I meant to say something earlier this week. If you wouldn’t mind, take a minute or so and go to whatever platform you are listening to the show on and consider leaving a review. It doesn’t have to be the Oxford English Dictionary, just put it a couple sentences, something that you think resonates with you while you benefit from the show or how you benefit from the show and how other folks might benefit. That helps me grow the show, grow the audience, even though we’re going to be moving over to other platforms that would actually help us grow the show, it’s still all adds up. Also, if you’re new to the show, thanks for being here. I’ve been given away the audiobook version of my book, The Inner Voice of Trading to folks to help them with their trader psychology and their emotional intelligence around managing risk and trading.

And today I want to follow up with something I said yesterday about having to handle all these rules. I think with some of the software, you can use trailing stops to limit the pullback. You might get knocked out of a lot of trades, but if your goal is to pass some kind of trading test, you want to limit your drawdown because you might have a $6,000 profit target with no more than a $3,000 drawdown. You have to say to yourself, okay, unless I put on the next trade and it grows to back up to $110k, then my equity stop is at $107k and once I trade below $107,000, I get knocked out of this evaluation period. So then you have to figure to yourself, how are you gonna break up that $3k? Because it’s not any, it’s no longer a [%-based] risk unit based on a $100,000 or $110,000.

It’s really how many trades can you put on before you exhaust that $3,000 trailing equity stop before you get knocked out? And that kind of goes against what I was saying of how most people do their trading is they’re not risking a flat dollar amount. That’s the bullshit tier stuff. You don’t need that. So again, it sets up a bad habit that you start thinking in dollar signs and then not percentages. And you need to think in terms of percentages. First of all, it’s what the pros do anyway. And two, you want to be able to be, it helps you detach emotionally from each and every trade. If you start thinking in dollars and you come from say, a working class background, you can start to say, wow, there goes a $500 loss. Here’s all the different things that I could have done with that money.

I hear that quite a bit actually. So unfortunately the rules are set up the way they are and it’s not my program to change the rules, but it does to me set up an unrealistic way of managing risk. So think about using trailing stops. I don’t say stop loss because if you’re making money, you’re still up. You can basically put a trade on and say, okay, look, have, if I have 10 different trades with a $300 loss, I will get knocked out. So maybe think of it that way. And then when you put trades on, think about risking smaller amounts of capital. Admittedly, this does a few things though. It gets you thinking about timing the market and it gets before you might not have any skill on how to do that. And it also gets you to think about from day one, you start trading with scared money and it’s hard to make money when you’re trading with scared money. You have to be ready, willing and able to lose in order to make right. So I think when you do this, you would want to very, very quickly put your stops in and then adjust your stops as fast as possible. This way, whenever there is a bit of a pullback, you don’t get knocked out. So then again, if your account goes up to say $112,000, your new stop on your equity is $109,000.

So you have to definitely ratchet up your protective stops on these types of trading things so that you preserve your capital at that point, or what I would call your equity stop is like a trailing $3,000 from any previous high. So they don’t allow for a drawdown that exceeds $3,000, I guess is what I’m saying. So you have to be super careful, even though you’re making money, you might not pass the evaluation period if you eventually have a cumulative drawdown of more than say $3,000. So adjusting your protective stops and putting those things in is really paramount importance in order to pass these evaluation tests. Again, it’s not necessarily how I would recommend that you trade based on dollar amounts, but you have to do what you have to do if you don’t have any trading capital, and this is one of the ways where you want to kind of get it done. Okay, folks, that’s all I have for you today. I’m done for this week. I’ll see you Monday. Have a great holiday if you’re in America, and if not, we’ll certainly be having a piece of pumpkin pie for you and I’ll see you Monday. Take care.

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So today I wanted to talk about these funding sources again as I’m learning more about them, I don’t have accounts with any of them, but I know they’re becoming popular. You now can see advertisements from them all over the place and they’re running all these kinds of specials where you’re looking at, I don’t know, 50 to 80% off.

It’s kind of hard to avoid looking at the appeal of that in terms of the fees, but I want to come back to what’s really happening behind the scenes. Because someone heard the first episode where I had spoken about this and then came back and said, Hey, isn’t this really just a Ponzi scheme? And the answer to that is no. Because a Ponzi scheme to me would be one by which someone said, Hey, I’m making investments with this money. Here are the returns. You ought to invest with us. And then that investor gives the manager the money and that money goes to either lavish lifestyle cars, you get the picture or paying some returns to previous investors.

