Hey everybody, it’s Michael Martin. Thanks for being here Friday’s episode, hope you had a great week and you have fun plans for the weekend. Please like and subscribe. It gives us good data. It helps us with understanding engagement, so let’s take a look at a couple of little odds and ends that I can kind of put together. It’s kind of like a smorgasbord of comments or questions this week. I think I did a good job with the earlier episodes this week. Wouldn’t say that, and this kind of came in as a fragment of a comment where they heard me describing something and they said, I can infer that you’re a discretionary trader. And so I mean, that’s not the case, but it’s hard to refer to a trade that you were in and not really refer to the chart or refer to a trade in an after the fact kind of manner and not really refer to the chart, which when you listen to it, you’re like, oh, he’s reading charts. Now I have a pretty good sense of timing and how other people are going to behave. That’s more or less how I do it.
But after so many years, I can also, if you pulled up a chart and looked at it or asked me to look at it, I’d be able to see in an instant whether or not this would be on my radar or on my watch. You would call it a watch list. I would call it as the computer being able to pick up whether or not this would be a name that we would be in anytime soon because I wrote the code, I wrote the system, I know how it works, so I can look at a chart and say, this wouldn’t be a candidate for me. It would be, but I can see it and look at it like it’s a foreign language and say, ah, I noticed that those words, that’s Portuguese. I noticed the words. Those are Italian. I noticed the words. That’s Chinese, which you could speak it in Mandarin or Cantonese so I can look at the chart and see who would be into that particular trade.
Not day traders. I don’t care about, like I said, the small time stuff, but where bigger the institutional moves are going to come from. So that much is absolutely true, and I think it would be reasonable for a person to hear me speak about a trade after the fact and think in listening to me that I was in fact sitting there reading charts. I don’t do that. I have looked at charts, but I mostly do it at night if I do it and just to get an overall tenor of where the market is and how things are behaving as their follow through. I’ve developed that skill, but it took a long time to do it, but I’m not sitting there looking at charts intraday. I don’t. I have better things to do with my time. A few other

Folks are wondering like, okay, if you don’t use sell limits and you have a protective stop in that you trail or you trail structure again, because there’s a couple of ways that you can do it to take your winners off. To me, a reversal is when the market is telling you that the move for whatever it was worth is over, at least in the short term because those are different than stalls, which to me would be if you’re looking at some type of phase two uptrend, you have bases where the thing trades horizontally for a while before it breaks out to the upside. That’s something different to me. A bonafide reversal is when the market is saying the buying, at least in the near term as evidenced by the data, is showing us that more sellers are kind of coming in at these levels. The buyers have dried up, and so in order to have distribution, market prices have to drop in order to clear the market, and then you have to look at the volume which you can study.
So if you were interested in learning how to hold onto your winners longer, you could go and do that trail structure and adjust your stops higher trail with a percentage based protective stop and then to not get sucked back into the trade from an emotional standpoint, you can really look at reversal. There’s probably a few ways to do it. Victor sio wrote about it what he called his two B, as in the letter B reversal in methods of a Wall Street master. That would be an interesting place to start. Or if you looking at basis within phase two style uptrends, then you could count, sometimes you can get lots of bases. On average, I would say there’s probably four or five in a solid kind of level two, phase two uptrend. So after you can count those legitimate bases, which is a bit of an art and a science I’ll admit, you might see the market get toppy and the base five gets super messy and it gets super wide.
You’ll see volatility kind of grow and expand at market highs like that. So when the volatility kicks in and you’re still in the trade, we talked about it yesterday or the Tuesday, I can’t remember from one day to the next, you can use that as a time to trim, right? Because that is an in-flight mechanism. Trim your position a little bit. If the volatil spans and you’re still making money, you can do that and have it as a bonafide system rule and or figure out where is the support in that fourth or fifth or sixth base in that otherwise uptrend, because sometimes news hits the tape, it causes a scatter, a bunch of opportunity for people long and short, but it doesn’t necessarily mean the move is over. So I think the position sizing part in the managing of the trade and your ability to make money comes down to can you withstand the ebbs and flows without watching it tick by tick.
You see, that could be very, very helpful for you if you’re learning to try to stick with winners. Now again, if you’re looking at a chart that is exhibiting this type of behavior, get the open, high, low, close and volume data, maybe the open interest if you want to look at that too. If you’re trading futures and just look then what happens in terms of percentages of the underlying price movement day to day in each of those bases as the market’s moving higher, what would those changes have looked like in your account balance? If you had n units of risk based on a volatility adjusted position sizing algorithm, because then you could see that you can then calibrate your position sizing with your emotional constitution. The more, as they say, if you can’t stand the heat, get out the kitchen, right? So you can calibrate your system or at least get used to it through practice and iteration the different styles of vol when they kick in.
And then you could have the tools in place ahead of time that would be systematic that you could adjust your position sizing even if you were risk on risk off, which just means you buy one risk unit, you take it off. You don’t have to add. It is possible that as long as you have more than one contract, that you can still adjust your position and stay in the trade where you’re not necessarily taking a winner or a loser, but you’re just trimming the hedge and you’re adjusting the position size based on volatility. I told you a couple of days ago how I do it. You can find a way that works for yourself and hopefully that’ll be awesome. Anyway, it’s been a good week. I appreciate you all being here. Keep the comments coming. I like to engage and provide content that you find is valuable as you go through this. It is doable. I think you can learn, I think it’s harder to develop a feel. Some people, they were always picked last in gym class, and it’s not to be mean-spirited, but they just weren’t coordinated. So it might be the case that you know somebody or maybe you yourself are having a very difficult time

