The one thing I do to check myself and to keep myself in line is to look at my habits, right? Because the habits reflect my behavior and my behavior predicts where I end up. So one way that you can completely steal this from me is go to school on yourself. It’s a saying that they have in golf, actually go to school. So what I do on any given week, I don’t necessarily look at the results, right? Because you can play a poker hand of aces really, really well and you’re going to get your aces cracked. You can’t look back and say that you did the wrong thing just because you lost the hand, as frustrating as it might be. So what I do to keep myself in check is I say, okay, are my habits today kind of parallel or congruent with the vision that I have for myself in the future?
Now, the future for you can be next week, next month, next year. It probably comes down to returns, but returns are a function of also like your behavior. Why? Well, if you think about it, whether you’re scalping or whether you’re position trading and regardless of your asset class and holding period, the winning trades are there. It’s up for you to kind of use your metal detector, so to speak and find them, and what I have found is that the reason why most people are struggling is not because of the how-to part of trading, right? I even found that out from myself. There was a world of information. I kept feeding my brain thinking that that was the solution, but it’s actually not. You find yourself in that spot when you’re dying for reassurances, and guess what? There aren’t any. There aren’t any reassurances. This is probabilistic, and that’s the feeling tone of what I mean when I say that.
I wish I could tell you that if you put tab A into slot B, the result would be exactly guaranteed and predictable every single time, but it doesn’t work that way. You have to get used to living with the uncertainty and unfortunately, that’s what makes people freak out and stop their habits not being able to deal with the unpredictability and the uncertainty. Whereas if you do more traditional professions, you can have a vision for that. You can see what the outcome is. If you go to school, you get an MBA, someone becomes a CPA or an attorney. That type of lifestyle is pretty predictable, especially the paycheck part. With trading, it’s very, very difficult because you don’t know when your winning streaks are going to show up. You don’t know when your losing streaks are going to show up. So you have to put yourself in the mindset that regardless of the outcome, I know my system has positive expected value. That’s my edge, and I’m only going to trade when I have my edge. I know when I do that. I know at some point in the future I don’t know when, but I do know that and I trust I that at some point in the future my dreams will come true. I’ve seen that enough in my life in everything that I’ve done, not just around trading, is you have to have the vision first. If you have the vision first, you can work backwards and get to the behavior part once you know who you are and what makes you tick. To me, finding the right trading methodology is then the easy part because those are finite when you think about it. And what do I mean by that? So just on the back of a napkin, there’s really when you slice it and dice it, what four asset classes. There’s interbank, foreign exchange, there’s commodity future contracts, there’s options on equities and futures, which include futures on currencies, and then there’s stocks. Right now, I suppose you could throw in rights and warrants, but to me, I don’t really look at those because they work more like options.
So at the end of the day, then what do you have? You have holding periods. So when you think about that and you start to come up with the combinations of are you going to scalp this? Are you going to position trade that? Are you going to trend? Follow this. Even with that, you have scalping. Then you have, we could call it swing trading or day trading. We have scalping, which is a really short window of time, could be seconds to minutes play with me here. Could be longer. Of course, you can define it the way you want to. I’m just giving you an example. Then you have day trading, which might be a longer period of time within the day longer than the scalp. The next step would be some type of a swing trade, which could be one day, three day, four day, even five days.
It really depends who you speak with. And then you would get into say, position trading slash short, intermediate or longer term trend following position trading. And then at the other far end you have investing, which is kind of putting on risk with an open-ended selling or upsetting risk strategy. So when you look at all of those asset classes and you say, okay, I have four asset classes and I have five or so ways to trade them over a certain time period, then there’s only so many combinations that you can come up with. That’s the good news. So for me, I’m like, okay, well I can quantify that. So now I just have to find for what I want my money to do for me, and what do I want to get out of trading? Do I want some kind of pleasure or how does that serve me in my life?
What’s the purpose of it? So once you get to that standpoint, you can figure out the right combination for you that should become habitual so that every single day you know how you’re going to trade and affect your edge because otherwise it wouldn’t make sense for you to put on a trade at all if you can’t affect your edge and an edge in, again, back of the napkin, kind of back of the envelope type of definition would be just in a situation where probabilistically that when you affect this setup or this chart pattern, whatever it might be, that there is a positive expected value. Now there’s a video on positive expected value. You can go look it up here on YouTube and there’s probably more resources At Martin Chronicle. It was hard for me. There was no cottage industry for helping people. The internet didn’t exist, and I know how hard it is.
I know how firsthand it is. In fact, I wrote a book about how hard it was. It’s called the Inner Voice of Trading. It’s got four and a half out of five stars. I give away the audio book version. You can get it for free, the links in the description. So don’t tell me how hard it is. I lived it and there weren’t the resources that there are today even on some of the things that I don’t necessarily poke fun of, but I want you to be conscious of telegrams and private Twitter channels, and of course we’ve got discords. My whole thing on the coaching and mentoring is like the same ethos that I have for doing any of these podcasts or these shows on video in that if I can’t say it in five minutes, then I really can’t say it. There’s really no reason why I would have to get to the bull pit like the monsignor at a church and preach the same damn thing day after day after day and you don’t get it.
You see what I’m saying? If I’m doing my job, which is to give back to the community, you shouldn’t have to pay me month after month after month to get the message. I should be able to communicate it to you in an effective and efficient way that you can take it and put it to work. That’s the whole point. I’m not looking to get a teddy bear to hang onto every night to fall asleep. That’s not the right coaching and mentoring that you should be looking for. There should be a finite window of time, right? My thought process is that if this starts to look like therapy, something’s wrong because so much of this you can figure out on your own. You don’t need a therapist.