These models are more like you’re paying fees, you’re not really prop trading, you’re kind of paper trading according to some very strict rules. And once those rules are adhered to and goals are achieved, you’re given access to another level of an account and perhaps then even a third level of a level of account where there might be real capital at work. What I really believe is happening though is that there are a lot of folks who are paying fees, which are fees, they’re not investments, they’re fees. And those fees go to pay out the winning.

So it looks like a lottery more than it does a Ponzi scheme. I think if you don’t have any trading capital or you don’t have the wherewithal to go asking other people for capital and raise money because you’re afraid of rejection, you don’t like sales, any of the million reasons why you might be have limiting beliefs and want to hold yourself back because it feels more comfortable to be where you are than to change, this is an option because all you have to do is fill out some paperwork and give them your credit card.

But the rules with at least one of them was, I thought it wasn’t suspect but it was kind of suspect. I’ll give you an example. There’s one of them out there where you have a trading goal of say $6,000 based on a $100,000 notional value again on paper with a drawdown, any drawdown no greater than say $3,000.

So let’s say that you put on some trades and that they tell you the instruments you can trade and let’s say that you take your account up to $110k, so that is $10,000 in unrealized or realized gains. Once you’ve achieved that, you are, you’ve hit the profit threshold, they want to see you trade a minimum of 10 days per month so that you can’t just roll the dice, get lucky on your first trade or have skill on your first trade, make all your money then and then stop. They want to see consistent behavior, at least that’s what they say.

I’m not a spokesperson for any of these places. Some places want to see you can trade 10 days consecutively, which doesn’t fit a lot of people’s trading style. Because if you’re not trying to day trade, then you have to kind of become one and do excess activity that doesn’t fit your temperament and your personality. So anyway, out of the 25 or so trading days that you have every month, they want to see that you’ve traded at least 10 different days. Not consecutive days but 10 days.

They also say if you make money on the natural gas contract or the NASDAQ futures and you’ve hit your goal but you haven’t traded 10 days, that you cannot trade the micros or the minis to avoid losing bigger money because you haven’t put on 10 days of trading. So that’s not practical because in the real world that might very well be a strategy that you do. So they kind of otherwise keep you from good trading tactics. So I’m not for that policy.

The other one, the next policy though is one that I find to be even more striking and kind of damning and that is this. So say for that I was longer short natural gas and my account went to $110,000 again on paper, paper money, I have $10,000 in realized gains. I’ve met the profit threshold of $6,000 and then I enter more trades at which point the drawdown is $4k.

So in these circumstances you’re likely going to get knocked out and have to re-up your account for another attempt because the ratio that they want to see maintained at all times is 2:1, which means if you make $6,000, they don’t want to see more than a $3,000 drawdown. So you can put on that same trade that takes your account up to $110,000 and then have a trailing stop and say you get stopped at $106,500 here, you did good trading, you had a trailing stop, you made money on the trade, but because the drawdown was more than $3,000, you get knocked out of the test account and you have to pay another fee to get back into it. So this to me isn’t terribly practical because again, it rewards what I would consider bad behavior or not necessarily profitable trade trading. And so with most people not being able to probably overcome those types of hurdles where you make X amount of money but you also have a drawdown that’s greater than what they’ve set up artificially, it puts you in a tough spot to stay in winning trades.

So then you are in fact lucky one day or a couple of days, which is really no way to trade. You can’t trade on luck, you have to let the market do the work for you. So I feel like this is a good way to keep harvesting fees because if I’m only charging you say one to $200 or anywhere leaving with all the coupons that they have, it’s $200 or less. Sometimes it’s 80% off. So on a $200 product or service you pay down, what is that $40. Most people don’t look at $40 as that big of a deal. So they’ll keep saying like, okay, I’m going to do this month after month after month and this goes into the kitty to pay off the folks who win. You see, because most folks aren’t going to have the discipline that it takes. So again, it’s not a Ponzi scheme, but it is a bit of a lottery where people chum in some money and then those who meet the standard get paid out from the fees that people are paying in.