Developing a feel. That could be time to pivot and try something else. Try another strategy. But I do know this, if you’re going to do trading, you need to make sure you’re getting paid, and by that I mean you got to make big money. Don’t do this for nickels and dimes. Don’t wake up thinking 200 bucks a lot of money, even if your account is smaller and as a percentage of that account, it might be meaningful because words have power, they have meaning, and if you attach that meaning to it, now all of a sudden there’s more importance to it. There’s more importance to it when there shouldn’t be. So you really have to do this is really a game of mindset. Self-awareness, traitor psychology, emotional intelligence. The how-to stuff is not terribly difficult. That’s why I’ve always said, if you don’t know who you are, doesn’t matter what you know. Need to know yourself. You need to know what makes you tick. You need to know why you’re doing what you’re doing, and don’t just go through the motions. This sh*t’s important. Okay? Anyway, appreciate y’all being here. I hope you have a great weekend and I’ll see you Monday.

What up rock stars. So question, comment came in about making adjustments to the trade while you’re in the trade and was that indicative of a system failure or not having a good set of rules to begin with? And so that’s a really great question. I think Blazin’ Saddles came up with that one. That’s not his or her real name, but I think if you’re pro, there are a few things or adjustments that you can make that I would say are within the parameters of professional behavior. And that would be one, there’s three. I think one would be you have your risk unit and you know what that is and you know what your R is and R is to me, kind of two things. It’s an ATR value and it’s all the amount of money that you’re willing to risk on a particular trade. So therefore you’re able to calculate the number of contracts or shares as your position size, what I call a risk unit, and you can normalize that across many, many instruments, although the number of shares and contracts might be different because you’re always conjugating it to volatility.
So say you put on a corn trade and it’s 13 contracts of corn and the vol is 20 cents. I don’t know, I’m making it up. And while you’re in the trade, you find that the vol expands to 25 or maybe 30. And so now when you look at that and you take that ATR value and you plug it into what you’re willing to risk on a trade, you can see that you might have to adjust the number of contracts down to 17 to have that volatility adjusted position size. So therefore you would go into the market and at the market trim three contracts off of your position. Did I say 20 contracts? Whatever number I said, I said the vol was 20 cents or 13, right? I said 13. So in this case you’d chop off three just at the market at your first instance that you could and go with 10 because 10 contracts with 25 vol might be the same as 13 at a 20 vol, right?
So trimming or pruning the hedges, as I would say is totally legit. Now, if your account’s up 50%, because you also have other things rocking and rolling, you can always say, well, my one half of 1% has grown, has the ball grown? So I might not have to make that big of a trim. And so if you’re looking at the difference between 13 and 12, that’s a discretionary call. If you’re a purist and you’re running a pure system, then by all means you’d trim that one extra contract because in the scheme of things it matters. But that come

From backtesting and fully understanding that that type of trader is 100% systematic. If you’re discretionary and you have a cast iron stomach like me and my equity in my account, remember I said you always have to trade your equity curve. I’m presuming that you’re trading with your defined trading edge, otherwise you’re acting out emotionally. And so I would probably hold it myself, but that’s because I have that temperament. I also know that if it does work against me and I lost incrementally a little bit more than I would have if a smaller position was stopped against me, I don’t get to bitch and bellyache because I know enough ahead of time how to make those decisions. You see? And so you got to be responsible and understand that we live in a paradigm of personal responsibility and whatever happens in your account is by your own doing.