It’s pretty basic in that regard. So while I’m not calling anyone’s girlfriend ugly, you have to look at that relationship because the coaching and mentoring that I do is finite. It runs six to 12 weeks, and if you can’t get it by then, then you can’t get it because after 36 years, I know absolutely how to prescribe if I do enough listening to guarantee you results. If you don’t do the work, you’re not going to get anything. You have to be willing to accept the risk. Are you able? Of course you are, but you have to be willing to live with the uncertainty and to get comfortable just knowing that that’s the way it works. But if you don’t develop the habits to go back to the top of the conversation, the predictability goes out the window because you know that over time, if you tell me what you’re losing percent is, I can tell you the frequency or the probability with which you’ll have a losing streak.
I can also tell you how you’ll have a winning streak and you don’t even need me for that. You can do the math yourself. You can predict what it would be like to have three losers in a row. You can predict what’s the probability of you having say, five winners in a row. That’s not terribly sophisticated, but what I do know is that behavior predicts the outcome and until you align your daily habits, your daily behavior with what your vision is for the future, you’re going to be a mess because everything’s going to look good because so-and-so did it effectively. I might as well try it and here’s Tommy over here. He did this strategy, oh, I might as well try that again. It falls into the parameters of the different combinations you can get between asset classes and holding periods. You’re going to find that there’s probably a handful of people across any number of those combinations that are doing well. But whether or not that actually works for you is yet to be seen because you got to try it on for size and then do it consistently. The consistency is the magic potion here is can you dig in? Can you lock in?
That’s the hard part. Admittedly, I was all over the place. I wrote a book about it. Like I said, now, over that time, I had enormous amount of success, but the gloating of the success part doesn’t help you grow. Like who cares? Then I’m just another one of these 26-year-old guys saying, Hey, how AI is going to change the trading world and how you can make thousands of dollars in 10 minutes of work, which is a, come on. It’s the new snake oil stuff. The key if you want to really ramp up your success is work on your getting comfortable with the uncertainty.
That to me is where the rub is. The more you are willing to feel your feelings, all of your feelings, the greater that level of success you’re going to have sooner. So it doesn’t mean you have to be fearless. I don’t think there’s such a person who’s fearless. I think there’s people who feel fear, but are able to take the steps forward despite what they feel, right? If I’ve talked to the best salespeople that I know on Wall Street and they’re sitting with a billionaire prospect, it’s intimidating, but they don’t let that intimidation psych them out from going in and making the presentation. If that was the case, I wouldn’t have made any success. So that to me is really the toughest part of trading, and if a person is struggling, I’m going to bet dollars to donuts. That’s where it’s at. It’s ability for them to not accept because they want validation, they want reassurances, and those don’t really exist in this space.
The only thing you can do is look at your track record, and I don’t mean official track record. Just look at the results of your ongoing behavior, judge yourself on the consistency on the ability to do the same thing day after day after day. That to me is winning behavior, and that to me predicts favorable outcomes when I don’t know, because it all depends on your trading style, and then it all depends on is the market amenable for that particular trading style? Where people get into trouble is they try to do different several trading styles at the same time. The problem is all those trading styles have personalities unto themselves, and so you’re going to be schizophrenic in your brain here, multiple personality disorder. That can come over time for sure. You can train yourself to do it, but in my opinion, you have to start with one and do that consistently before you’re going to sit and try to do several different types of trading strategies so that you can be a person for all seasons, because that becomes very, very difficult.
Then when you’re looking at trying to decipher what’s going on in the marketplace and then decide what type of tool, again, I think you can do it, but I think it takes several years because you need to live through those market cycles and then make those adjustments. But if you want just to summarize everything, you need to make sure that you have the vision first for where you want to be and for where, and what and why, and how you want trading to serve you in your life. Then break it down to what your daily habit, your daily behavior could be, and summed up all of your behaviors in what we call a habit or habits where you can really start to predict your success is based on your daily habits. If you don’t have any, then you got to start over. Start with the end in mind, right?
I’m not the first person to say that work backwards to today and say, what’s the one thing that I can do that’s super simple that I could replicate day after day after day? Because until your behavior is kind of congruent with what your goal is and what your vision is for the future, I don’t think any lasting success is going to happen. You’ll get random bouts of it, and I’m sure it’ll make you feel good. My hat’s off to you because I’ll take good luck any day too. Why not? But if you want to actually be in control, then you need to have a definable trading edge.
Learn to sit on your hands if you’re taking winners to soon
by
There’s no doubt that taking winners is probably the hardest trade where you’re going to get in, you can automatically set your protective stop. That’s the easy part. But then what happens when you start making money? One of the most requested questions is this, where do I take my profits? How do I sit on my hands? How do I let my winners run? And I don’t remember having a difficult time with this. Again, it was a different day and age. Stocks traded in eighth, so wasn’t particular. I didn’t want to be active. It was too expensive. So there’s a few ways you can trail structure. You can trail by a percent stop. Normally you’re going to put in your protective stop based on whatever your R is, and that would be the percent of capital that you’re willing to risk on any one particular trade. Let’s just make up and say that it’s a half a percent. So for every million you have your risk in $5k. Now what happens when the trade’s up like $2k?
