Hey everybody. Happy Tuesday. I hope you’re doing well. Like I said, in case you missed yesterday’s episode, we’ll have episode obviously today. I’ll be here tomorrow with Ganja. Then I’m going to be off Thursday and Friday. I’ll be back this coming Monday. So following on yesterday’s episode, I’d like to talk to you about when people meet me, they’re like, I don’t understand. You have these monster positions on and you wouldn’t even know in meeting you that you’re managing all this risk. And I always think about what does that mean managing all this risk? Because just like you have car and automobile insurance, I always look at my protective stops as being my insurance against the runaway market. If it should suddenly turn on me or if it should just weaken sufficiently to knock me out, I usually think I have my stops placed in such a way that they’re not so tight where the average noise of the day won’t smash me.
And so that always comes down to position sizing, but I’ve always said that that’s where we make our money. It’s not so much about the entries or the exits really, because all of those numbers are kind of relative to your position size. And so I think in some of the coursework I’m putting together on actual trading tactics, I’m going to just show you how you can look at the same risk but in a different way. So this way you can process your feelings around it because ultimately it’s like thoughts, feelings, actions. So it’s very difficult if you don’t have emotional mastery to trade really well because where you place your stop is going to always be based on you following your emotional system, not your trading system. So I think I just learned to do, I figured having, well role models for sure, but if you want pro results, you have to do the things that the pros do and it speaks to consistency. Consistency means doing pretty much the same process over and over and over despite how you feel. And coming in towards the end of the week of doing jiujitsu all week, I trading six days a week, so the fourth to fifth, the sixth day, which is Saturday, we’re off. I don’t train on Sunday. On those days I’m feeling my age feeling beat up. That’s the way it goes, and I don’t want to go to class on certain days, but I don’t make that decision up based on how I feel. My commitment is to go to class every day

If for no other reason just to drill and to learn new technique. And so no matter what I’m feeling in my body or how my body feels, I’m leaving and I’m getting there early as another, I’m not going kind of drag my ass and then get there 10 minutes late. I don’t feel like going class is at six o’clock, it’s 10 minutes from my place and I’ll oftentimes leave at five 20 and I’ll get there by 5 30, 5 40. So I’m still 20 minutes early despite feeling like I’ve been getting my ass kicked all week, which is whether you win or lose, you still feel the impact of grappling. So in trading you can do the same thing no matter how you feel. Just follow your rules. You can feel all your feelings afterwards, feel the feelings on the weekend. So in the middle of the week, the best thing that you can do, and I talked about we knew Ken Za, the late great baseball mental coach for the Cubs, and then I think he did a few other things, but he was a great guy, lived in the South Bay and he would talk about baseball and he’d say, look, you get up.
The best thing you can do is put your best swing on your pitch. You have to control the controllables, not sit there and wonder of all the different ways that the market or the trade could work out, even though you’re probably very bright. And yes, you could say that you could win, you could lose, you could break even the reasons why any of those scenarios would play out are probably too numerous to delineate. So instead of even thinking about that, to me it’s like, who caress? As long as you have your protective stop in, I don’t care why I get stopped out. If a trade either getting my original trade gets knocked out, it never made me money, or I made two or three or five or six or whatever it is, and I put my trailing stop and my stop knocked me out, that’s what it’s supposed to do.
So all I really think about on any given day is moving, entering or adjusting stops, and the one thing I don’t do is if I’m long something and it starts to tick against me a little bit, I do not renegotiate where my protective stop is, that always stays in place because I’m not afraid to have, and that’s going to happen too. You’re going to get knocked out, it’s going to rally back in your face. You might get back in, you might get knocked out again. In fact, that happened to me in the very first few months of when I joined the trading tribe. I was in soybeans. I’d get in, I’d get knocked out, it’d rallied back up, I’d get back in, I’d get knocked out, and this happened quite a bit of time. I was trading 2% risk units, so I was like, strange stuff ain’t working. So obviously that’s being facetious. It’s kind of an inside joke, but

That’s going to happen to you and look at me now. I’m still standing. So I think your reluctance to feel like these things that kind of happen to everybody might be actually holding you back. Remember what I said, the feelings that you want to feel are on the other side of the feelings that you don’t want to feel. You bite your nose to spite your face if you don’t invite all that in, because that’s part of it. Doesn’t mean you suck, doesn’t mean you’re an idiot and you can, again, if you want to flagellate yourself, by all means do that. I just know that winning traitors, don’t sit there and lament.
It takes hours of time. You put on the trade, you’re going to get knocked out. You feel like you wasted your time. That’s the way it goes. That’s part of the business. The best thing that you can do is control. If you want to be self-contained, just put the risk on, put your stops in. You have the benefit of not even have to look at the screen. Now, some of you are trying to figure it out within the middle of the day, so I get it. I just don’t think that you necessarily have to do that. I think you can know what your levels are before the day opens and put your orders in accordingly, and then you could go out and do fun stuff. Your orders are already in for the day. It frees up a lot of time and you can find yourself almost living two different lives because once your trading stuff is handled and your orders are in, you just have to wait for the market to come to you.
You’ll never chase. And if the market levels don’t get hit, you come back, enter the same orders the next day and just do that over and over and just repeat that process. The best thing that you can do, that’s the only thing that you can control is your own behavior. So put those orders in, you’ll stay calm and then focus not on what you don’t have, but what you can do, which is just move your stops, enter your stops and then adjust them. There’s one little caveat that I should mention and that is oftentimes if I put a trade on, I’ll have immediately, as soon as I get filled, it’s like a hair trigger response. I know guys are a little sensitive to that, but I automatically put in my protective stop. Now, I will on a discretionary basis use a times stop, which means if I’m long something and I need obviously right, there’s only three things that can happen. It’s going to go up, it’s going to go sideways, it’s going to go down. But normally if the momentum stalls, like my timing is bad because after 35 years, I think my analysis is okay, it serves me. It might not be as good as yours, but it works. Mine works for