Sometimes unfortunately, well, it’s not unfortunate, but sometimes you get to figure out why you do things only after the fact, and that could be seeing where your subconscious is kind of coming in into play without your fully understanding it from a conscious standpoint. So that’s what I would say about that part is that when volatility expands, it’s totally okay to trim the position you see and drop it down. It’s a little trickier when it goes the other way. When vol drops and you already have your initial risk unit on you just know that if your risk unit starts with, say in that example it was 13 and now vol dropped from 20 to 15, now you might be able to say that your R risk unit is now it could be 14, 15 contracts. So at that point you could increase if you’re adding to your winners, you could add rather than just going to the market for example, I would wait for the entry criteria to be met before you edit that. Now slightly larger risk unit, that too is an adjustment that is legit.

The second thing that you can do that might not even need to be said is adjust your protective stop. That’s a mid-flight kind of change, right? You enter your order, you’ve got your protective stop, and then you’ll have to figure out a rule whether it’s one ATR, a half ATR, or a dollar value, maybe you want to trail structure. There’s a lot of ways to do it. As long as you act consistently, you should get consistent results. So adjusting your stop higher, what you don’t want to do obviously is when it starts to move against, you buy something at a hundred, your stops at 95, at 96 or 95, 70. You’re not like, man, I don’t want to get knocked out and then I have to come back in my face. No one

Cares about that. All you can do in the ever evolving moment of now is protect your capital. Your job is to place superior defense. Don’t negotiate with your protective stops, especially when you’re losing principle rather than having the a hundred name go to 1 25 and you’re trailing with five bucks, stop, so you’re stopped at one 20. That’s a different game. So those are the three things. Adjusting for volatility when it increases, adjusting your position for vault when it decreases, and then adjusting your protective stop higher while you’re holding onto your winners. There could be another one in that if you really risk on risk off and you want to experiment with adding to your winners, you’re in experiment mode. So that’s like booting up your computer in safe mode. You might be trading one or twos and now you want to add one more just to kind of see how it feels to me.

You can do that again by looking at the data. What would it look like if after a certain point you added a contract, and then what did that do to your overall account balance? Because again, you want to trade your equity curve. There was another part to that particular comment that spoke about like if I was getting to a spot where I knew I would take off profits, I don’t really have those profit targets in mind. I don’t look at the charts and say I got to get out here, or if it achieves a certain level, I know I’m gone because I don’t predict the market, even though I have an enormous sense of intuition and a great feel for things, I’ve always surprised myself to know that the markets can go much higher for much longer than you can possibly guess. So I typically let the market tell me when the move is over.

If you want the hint, I’ve mentioned it before, you can look and see and study the differences between pullbacks and absolute reversals. So you can look at those as for better exits on your winners rather than using as the comment or question was, do I use a cell limit? The answer is no. Haven’t used the cell limit in over 30 years. So for those of you that don’t know about limits versus stops, when you’re in a name at a hundred, you put in a protective cell stop at say 95, A sell limit actually goes above the market at some target, for example. So if I knew I wanted three to one, I could put in a stop, a sell stop at 95 below the current market value of a hundred and put a sell limit in it one 15 above the market. So then if it traded at one 15, it would get executed at one 15 or better. And when you’re selling better is higher. So

One fifteen, ten one fifteen oh five sell stops work a little differently in that once that they’re triggered or the price trades added through the stop price, they become market orders. So you could get your stop price, you might get slightly better or slightly worse. It’s nothing to worry about in terms of slippage your skid, but that’s a good question. It is. So this is under the chapter of managing the trade, which is what do you do while you’re in the trade? I don’t look at the screen and my p and l and watch it and fall in love with my reflection because that’s how you fall victim to taking small gains.

And I don’t want to feel good about myself by taking winning trades off when there’s no money in it and it doesn’t impact my account balance as a percentage, several percentage points of my overall account balance. If I’m adjusting my stops and I inadvertently get knocked out because of that, then that’s fine. That’s the market communicating with me, but I’m not going to go into the market and impose my will and try to make such a trade that way. I hope that answers the question. It’s a good question. Anyway, please like and subscribe. If you haven’t already gotten a copy of the audio book version of the invoice trading, you’re welcome to get it for free at Martin Chronicle, and thanks very much for being here. I will see you tomorrow.