If you’re looking at your p and l, this is when you start to panic because you’re like, man, I can’t let this thing go back down to zero for my temperament and you might be able to benefit from this. I always look at those initial kind of green prints, if you will, as like we’re just getting started. It’s really the appetizer or we’re just getting even the bread. I’ve sat down, got the water, someone asked me if I want a drink, I got my napkin folded on my lap and now I’m ready to go. So I’m really thinking in the way I trade, where can I add more? At this point, I’m not trying to say $2k. Now you know my upbringing. I came from a working class background, so part of me still gets excited over a hundred dollars bill. I remember what it was like when I was a broke ass bitch.
You know what I’m saying? So don’t get me wrong, we’re all still products of our environment, but these days I don’t look at the dollar signs. I always translate it in my brain to think, okay, if the ATR is a certain number and that’s I’m position sizing based on that number at a half percent, so then I know how many ticks I need to see in order to make a half a percent to my equity. So I come to the table with the anticipation of trying to make one, two, 3% of my capital on every trade. That’s my mindset. So when we start making money and the thing goes green for me, I don’t start to freak out because it’s really just getting started. It’s like saying to your parents when you were a kid in the long car rides that were two or three hours and you’re 15, 30 minutes into the trip, how long till we get there?
You got a long way to go. So I would condition your brain to start to think like, okay, it’s showing me some profits, but it’s nowhere near where I want it to be. So much so that the next order of business isn’t even really to worry about taking profits. It’s getting to the point where the price has moved away from your entry to the upside. You could be short and it can go down and you still have upside in your account so that you can just basically move your protective stop to break even. And that doesn’t mean sell anything. That doesn’t mean sell anything and raise your thing. I’m just keeping the entire position that I have on because I don’t have my optimal piece on when I get started, but I’m quickly looking to move that protective stop to break even. So for that piece of risk that I have on, I’m kind of freeroll look at it as my money.
I just say, okay, there’s a bit of a cushion. That’s kind of how I look at it. It’s just cushion and I don’t get excited about it because I do know that probably half the time you put on a trade, you’re going to get stopped for the loss. Then another, I don’t know, we’ll make up the numbers. Another 25% I’m going to put on a trade that it starts making me money. I’m going to raise the stop to break even. I’m going to get knocked out flat. That’s part of life. I’m not trying to be right. Nine times out of 10, I’m trying to get fully loaded so that on those instances when the thing really starts to move, I’ll have enough risk on never having really taken all that much risk at the beginning. So I’m kind of feeding into my position. Sometimes it’s the same as my initial piece.
Sometimes it’s smaller if the chart ends up evolving the right way. Sometimes I’ve doubled the position after adding. I can remember in 2005 when I was first building into the sugar position when it was under 10, the account was like $50k. I had two on, one on, I added another two for five, and then when it broke out at 12, I bought another five. So I wasn’t doing it uniformly, and I’m still kind of that way too. You have to kind of read the tape and see what the market’s showing you. But the other thing that’s important is because one of the questions came in on the thing, what do you do when you have a solid gain? So we have to operationally define that, right? I’m not a psychologist and I don’t know why the hell anyone would want to be when anyway, but you have to figure out what does that mean to you?
Because a solid gain to you might mean something very, very different for me, right? Solid gain. Does that mean it’s in the upper half of all of your gains? I always like to think about it in terms of percentages. Then you could be objective. The last thing you want to do is to start to think dollar signs. So I would say solid gain. Well, what does that mean to you and why is it that number? Why don’t you make it higher? So whatever you think of as a solid gain, why don’t you double it? Make that the solid gain.
It’s all subjective anyway. Why would you limit yourself? The other thing is the part of sitting on your hands is very, very easy. The act of not doing something, and you should be looking at the chart, not your p and l, right? Because once the thing starts moving, you can either trail by percent or you can trail by structure. Now, sometimes with the cocoa market, I’ve been scalping the past two weeks, you have to kind of look for the intraday structure because the ATR is like off the charts. It’s up sixfold, right? From several months ago it went from $60k to $300k, right? You know what I mean? So it’s too volatile to price things based on ATR. So you have to think points. Then you have to think like, okay, where’s the swing low and if the thing keeps moving, so far so good.
I guess I’ve been lucky because it’s super volatile and I can remember speaking with one of my mentors about knowing when to take gains and thinking too short term, being a little bit myopic, and he was like, okay, so let me get this straight. Is your goal to make money or do you want to feel good? Right? Because I don’t know why it’s so painful for people to be in winners, and I wouldn’t want to equate taking small gains with feeling good. I’d want to kind of blow that up and say, okay, I have unrealized gains. That’s good. Once I have the unrealized gains, now I can turn that into a free trade because once the market’s appreciated above my entry point enough, I can raise my protective stop to break even. And I’m just here to say, if you can set up your portfolio like that enough, who knows how much you could possibly make?
You don’t want to overthink things and be like, man, I got to take the trade. I don’t want to take less than $500. I don’t want to take less than a thousand. Whatever the number is for you, you have to think bigger. And if you’re at that stage where you’ve been taking several hundred dollars, train your mind to start taking trades that have winners with a comma in it, it’s up to you. You can make that determination. You can say, okay, I’ve been making whatever it was, $350 to $750 a trade. Now I’m going to trade and I’m only taking $1,000 winners. You can raise your protective stop when you’re up $750 so that you stop out at plus $500. We’ve talked about this a million times. If you normally like to take winners at 3R, put your stop at 2R, see if it goes to 4R.
If it goes to 4R, raise your stop to 3R, right? Because sometimes they’ll go 5R, 6R, 7R, and all you really have to do at that point is just keep adjusting your protective stop. The market will tell you when the move is over. There’s really nothing to think about. So if your R is 50 points, whatever it might be for whatever instrument you’re looking at, your job at that point is to just continue to move your protective. Stop up as many times as you can. That should be the goal. Make a contest for how many times can I adjust my protective stop up? If I’m trading stocks and I’m scalping 25 cents, okay, every 25 cents move, I’m going to raise my protective stops up 25, right? Some of you might want to do it mentally, but I typically don’t advise on that because the markets can move too quickly and you can get smashed out.