Me. Say it’s a Monday, if I’m not making money by Tuesday’s close or even like Wednesday’s open, then I offset the trade because the momentum has stalled and that can mean that weakness is there and that the buyers have stopped showing up and when it stalls at that level and everybody in the world is looking at the same instrument at that price and new buyers aren’t showing up to take advantage of what I anticipate would’ve been a lower price compared to where it could be in the future, then I use, that’s called the times stop. So my price isn’t hit, but I do offset the risk and more time I have a good feel for the market. More times than not, the thing does start to weaken and leak, and so all I’m really doing is preserving that R number because eventually if I let it go and if I’m up a lot, sometimes I’ll sit on it.
I admit that doesn’t sound like it’s consistent behavior, but it is kind of relative. It is a discretionary trade. So I did say that at the beginning, but those again, the best thing that you can do is let the market come to you, put in your buy stops above the market, put your sell stops in below the market, add the risk to your portfolio, and then instantaneously have a rule to put in your protective stop, and that’s the best you can do. Watching it all day isn’t going to steer the market. And two, looking at the screen may induce you do take an action in the marketplace when you really have no business doing so. Why would you do that? Well, let’s say that you’re in a drawdown and you’re emotionally, you’re feeling some negative emotion. I always think emotions are good. All of them are good. So I kind of contradict myself there, but you’re feeling a feeling that you’re not comfortable with. Let’s leave it at that, and you do show a gain after being in the drawdown. You might be induced to take that winner just for the emotional win. So again, go back to your goals, which should be the things that dominate your behaviors. Like what are you doing this for?
Are you doing it to feel good? Are you’re doing it to make money? Because oftentimes the financial decisions and the trading tactics that you have to deploy might not necessarily feel good. That’s why when I speak to you about these things, it’s about simplifying it right down to the simplest iota of human behavior, which is no more technically challenging than filling out an email. So think about this as you want to invite more abundance is stop worrying about where things are going to go. You already know where they’re going to go. They’re going to go up, they’re going to go down, they’re going to go sideways

And don’t overcomplicate things. The only thing you can control is adding the stops to the marketplace for them to get filled where you add risk to the portfolio, and then as soon as you get filled on those, you enter your protective stops to remove the risk if things don’t go your way. It’s super simple. Don’t overthink stuff. The worst thing you could do is start thinking about price targets. That’s the other thing in these zones. I don’t know who comes up with this, but to me it’s very small minded thinking because then again, it induces you to think that you have to do something where someone who has a position for a hundred dollars move in Nvidia has watched these zones kind of come and go, and they sat right in the trade. So to me, the only difference between the person who’s taking smaller gains and the person who’s taking bigger gains, again, comes down to mindset. I want to blow through all those. What you would think is selling zones or taking profit zones, I’ll sit through those, let the small traders take those gains. I’m staying in for the bigger move. That’s a decision you can make.
So make it, it’s yours to make. You’re in the trade already. You’re making money. There’s no guarantee that the thing’s going to disappear tomorrow. I don’t know. There’s no written rule that says, oh, once you hit the three R profit rule or profit zone, you better be careful. You better take those gains. Nobody in market wizards has said that, so you can kind of set yourself up accordingly. Honestly, these are just meditations today and yesterday’s episode of just more like how can you do these simple little things to investigate? How do you feel around the uncertainty of trading? Because most of this stuff is mindset, and you can make up in your mind that you want to make 20 times your capital. The tactical part of doing that is easy, but you have to make up your mind that that’s what you want for all your work.
Remember I’ve said, what do you want trading to do for you? How do you want it to serve you? Do you want it to captivate you all day where you’re sitting in front of your screen and doing it like crossword puzzles? You can certainly do that. You can make this a blue collar job if you want, easy. Most people do. I would prefer to have a higher quality of life myself, but to each their own. Anyway, I’ll be here tomorrow with Ganja. That episode was recorded last week, but it’s ready for tomorrow, so I won’t see you until this coming Monday. I want to wish you all a happy Thanksgiving if you celebrate and a good three or four days off perhaps from the market. I’ll see you Monday.

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Hey everybody, it’s Michael Martin. Hope you’re doing well. It’s Thanksgiving week here in America, so we’re going to be off on Thursday and Friday, so I’ll have episode today, obviously tomorrow, and then Wednesday I’ll be on with ganja. Thursday, Friday will be off. Then we’ll see you a week from today. Thanks for being here. Hope you’re doing well. Hope you’re reviewing your performance for 23, and it’s been choppy for sure. There’s been moments of no follow through, so I wouldn’t beat yourself up unless of course you like the feelings of beating yourself up and getting attention from everybody, then by all means do it, but be the best at it. If you’re going to beat yourself up, then go Mike Tyson on your ass, beat the living shit out of yourselves because that’s probably feeling good. I myself didn’t find I could get better doing that to myself, so I kind of stopped and just said, more will be revealed.
That’s kind of how I approach each day. Sometimes the information that you need or the solution that you want isn’t there, and so more will be revealed, and that requires you to have patience. A lot of folks don’t like to have patience. They don’t like having to be patient, so I want you to, for homework, you can investigate what are the feelings that you feel when you have to be patient because that ties into trading and it’s a huge, to me, it’s one of the three crown emotional crown jewels of trading is knowing that if your setup isn’t there, then you have to sit on your hands, the pro move as opposed to uptime or downtime or trying to find, again, 14 strategies to apply on one instrument. To me, that’s to desperation and it’s a coping mechanism. To me, it’s much better if you are much more promiscuous in your thought process and then extend your universe of instruments.
This might sound weird, but I think the worst thing that happened to retail traders is the micro and the mini ization of index futures. It certainly was good for the exchange, and it’s certainly good for pros because they can kind of feed on everybody, but I don’t know that it’s really served the public because just given them access to something doesn’t mean it’s in their best interest. And most of the folks who are struggling or who have failed and have written me, were in fact trade. I don’t even know what the tickers are. What is it? MEQ, and right then there’s the ein, and what they try to do is no matter what, because their accounts are too small, they spend all day trying to find an edge as opposed to developing an edge that they can deploy across many, many instruments. And so what ends up happening, and the point of the story today is to turn you into, give you a vibration of abundance.
Whenever I was struggling, I would always just say, you know what? I don’t accept this bullshit and I’m going to go focus on what it is to be great, and I didn’t know what that was, but along the lines of fake it till you make it and act as if that type of energy, even if it is momentarily bravado or machismo, it’s far more superior than to sit back and get a case of the poor me and why does this always happen to me? I believe words have power, and if that’s what you say to yourself, why does this always happen to me? What do you think is going to happen? You’re going to keep putting yourself in situations where you keep saying that. Why does this always happen to me?
There are trends everywhere. There’s emotional trends, right? That’s what the trend following folks don’t fully understand is that everyone’s running an emotional system. Even Bill Dunn, who’s now retired, spoke with me and talked about having emotions running through his body. The ability he had though, which was separate from his system, it was a personal character characteristic. A personal trait was to not let his emotions overcome his better judgment. But that’s something that’s true in life that you need to work on, not just if you’re going to work on trying to design mechanized trading rules, whether they be swing trading or high frequency trading or buying open and close kind of things in the market or trend following, it doesn’t matter to me. There’s no one way to design a system. There’s many systems. We have ’em all. So instead of thinking of being in the vibration of, I need to make enough in the marketplace, again, I think if that’s your mindset, that’s where you’re going to end up.
You’re going to make enough, but what is enough, right? This is where we get into what is your self-worth? Where’s your self-esteem at? I can assure you the folks I knew from commodities corporation had the self-esteem that they thought they were entitled to all of it. There was no such thing as enough. Enough is, again, it’s a coping mechanism where you feel like, well, I’ve got a piecemeal my way to success, and that’s not how my mind works. Once it clicked for me, I realized the world was mine, and from a trading standpoint, it was my kingdom. I was the king, so I had to set what the parameters were. It wasn’t kind of coming to the market with hat and hands out saying, this is what I would please, if you have any extra spare change, I’ll just take those small gains and I won’t make any big deal about it and be humble. I think you can seek abundance, which is different from greed

