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Quit the discords and cancel a good number of the funding accounts that you are part of. If you followed last Friday’s video on trader motivation, that all stems from being a confident person and being an independent thinker. If you’re involved in several discords, how is your head not spinning? It’s like trying to be a Muslim, a Jew, a Christian all at the same time, and if you’re trading more than three, I know of a guy who’s got I think over 20 funding challenge accounts that he’s trying to pass. To me, this is an act of desperation and the only way that you ultimately traders trade their personality, you are who you are. Now, you can work on that over time. Typically, you can’t change overnight. Some people can if they take a lot of drugs, but at the end of the day, you are who you are just like I am who I am.
I’m constantly going to school on myself to understand why I do what I do. The good news though is I don’t let outside forces be it the television, any Twitter channels, any telegrams, any slacks, any of this or that to infiltrate my own thinking. Trading is a lonely business. If you want a friend, get a dog, right? That’s the famous line from the movie. I think it was Wall St. I don’t really remember, but I think that’s it. So you can’t build a community to help you trade. You can build camaraderie. Maybe you can build fraternity, but the idea that you have to be part of something as a trader is false, and you’ve been misled. The best traders I know who are solo artists, they’re free climbers, solo climbers, however you want to call it, and they do their own thinking and they go to bed with one foot on the floor just like I do.
You can’t buy your way out of your emotional discomfort, right? That’s just not going to happen. And if you have several funding accounts, the hell’s the purpose of that. You’re going to try to trade 20 different strategies to see which one works. So that one particular one, which is probably going to be luck, gets funded and then how are you going to replicate it? You see what I’m saying? So save your money folks. You could save yourself hundreds of dollars that you could be putting into your account, right? Is after a while these things, your ship is leaking. And the best part about trading and doing it yourself, if you followed Friday’s video of trader motivation is that it builds your confidence, and that’s going to happen over time. When you start to rely on yourself. You can’t go through life as a trader relying on other people. There’s no one there to help you. They say they’re going to help you, but you have to understand the premium telegrams or discords that you’re paying for are called continuity products. In the eyes of the marketers, their subscriptions, and they know there’s a certain amount of churn, just like the New York Times has a sense of churn, they’re going to lose a certain amount of subscribers every month. They’ll gain a few new ones. So the net difference is the churn, but ultimately they can count on that income, no difference than some financial.

With a hundred million dollars at a wirehouse making 60 basis points a year, paid quarterly, their income becomes very, very predictable. Now, I have nothing against the people who are putting these things on. They’re trying to hustle and make a living right? It’s the greater fool theory, but at the end of the day, if I have a gripe, it’s with the people who subscribe to them. If you’re going there to learn one specific thing, again, set yourself a time limit, one, two, maybe three months. If you haven’t learned it in three months, guess what? It’s not resonating with you. It’s time to move on. You see what I’m saying? If you want market commentary, you could listen to any number of people. Brian Shannon does a market commentary and he puts it out on Twitter. By the way, Brian’s going to be on the show this week.
I don’t know if it’s going to be tomorrow the next day, but I had a good chat with him. We recorded it actually last Friday, and we talked about Anchored VWAP. We also talked about how to trade that both long-term and short-term setups. We talked about Nvidia and the short squeeze on Carvano. I used a couple of the examples of my own trades in there and we went over. It’s very, very enlightening. Very smart guy, but that’s the kind of stuff you can get that for free on Twitter. You don’t have to pay for it. So as you move forward in your journey as a trader and as you evolve as a human being, you are who you are. Ultimately, your personality is going to come out through your trading, and yes, trading’s a lonely business, but you can join groups. You can do stuff after the markets are closed, right?
You don’t have to pay to belong to anything, right? You can come and watch all the videos on this channel. There’s a million things that you can learn here. The goal is self-knowledge. If the trading tactic parts are one part of it, for sure, you need to have a tactic, but you only need to have one. I would sit and chat with Michael Marcus, and it was one simple strategy that I had, and he would remark on how I wasn’t head faked into trying to do 45 other things like most young guys are because they’re afraid to miss out on the action. And I was like, no, I’m staying in my lane, and I used to talk about the 405 in Los Angeles. It’s five or six lanes going in one direction, and you always have these guys trying to play Pole Position weaving through traffic, which is terribly dangerous because it increases the probability of you’re having an accident by threefold.
Nonetheless, they do it, and I’m like, for all the travesty that you can bring in from weaving through lanes, I’m just going to stick in my lane and enjoy the ride, and that’s what you really need to do as a trader. Find one strategy, one setup, and stick to it and just realize that there are winning periods and losing periods, and that’s the way it goes. And losing period doesn’t mean you have to change anything. You just need to learn how to thicken your skin and understand that that’s part of it. No one’s winning nine times out of 10 regularly. It just doesn’t happen. There’s winning streaks for sure and losing streaks, and if you have