Two, I don’t typically scale out of winners to lock in those gains. I’m much more of a position size kind of scalper where I’ll nickel and dime my way in to get to the optimum size, and then if the thing moves, then I’m fully loaded, and then I typically adjust my protective stop for the entire piece because again, in futures with the type of size that I can eventually get on one tick can end up being quite a bit of money. So I feel like you can coach your brain to start thinking differently. It’s really up to you. I don’t want to get used to making less money and turning that into a good feeling because I can’t take the pain of making money anymore. I have to get out of my winners, which is weird, right? Because stay traders that write me stay in their losers like, no problem.
They’re like, yeah, I’m just going to wait for it to come back. But the minute they start making money, they’re like, holy shit, Jesus, what do I got to do? I better check my social media, see what everyone else thinks about the name now that it’s making up. Oh, there’s a quote. Yeah, Carano to the moon, baby. You got the fan boys. So take it easy on yourself and try to convert the points into percentages and then make it your game plan to adjust your protective stops up as many times as you possibly can. If you give the thing room to go sometimes they’ll really go think about how great you’re going to feel. If you’ve been normally taken off trades at 2R or 3R the first time you take off a 10R trade, you can do it. I know you can do it, but you just have to give yourself permission to stay in those trades.
But Mike, it doesn’t feel good. Remember when I said the feelings that you don’t want to feel have as much power over you as the ones that do? Is your goal to feel good taking small bits of capital or go through some emotional development and make even more money doing the damn work? You know how many times I’ve been in cocoa in what’s today? So today’s Friday, you’re watching this Monday. It must’ve been Wednesday. I was scalping in cocoa, I was adding, and I sat there looking at the screen, which is not a great use of my time, but I must have canceled and replaced six orders, adjusting my stop up, edit the order. You click on the thing, you adjust your price, it says reenter. Boom. Then it’s done. Market turns back in my face. I did the best that I can do. Market continues to advance. Okay, I better adjust my protective stop, go in, edit selection, change the price again up whatever it was, 50 ticks, reenter the order. That’s the best you can do. I don’t want to overthink about it and start looking like, oh my God, it’s over X amount of dollars. Now I better take that. I want that feelgood moment. I would much rather go home. And here’s the takeaway. Before I shut up,
I take solace in the fact that I can sit in and adjust my protective stops. That’s the goal. The dollar sign, the market will determine. I’m not going to sit there and put judgment on what my p and l has. I’m going to judge myself and grade myself based on my behavior. I entered the order. I caught the swing low. I put in my protective stop in case I was wrong. That still happens, believe it or not. I’m wrong. Plenty of times starts to move in my favor. Protective stop goes higher, starts to move in my favor. I add a little bit more. Then I look at the average price, put in my protective stop accordingly. So ultimately, it’s like if you’re ready, willing and able to risk like five ticks on the einy or 20 ticks on the MNQ or a hundred ticks on cocoa, it doesn’t matter to me what it is. It’s just that every time you see that incremental move you can adjust, your protective stops up accordingly. And if that’s what you were willing to risk at the beginning of the trade, why would it be any different? If you were up 5R, you can still risk that same amount of points.
Chances are you’re never going to top tick the market. I don’t know why you’d want to do that. That’s where other buyers are. So again, I know some of you have very strong feelings about scalping and swing trading and day trading or what have you, but I want to buy when there’s other buyers, and I don’t necessarily want to sell into strength, and I probably have more size than the rest of you. I like when there’s more strength because that’s wind in my sails. So think about that. I’m not calling your girlfriend ugly. I’m helping you try to make more money for the work that you’re already doing. So I’m not the antagonist. I’m asking you to open your mind and to think differently. It’s your emotions that are getting you out of these winning trades. The math is easy. So are the trading tactics. It’s so easy. It’s like easier than sending an email.
What it takes to become a successful trader
by
What does it take to become a successful trader? Man, that’s a hard question. It’s also very easy because looking back, I can tell I think this comes from a reader, so thanks very much. Hi everybody. I’m Michael Martin. I’m a futures stocks and options trader based in Los Angeles. I think you first have to understand that trading is a probabilistic outcome. I have four or five things that I think you need to own over time. You don’t get them right away. The fifth one, I think is the most important one, so wait till the end there. Understanding that this is a probabilistic game and that you’re going to lose that you need to control your losses so that when you do win your winners, pay for all your losers. That’s called the mathematics of expectation, also known as expected values. There’s another video. I’ll put the link in the description for that.
You need to know your math. You need to understand and be emotionally okay with the fact that you’re going to lose probably 50 to 70% of the time when you start, because you don’t know anything and you have no sense of timing. Even folks who’ve been around for a long time, their skills can kind of ebb and flow your sense of timing. Sometimes it works. Sometimes the market’s not amenable for your style. That’s the way that it goes. There’s going to be winning and losing streaks. You need to develop compatibility with your tactics. There’s a million things that you can study to trade as far as instruments are concerned. Then you have to get into timeframes. What do you care like emotionally? I have found that the folks who tend to hold their risk longer, get paid more, but that that’s a truism, right? Because they have more risk.