And have a very strong sense of self-esteem and demand from the world, the biggest gains possible. And so the whole thing is can you live with the uncertainty? So in my notes here, I have vibration of making enough rather than what you really want, and then learning to live with the uncertainty. So how can you do this because it doesn’t make sense to just blather something like that out there and not give you a, for instance, let’s just say that you have X amount of corpus in your account assets under management. I call it corpus. You can call it what you want. You’re going to risk one half of 1%. Don’t think in terms of dollars because you’ll always look at that number and be like, oh my God, my boyfriend or girlfriend is making 60 k. I just made 5,000 in the market on my million.
Now I’m going to call them up and say, I just basically made your month’s salary pre-tax, pre deduction in one trade. So when you look at it that way, contextually, you could be like, yeah, I suppose that’s a lot of money, but if you trading a million dollars and you just made five K, you’re up one half of 1%. It’s not really anything to write home about, certainly nothing to pick up the phone and start bragging about. So when you think about it in terms of percentages, it’s much more contextual to me. You might benefit from that. So let’s say that that’s what your R is. Your R is one half of 1%. So how do you stay in the winners and invite that abundance in? Because it’s all behavioral. The trades are there. The question is, are you going to participate in them so you can make that choice?
And it’s not that random. You can make that deliberate behavior. So if look at it this way, this is one way to do it. There’s probably others. This is just to give you context so that you understand where I’m coming from. Like I’ve said a million times, I don’t have all the answers. Yes I do. No, I don’t have all the answers. I know what I’ve lived through and I’m going to share with you experientially or what I went through from my own experience. I guess that’s the better way to say it. So you put on a trade and you have whatever, the number would be one half of 1%. So now the account goes up and that’s your R and you’re at the three R, right? That seems to be popular three to one. So you’re at three R unrealized gains though one way that you can invite greater gains, tactically speaking and still stay abundant, is if you are willing to risk one R on your original account balance in order to be in the trade, what’s the difference?
If you’re at three R and you’re still risking one R one half of 1%, so you put your stop in at two R, what is the difference? What changes? Because you go from trading your cash balance, say with no other positions and no unrealized gains, you just have cash or money market funds, and you risk one half of 1%. Then you find yourself from good luck, good timing or good analysis could be any combination of them. We’ll take ’em all. You’re up three R on the trade. So in that moment of time, if you looked at the trade and said, okay, if I was coming into finding another trade, those unrealized gains would be part of my account balance. My R would still be one half of 1%, it would be incrementally smaller. I’ve got my protective stop in. What’s the difference? What does that do to you when you have unrealized gains?
Because I think from the emails I get you panic, and I’m like, why would you panic when you’re in one of the most abundant states that you could be in when you’re a trader? What’s the point of panicking? Because when you panic, I believe I’m not a scientist, but psychologically, I think your fight or flight mechanism kicks in and then you induce a trade, which feels good in the moment because you relieve the emotional pressure, but financially you just cut your big toe off. Let’s leave it at that. So now you’re off balance. That’s why we have toes, right? Big pappy’s got big toes. So what I would do is to think and meditate on that and say, okay, maybe Mike has a point here. Why do I panic when I have unrealized gains? I have got my protective stop at two R. Worst case scenario is still going to get knocked out, making money, take it home overnight, take it home over the weekend, of course, and adjust my stop higher.
A handful of times it’ll definitely go up to four R, five R, maybe six R, in which case you’ll always get stopped at say three, four or five R respectively, and then you get used to that. That’s how you become comfortable when you’re uncomfortable is to put that R into perspective. Why is it different when you have your initial account balance and the corpus, whatever you trade in futures? I think you’re dealing with cash. There’s no money market, but what is the difference? Why would you look at those differently? If it’s the same R, why would you need to take it? What’s the fear that it’s going to go away? Where does that come from? Show me the science, because I think you’ve made it up in your brain. I don’t think you have the numbers to be frank, and I say that I know I sound like a big jerk, and I don’t mean to, but I know the numbers.
And so if your goal here is to exact as much cash as you possibly can and not just make a living or make enough, making enough satisfies and emotional need because it’s all relative to your situation. So you have to supplant yourself and say, I’m sitting, I got George Sotos here and I got Dren Miller here. How am I going to feel about taking my big one half or 1% winner? Sure, right? If it’s your first month of trading, you have to go through that. But very quickly you need to realize that this is an industry where since you’re responsible for everything that you do and you’re responsible for everything that happens in your account, good or bad, you get to design it and architect it exactly the way you want. It might be the only reason, not the only reason, but it’s certainly a good reason of why you might even be listening or watching the show is because I dreamed those bigger dreams.
It was a mindset issue. The tactical part’s not terribly difficult. In fact, it’s the same. You add length to your portfolio, you put in your protective stop market goes up, you adjust your protective stop, so you cancel and replace. Okay, maybe that’s slightly different, but it’s all about babysitting a wishlist of stop orders. Here’s where I’m going to enter the market long. So I have those buy stops, not limits. I have buy stops above the market to add length at appropriate levels as soon as I get filled on any of those, and nowadays it’s so easy, you get filled, you can get a text message. I still get phone calls, but man, the technology, it makes it so much easier. So then when we have some time over this, the reason why I’m speaking about this is because there’s probably some slow times you’ll have Black Friday and Cyber Monday.
Don’t put more thought into holiday shopping than you do for your trading models because you deserve it. In my paradigm, if you’re willing to do the work, you might as well get paid and you might as well get paid as much as you possibly can for the risk that you’re willing to take. And that to me is a simple, simple exercise that can help you improve your trading by, I don’t even know. I know people write in, they say they’ve doubled their gains just by sitting on their hands, but you have to get used to feeling the feelings of uncertainty, dealing with the probabilistic outcomes of a trade, and then realizing that in the event that you put in a trade and the rare times it works against you in such a way that it goes to break even. Don’t be a bitch. It’s not the end of the world if you do thousands and thousands of trades. That’s going to happen, but it’s, it’s not worth forsaking all the gains on all the other trades that you make by sitting on your hands and taking them home overnight, taking them home over the weekend and adjusting your stop higher accordingly.
You see, it’s not worth it. So you’re making a mountain out of a mole hill and you’re afraid of a boogeyman that I can think of maybe three times over the last decade that that happened. And you’re like, oh, well, it’s just the way it goes. If you do enough trades, you got to understand that at least one thing that’s bad is going to happen to you. I was locked in live. It moves against me. It’s the way it goes. Doesn’t happen too frequently. And to be honest, it hasn’t happened since the instance I wrote about in the book. I think it was Mad Cow as I was in cattle and mad cow hit the tape. So it’s very rare, and I’m telling you, bigger gains in your portfolio are all about mindset. You need to invite them. You need to feel comfortable living with the uncertainty.
I’m going to talk about the three crown jewels. I just don’t feel like getting into it now because it’s a longer video and it requires examples, and I just don’t want to do a two hour video right now. I want to do tomorrow’s episode as soon as I hang up here so that I can be done for the week because I’m busy. Otherwise, I appreciate everybody being here. I see all the comments. I appreciate you all writing, and what I just explained was exactly how I learned to get comfortable with the feelings of being uncomfortable with the unpredictability of trading and the uncertainty or the fact that you’re dealing with I need to be accurate, and I love that feeling, but trading is probabilistic and I needed to make, I didn’t have a choice. I really couldn’t get by making small gains, so that was kind of a happy accident as the artist, late artist Bob Ross would say, there are no mistakes. There are only happy accidents. Anyway, I appreciate you being here. I hope you have fun plans set up for Thanksgiving later this week, and I’ll be back again tomorrow in a few minutes. You.