One, by all means, my hat’s off to you. This isn’t about putting a stick in your eye. The point is that most people who are trying to do this are all over the place. They’re acting out of desperation and they’re kind of coping. They figure that all these resources are available to them, but it doesn’t really assu or delay any of their emotional problems. And at the end of the day, it really comes down to you. No matter how much money you’re spending, no matter how many funding challenges accounts that you have, I get the emails. There are people who have not just 20 different funding challenge accounts. They have several of them with several different platforms. They’re figuring, Hey, it’s like lottery one of them’s going to hit, but what ends up happening is if you don’t stick to your knitting and find that one strategy that really resonates with you as a person, you’re never going to be able to continue to do that day after day, week after week, month after month and become a consistently profitable trader, right?
Sorry for the tough love here, but I’ve seen it before. I’ve seen every damn gimmick out there, and while I appreciate the younger folks hustling and trying to come up with great marketing schemes to separate you from your money, those people are both, they’re untested in both their lives and in their trading strategy. I don’t care about something that’s worked for two years. It’s irrelevant to me. I need something that has 20, 30 years. When you run a back test, they don’t change on a dime. I think blazen a long time viewer. Thanks for that. Blazen wrote in about when do you know if it’s time to change? Well, if you’ve back tested a set of rules, they don’t turn on a dime. They don’t go from having a positive expectancy of +0.8 to -0.7 overnight. They will need to be tweaked. And don’t forget, the expected value is a weighted average for the time period that you’re testing.
If you segment that, you might find that the same model over a certain window of time might have an expectancy of 1.2. There are other times if you took out the worst periods, you could see the expectancy might be 0.2, but you have to look at it over longer periods of time. That’s why if you’re going to back test to build your confidence in what it is that you’re doing, you want to include the periods of time that were tougher, right? I knew guys coming and showing me back tests between ’95 and 2000 where if the buying strategy was this, anything that had four or five letters in the ticker was a buy signal. That was, it didn’t matter. The price quantity industry didn’t matter because we were in a bubble. We were in a raging bull market. Didn’t matter. It was all about eyeballs. Internet was a new thing. It was like an emerging class of investor Now. So when you do those back tests, you learn to be able to say like, look, I don’t know a lot about a lot of things, but I know I can follow my rules and I just have to do that day after day after day. It’s a lot like parenthood. So much of

It is showing up in many ways. You can’t look at the results of any one particular trade or any one particular day and say, I’ve made it, or I’m a complete failure. It’s not a misnomer, but that’s a misconception of what’s going on in the business is you start to result. That’s called resulting. You look at the outcome of a trade, then you backtrack it and say, okay, here’s where I started. Here’s where I ended up. The result was good. Therefore, the system or the rules that I followed were good. So that’s why I don’t mean to sound like a cranky old guy here, but I’m telling you, when you look at the results of these funding challenges in the short run, you can’t look at a positive result as being good because in the short run, you don’t know. You don’t know if it’s luck, but you’re spending hundreds of dollars every month to be part of something that you could very well figure out on your own.
You just have to have the confidence to do it. I know you can do it. You have to make up your mind that that’s what you want to do. That’s the difference. It’s not like you can be me or I did it. You can do it. I don’t believe that. But what I do believe is that if you make up your mind and say, I’m doing this, then you’re going to do it. I don’t know how and neither do you, but that doesn’t matter. All you need to do is take the first step. You’ll figure out step two on the way. If you’re sitting back trying to let everybody bring their trading game to you, you’re already a failure. It’s not a question of you’re becoming a success at that point because traders are independent thinkers, right? Again, I’m trying to save you money here.
No one else is doing the voice of reason, but I’ve seen it happen a million times. Every year there’s a new thing that comes up. One year it was SOES Bandits. I’m not going to get into that. The next year, it was this and that, and then it was like, well, now you can mine crypto, so don’t get psyched out. Keep your blinders on. Focus on the one thing that you know can execute. There’s going to be a million distractions. It’s your job to filter those out and to block them. That’s one reason why I’m not active on social media, and I appreciate those people. I’m on StockTwits. I know Howard pretty well. I know everybody on TV because I’ve been around for a long time, but I don’t need them in my life. Trying to infiltrate my mindset. Trader mindset is the number one thing going for you, and you have to have enormous amount of discipline to trim the fat and cut the bullshit. If you’re relying on other people, that’s a failed strategy. It doesn’t get better either, so the only thing that you can do in playing that game of negative expectation is to stop doing it. It’s like, well, I don’t really miss the money. It’s only $40. I got 20 of ’em, so $800 a month, and the two Discords are a$100 each. So you’re in the hole $1,000 a month. What would it do for you if you saved $12,000 and put it into your account?
What makes that so scary? I don’t understand that. What’s out there? You can see the goods andThat other people are using. You can go to Barchart or any of these places, Yahoo Finance, they give you free charts. You can see things that are in Uptrends. If it’s not going up, don’t buy it. I’ve done lessons on position sizing, and if you don’t know, reach out through the blog and email me. It’s very easy to do. You have to become self-reliant. At the end of the day, save your money. Don’t think for any way that you have to. There’s no team. There’s no team. You’re not part of a trading desk. If you’re on a Discord or a Telegram, that’s you fantasizing that. You’re on a trading desk. You’re not. You’re with a group of people who are paying. That’s the truth to it, and I want to see you succeed, and long-term success comes on self-reliance. At the end of the day, everything else is bullshit.