If you have more risk on over a longer period of time and you know what you’re doing, chances are you’re going to make money. You don’t get paid without the risk. They go together in some way, shape, or form. The key there is your position size. It’s not so much your entry or your exit. Even for scalpers, and I’ve been scalping in cocoa the past couple of weeks just because the volatility looks like my uncle Vinny’s, EKG, after two meatball parms and a liter of Pepsi. My God, even from my, I have a cast iron stomach, but even there, it’s berserk. You need to find a timeframe and a set of rules with which you’re compatible, right? And that’s tricky. That comes from trial and error. You can get a little bit of an edge. Well, no, lemme take that back. You can get a better understanding of how you trade by paper trading, but until you can conjugate it with your emotions, when you risk real money is when you’re really going to start the learning process. I coach and teach people on the side when I have the time, but there’s no better teacher for you than you actually doing the trading, and that’s taking money out of my pocket. You need to have a good attitude. If you come into anything in life with a pissy attitude. Think about it. Do you want to work with someone who has a pissy attitude? The market doesn’t either. The market knows and the tickers can sense fear,
Right? They can sense pain, not just dogs and bees. Patience. Everyone wants to become Paul Tudor Jones overnight. It’s not going to happen. Some of you probably have a fantastic sense of timing, and my hat’s off too. I hope you make so much money. I hope you’re trading off time in sales. I don’t have any ax to grind against anybody. I celebrate everybody’s winning. But the thing is, it’s life on life’s terms, and that’s a very sober way to look at things. And if you come into the market every day, I do, I assume I’m going to win. I assume I’m going to make money, and I come in with that sense of entitlement. Basically. You kind of have to. It’s more intentions equaling results. If you don’t come in with the winning attitude, even on the days that you lose, you’re kind of sunk because it’s just so hard.
It’s very, very competitive. And having a good attitude I think is important. Having discipline, of course, is important, but that’s knowing also when to sit on your hands. You don’t have to trade every day. I know you probably think you’re missing out on opportunities, especially if your account is smaller and you’re relegated to trading like the emini or the MNQ’s. There’s actually been studies that have shown that when you don’t have your trading edge, that makes no sense for you to put on the trade. There’s two outcomes to every trade. There’s the financial one, of course, that you can see on your p and l, but then there’s the emotional and the psychological one. So you need to make sure that you’re trading to make money. Yes, it feels good when you make, but when you do this enough, you could also kind of come to understand that as long as you’re taking losses that are within your model, those should feel good too because keeping your losses small, and if you’re really good, your max loss will be your average loss.
Honor your stops. There’s another one. No one wants to get stopped out of a trade, especially if you’ve been waiting hours and hours and hours for the damn thing to finally hit the criteria that you need to hit to add a position long and short. So the last thing you want to do is worry about getting stopped. But if you’re up $10,000 in a trade and you have your protective stop at a loss of a thousand dollars from your initial equity, you need to learn to adjust your stops. No one wants to get stopped, but you’re playing superior defense’s. Job number one. And I think the single most important thing that you can learn to do over time is have the willingness to feel every feeling that you can possibly feel. The feelings that you don’t want to feel have a lot of control over you, not just the ones that you think you’re seeking to feel. So as soon as I became willing to feel all my feelings and realize it’s not that bad, my trading really, really improved because then there was nothing in the market that was going to destabilize me.
You can train yourself to make money
by
Trader mindset is the most important thing that you need besides having some type of skill to manage the risk. What traders are, they’re risk managers and you can really train your mind to make money. What do I mean by that? Well, when I went to Wall Street, I did make assumptions, and I’ve mentioned before a lot of them were completely wrong, but at the end of the day, my mindset was such that I know I could win at this. I saw who was doing it, I saw how well they were doing, and it was easy to emulate their behavior, at least from the outside. Then I needed to learn the inner game, and that’s where the money actually is made as far as I’m concerned, right? It’s widely understood that 80% or so of trading is about psychology. People will come out and say trading psychology doesn’t matter, but for those who, people who say that they were born with the right psychology, so it was never an issue for them.
Unfortunately, for the millions of other people who are going to try to trade, especially if they come from a very academic background, they’re going to find out that the level of failure on a per trade basis is very high. The frequency is very, very high, but as long as you don’t go on tilt, you can train yourself to understand the new math, and that’s the mathematics of expectation. That’s understanding that 60 70% of the trades that you put on are going to lose you money, and the ones that will make you money can make you money very quickly, and you can take scalps like we talked about yesterday, or you can learn to get comfortable taking overnight risk and over the weekend risk, and I have studies that show where you can actually make your money. The thing is, I think traders make things very, very difficult for themselves because they want to have the macho win, the emotional win I put on the trade, I carved it out of stone and I did all this work and this is how I got rewarded for the trade.
I’ve been there. I understand that it’s definitely a peacocking thing, but when you look at the results of buy and hold, which takes really no particular skill whatsoever, and you could make almost as much money, you don’t have the same emotional payoff because there’s nothing to brag about. You just put on a good trade, it made you money, you left it on for as long as possible and you took it off. So the emotional win for that type of trade is very, very different than someone who has four monitors. 18 indicators has real-time data, has a headset on, is listening to a squawk box. That’s a whole different type of emotional reward system that’s lost on me. I don’t need that stuff. I kind of think that it’s younger guy macho stuff, personally speaking, but I’ve had those types of trades where I’ve done sufficient work, put a trade on, used all my own ingenuity, used and relied on my own sense of
Timing and made a bunch of money and it felt very good. I felt self-actualized, but at the end of the day I had to start to think how much time do I want to actually put into this and how do I have a quality of life? It’s not written anywhere particular that you have to spend eight hours in front of the screen every day. That’s your choice that you choose to believe that. So this stuff gets kind of deep. In the meantime, you can train your mind to see other possibilities. That’s also up to you to be open-minded because I think this is, to me, the shorter term stuff is really built for younger folks who have unlimited energy and this and that, but I don’t know too many guys who are 70 years old that are scalping even though they might’ve done that because the need for the money isn’t there anymore. They’ve already made their tens of millions of dollars, so it doesn’t move the needle for them to sit and scalp unless they can see something from five miles away and they’re like, oh, yeah, that’s so obvious to me. Just going to go put on the trade and nail it because the old guys, yes, still got it. That kind of stuff. So as you age, you tend to have longer holding periods, not everybody, but that’s what my experience has suggested.