Taking profits. That’s the name of the game, right? I mean, sooner or later you have to take ’em. Although you can get a lot emotionally out of ramping and watching things rally up and then sitting there and watching the decline, that’ll certainly give you an emotional system that will jack up your system. Doesn’t really work for me, but I know there are some relatively well-known people who have been in those situations. When you talk about taking profits, the tactical parts are easy. You have protective stops in. The trickier part is how do you feel around putting those stops in and where you place them? How do you deal with regret?
Do you mourn the loss? Do you mourn your winning trades? So question came in. We get a lot of questions on this one, and I think it ties into a person’s inability to feel the uncertainty around trading. These are probabilistic outcomes. Probabilities could also change. We talked about this in terms of what is the math that you need. We talked about conditional probability, and most people aren’t really good at that because they’re looking at charts, they’re not looking at the numbers, so they can’t really see the percentages. So first thing is, again, the language that I use might be different from the language that you use. So let me define a term. When you say tighten your stop, that to me is a person putting a stop in that’s closer to the current market value than where they would normally put it. Adjusting your stop is kind of keeping it in lockstep.
Let’s say that you have a trailing ATR stop one ATR. Keep it super simple, so you move every time the security goes up, a certain percent. It could be half ATR, you could do it every 10 cents. That’s an awful lot of work. That turns, again, trading into retail, small-minded stuff, but say that every time it moved an ATR, you adjusted your protective stop up and A-T-R-A-T-R can be one R. It can be two Rs. It depends how you price your risk. You can figure that all out and then what are you comfortable with? You’re only going to get comfortable with it from doing it. Everyone thinks that there’s an intellectual answer to this that’s going to solve. The emotional part doesn’t work that way. I’ve mentioned that before. There are no external solutions to the internal things that you’re feeling around trading. You’ll have to find a way to get used to the uncertainty and the probabilistic outcome of trades, and only after doing it many, many, many, many, many times, dozens of times, maybe hundreds of times, can you get comfortable with a process that works for you? It’s not going to come from thinking about it and doing it two or three times.