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How do you stop missing big moves because your focus was on another area? You’ve got to use alerts. Hi, I’m Michael Martin. I’m a Los Angeles based stock and futures and options trader. Today I would like to talk to you about how to use the technology to your advantage to save you time, money, and effort. Man, when I was first coming up and my account was underfunded, like yours might be the worst possible thing would be like if I was in a stock and another one broke out to the upside while my other one was maybe up or languishing wasn’t making any money, it was awfully painful for me. The opportunity cost was gigantic and I got very frustrated in that I couldn’t keep track of all the things that I’d liked. I had to create a roster, if you will, of my start in five.
And so first I was doing that by hand and which is fine. I’m a visual learner. I like to draw things out. I keep notebooks. I got 45 pens in front of me. The idea though is that with the phone calls ringing, meeting with clients, there’s a million things going on. It was very easy to not have focus because I was one person trying to do everything and I couldn’t afford to pay anybody, and so I started to use the technology in my favor. How did I do that? Well, not unlike how you would enter a buy stop order, you can go to whatever platform you’re using and figure out how to enter an alert and it’s not terribly difficult to do. You find the ticker, it’ll say create the alert. It’ll say trade at or above the price, almost like a stop or below a certain price, and then you click enter and it stays there.
In the ones that I use, good till cancel. Now it’s not an order, so you don’t have any financial risk, but lemme give you an example. If you’re looking at a chart and you only want to trade, say cup and handles, you might need the security to appreciate to a certain level before you would be interested in putting on the risk, but it’s still too far away for you to want to put the trade on is a good till cancel, right? Because the last thing you want to do is put in an order and then forget good till cancel. Then forget that it’s there. All of a sudden you get a trailer and you’re like, where’d this come from? Now I’m in a position, I forgot all about it. So what I do is I put in alerts and that helps me manage all the inventory of the things that are kind of on my wishlist, but that I don’t have orders for. So just hear me out here. This allows me to save. A lot of times I don’t want to be sitting there scrolling through chart books all night, right? There’s just too many names and we have too much money to be sitting there.
We go through screeners, obviously we use all that, but then from the screener results you still have to go through. Again, if you’re a discretionary chart reader or that type of trader, if you’re not using a pure system, it doesn’t matter because it just spits out the orders for you, right? No problem. But some of you might be a little reticent to put in. If your accounts are underfunded, you don’t have that much money. You might want