So be mindful of everything that you’re doing and all the choices that you’re making. You can understand. You can only see so much, but there’s a whole other world of trading that you might not see, and to me, if you’re going to be a pro, you want to investigate all of those channels to see what one’s the best fit, so you don’t have to necessarily marry the first girl you ask out on a date, so to speak. You should get to know the environment a little bit. Now, I trained my mind by not taking my losses personally. I knew that I had to be in it to win it. I knew I had to put on risk in order to make money, so I had to think what’s a good risk versus what’s a bad risk? I also kind of understood that sometimes in the short run, you’re shot by friendly fire.
You could have a really good trade, really good name, good fundamentals, which I think you should study. If you’re learning stocks, you should definitely learn fundamentals and not just rely on charts and level twos and come to understand that I’m going to have bad luck and bad timing on top of bad decision making, and then reconcile that with yourself early on and not beat yourself up over it and just understand that this is going to come over time. Baseball players, they’re going to strike out, they’re going to put trades on, excuse me. They’re going to get to bat, and they might not even be facing a good pitcher, but they still might get called out on strikes.
There be bad calls. They might swing at pitches that fool them that have late movement, and that doesn’t mean they can’t be hall of fame. So I trained my mind to make more money by not getting emotionally invested in any one particular trade. So pick the darlings of the day. You know what they are, MicroStrategy, SMCI, Nvidia, anything with AI attached to it. We’ve seen this before Bitcoin, remember this, what do you think are the names that people will make the most money on? Write the top three down. Then show me the list and I’m going to show you the top three names where people lose the most money on because if you don’t have a strategy and you get sucked over to the light like the moth, you’re going to get blasted. And if you know anything about history from ’82 to ’87 before the correction, we’re in a really big bull market, but most individual investors lost money because they had no sense of timing. They were trying to time the market without knowing how to do it, and you can do it. Most traders are time in the market every day, right?
Then same thing, if you watched what happened from ’95 to 2000 in the Dot Com era, the names that people made money on, it doesn’t matter. What was it? Cisco, Sun Microsystems, Vertical Net, CMGI, right? Siebel Systems, JDS Uniphase – for the Love of God, Global Crossing. You can list a number of those names, the top 10 holdings of that five-year window, but those were also the same names where people lost the most amount of money, so why was that? Well, they weren’t mentally prepared. They got in at a late stage. They were in a stage two breakout buying into the fifth base, very, very, just as it started to go to stage four breakdown. They tried to sell puts and they got exercised against, and it seemed so easy for everyone else to make money, but you have to train yourself what not to do. You can’t fall victim to every emotion that’s running through your body, and that takes time.
That’s not something that can be done in one day. You could learn scalping tactics. You could read an article and probably walk away with a couple of gems. You could learn the trend following methodology in the same amount of time, but in order to put it into practice and to make it your own and to do it and to do it and to own it, where it becomes second nature, which is where the magic happens, where you’re not second guessing yourself, you’re not trying to look at your discords and be like, oh, what is so-and-so hey, is this a good time to get in? You have to be independent. You have to be a leader. You have to take the action despite your fear and whatever else you might be feeling.
That all come that mental training takes a lot more time than the actual learning of the trading. The intellectual side’s, the easy part, as I’ve said before, if you don’t know who you are, it doesn’t matter what you know, don’t know what makes you tick, you see, and so you have to learn through real experience. This is an experiential process, not necessarily an intellectual or an academic one. That’s the easy part of trading, even the screening part. There’s all solutions for that. It’s very easy to find, so keep whatever you do, keep your mindset in such a spot where you have to think you’re a winner. If you say, why do I always lose? In my humble opinion, you get what you think about and you give that power. Words have power. I’ve said that before, and so I don’t give power to negative words.
I don’t say like, oh, I got stopped out again. That always happens to me. I don’t recognize it that way. I say something like, well, that’s the place where I was willing to transfer the risk to somebody else, and they were willing to take it on more power to them. I hope they do well because I know I’m winning. I didn’t necessarily win today, but I do. Winning things all based upon your behavior, not necessarily what, so you have to do everything in your power to stay in a good mindset, really. Thoughts, feelings, actions. You can think about what you want to do, then put yourself in that emotional state and then take the right actions. You might not make money today, and I let go of that too. I let go of saying, I need to have a green day every day. I don’t.
I just need to follow my rules, and I know when I do that, the math is in my favor when the winners show up, I don’t know. I’m powerless over that in the way I think in my paradigm, I’m responsible for everything, don’t get me wrong, but I don’t put that kind of pressure on myself where I have to have a green day every day, and especially if you’re starting out, I think that’s the wrong way to do it, but my coach and my mentor says, take $50 even, because at least it’s a win if that’s what you’re comfortable with, but then you have to add it all up and say, is it worth it for me to do that? I can share with you after a while, after you’ve done that for a month or two, you get tired of taking $50 wins.