You might have an inkling about something that feels good, but it’s only going to be through massive repetition. The good news is you’re making money, so that should help. I am not one to necessarily trim, right? I don’t scale out. I figure the moves have economic powers that I can maybe understand, but I might not even know all the reasons why a trade’s working out. All I can see is the price is going up. If you sit there and say, oh yeah, it’s of course because this AI thing is booming and this and that, you’re just parroting shit. You heard other people say, you don’t have any damn clue, and so I don’t even bullshit myself and start talking. I know what’s going on. All I know is I put the risk on if it goes up, I’m going to adjust my protective stop, try to stay out of my own way and let the thing go.
Why does it go and move or trend? I don’t care. I don’t care. I don’t need the emotional feedback on that. All I care about is the price. That’s how I manage the risk. I can always learn why the move happened after the fact when I’m not in the risk and I don’t have to worry about it and be like, oh, yeah, that’s kind of interesting to read that, but who cares? Because again, I’m not trying to be right. I’m trying to make money. You need to know what you’re doing it for. Sometimes you look at a winning trade and you’re like, I was right, so now I’m validated on a few fronts. To me, that’s the wrong way to do it. Don’t worry about being right. You have to be relatively right. If you’re right, 40%, you’re doing pretty damn well. The key is keep your losses small.
I don’t know that the winners take care of themselves as evidenced by the fact that we even have to talk about this, but again, what you can do is say, what other criteria that you would exit the trade after you just put it on, what’s your risk? Are you trading structure or are you trailing with some number as a percent, right? If it’s can slim, what do they give you? Seven, 8% of the price of the security is the pullback, and then somehow you can position size on that. Take a half a percent and then figure out what the price is of the instrument. You can tell by looking at it and then say, okay, I’m going to give this thing whatever the canceling method is. Then you could trail with one ATR. You could trail with a half an ATR. If there’s some tight consolidation or a base inside of a stage two breakout, maybe you put your protective stop and you price your risk when it trades through support. There’s a whole bunch of ways to do it, but knowing your goal is like what is it that you want your money to do for you versus what are you willing to do for your money? To me, it’s adjusting stops. It’s kind of easy, really. It’s not that terribly difficult for the love of God. Entering

An order is a lot easier than even trying to put in an email. You get the sender’s address, you get the subject, you got the body. Boom. Putting in an order for trading is kind of the same. What’s the ticker? What’s the quantity and what’s the price? When you adjust stops, obviously make sure you remember to cancel the previous one. Sometimes you could do cancel and replace because you don’t want two sell orders on the same inventory, but me, myself, I don’t typically trim. You can wait for the market to turn and learn to see the signs. Are the tops failing? That might be a sign, but I think a lot of you come to this with a greater sense of urgency than you need the market. If you just sit and live and breathe, the market will tell you when the move is ending.
There are signs, right? And again, I don’t want to get into trading lessons here. That’s not what we’re here for. Go look it up. If it’s important to you, you’ll find the answers. Look for market turns, look for reversals and just realize that there’s going to be volatility. There’s going to be noise perhaps, and again, there is. You’re always going to have the uncertainty. It’s never going to go away. The only thing that you can do is figure out what it is that you are going to do under those circumstances. Now, if you’re afraid to be proactive, sure you can have something that’s ar, but to me, if you’re at eight R in unrealized gains, again, you can emotionally determine ahead of time what you’re willing to walk away from, or excuse me, walk away with. How much of your unrealized gains are you willing to risk?
Think of it maybe in terms of units of R, right? If you’re really willing to risk one R on the trade with your initial protective stop when you get in, maybe that’s where you start and you trail with one R so that this way if it does eventually by luck or by randomness or by skill, go to eight R, then you’ll get stopped at seven. Seven is still better than three, so you can think about that ahead of time and say that no matter what, these are the rules that I’m going to follow, and if it goes to 10 R, I’ll stop at nine. If I’m lucky enough to be at 20, I’ll stop at 19. Also to consider, are you adding to your winners or are these just trades that you’re putting on for the sake of putting it on? Because when you say things like it sucks watching it come all the way back, well, what’s the cause of that? That to me is the runny nose of the cold. It’s a symptom of not

Action. It’s of having regret. It’s of like, I don’t want to get stopped because then if it rallies back in my face, I feel like an idiot, but you don’t really know any of that stuff at the beginning. This is why people trim or only take part, right? They have regrets and they don’t want to have them, so I’m going to get, keep a piece on, and so I mean, that’s not my style. My style is more to get out when the risk is going the other way and the momentum turns, and I wouldn’t say I’m a momentum trader, so don’t infer anything. You need that to be happening in the direction, but momentum kind of can move in ebbs and flows. It moves and fits and starts, so you want to just be trading along with the direction of the overall move. Some of you can look at moving averages, right? Have a shorter one. Some of you on the completely short end are looking at intraday timeframes and divergences. Again, in the short term, I’m not even going to talk about it. I just think, again, it’s more about the feel at that point than it is about a technical indicator. So anything in and around trading, it’s very frustrating for all of you because there is no definitive answer for most of these things. You really need to try it on and see how it fits.
You really have to try it on to see how it fits and just realize that when you trade long enough, you will find yourself in those situations where you have those big gains and then have those rules set aside. So if something does go parabolic, you know how to read the market and know how to adjust your protective stops. A good place to start, like I said, is if you’re willing to risk one R, then you can keep that constant just to start and then develop it from there so that in those instances when you do have your asymmetric setup that you follow where you can express a trading edge, you don’t want to trade when you don’t have an edge watch the thing take off, gets to three R, stop it at two. If it gets to four, stop it at three and just see how that feels because the math is easy. Your goal here is to be a scientist and to uncover the data and see how the data feels because so much of this is experiential. I can’t give you a straightforward rule that says, this trading rule, if you follow it, is going to alleviate this emotional situation in your world. So unique from me. I’m so unique from you. There’s not one rule, so experiment. There is a lot of science going on here. Experiment with your behavior, see what feels good.