To use your discretion to figure out which trade did you actually want to put on, which of course is a bias, which I’ve advocated against, but you’re going to do what you’re going to do and figure out what’s the best way to handle this. For me, it was putting in alerts because it allowed me to babysit dozens of names at the same time letting the technology do the work for me. Then you could set it up so that it pops up on your screen. Oftentimes you might have the app, some of them might allow you to do text. I don’t have the full Johnny McGorry on all of it, but man, I can’t tell you how many times that saved me because when you’re going back and forth between futures and stocks and then you might trade options on either one of those, it really helps you manage the inventory of what’s on your wishlist without having to put the orders in on the floor and have financial risk.
There’s just too many names out there. Now, some of you might be trading only one or two names or one or two instruments, so this probably wouldn’t work for you, but at the end of the day, there’s nothing worse than missing a good trade. And it’s happened to me plenty of times, especially early on because the technology really wasn’t there in many ways. So plus the expense of executing the trades was large, so it just really hurt. Nowadays, you could trade on Robinhood for free, and even if you don’t, the commissions compared to what I used to pay have compressed 99%. You got to understand how expensive it was to trade, even if you were kind of like an insider in futures. I was paying 60, 70 bucks a contract for a round turn. Now if you charge that to somebody gets shot equities, you were looking at maybe anywhere between two and 3% of the investment as a commission.
So you could buy a hundred shares of McDonald’s at like 45, 50 bucks a shares, $150 commission. That’s how it was, and no one really got a break. With the advent of the internet and these trading platforms, they’ve basically delegated the execution down to you and also the liability of churning your account. Now, you could just churn your own account and it’s up to you. So I would basically use those alerts to manage my inventory of the things that I was looking at, but they weren’t quite ripe enough on the V yet for the picken, if you know what I’m saying. And this gave me a great solace because then I might be developing other ideas because not only do we have stocks and futures options on both, but in the future space we also look at seasonal trades and int commodity spreads. So there’s a whole lot of computer power going on at any given time.
Risk management really where we make and lose our money, right? In risk management position sizing. So the last thing I want to be sitting doing during the day is scrolling through screens of charts and up timing and down timing. That to me is amateur land. The best thing to do is use the technology and have the technology do the work for you. You can effectively delegate it and it’s really awesome. It won’t miss anything. It won’t call in sick, it won’t let you down. It won’t be sitting there scrolling through Instagram on you. It’ll work exactly as you program it, and the ability to do that is a form of leverage in and of itself. There’s not enough time for you to be scrolling through charts every day with multiple monitors and all that kind of stuff. It’s much more efficient on your time and on your energy.
Two, by putting in alerts above the market, right? So say you were looking at something that was trading like $21 – $22, and you knew that you wanted to get long at say, $25, so we weren’t really there yet. You could easily put in alert at $23.50 or $24 and just let it sit there and it’ll watch it for you. So you don’t have to use the mental energy. This is especially good when you’re in existing positions that you have to manage the trades on right now. This helps probably for day traders and swing traders too, who are amply funded and have more than a couple thousand bucks in that you get to spend a good chunk of your time maybe watching the chart intraday for the things that you are trading, but you can’t go back and forth between what’s breaking out versus what am I trying to manage the risk for the trades that I already have in my portfolio. So this is a real pro move that can help you manage your time, manage your inventory, and try to keep what we call opportunity cost very, very low. Because if you’re sitting there trying to manage a trade, even if it’s a winner, you might miss the next best signal. That can be very, very painful.

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What’s the best way to trail your position with a protective stop? Is it percentage based or should you use the ATR? And the answer is “yes.” What does that mean? Well, it depends, right? If you’re using percentage based, it’s typically based on ATR anyway, that’s the way I would look at it. You could divide that into what your R is and then figure out the number of shares, number of contracts. I think the better question is maybe you want to use structure. That’s probably a better question. And what happens if the move starts to go up and there is no structure? So I think from my own trading, I use both and I go back and forth. If I’m in a name and it’s working out and I want to add more, I could add more above structure. If it’s kind of channeled sideways, put my Buys Stop in.
Once I get filled, obviously I have to change my protective Stop to account for the fact that I’ve got more inventory and you can price your risk to be right below support. I’m not worried about what the ex market makers used to say because most of that stuff is crystal ball stuff anyway. No one can really predict. Two market makers don’t necessarily want to own stuff that’s going down, and that’s what they’d be doing if they’d be hitting your stops. So I feel like that’s the boogeyman two, to be frank, your job is to manage risk. You can’t be worried about stuff that you can’t control, and once you start putting in Stops and Limits, everybody in the world can see them. So what I would typically do when I start is think in terms of percent, and that’s based on R. So say you got a million bucks and you’re risking half a percent, you risk $5k.
You could look at volatility for your position sizing mechanism and whatever that quotient would be would be the number of contracts or shares. And from that point, it’s super simple because then if it’s based on the ATR, you use that to calculate the number of contracts or shares. You can see the breakout price, which is above the market, and then the ATR itself becomes where you place your protective stop. So it’s super elegant, mathematically super, super clean. Not a lot of thought has to go into it. And you could do it on a spreadsheet. I have one for you, you can email me if you want. It’s super easy to put together. Future’s a little trickier, but this is the beauty of it, is that you can normalize the risk across all the different contracts. Why? Because they all have different standardized sizes, right?
So it’s hard. You need to figure out what’s the dollar vault of the instrument. Some of you look at your positions and then figure out how much in a kind of CANSLIM kind of way, are you going to give it 8%, 9%, whatever it might be. I don’t do it that way. I always take a look and figure out what is the risk that I’m willing to take for my own portfolio rather than the position. Then you look at the volatility perhaps by ATR or standard deviation to calculate what’s the personality of the contract. That’s kind of how I look at it. The ATR kind of tells you normally what to expect from the underlying instrument.

