. You can get the audio book version for free. The link is in the description. I won’t blather on about it here, but I learned the hard way that if you’re going to rely on other people’s research, you have no emotional connection to it other than you’re paying a monthly fee to be in the Discord or this and that because you kind of want that payment and that commitment to absolve you from the duress that you feel. Well, you have to live with the uncertainty of making these decisions for yourself. Sooner or later, you’re going to have to have a come to Jesus where you learn how to be self-sufficient and you make those decisions and whatever amount of work it takes for you is the right amount, but to say that you could do it in 15 minutes or that there’s some algorithm that you can put to work, it’s very, very difficult to do. It looks easy on paper, but once your emotions start to churn and you start losing money, you’re not going to trust the very algorithm that you paid for and then you’re going to stop because you don’t like losing money, and once you stop even a system that has positive expected value, you’re probably going to be locked into a drawdown for a protracted amount of time because you’ve lost your nerve, you’ve lost your confidence, which we talked about yesterday, so I’m not here to call your girlfriend ugly. Try whatever it is that you think that you want to try, but just understand that trading in and of itself, especially for your first five years is very, very difficult.
Very, very difficult, and I wish everybody the best. I do my part in trying to speak to it here for free about the realities of it, whether you’re six months, six years, or 36 years like me, it doesn’t necessarily get any easier. I’m used to my process. That’s going to come with time. You’ll get there too, but you have to do it day after day after day and doing it day after day also means sometimes sitting on your hands because there’s no signal and you don’t feel the feelings of missing out or that you have to be in the game. There are times when you’re going to see things move, but it’s not your setup, so therefore it’s not a missed opportunity. You wouldn’t have been in the trade otherwise. I had to get over that one too. I’d see things move and say, how did I miss that? Go back to the drawing board again. Your work should be put into your preparation and that should be done while the market’s hours are not open.

Today we’re going to talk about how to trade with more discipline and without emotion. Obviously it’s very, very difficult to do, but I want to focus on preparation. I’ve mentioned this before. One of the ways that I was able to take emotion, which you can’t do overnight, but you can remove emotion over time once you get used to your routine. It’s just like your first day of school. You’re excited after the first, well, by the time you’re at midterms, you’re like, Ugh, trading’s the same way. So I removed the emotion decades ago from having a daily process, was talking about it a bit yesterday in how to outperform 99% of your peers. But in order to have the discipline, I think you need to know what you’re going to do before you actually need to do it or execute what it is that you need to do.