I don’t believe any real money’s ever at risk and you can count on 90% of the people losing because only 5% of the folks who do this make it anyway. So you can count on all those people basically blowing up and add the equivalent of they say 80% off for life. So you add $40, it’s $500 the year they look at it as an extra cable bill or for the opportunity to get to trade someone. Well they say money, but it’s really not money, it’s paper trading money. So just be aware of what’s going on those rules, although they look like, well two to one, certainly popular in terms of R or but not terribly practical.

Certainly for my type of trading where I would definitely give the thing much more room I wouldn’t get spooked if my equity ran up to say $110k and then over the next few days drew down to $105k. That doesn’t upset me. Maybe it upsets you, but I don’t have that kind of feeling in my stomach that would bother me from doing that. So just read the small print and be careful. I would not sign up for six different accounts and say, well all I need is one of them to hit because usually you have to jump through a few hoops to get there. So I would rather see you focus on one strategy to get you to pass the threshold and then take it to the next step.

As always, read fine print because that’s where all the details are and figure out if that’s a good thing for you because I can’t tell just by looking at the place every time I checked out one of them, there were all these specific rules that seemed to, I guess turning the thing into a bit of a contest. But on the other hand, it also put in some rules that I didn’t think were all that fair on some level and seeing as how they’re not really giving you money anyway, they’re not coming outta their pocket, they’re just reallocating the money from other people paying the fees.

Okay folks, like I said, I think tomorrow will be the last day this week because we have holiday here and I’m going to take a few days off. Certainly have plenty of other things to do and I will see you tomorrow, but then I’ll be back. I’ll be off the rest of the week and I’ll be back the following Monday. Thanks for being here folks. I’ll see you tomorrow.

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Everybody happy Monday. Michael Martin, here it is a holiday week in America. So I think I’m going to end up having a short week, which means we’ll probably have episodes today, tomorrow, and Wednesday. And then we’ll pick it up the following Monday. It is Thanksgiving holiday on Thursday and it’s a big deal here. It’s kind of the beginning of holiday season.

So anyway, I have a few things though. I’m going to do some follow up this week just to kind of answer or re-answer some questions with some more data, if you will. But first I want to give a shout out to my friend Alice in the UK. Thank you for all the wonderful things that you’ve said about me in the show. It means a lot to me, more than you’ll know and keep listening. I hope to meet you one day.

Anyway, the question came in about reading books and this and that, and I’m definitely looking forward to some books that are coming out. But at the end of the day, for the newer trader, when you are learning your craft, you should be doing the trading. Even paper trading is better than not doing something. The key, again with paper trading is that you’re not really losing real money. So your emotions are not necessarily getting amplified the way they would when you have real risk going. And I have found, or I certainly have evidence from some people, that when you are in Discords and when you’re reading books, you’re doing things to avoid the feeling of the actual trading.

Now, that might not be true for everyone, I admit, but more times than not, when I’m speaking with folks who are just kind of starting out and they’re like, well, I got this book and when I’m done with this book, I have these three other books, and I’m like, wait a second, you ought take it easy with the books?

Read one book, take two or three ideas out of it or however many you have, and then put those ideas to work, backtest them, trade them, because there is no magic set up. There’s one or so that might really resonate with you, and that’s my experience. Most people aren’t trading seven different setups. They have one or two indicators that they look at, if any. I don’t use any myself, but other people do. I tend to think that the price kind of tells you everything that you need to know, and the indicators typically kind of confirm what you can already see in the price.

Some people need reassurances, not just in trading, but in life. And I think the best way to build one’s confidence is to actually do the trading, realizing that people typically have loss aversion and they’re risk averse and blah, blah, blah. So with all that, you have to realize that your initial grub stake in trading is really just points in the game. You can’t really take risk without losing some money and not take it personal. So I would put myself in the emotional standpoint or in the place that I could lose all this money and I’m still going to be okay. because if you try to avoid trading, you really rob yourself of the education because you only get the education, the real education as far as I’m concerned, from managing real risk. That’s where it all kind of happens. And I thought about that for a long time because I thought, well, maybe people shouldn’t trade until they know what they’re doing. But it’s a Catch-22 because you really don’t know what you’re doing until you go and you’re try and you do it right.