So that has to parlay into my R, like in what I’m willing to risk on a portrayed basis. So there’s an inverse relationship between volatility and position size, right as the vol goes up. If you want constant risk, which I typically do, I don’t try to get into hunches or things, although I’m very intuitive and impulsive in a good way, I think I kind of vacillate between using that percentage risk. And then as I adjust and the market shows me structure, then you could switch and look at support. Most of this stuff though is going to be case by case, right? Because you just might not prefer to do structure. You might want to always do it. So I would say do it however it feels for me myself, I think as the market activity unfolds, the Dutch auction process, it’s a dynamic situation.
And so a lot of times I’ll be in positions and I’ll trim as the volatility expands. If you look at even the darling of the day, Nvidia and volatility’s increased 33%. So you would’ve had to adjust your position sizes down as a percentage in order to keep that constant risk out there. And that’s how I learned to sleep at night. As far as I’m concerned, I don’t get hung up on the specific sniper entries. That’s not important to me. Heck, if you looked at half the stuff that I buy, you would look at me and think I’m an idiot. You probably might think that anyway, but in other words, there are names that have advanced quite a bit, maybe sometimes between 25 and a 100% before I even start to add, that’s the appetizer. That’s the warmup you see, because I’m not looking to buy fallen angels or things that are down or things under $10 a share.
You might feel differently. I respect everyone’s opinion. We’re all really just sharing ideas here. I have the best way for me. I don’t know. It’s the best way for everybody. That’s why I don’t sell trading system crap on the internet because who the hell knows if it’s going to resonate with you? It might be interesting to learn intellectually, but I think this work is much more important. So I don’t know, in my experience since I’ve used the ATR to calculate the percent or work that into the percent of my account that I’m willing to risk, you might consider vacillating and going back and forth seeing where is there support and in using that as you price in your stop. Because what ends up happening is if you’re going on a fixed dollar amount saying, I’m going to put on this trade, I’m looking at one minute bars and I’m going to risk two bucks per share, well that’s great, but if it’s still within a trading range that could be $5. You could still get stopped out at two bucks and kind of still be in an overall uptrend. Although within a base, you see what I’m saying?

And over the years that would aggravate me. So I wouldn’t try to trade the thing larger and need more impeccable timing is I would say, okay, here’s the base. It could trade through and that’s happened before and I get stopped and it kind of goes back up. But then I’m like, okay, well I could just get the next breakout. I don’t fall to pieces about that. So I think both are very, very legit. The key to me, if I can impart any wisdom to you, whether you’re institutional or whether you’re just starting out, is in order to know what your numbers are from an expected value standpoint, I would use a constant risk unit. And if it’s $500, if it’s a $100, it doesn’t matter to me what the number is. It’s all kind of congruent with where you are in your trading, how much capital you have under management. We’re going to talk about that this week, and what’s an adequate amount of capital to need to start trading? We’ll probably talk about that tomorrow.
There is no one best way. It’s really a feel play. I would get aggravated if I was smart enough or lucky enough to put myself in the right place at the right time and have my buys stop hit, usually letting the market come to me. I don’t like chasing and then using structure, I would make sure that it was a significant kind of line in the sand, whatever they’re called, maginot line or whatever, and say, here’s where I’m clearly on the wrong side of the trade because I don’t want to get wagged out of something by trading it too big thinking I’m going to get cute. You see what I’m saying? So that’s my 2 cents.