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You understand, and I’ve talked about the art of war. I’ve talked about: “Victorious warriors first win then seek battle.” By my having a plan that I knew I could execute day after day after day. Having that the night before, it gave me a great sense of confidence. And if you’ve listened to the show before, I’ve said that if you take a person with average ability really is dumb as the damn doorknob, but you fill them with a model that they can follow that has positive expected value and that they can replicate day after day after day, they’re going to have great success. When you can infuse somebody with confidence, they feel unstoppable, and that’s kind of what I want you to have for yourself. But you only get that when you know can count on yourself. You can’t count on people who are going to try to give you signals or tips and this, that, or the other thing.
You can’t count on in the Telegrams. You can’t count on the Discords. At the end of the day, it’s up to you and you have to follow your own drummer. You have to be the drummer. And so when I knew, and this all happened kind of by accident, right? Because I was experimenting, I didn’t really have anyone to help me. So in many ways I’ve had support over the years for sure. But all my trading stuff I learned by myself through massive amounts of trial and error, capital on the error. There’s a lot of it. So to detach the emotion from things, it really came from my being prepared, at least for my temperament and my emotional makeup when I knew at least I had a plan coming into the next day. I didn’t feel so, I don’t want to say unprepared, but I didn’t feel clueless.
I didn’t feel like I didn’t know what I was doing. I felt like even the best traders could see themes unfolding. They could see patterns emerging, not just chart patterns, but patterns in consumer behavior, patterns in the cyclicality of the commodities markets and the secularity of the equity markets. So that’s the kind of data that I studied more than chart patterns. That gave me a sense of confidence so that I felt a lot closer to my goal at that point, and that was really important. I know everyone wants to say like, Hey, you can just make all this money working one hour a day, but for me, if that’s the case and work an hour a day, it’s the hour in the evening that I prepare for the next day because now I know always what the worst case is. That to me, I always had to define.
I knew that if something was going to win, there is a certain knack to how do you handle winners. I personally think that that’s the hardest trade is how do you take winners? When do you know you should take them and not live with regret? Because then you could see the thing move on, and it happens. It happened to me two weeks ago. It’s the way it goes. You get knocked out of a trade. You did the best that you could. I did the best that I could. I’ll speak for myself, and we can’t predict things. So I let go of all the emotion around that, that I should have some type of predictive ability. And all I knew was like, okay, if the thing’s going up here, this is where I want to enter long. I know that’s where I could enter my stop.
I knew how much money I was going to risk on a per trade basis. Therefore, I could position size and know the number of shares or contracts if I was looking at commodity futures or puts and calls, and then where’s my protective stop. That to me is a complete program to get started. Once you start making money, then you’re going to have to apply a little bit of art and science to it. I know a lot of folks like to take things off at 3R. It’s probably a good start until after a while when you see things go. If you looked at Nvidia breaking out at $500 with $15 ATR, if you took it off at 3R, it was good trade. You made your money, you made 3% or whatever, or no, you made more than that. But what did you do to get back in after it kept going? So these are the types of issues that I had to deal with and learn about from lots of trial and error and risking real money, not using simulators. Again, I was lucky in that there weren’t a lot of simulators around at the time. I had to kind of create my own macros on Lotus 123 to kind of run the trading rules. So it was such a pain in the ass, but man, I got through it.
Having the discipline to me is being able to repeat a process day after day after day, even though you don’t know, because there’s uncertainty and the uncertainty can hit you a couple of ways. We talked about it a little bit yesterday. I wrote about this, by the way, in The Inner Voice of Trading, which I wrote in 2011. I give away the audio book for free. I was published by FT Press, like I said in 2011. It’s got over four star reviews at Amazon. The link is in the description if you want the free download, and I talked about the trials and tribulations about how I got my head kicked in basically for four years trying to figure all this stuff out. I kept really, really good notes about what my expectation was, what did I think was going to happen, how I felt about things, and then how did it actually play out? And then I was able to go back and double check like, well, why did I think it was going to behave the way I thought it was going to behave when it actually behaved this way? Where could I clean up my own analysis? And this was something that I did every day. I knew I wanted to learn a lot about myself. I knew I was the weakest link in my trading. It’s not the market’s fault. The market doesn’t even know I’m participating. Whether you’re institutional or even retail, the market doesn’t really know that you’re there. Sure, in the short run, you can push a few things around, but it’s not personal. Whenever I lost money, I didn’t take it personal. I didn’t feel like the market was out to get me.
And I knew because I knew math, that having positive expectancy was a huge edge. Once I knew that I had my rules, had positive expectancy, it was now a function of tweaking those rules and trying to make them a better fit for me emotionally. I wanted compatibility between what I knew how to do and what I thought so that I could replicate that again day after day after day with without going through histrionics and even to take tranquilizer like Michael Marcus did. So at the end of the day, if you do this type of behavior day after day after day and stop worrying about your p and l, you’re actually going to grow a lot as a human being because you’re going to be able to emotionally detach from the outcome and attach yourself to the discipline of your process that you can replicate day after day after day.

Hey everybody, it’s Michael Martin. Thanks for being here. I’m a Los Angeles based trader. If there’s one thing I could have told my younger self that it took me years to kind of understand where I would want to outperform 99% of my peer group and kind of make it to the pro ranks, this is never fall in love with the outcome of a probabilistic event, right? It’s so hard to do. I admit, when I was younger, I didn’t have any money. I needed to grow my account very, very quickly, and I wouldn’t throw temper tantrums, but I would certainly get emotionally invested in the outcome because I needed it to happen very badly.