Everybody. Michael Martin, hope you’re doing well. Happy Monday. Rangers won the World Series. It was pretty amazing. I don’t think they lost a game, an away game in the entire playoffs. That’s pretty badass. Some great comments coming in on the YouTube channel as well as via email directly through Martin Chronicle. So I appreciate everyone taking the time to watch the videos and it’s good to see that you’re all getting something out of it. Otherwise, it would be a labor of love I suppose. I mean, I guess it is in one way anyway, but it would be harder to continue making these if there wasn’t the valuable feedback in the process or that they weren’t necessarily beneficial or efficacious to use a bigger word. So I’d like to get right into a few things. There’s a few comments and I see all the comments and there’s a lot of questions.
There’s just some of them that I don’t know, they seem a little bit more unique or that they would apply to just one particular person or one kind of tiny little scenario. And what I’m trying to do with the YouTube channel is to play it out so that the comments or the things that I try to say here can apply to a greater swath of people, kind of keeps everybody engaged. If I kind of micromanage it down to one or two small situations, the channel loses its clout if it has any, right? So I have to try to appeal to as many people as I possibly can.
So one comment came in about when I say kind of off the top of my head, go to Yahoo Finance just because it’s free, not I care. I find Yahoo is kind of becoming the Daily Enquirer, the National Enquirer. If you look at the headlines, this stuff is too stupid to be called journalism. The comment was more along the lines of, I suppose trying to put together or look at the data would make a lot of sense after you’ve already built the system and it’s actually, I want to see if I can find and read it to you. I want to find the comment. I should have done this earlier. Sorry.

Yeah, I can’t find it. Anyway. I feel like you should try to look at the data first. I don’t think you need to be Joe expert chart reader before you look at the data, the whole point of building a systematized set of rules, which you can deploy with or without an engine like trading blocks or mechanica, you don’t need to have that necessarily. You should backtest everything. But you have to remember when I did it, I just got the data and I put it in a spreadsheet and then I looked at the data to see if I could uncover any clues as to when the bigger moves were going to happen or since we were talking about commodities and commodity futures especially, what are the seasonal tendencies?

And so I don’t feel like you need to have that is the hard work. The question came to be like once you’ve done the hard work, it would be easier to kind of pull down the CSV file with the particular instrument to look at the data and then go from there. When I really think the person was actually describing the hard work, which is take the data and start examining the data. Don’t worry about the charts because and around there, once you have the data on a spreadsheet, all you really have to do is figure out what your R is, what of your account you’re willing to risk, figure out a position size, and then you can better understand what your change in your equity would look like while you’re in a particular trade. You see what I’m saying? And I’ll think a lot of people have an irrational fear, especially around good trading practices like taking winning trades home overnight and over the weekend.

There was a fellow that I spoke with who lives down by way closer to San Diego who was kind of had monkey mind, which is hard to not have because there’s so much crap being thrown at you when you don’t know necessarily who you are yet or what you’re doing. It all seems kind of tasty, right? It’s like kind of going food shop and when you’re hungry or going to a restaurant on an empty stomach, you look at the menu and you’re like, I could order six, any of these six particular items and you kind of get frozen. So I feel getting the data and looking at the data, studying the data, that is the hard work. But to me it’s also the most rewarding work because again, just like anything in and around trading, anything in and around life, you get out of it what you put in.

And so studying the data, to me it might be work, but the payoff is so big to me, especially if people are struggling with a certain trading style, trying to look at more charts doesn’t solve the problem. I think you’ve probably kind of come to that understanding yourselves. You’re just shoveling sand against the tide is the way that I say it. The tide’s just going to keep washing it back up in your face. And so I feel like by looking at the data, you can see what are the daily changes. You could also see therefore if you see what the daily changes are, you can better see what the impact on your equity curve would be because you have to not only trade when you have an edge, but you want to trade your equity curve. So too much of that is lost when you’re looking at charts.