Then at the end, you can go back over the course of the year and say, you had, okay, you had two dozen of these trades. I didn’t like how I handled them. I freaked out when I shouldn’t have. So now instead of having regret on one particular trade, you could look back and say, I don’t really have regrets, but I know I can improve my exits. You see, so don’t be fooled to think that there is one definitive answer for this. To me, I admit it’s probably the hardest trade, right? Because at least at the beginning you put your trade on, maybe you have a buy stop above the market, you get filled, you put in your protective stop. That’s so super easy. You can keep it as easy or you can overthink things.
Maybe it’s because you’re not in the situation where you have those gains all the time, so you kind of freak out because it’s so new to you. It’s like being naked in bed with somebody for the first time. You’ve seen it on tv, but what do you do that could be part of trading too. At any rate, I appreciate y’all being here. These are great questions. I promise to continue to evolve them. If I think of something that can help answer this question better, I certainly will add it in future episodes, but a lot of things that are around trading, you can sit and talk about the intellectual side till the cow comes home, but till the mad cow comes home. But really the thing is, is just put the trades on for size and see how it feels, and then go from there, evaluate, keep good notes, and just document everything. Okay? That’s all I got for you today. Have a great weekend and I’ll see you Monday.

Taking profits. That’s the name of the game, right? I mean, sooner or later you have to take ’em. Although you can get a lot emotionally out of ramping and watching things rally up and then sitting there and watching the decline, that’ll certainly give you an emotional system that will jack up your system. Doesn’t really work for me, but I know there are some relatively well-known people who have been in those situations. When you talk about taking profits, the tactical parts are easy. You have protective stops in. The trickier part is how do you feel around putting those stops in and where you place them? How do you deal with regret?
Do you mourn the loss? Do you mourn your winning trades? So question came in. We get a lot of questions on this one, and I think it ties into a person’s inability to feel the uncertainty around trading. These are probabilistic outcomes. Probabilities could also change. We talked about this in terms of what is the math that you need. We talked about conditional probability, and most people aren’t really good at that because they’re looking at charts, they’re not looking at the numbers, so they can’t really see the percentages. So first thing is, again, the language that I use might be different from the language that you use. So let me define a term. When you say tighten your stop, that to me is a person putting a stop in that’s closer to the current market value than where they would normally put it. Adjusting your stop is kind of keeping it in lockstep.
Let’s say that you have a trailing ATR stop one ATR. Keep it super simple, so you move every time the security goes up, a certain percent. It could be half ATR, you could do it every 10 cents. That’s an awful lot of work. That turns, again, trading into retail, small-minded stuff, but say that every time it moved an ATR, you adjusted your protective stop up and A-T-R-A-T-R can be one R. It can be two Rs. It depends how you price your risk. You can figure that all out and then what are you comfortable with? You’re only going to get comfortable with it from doing it. Everyone thinks that there’s an intellectual answer to this that’s going to solve. The emotional part doesn’t work that way. I’ve mentioned that before. There are no external solutions to the internal things that you’re feeling around trading. You’ll have to find a way to get used to the uncertainty and the probabilistic outcome of trades, and only after doing it many, many, many, many, many times, dozens of times, maybe hundreds of times, can you get comfortable with a process that works for you? It’s not going to come from thinking about it and doing it two or three times.
You might have an inkling about something that feels good, but it’s only going to be through massive repetition. The good news is you’re making money, so that should help. I am not one to necessarily trim, right? I don’t scale out. I figure the moves have economic powers that I can maybe understand, but I might not even know all the reasons why a trade’s working out. All I can see is the price is going up. If you sit there and say, oh yeah, it’s of course because this AI thing is booming and this and that, you’re just parroting shit. You heard other people say, you don’t have any damn clue, and so I don’t even bullshit myself and start talking. I know what’s going on. All I know is I put the risk on if it goes up, I’m going to adjust my protective stop, try to stay out of my own way and let the thing go.
Why does it go and move or trend? I don’t care. I don’t care. I don’t need the emotional feedback on that. All I care about is the price. That’s how I manage the risk. I can always learn why the move happened after the fact when I’m not in the risk and I don’t have to worry about it and be like, oh, yeah, that’s kind of interesting to read that, but who cares? Because again, I’m not trying to be right. I’m trying to make money. You need to know what you’re doing it for. Sometimes you look at a winning trade and you’re like, I was right, so now I’m validated on a few fronts. To me, that’s the wrong way to do it. Don’t worry about being right. You have to be relatively right. If you’re right, 40%, you’re doing pretty damn well. The key is keep your losses small.
I don’t know that the winners take care of themselves as evidenced by the fact that we even have to talk about this, but again, what you can do is say, what other criteria that you would exit the trade after you just put it on, what’s your risk? Are you trading structure or are you trailing with some number as a percent, right? If it’s can slim, what do they give you? Seven, 8% of the price of the security is the pullback, and then somehow you can position size on that. Take a half a percent and then figure out what the price is of the instrument. You can tell by looking at it and then say, okay, I’m going to give this thing whatever the canceling method is. Then you could trail with one ATR. You could trail with a half an ATR. If there’s some tight consolidation or a base inside of a stage two breakout, maybe you put your protective stop and you price your risk when it trades through support. There’s a whole bunch of ways to do it, but knowing your goal is like what is it that you want your money to do for you versus what are you willing to do for your money? To me, it’s adjusting stops. It’s kind of easy, really. It’s not that terribly difficult for the love of God. Entering
An order is a lot easier than even trying to put in an email. You get the sender’s address, you get the subject, you got the body. Boom. Putting in an order for trading is kind of the same. What’s the ticker? What’s the quantity and what’s the price? When you adjust stops, obviously make sure you remember to cancel the previous one. Sometimes you could do cancel and replace because you don’t want two sell orders on the same inventory, but me, myself, I don’t typically trim. You can wait for the market to turn and learn to see the signs. Are the tops failing? That might be a sign, but I think a lot of you come to this with a greater sense of urgency than you need the market. If you just sit and live and breathe, the market will tell you when the move is ending.
There are signs, right? And again, I don’t want to get into trading lessons here. That’s not what we’re here for. Go look it up. If it’s important to you, you’ll find the answers. Look for market turns, look for reversals and just realize that there’s going to be volatility. There’s going to be noise perhaps, and again, there is. You’re always going to have the uncertainty. It’s never going to go away. The only thing that you can do is figure out what it is that you are going to do under those circumstances. Now, if you’re afraid to be proactive, sure you can have something that’s ar, but to me, if you’re at eight R in unrealized gains, again, you can emotionally determine ahead of time what you’re willing to walk away from, or excuse me, walk away with. How much of your unrealized gains are you willing to risk?
Think of it maybe in terms of units of R, right? If you’re really willing to risk one R on the trade with your initial protective stop when you get in, maybe that’s where you start and you trail with one R so that this way if it does eventually by luck or by randomness or by skill, go to eight R, then you’ll get stopped at seven. Seven is still better than three, so you can think about that ahead of time and say that no matter what, these are the rules that I’m going to follow, and if it goes to 10 R, I’ll stop at nine. If I’m lucky enough to be at 20, I’ll stop at 19. Also to consider, are you adding to your winners or are these just trades that you’re putting on for the sake of putting it on? Because when you say things like it sucks watching it come all the way back, well, what’s the cause of that? That to me is the runny nose of the cold. It’s a symptom of not
Action. It’s of having regret. It’s of like, I don’t want to get stopped because then if it rallies back in my face, I feel like an idiot, but you don’t really know any of that stuff at the beginning. This is why people trim or only take part, right? They have regrets and they don’t want to have them, so I’m going to get, keep a piece on, and so I mean, that’s not my style. My style is more to get out when the risk is going the other way and the momentum turns, and I wouldn’t say I’m a momentum trader, so don’t infer anything. You need that to be happening in the direction, but momentum kind of can move in ebbs and flows. It moves and fits and starts, so you want to just be trading along with the direction of the overall move. Some of you can look at moving averages, right? Have a shorter one. Some of you on the completely short end are looking at intraday timeframes and divergences. Again, in the short term, I’m not even going to talk about it. I just think, again, it’s more about the feel at that point than it is about a technical indicator. So anything in and around trading, it’s very frustrating for all of you because there is no definitive answer for most of these things. You really need to try it on and see how it fits.
You really have to try it on to see how it fits and just realize that when you trade long enough, you will find yourself in those situations where you have those big gains and then have those rules set aside. So if something does go parabolic, you know how to read the market and know how to adjust your protective stops. A good place to start, like I said, is if you’re willing to risk one R, then you can keep that constant just to start and then develop it from there so that in those instances when you do have your asymmetric setup that you follow where you can express a trading edge, you don’t want to trade when you don’t have an edge watch the thing take off, gets to three R, stop it at two. If it gets to four, stop it at three and just see how that feels because the math is easy. Your goal here is to be a scientist and to uncover the data and see how the data feels because so much of this is experiential. I can’t give you a straightforward rule that says, this trading rule, if you follow it, is going to alleviate this emotional situation in your world. So unique from me. I’m so unique from you. There’s not one rule, so experiment. There is a lot of science going on here. Experiment with your behavior, see what feels good.
Then at the end, you can go back over the course of the year and say, you had, okay, you had two dozen of these trades. I didn’t like how I handled them. I freaked out when I shouldn’t have. So now instead of having regret on one particular trade, you could look back and say, I don’t really have regrets, but I know I can improve my exits. You see, so don’t be fooled to think that there is one definitive answer for this. To me, I admit it’s probably the hardest trade, right? Because at least at the beginning you put your trade on, maybe you have a buy stop above the market, you get filled, you put in your protective stop. That’s so super easy. You can keep it as easy or you can overthink things.
Maybe it’s because you’re not in the situation where you have those gains all the time, so you kind of freak out because it’s so new to you. It’s like being naked in bed with somebody for the first time. You’ve seen it on tv, but what do you do that could be part of trading too. At any rate, I appreciate y’all being here. These are great questions. I promise to continue to evolve them. If I think of something that can help answer this question better, I certainly will add it in future episodes, but a lot of things that are around trading, you can sit and talk about the intellectual side till the cow comes home, but till the mad cow comes home. But really the thing is, is just put the trades on for size and see how it feels, and then go from there, evaluate, keep good notes, and just document everything. Okay? That’s all I got for you today. Have a great weekend and I’ll see you Monday.