You’re like, what am I doing this for? I’m running to stand still, you too, song. I’m running to stand still, and I didn’t want to do that. I needed to grow and amplify my cash in a big way because the $5k, $6k, whatever that I had in my account, I knew that that wasn’t, if I made even 20% on that, it’s a thousand dollars. That’s one month of student loans. That wasn’t going to move the needle for me, so I had to put myself in the mindset and make the determination that I’m going to make three, four, 500% of my cash on my account balance. That’s what I meant by that, right? Then you have to envision it and say, okay, well then what do I have to go through in order to get there? What kind of pullbacks and drawdowns do I need to go through?
It’s a lot different from scalping, but I knew the market would, if I caught the right moves at the right time, especially in futures, the market would do the work for me. Plus I had the leverage, so I was like, okay, if I put myself in the right place at the right time, the leverage and the market forces that are more powerful than I’ll ever be will put the wind at my back and move my account balance, and then I got used to that. I got used to that overnight risk. I got used to that over the weekend risk with futures positions, because when the moves happen in your favor, they tend to open up with you. Your long, they open higher.
It doesn’t have to be by a lot, but when the trends hit, they hit very, very well, and you can make more money from doing less work, which in my opinion is what you should be doing. You shouldn’t be ready, willing, and able to have to do all this extra work to reinvent yourself every day. That’s my take. You can make a lot of money by taking the risk home. Some of you like the feeling of being busy, so you feed that beast. I don’t like doing busy work. If I’m in winning trades, I like to stay with it, but that’s my mindset. Your mindset may be very, very different. You might like that. All that activity, you might be in a community of people and you’re kind of feeding off of that brotherhood. I’m a loner. I don’t want to hear from anybody, even my clients.
My first rule on the client agreement is don’t call me. Do not call me. I’m not looking to make friends. When you’re younger, you have to make those sacrifices and deal with the people calling you like, Hey, I see this is moving. How come we’re not in it? Or, oh, yeah, we’ve made a lot of money. We made 20,000 in each Bitcoin. How come we are not taking profits here? I don’t want to hear about that. I’m not Merrill Lynch. I’m not interested in having that kind of relationship with people. Again, mindset. I’m training myself to make money. I’m not training myself to take on your emotional bullshit. Watching the market because you’re bored stiff, doesn’t work that way. So think about where your emotions and your psychology come to play in every decision that you make in your analysis to your entry, to your position sizing, to how do you take your losses in a disciplined way, and then also how do you take your winners? Why do you take your winners when you do? And if you start to look at that, you can begin to see patterns, and then that’s when you can begin to make small emotional changes, and in my opinion, and when you’re ready, willing and able to do the work and make those emotional changes, that’s exactly when you’ll start to make more money.
What you should know about scalping before you start
by
So contrary popular belief, I don’t really have a problem with scalping. I have a problem with the people who market scalping, right? Because scalping myself, right? We’re in that kind of market where there’s some gigantic moves. Look at any of the MSTR, SMCI, certainly Nvidia. You could look at Cocoa if you trade futures. Some of those moves are very, very pronounced. There’s obviously risk involved, but I don’t have a problem per se. Again, with scalping, I know people who can do it. I do believe you need to have an enormously great sense of timing. I think you can see it again and watch it and understand it intellectually, but that doesn’t necessarily mean that you can do it. And so when I see marketers putting out videos on how easy it is, I hope you understand. You probably felt it too. It’s just not the reality.
I know there are people who do it very, very well, but you have to understand that it’s widely understood that only five to 6% of the people who day trade make it from everyone who tries and within the day trading space. That doesn’t necessarily mean that those people can scalp either. Like it’s a very, very unique skill, and if you’re doing it and you’re making money, you’re making a living. That’s great. I think it’s disingenuous to tell folks who have $1,000 – $2,000 that they can scalp their way to financial freedom without adding money. Significant amounts like thousands and thousands of dollars to their account. “But Mike, I’m in this Discord where they’re all doing it,” and I’m like, in statistics, we call those survivors. We call those people survivors. You don’t see the people who didn’t make it. So you have to be practical.
You have to be objective. Even if you don’t want to. You can choose to believe what you want, but I’ve been around a long time and I’ve seen it. I’ve seen the folks who can do it, and so when I say a handful, it’s a figurative way of saying it, but percentage wise, even in the 5% of the people who make it, there’s a very small percentage of those folks can actually scalp. It takes a very, very unique feel for the market. You can develop it. You’ll have to try. You’ll have to experiment. You’ll have to risk real money.
Paper trading can help, but nothing feels as good overall when you’re doing it with real money and winning and losing because then you get to calibrate your system because again, not just, you’re going to need to be super accurate because with scalping, you’re talking about being in a position maybe for one to two minutes, and there’s a lot that go on. There’s order flow, right? You’re looking at level two. You’re looking at relative strength. You’re looking at volume. I have mixed emotions about it. Volume doesn’t equal liquidity, but if you see volume showing up on the tape for that instant and you have really, really good instincts, you can absolutely nail the trade very, very quickly. But my whole thing when I compare that, because when I do my scalping, the thing that I think about is timeframes. So if I see an opportunity to scalp something, I can look at that as a trade entry as people, we label it according to what our emotional needs are. To me, if you see some kind of a breakout price after consolidation or it’s retesting a certain level and you see volume showing up, you can say that that’s my scalp entry. But another person who’s sitting down the hall, perhaps at another firm can say, well, that’s my swing trade entry. That’s my entry that I’m going to have. I bought it on Wednesday. Let’s see if I can hold it. And if the move follows through to the end of the day, then that would be a day trade, not a scalp. If you hold it to Thursday, Friday, now we’re in a swing trade, you get the same entry.