It’s like anything in life that comes from experience or that’s experiential. You can talk about sex all you want, but until you’ve gotten naked in bed with somebody, it’s a whole different ball of wax despite how much you’ve seen in television shows or how much erotica you might read. So same with trading. You have to get into the game, start managing some risk even with a small position size so that you can see and feel how you’re going to react to losing real money. Then you’ll find out also how do you feel about making money? Are you going to be one of these hair trigger guys who take your profits too soon? Or are you going to let the thing run and let the market do the work for you?

So if you find yourself in the spot where you’re looking for a new video channel, a new discord, a new book, a new course, you might really just be doing something to avoid the feeling of losing the money in the first place, which is really what’s holding you back, not the lack of information. Anyway, thanks for being here folks. Please consider subscribing. And if you haven’t already gotten a copy of the audiobook version of my book, The Inner Voice of Trading, you can get that at MartinKronicle at the top right corner.

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Hope you’re doing well. Hope you have a lot of fun plans for the weekend. Get your mind off the markets. So we talked about mental attitude and then journaling and then using certain language with yourself to try to tap into your subconscious. Because oftentimes you might be compelled to do certain things and you’re like, Why did I do that? You don’t have a really good answer for it. It could be because it’s coming from learned behavior that you picked up in your youth and you’ve learned to have this type of self talk with yourself, which doesn’t actually help you. Sometimes it’s from an overbearing parent, you couldn’t do anything right? I have a friend of mine in the northeast who’s kind of undoing a lot of that now because caused a lot of self doubt because he had a parent who was a little overbearing and always reminded him about how he could be doing things better.

And so when you feel hand pecked like that, you start to do it to yourself. And so be mindful of the self talk. You might even write that down and then investigate like, okay, where did that come from? Why do I speak to myself in a way that I wouldn’t let other people speak to me? Because when you come to the marketplace, and I didn’t certainly invent this, but I’m really good at understanding it. You might be playing things out that have nothing to do with trading, might not have anything even to do with making money, but it could be to try to either heal or to better understand the kind of things that you picked up from your nuclear family in the environment that you grew up in. So that can help a lot in your subconscious because when you go through that, if you have an overbearing parent for example, and you go over it day after day after day for whatever could be up to 18 years before you go to college or something like that, you have so much learned behavior around that that it kind of became in the background.

It just was there all the time. And you stop to notice it. It’s like after you put on a spritz of cologne or perfume after five minutes you’re like, Did I put on perfume? Everyone around you? It’s like, yeah, what did say one application per bottle for the love of God? And you’re like, Yeah, I’ve become kind of immune to it. You’ve become unaware of what everyone else can kind of see. It’s very difficult to do. So at the end of the day, if you write that stuff down, it can be very, very revealing. Maybe not right away, but over time you could say, Okay, I said this to myself today after I got out of a winning trade.

Is that or is that me replicating something that I picked up from my household when I was growing up? Especially a valuable to you if it’s negative talk, it could have been things like, why are you trading? It’s legalized gambling in, that’s like when you’re older, when you can look back to your youth. Did you do well at certain things but always get advice about how you could have done things better, faster, this and that, as opposed to just being loved and understood for who you are. I’m not saying that it’s easy to be a parent. Everyone reads What to expect when you’re expecting, which is the big book, and then after that there is no playbook. It’s completely winging it. You’re flying by the seat of your pants and you kind of have to make it up as you go. You try to be consistent if nothing else, but there’s really not a lot there that can help you.

And then you get into all this kind of political stuff in the family and so has certain opinions about how you should do stuff. And then especially with the in-laws. Both sides of the in-laws have ideas of where you should go, where you should live, how you should live, what you should do for a living, how you should raise the kid, how you should discipline the kid. And it’s like, listen, it’s my kid, I’ll figure it out. Thanks for the input. You have to draw boundaries that you might not have been able to draw when you were younger, but if you had that kind of meddling parent, which to me, look, I’m not saying something, but I am saying those are the worst people cause they think they’re loving you. I teach Jiujitsu class quite a bit and you can see some of the parents walking out with their kids and they’re super competitive parents.

They’re like the notorious baseball dad…” I’m spending all this money on hitting lessons and you can’t get the bat off your shoulder.” That doesn’t help the kid. It just humiliates them and that doesn’t make them want to, you know what I mean? It’s like the leader that want, Do you want the people to love you or to fear you? You’re not going to get the best out of people by intimidating them and brow beating them, so don’t do it to yourself. You are probably perfect just the way you were given everything that you could possibly know growing up.