First thing someone does, lemme call up a chart, let me put on my indicators, or even better, I’ll have all my indicators saved. I’ll just type in the ticker and then I’ll have all this different shit blown out. And that to me is an amateur way to do it. It’s a cool factor because the technology is there and you can do it across screens and all this and that, but it doesn’t really tell you much about the data when you really slice it and dice it. So I prefer to look at the data because then again, I have a better idea, especially with the holding or the timeframes that I like. I get to see if I had this particular position and it wasn’t in an upward moving fashion, even though there are pullbacks or even basis in the uptrends for example, you get to kind of see what the effect is on your equity.

And for those of you who do have that irrational fear about the boogeyman overnight, you can better ascertain as to what the pullbacks would do in terms of a two or a three day drawdown if you want to look at it that way. I think if you’re holding on too tightly to your money, it’s going to be hard for you to make your money grow. And there is definitely some wisdom in that if you constantly are watching the market, especially when you’re in a trade because you’re in fear, I can almost predict with a hundred percent accuracy that trader’s never going to grow because doing anything in life from a fear-based standpoint doesn’t really pay off. Now you have to respect the risk by all means, but under the chapter that says, the watched pot never boils. If you’re going to sit there and emotionally invest yourself and watch every tick, you’re likely to induce yourself to do something that’s not necessarily in your best interest, which would be to think abundantly and to grow your wealth.

If you’re doing that, you’re satisfying other needs. That to me aren’t financial. You’re using the math and the numbers to make a decision that satisfies you emotionally, but the payoff at that standpoint is definitely an emotional one, not a financial one. So that’s why I advocate, and it might make sense for you to hear when I say turn off the screen or go walk away, put your stop in and walk away, don’t look at it. I think many of you would be panic struck to do that. But the thing is, until you get comfortable with that feeling, which you can see in the data, you can backtest and see, okay, well here’s what it would’ve looked like. Here’s how I can conjugate or calibrate it better. My feelings if I was in this trade, could I handle it? Especially when you look at a winning trade that might’ve pulled you, maybe it would’ve added say, one to 4% of your equity.

So say your equity went from a $100K to $104K, what did that look like on its journey to $104K? Because then once you can observe that, you can say, okay, I can learn to get comfortable with this. Because we talked about how do you grow your wealth, how to think abundantly. It’s typically you have to trade really big and sit on a news event, put on a whopper of a position. If it ticks two or three points ticks against you, you’re out or you have a smaller piece and you let it grow. But the idea that you’ve got to churn every day is a working class way of looking at it. And it’s not a way to build abundance. It’s a way to take a blue collar mentality to a white collar job. And that’s why I say I want to be a business owner.
I let the stops do the work for me, and then I let everybody else to come in and buy the name after I’m long. So they have to pay me an admission ticket, and I know there’ll be days when it goes against me, but I don’t buy pullbacks, and I don’t try to think like you read in the newspaper, Stanley Druckenmiller is doing this, or Soros is buying these penny stocks. Soros doesn’t buy penny stocks, first of all, but those are the assholes that are writing that bullshit on Yahoo, right? That’s retail, really schlocky kind of stuff. So don’t buy crappy stuff, buy quality and buy it when it’s going up.

And you can see for yourself, sometimes things might move, if you think about it, if something’s going to double in its price, so go from $24 to say $48, let’s just pick a number out of the blue in order for it to go to $48, it has to have gone through $36, which is a 50% move. So if you’re smart and you’re looking at the data, not looking at the chart, you can go back and look at tons and tons of data and say, okay, let’s apply a little conditional probability to this. What is the outcome, right? If you want to think about conditional probability, let’s define it first. And that would be what is the probability of a second event? We’ll call it event B, given the known probability that you can observe in event A, so you can go study. It certainly helps if you use software and some of these simulators, but you can do it by hand.
I know I did. And say, okay, I have a name that I’m looking at. It’s up 50%. What’s the probability if I look at hundreds of these instruments that the move continues and I go to $48 from $36 to $48? Because I think a lot of folks miss the bigger moves. They don’t understand the data and they look and they say, oh, the chart, it’s at the lower corner in the lower left corner here, and now the price is in the top right corner. I missed the move. And they don’t envision that the thing can kind of go through the top right corner, the northeast corner, the top right quadrant because of limiting beliefs, maybe anchoring just psychological term, but that’s where the winners are. So discretionary chart readers, if you’re struggling, look at the dailies and the weaks, and if it’s not in the top right corner, it’s not a buy.