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Selling put options is definitely a good return on capital and it cannot outperform buy and hold. That’s been proven, so I’m not going to rehash all of that, but there’s a lot of caveats or as my old branch manager would pronounce as, “Kaveet,” which was hard not to laugh in his face – he’s a sweet guy. You got to be careful because these things, when the trades go against you, they can get ugly real quick. Let me tell you a little quick story. When we were in 1995 to 2000 and all those internet names you VerticalNet, Siebel Systems, Global Crossing, CMGI, JDSUniphase, right? You all remember the darlings, then you’re like the NVIDIA’s of today. They couldn’t go wrong if it had four or five letters in the ticker it was going up. That was the buying criteria. What’s the ticker of the symbol? JDSU?
Yeah, absolutely buy it. It’s a buy signal. Four letters in the ticker was a buy signal and so you could make money.

People were just buying stuff. Revenues and net income didn’t matter anymore. It was all about the eyeballs. And so people just got used to doing these things. Again, we talk about trading with an underfunded account, they started getting a little careless and so what you find out, I’ll have to find the study, but I think it goes a little bit like this. It takes only about a 10th of the time to see a correction of a certain magnitude than the time it takes to get there. That’s a big mouthful. So say it takes like 10 days for the security to appreciate, say 5%. The way people hit the sell button indiscriminately typically means that you could see that happen in one day.
And that’s what kind of happened with those stocks is what we were coming into March 10th, 2000, which was the high near term high for the NASDAQ Composite. And people had been selling a lot of these puts because the premiums were juicy. I mean implied vol was like 400% or something. It was really high. So you were selling like $15 to $35…$40 premiums for things that were right under the market and they were all going up $20 a day for no particular reason that it was just related to the internet. So people were like, man, this is great. I’m just going to sell these out of the money puts, I’m going to bring in all this premium and everything’s going to be great. And of course that selling puts is bullish buying calls, same side of the market. But in this case the premium was so large and because folks didn’t have a great trading strategy and thinking on how they could take $15, $20 out of a trade, especially if they were day trading, they could sell these premiums and make monster gains Whenever you sell, I’m sure you know this, whenever you sell a credit or a net credit, that’s your max gain.
So what ended up happening was, and I was there, I was in management, you had all these options that were all of a sudden out of the money

And money and then there was this cataclysmic fall where things were getting blasted and they would go from being pretty far out of the money to damn in the money and these little old ladies in Pasadena were getting delivered against because someone else owns the option. They have the right to put it to you. So people were selling these puts and they didn’t have any type of risk management going on whatsoever. All they knew is they had enough money in margin to meet the margin requirement to sell the naked put. Now there are ways to hedge. You could short the stock. Typically that’s considered a covered position, but I don’t want to get into that here. One thing that you can do is if you’re going to sell a put with say a $700 strike is you could buy something underneath it like $680 or something, and then this way if there is a massive correction, you are at least hedge to the downside.
That would be like, because selling a put is bullish and you’re bullish if you’re along the lowest strike. So that would be a “net credit vertical bull put spread,” holy macro, that’s a mouthful. Net credit selling the higher put that’s going to have a higher premium. You buy the lower one, so you still get a net. So it’s a net credit, it’s vertical because you’re just changing the strikes. And net credit, vertical bull put spread right along the lower strike. So that’s a mouthful. That’s one way to do it and to be hedged, obviously whatever you could make and lose is going to happen between the strikes. So you have to kind of figure that out. What’s your winning percentages and this and that because it’s going to be hard to find stuff that you’re risking for to make six kind of a deal, at least on paper.
You’ll have to see what the damn thing looks like as far as the deltas are concerned and this and that. Anyway, just be careful when you do these because when the market’s unwind and when everything is looking rosy, you do it once and you have enough on, you’re like, man, I didn’t have a big enough position on let me sell two or three more. So then you start selling next thing you know, got your whole account in this damn thing. And I can remember people calling up saying, I own VerticalNet, Siebel Systems, I don’t even know what they do. I’m in Global Crossing. It’s like the backbone of the internet. And so the last thing you want to do is be in those positions, and that’s one thing I don’t like about selling options is you’re not in control. So granted, you can get paid first because you got the credit of the net credit, but you still have to be super careful and not because man, these things can blow right through the strike and be down a lot. So even if you’re selling a 15 or $20 premium, I’ve seen things move so quickly in my life, especially in futures where you could be 20 cents in the money to all of a sudden be 40 cents. I mean 20 cents out of the money to 40 cents in the money and it happens so damn fast. I also know I get a lot of emails from folks on the QT saying, Hey, I want to tell you this story, please help me out, but don’t mention my name.