And so it’s very tricky when that stuff to show shows up in your trading. You might be trying to demonstrate something or teach. Imagine if you were trading because you wanted to prove your parents wrong. Is there another way to do that without putting a lot of capital at risk when you perhaps don’t know what you’re doing? You see this stuff is crazy deep and it’s in your subconscious. So unless you put some time into really thinking about it, especially when you think about what emotional needs are being met here.

Are you trading because you’re giving a loved one or a parent the big middle finger that becomes expensive. It’s an expensive way to do it. But this is the beginning of how you can uncover what’s going on in your subconscious and why you might need that $150 win. Is it because you want to hang it on your refrigerator and get the gold star so that you can get your parents’ attention and their praise, for example? You can fill it in with whatever person and situation is going on in your life, but that’s kind of like the analogy.

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So there’s an old joke in the real estate market when you go in and looking at a spot with your husband or wife and what are the worst words you could possibly hear is “honey, I love this place” because then it’s not a function of negotiating for the price, it’s the person who’s emotionally invested and needs to get the house at almost any cost.

So there’s a kind of similar situation in trading when you’re in a position and it works against you and you hear or you say and you’re speaking with somebody or you’re kind of negotiating with yourself and you’re like, “well let’s wait and see.”

This expression is going to open you up to untold losses because if you’re in a spot where should be taking profits but you don’t want to because you’re afraid that thing’s going to rally in your face after you take the loss or get out flat or whatever it might be, realize like that’s an early indicator for losing a lot of money when you get into that space.

I would almost make that a rule. If you have this hair trigger response, which I know is a sensitive term for many guys and you find yourself, well it’s not really working out, it’s not losing me money or it’s not losing me a lot of money, I’m just going to “wait and see.” Now you’ve become an investor. And whereas I do believe trades can become investments, especially if they’re up. You don’t want losing trades to become investments. But I’ve held winning trades in the futures markets for six weeks or more. Same position. So I don’t want to hear anything about how you have to offset stuff at the end of the day. Yeah, I know some of these funding platforms force you to get out of trades, but for the most part, you’re going to be better off holding onto your winners in your own account for as long as you possibly can, because the market will do the work for you.

There was a time in, I think it was the March Sugar of 2006, that thing went parabolic and I had been buying it from 8, 9, 10, wrote it up to 14 and I didn’t get out of the trade late September. It was late September through October where I was adding and then I didn’t get out until early January and I got stopped on a piece because I was trailing my equity. And then several days later the up trend continued and I actually came in twice as much at the time it was trading at historic highs. But those instances are out there where you can just ride the thing for as long as possible.

Position size to the point where you can withstand emotionally the daily swings. A good thing to do too is to get off of the machine. You don’t have to sit and watch it all day because that will induce you to do stupid things with your money. You think it’s putting you in control, but it actually works against you as far as having things work against you. It reminds me also to bring up the concept of time stops. If you put on a trade and you bought something at 25 and it’s sitting there for two days, it’s time to go because whatever you thought was the catalyst – presuming it’s a trade and not an investment – whatever you thought the catalyst was, it’s not working. And so you have to offset the trade that’ll save you a lot of money. It seems like you did a lot of work for nothing, but the main thing is to play superior defense, and that means to preserve your capital.

So if you find yourself in the mindset where you’re like, “Well, let’s wait and see how it goes,” you’re kind of delegating responsibility to some non-existent person in the future when you should be doing that. Taking action right now, especially if the thing is down. Good trades, meaning profitable trades start to make you money very, very soon right away because you’re buying with other buyers. And if that’s not happening, you have to look not necessarily at the price, but what are your criteria for entering and adding risk to your portfolio? So again, I find that very, very valuable. If you’re kind of lassez faire about something, you have to remember there’s money we’re talking about.

And if you’re going to be lassez faire and be like, Well, we just wait and see it. It seems to be a negotiating tactic that people use with themselves to kind of stop from doing what they should be doing, which is taking out sub-optimal trades out of their portfolio.

Anyway, keep all the questions coming, folks. I appreciate it. I don’t have all the answers. I only have those that I can speak to from my own subjective experience and if that helps you, then great. But I always appreciate the feedback and the new questions. Thanks for very, very much for being here, folks.

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