Don’t worry about making nickels and dimes rallies in downtrends. That’s chump change. You want to get paid, I think you do anyway. You don’t want to be cute and be like, yo, I just nailed this trade. So anyway, think about that. Looking at the data, it could also better help you calibrate when you see the numbers and see like, okay, I went from a $100K to $99,750, then it came back up to $99,000 then it was at a hundred thousand two, $200, then it went to $101,000, came back to a $100,800. And so you can kind of see the thing ebb and flow on its way up, which is kind of characteristic of up moves and that the thing moves up and down in an upward fashion. So your job is to find the stuff that has positive slopes and have a position size on that’s congruent with your temperament, your personality, your understanding of the markets and your tolerance for risk. And you can see that on the data. You really can’t see that on the chart. The chart speaks to the instrument’s behavior. The data can help you speak to your behavior. I’ll leave you with that. Thanks very much for being here and making comments, and I will see you tomorrow.

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So coming into December, which we’ll do later this week, it’s not uncommon for folks to become slightly reflective on how the year went in 2022. Did you meet your own expectations? Did you behave the way you promised yourself you would? And what would you like to do in 2023? How will you change your behavior. Because behavior predicts where you end up. And so I get a lot of emails from folks who lament. And I always put on in my mind, I start listening to the Lacrimosa, the eighth movement of Mozart’s Requiem Mass, beautiful piece of music.

But because I see the sadness, and I can feel it in people when they’re writing, they’re, they’re not just frustrated, they’re kind of resigned that what they did wasn’t up to snuff, they didn’t hit their goals, they had wanted to, but what ends up happening is they just can’t find themselves because of the emotional part of trading, to pull the trigger, to put in protective stops, to not over trade and to not trade too large, which has killed more traders than anybody.

So if you’re going forward and you’re thinking about what you want to do for 2023, the first place you want to look is where did you break your rules and what did breaking those rules cost you. Because what I would recommend for 2023, and you can figure this out, is find one pattern or one setup, and just stick with it. For those of you who lack discipline or want to develop the discipline, because look, the markets aren’t going anywhere. So you have a lot of time where you can kind of practice, even with real money before you have to really worry about hitting your stride. It’s not as if you can trade. And sometime in the middle of 23, the markets are just going to go away and there’ll be no IPOs, and therefore there won’t be much need for any secondary trading in those shares. So take your time to perfect your craft. You need to kind of get in touch with yourself and figure what works. A good way to do that is to pick one particular setup, one particular chart, pattern, and scour the universe for where that shows up. It’s better if you have an understanding of the fundamentals, but if you trade it small enough, probably won’t matter.

And again, we’re talking about stocks or commodity futures, and by focusing on that one pattern, you block out everything else. And that requires discipline. So having enforcing yourself to do that, you’re basically going on a diet of your mind. You’re not letting the things that otherwise would subvert your behavior and subvert therefore the results that you want. You’re forcing yourself to think, I don’t like using snipe the word sniper with trading, because it’s, it’s terribly overused. But it forces you to be patient. It forces you to expand your horizons and see what’s the universe of securities that you’re looking at to find the specific name.

And I mean, excuse me, the specific pattern or setup, I said name that was I misspoke. And the ability, the ability for you to stick to that one process over and over and over will do wonders for your confidence. It’s going to do wonders for your performance. Two, your self-esteem will go up because now you know, could look yourself in the mirror and say, I’m not a f*cking loser. I do exactly what traders do. They wait for their setup and they trade it without hesitation. Here’s the corollary. If you scoured several thousand names, right, and nothing shows up, you sit on your hands. A lot of folks this past year were forcing trades because they couldn’t find what they were looking for, but they felt they were missing out. So they put trades on, I can’t think of too many times in my 35, 36 years of experience or whatever, where I’ve done that and it’s worked out in my favor.

So that’s acting out and fulfilling an emotional need, not a financial one. So when you can get the dynamic of your financial needs and your emotional needs to converge onto that one setup, that one trading pattern, right, then you’ll be in the zone.

Anyway, I don’t want to blather on, but that’s some good food for thought. As you’re reviewing everything that happened in ’22 and everything that you want to have happen in ’23, it’s really up to you. You just need to have the will to do it. ‘Anyway, 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 it at MartinKronicle in the top right corner. Thanks very much, folks, and I’ll see you tomorrow.’

This is a computer generated transcript.

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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.

This is a computer generated transcript.

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