If you’re a position or a trend follower, you can label it how you want. So there’s not any specific entries that I think if you’re looking to try to develop your craft, you could look at your scalp entry as the entry for a trend trade. Why do you have to label it a certain way? To me, when I look at all the different education stuff that’s out there, to me, any of those entry rules can apply to any number of holding periods. You choose emotionally to remove the risk when you do, and that’s a very personal decision for me. Like I said, when I was on with JC Parets and All Star Charts, it’s like I’m at the stage now where I know I have a great work ethic, but that doesn’t mean that I want to work like a dog every day.
You see, and I mentioned Pareto Efficiency. I want to, I want the most amount of output for the least amount of inputs, which is a fancy way of saying I want to make the most amount of money for doing the least amount of work. Now, I tend to do my work as my preparation the day before, typically the night before, and then I review in the morning, and that feels better for me emotionally than to have to do my preparation in the morning. Keep in mind, I’m in Los Angeles, so environment has a big part of my decision, right? I’m already up at 4:30-5:00 in the morning. I don’t want to have to do my biggest crunch work that early in the morning. I’d rather review the work that I did the day before and say, okay, how are things behaving overnight? Where can I step in?
Where do things look like they’re going to back off and I might need another day? Those decisions are much better for me again, in my environment. If you’re in New York City, you got all the time in the world to get to the office by six or seven in the morning for the opening bell, and some of you don’t even do any trades until 11 o’clock, right? You don’t trade in the first hour and a half. Let the market set up and tell you where the ranges are, right? That might be another way to do it. So for me, you have all the time. The time zone helps you.
For me, the time zone works better in the aftermarket in managing my risk that way. After the close closing bell, and then certainly as I come into the evening, as I was telling JC after 8, 9, 10, 11, 12 o’clock, midnight, I can see what’s happening in other parts of the world where it’s already too late for the folks on the east coast already probably in bed. But for me, if I’m up at 10 o’clock, it’s 1:00 AM in the east coast, I can see what’s happening in Asia in real time. So that gives me a bit of a tactical, or at least the situational advantage, is I can kind of see how things are following through. That helps a lot in currencies. It also happens in metals like gold and silver. You can see them start to trade overseas, and you can manage your positions accordingly. If those markets in the stock indices are starting to sell off, it could trickle over and creep into what’s happening with say, NASDAQ or S&P.
So I can initiate a position or better manage my risk by offsetting some of my risk for the things that I’m taking home overnight. But what I’m trying to say is if you’re going to try to develop a feel, it’s very, very, I think it’s a skill that can be evolved. It comes through an enormous amount of trial and error. Again, I have skill, but I was born with it, I believe, and I certainly worked hard to develop it. So on some level I can share with you that I’m lucky, but on another level, I can share with you that I did work hard to kind of hone that craft. Keep in mind, if you’re new to the show, all I did at the beginning was fail. I was underfunded. Everything that I thought I knew about Wall Street or thought what would happen for me when I got there was completely wrong, and I had to simplify and cut back.
I had to eliminate foreign exchange trading, interbank, foreign exchange, and options trading altogether, because when I looked at my behavior, I wasn’t getting any results. My stock trading was okay. I stuck with quality names, and I think I was probably in a bit of a bull market. My skill where I completely understood the market was in trading physical commodities. It seemed to come natural to me. So that’s what I focused on so that I could build a track record and more importantly, build my confidence because once you, even guys as dumb as the damn doorknob walking into your office, that person has confidence. They’re going to achieve a lot in life just because of moxie. So what I don’t like is when people try to tell you how easy it is and how much money you can make in such a short period of time with no experience and no money, it’s a come on. I don’t know. They might’ve had certain type of success in their career starting out, and they could be in the right place at the right time, but I don’t care if someone’s had six months of success with ai. That’s not enough time for me to trust it. I certainly wouldn’t put any money into any algorithmic trading using AI because I came up learning how to run my own systems and building my own models, and I’ve not completely sold on the whole AI is going to change the world thing. I think it’s going to do a lot in replacing jobs, and it could do a lot for client service for sure. That’s the evidence that I could see right now. But most of the traders that I know want to be more hands-on. Very few people want to delegate the decision-making to fully automated systems or even purely systematized trend following models. Most of those people are still even reading charts and figuring it out the day off. So there’s a lot that’s going to have to happen culturally, I think before the whole of Wall Street goes in hook line and sinker, and so you need to be careful, right?
Buyer beware. Caveat emptor. I know for sure that if you have the right emotional constitution and you know that you don’t freak out when you lose money, you do have a chance because that’s something that everyone has to do. Even the guys who are in market wizards had to pay some kind of, they all had to go through some type of emotional hazing to get into the trading frat, and they all had to lose gigantic sums of money, probably a lot more than you’ll ever have to lose, but don’t think for two seconds, just because some guy in marketing tells you how easy it is to do this and that you could make a lot of money and then go to cash, have no overnight risk. I know that sounds emotionally appealing, but it’s very, very, very difficult to do. I do it. It took me a long time to get there.
I know I have friends that do it, and they’re very, very good at it, but no one comes out of their mother’s womb necessarily. With that innate ability, it’s going to take you some time to learn your craft, and you have to think about the time and the money and the effort that you’re willing to spend in order to learn that, because too many people quit too soon. They don’t have the right expectations, right? Expectations have built in disappointments, so just know that it’s probably going to take you several years to really get where you want to be. I know you want to get there tomorrow, but it’s just like a relationship. They take time to evolve.