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When you’re trading a system and you know that it has positive expectancy or positive expected value, and you can stick to your discipline, the best thing that you can do is enter your stops and follow your rules day after day after day. Because even if you go into a drawdown, rest assured that if you follow a system with very simple rules that has a positive expectancy, it’s only a matter of time before you make the money that you want. I’m going to say that again. If you’re following a set of rules that has positive expected value, your goal is to take every attempt. You can’t sit there and try to figure out which one to take, which one not to trade. That’s why I try to say simplify things, focus on one strategy, and then have the discipline and the emotional fortitude to just replicate that trade day after day after day, across many, many instruments.
If you’re looking at one particular instrument, you might become emotionally invested in needing to make it with that particular instrument and force yourself into traits that you really have no business being in because you have to find something that fits on that particular instrument, contract number of shares, what have you. So man, and it wasn’t like I had anger issues at all. I’ve always been kind of even keeled. I like to have fun joke around, but internally with my inner voice, I would chew myself apart. How could you be such an idiot? How come you’re taking profits too early? I never really negotiated with my stops. I would test to see if my intuitive strengths were there or not at times. Most of the times they weren’t. So I really honored my stops, that’s for sure. But man, by not getting my hopes up, how many times you hear that when you were a kid, don’t get your hopes up.
Santa might not bring you this and that. By not getting my hope, hope, let me say it again in English, without getting my hopes up on any one particular trade, I learned to just take everything in stride. And then I became much more even keeled about my trading because I was like, look, tomorrow’s another day. The best thing I can do is follow my setups, put my trades on, or sometimes I had systematized rules for certain CTA programs that I was running. I can get into that a little bit later if you’d like, but follow my setups, follow my rules, and just realize that we’re dealing with probabilities and on any given day, anything can happen. The thing that I have to do, and this also helps your outperformance, is if your peer group or your cohort are renegotiating their stops or adjusting them down, when the move is coming against them, there’s a higher probability that they’re going to lose money.
The best trades tend to start making you money right away. So if you’re able to take losses quicker, then when your system hits, meaning it’s amenable with what the market’s showing you, you have less that you have to earn back to get back to your previous high watermark or your breakeven, right? In other words, what you don’t lose, you don’t have to make back and you get to profitability. That’s really how you get to superior performance. So in that, keep your stops in, make sure you honor your stops, but just take it one day at a time. The winners will come. I promise you that the winning streaks will come and you’ll be like, I don’t even know what the hell I’m doing. Not in the sense that you don’t know what you’re doing, but I’m not doing anything differently than I did two months ago when I was in a 5% drawdown and now all of a sudden I’m up 17%.
That’s how it happens. But here’s the key. If you start to negotiate with yourself and be lazy on your stops and not keep your discipline, that’s when you can get into substantial drawdowns and that can really hurt you on your performance, and that’s when you find yourself down 25%, 35%, and that’s kind of hard. Now you need to see a big number on the upside to get back to breakeven. A few other things is consistent position sizing. I know that there are, in the shorter term space with scalping and day trading, swing trading, there’s lots of colorful language that people use in, here’s my scalp unit, here’s my swing unit, here’s my day trading unit, and without any proper training, and if you’re doing it yourself, I, I would really cut all that crap out and focus on one thing. What are you really good at?
Even if it’s just a hunch at the beginning, focus on one thing if you’re trying to do too much, this also can feed into you becoming like I’m emotionally invested in the outcome of the trade, and that leads to frustration. Without a proper process to deal with that frustration. Maybe because you have expectations about how things should go, that’s when you can start to get into trouble and start doing stupid things with your money, right? Frustration leads you to not have discipline to want to revenge trade. They want to renegotiate your stops, and that in most cases makes things worse. At least it was for me. So don’t become emotionally invested in the outcome of any one particular trade. Tomorrow is another day. Your goal is to be able to make this a marathon and be able to come back and play tomorrow. You don’t want to blow up and get into a spot where you’re despondent because you’re in a 40% drawdown because you thought

You were going to play He-Man with the market. That will always work against you. Very, very few people can do that, and if they get away with it, it’s lucky, and then it’s actually bad because it teaches them what to do. But if you don’t get your hopes up, it helps you focus on your process. Then you just take every other trade in, every signal, I should say, every setup, whatever it is that you’re using, chart pattern set up, mechanical set genome trading rules, you’re kind of placated. You’re like, okay, let’s see what the market does today. The best thing I could do is stick to my discipline and put the trades on. If I don’t go on tilt, that’s a good thing. So I don’t want to think about the outcome and start daydreaming about how great life can be. That’ll all be there in terms of your having a goal and you’re kind of coming into having a vision for yourself, but the vision of how you want your life to be different in the upcoming year is going to come from your constant or your consistent behavior day after day after day.