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This is an automated transcript

All right, baby, let’s rock and roll. You’re rock stars. You almost be in Cleveland at the Rock and Roll Hall of Fame. You’re such rock stars. So today and tomorrow I want to talk a little bit about tactical stuff, although I’m not going to show charts. I can do that eventually in the future, but I mean, let’s face it, watching some jack ass go over charts such a snooze. I know you know that inherently you think you like it, but you really don’t. So someone talked about, can you talk about your options trading? Again, what I do, I don’t know how it would be relevant for you.
When I look at options trades, so let’s say that you’re bullish on something. What is it that you’re supposed to look at? Some of you probably first thing you look at is the premium. How much is the premium? Because your account balance is only a certain size, so can you afford it? Right? How much of your capital you going to put to work do you take say one half of 1%. Say you have a hundred K, you have $500 as one half of 1%. Do you try to buy as many contracts as you can within that $500 number and then let the thing go to zero? Or do you put say 2% of your capital, buy $2,000 worth of options, as many contracts as $2,000 would allow you to buy and then risk 75% of that, I mean one fourth of that, 25% being the $500.
That’s all a field play. You’re only going to know the math works out the same, which is better. You’re only going to know by doing it. Just like I said in so many other things too. If you look at how options are priced, the lower strike prices go in the money first obviously. So therefore you have to look at delta may be gamma. You can go to town on the Greeks, but typically what happens is when you look to see what options you can afford, I don’t like using cheap and expensive and what you can afford, but if you look at something that’s in the money, those are going to have higher premium. You have intrinsic value.
So then you look at something that’s maybe out of the money, those are going to have smaller deltas. So for what you can anticipate, I particularly don’t use price targets. Maybe you do. You have to figure for if you buy an at the money option that has say a delta of 50 for every dollar move, right? The theory is that the option price is only going to move 50 cents. Then what’s the spread? So what’s your holding period? How can you avoid or not neutralize, but how can you minimize to the best of your ability, the decay part? So all of that becomes a function of what it is that you’re able to tolerate based on your account. And to me, I’ve seen people do it so many different ways that I can’t say that there’s one best way.

I typically don’t buy things that are way out of the money and look for these fantastic situations to come up and to endow me. I might’ve done that once thinking I had the inside line on a company 35 years ago, and if the thing moved 20%, all these options that were very cheap, low price, I don’t want to say cheap again because cheap speaks to value. You buy a bunch of low priced options and then have the thing surge. Maybe there’s a takeover candidate. Maybe there’s people do this around earning surprises. They want a big payday. To me, that’s a real gamble because you really don’t know what the odds are. Odds are probabilities, and so then you don’t really know how to handicap the trade or figure out the bet size. You could have always just pick a number, but you need to figure out for the risk that you’re willing to take, what kind of rate of return that you want to make both on the trade and then what is that going to do to move the needle of your account balance? So the first thing to look at then is what can you afford from an option premium standpoint? And then if you look at the delta, how much do you think you want to participate? It’s not always an exact science, but it’s pretty reliable. So if something moves $10, right? Because the delta of any underlying security is one.
So if you’re looking at doing options, you know that you’re not going to participate a hundred percent in that move, even though the derivative is based on the underlying that is actually making the move. Why wouldn’t you just own the underlying? Is it the leverage? Can you figure out based on the number of shares you could afford to buy with a delta of one versus the number of contracts, right? What’s your rule of thumb? Because again, I’ve seen it if I have 20 people who are really good at options trading, there’s 20 different ways they position size. I gave you one at the top of the show. Do you invest more money into taking on more contracts and risk 25% of your two K, or do you just buy the 500 and say if it goes to zero, I know my max loss.
Sometimes the underlying can move so sharply that the option prices get smashed and there’s not an opportunity for you to get out at where you would have your stop, nevermind the bid ask spread. So I don’t know that there’s an exact science on how to do that other than to go and experiment with what you think is best for you. I have mixed emotions about stuff, but I’ve really learned to kind of culture my own system around it over the years, over long periods of time. There was a time when I used them as a surrogate because I was looking at shares that if I bought as much as I needed from an outright standpoint,

It would tie up a lot of buying power, you see? And so I used the options, not leaps, but I used the options as a surrogate to have the exposure. So you might consider the same thing, but again, if you’re doing it because your account is small, I’d say save your money and contribute to your account from your savings and build up your corpus pros. Typically like the leverage and the loss limiting aspect of it too. Oftentimes you can find something, you can create spreads, you can get very creative, excuse me, with options because you can buy and sell different expirations and different strike prices against, but spread trading is a whole other beast, so I don’t want to get into that and spread trading in options is very different from spread trading in futures kind of cover that in the mastermind because it’s just too much to do here and I don’t feel like doing three hour videos for free, so you can go study that on your own and figure out, but I would definitely look at how do you want to manage the risk?
Do you want to put more money to work and then have a protective stop where you would offset the options trade and retain some of that money? Right? In the example at the top of the show, I talked about investing as much as say 2% of a hundred thousand dollars account. Not looking for that to go to zero I, but risking only one fourth of that position, $500, which would be one half or 1% of the overall account. You’d have to figure out if that’s a good fit for you or would that make you nervous having that much exposure knowing that if the name tanked because of earnings or because of whatever, you might not be able to get out, you might take a thousand dollars hit. Would that be okay? How do you know it’s hopefully hard to back test with options? Or are you better off just buying whatever it is your R and just putting that amount to work and if it goes to zero, it can’t get any worse. That only comes from trial and error. It’s the only way to do it.
I know some options guys who are really good and so I’m just thinking about actually for this thing, maybe have them on as guests and do a deeper dive in getting their insight. I’ll see about doing that. They’re easy enough. I don’t want to put the message out there. Then you have every jackass sending, you’re like, so-and-so is an expert and has these strong opinions and they’d love to help your audience this way and that way, and I’m not interested. That’s why I feel, look at the contact page. It says very clearly, I’m not interested in interviewing people.

It’s not that kind of show. I do have friends, people that I’ve known for 20 years. It’s a different type of guest. They’re not strangers to me. We’re friends. They’re pros. They have a long track record, so they also have my trust if I was affiliate sales or if I had some other type of marketing thing or I did like there’s some podcast, there’s the guy from Australia, I think you got to pay to be on that show. That’s a different business model right here. I fund everything. I do this all largely myself. I pay for some post production. I’m trying to work better on getting thumbnails that actually mean something to you. So it’s evolving, but I largely do it myself and I’d get a lot of help obviously from ganja. So that’s going to evolve. So maybe I’ll have some guests on the way.
I had Brian Shannon on for example. It wasn’t just like a random, Hey, I know you’ve watched your show. I have all your books. I really like your message. Would you please consider? That’s not the kind of outreach that I do. I can call my friends who are all kind of branded brand names. They’re all excellent people, and so I can do that in the option space. Maybe I’ll reach out and I’ll do something along those lines for you, but I’m hesitant to turn this into an interview style show. I’ll rethink it. I’ll have all of December to meditate on that, but it would have to kind of be conjugated with all the spiritual stuff, the emotional intelligence, the traitor psychology. Otherwise, we get more of these people talking about the economy, and you can get a bunch of that for free on tv. I don’t need to do that.
It’s kind of a gigantic snooze to be frank, because no matter what’s going on in the world, no matter what’s going on in the economy, if you’re doing enough research, you should be able to find four or five names a year that meet your criteria, and that’s really all you need. You see? You don’t need to find something every day. You just need to catch what are the biggest moves and be there options can certainly help you do that because of the loss limiting methodology that’s built in, especially if you have debits, right? We’re talking about if you have a debit balance or a net debit balance in the case that you’re doing bull call spreads or bare put spreads, just to keep it super simple. There’s all kinds of broken wind strategies. Don’t want to get into it and go from there. But anyway, those are some things to ponder. We’ll go from there. Maybe I’ll have a guest on whatever. Thanks for being here, and I will see you tomorrow with another episode where we’re going to talk about how do you handle taking profits. It’s an interesting concept. Thanks for being here, folks. I’ll see you tomorrow.