They’re not trading options with stops, right? Because the spreads are wide. So they sit and watch ’em and they figure the thing’s not going to move. The delta’s like 50, so there’s a big swing in the stock. It doesn’t necessarily translate to what’s happening with the option. And so they kind of let it go and that’s with or without putting their maximum amount of risk unit on. So you got to be super careful with these things just because you might’ve been making money with them ongoing. It doesn’t mean that one. Look what happened to Victor Niederhoffer, right? This guy was selling naked S&P Puts on S&P 500 futures, and if I read the book correctly, he was selling silverware and artwork to have to make up the margin call and he was trading for George Soros at the time.
So really, really smart people can take it up the wazoo. What does he need insurance for? He’s got money coming up the wazoo. So you have to be very, very careful. Although the strategy, and again, options admittedly are very hard. It’s hard to get the data, so it’s very, very hard to backtest option strategies. You also have to contend with the spreads being pretty wide. So be very, very careful with what you do. If you haven’t sold stock short, I don’t think I want to be the guy to help you do that. You could also just buy a lower strike on the puts and to create that bull put spread might be better risk reward for you, right? You might not make as much, but you got to remember your goal is longevity here. Everyone likes those grand slam trades, myself included, but I got to be able to come back and play tomorrow and I don’t want to take such a loss that it’s going to hurt me both financially and also destabilize me emotionally because then I lost my confidence.
I’ve lost my nerve and I can’t come back and play in the sandbox if I’ve lost all my marbles or a good chunk of it. That’s very, very painful. I’m sure there’s a lot of comments, you might be doing it a certain way. I appreciate everybody’s success, whereas we might all be traitors, but the way we do things can be as unique to one another as is our fingerprint. So it’s not a judgment call to say you’re doing it right or wrong. I’m just trying to be the voice of reason to say yes, the strategy is proven out over time to be very, very successful and to work, give you good return on capital. But just be careful because you could be in a really good name. They might be able to report, I don’t know, earnings tonight after the close. But suppose the market takes a dump when the tide goes out. A lot of times all the boats can go with it. So it doesn’t matter if you have a good earnings report, if the stock gets blasted right in the middle of your good earnings report, you might get hit too. That sucks. It’s bad luck, bad timing, but it’s going to happen anyway.

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For my experience, I’m going to recommend that you have at least $10,000 in your account in order to day trade, swing trade, or maybe even position trade Now, before you get all crazy and start writing snarky stuff, which I’m just going to delete anyway, hear me out. I’ve been there. I started with an underfunded account and it was really, really hard. So this is coming from experience, not saying anything to put a stick in your eye. When I had an underfunded account and I started, it was a few thousand dollars. I was adding to it every paycheck. Got it up to 5K. And if you remember in an earlier episode I talked about this, how I was willing to put up to 50% of my cash into one particular name at a time. This included futures and stocks in the same account at the time.
The problem was, is that my timing had to be absolutely impeccable, but even though I was at a wirehouse as far as trading was concerned, I didn’t know my ass from hole in the ground. So when you’re underfunded like that, you really need to have an amazing sense of selection and a really, really good sense of timing, which you don’t have. You can certainly develop it and I’ll give you that. And I know there’s stories of people out there who started with a few hundred bucks. Richard Dennis is one of ’em, and there’s some penny stockers out there that have done very, very, very well. And my hat’s off to you. We’re all celebrating the wins here. It’s just that I get the emails from the other 19 out of the 20 people who don’t make it and they’re like, man, wish I get this at least once a day.
I wish I saw your channel sooner. And that it really makes me sad. It’s not something I click my heels about because it’s not like I’m trying to save lives here. But what ends up happening is when I had an underfunded account, I had to be highly selective as to, because I didn’t have enough money. You don’t have any flexibility. And the last thing you want to do is start to cope and say, I got a thousand bucks. I’m just going to trade the MQs. That’s the worst thing you could do. My hat’s off to you for getting in the game, but there’s so much more opportunity out there than you are just looking at one particular instrument. And with the $2 tick value, not tick value, but point value, what’s your goal? Is it just to learn the craft? Okay, perfect. Forget what I said then because the best way to learn is to trade. I’ve said that. So I don’t mean to speak out of both sides of my mouth, but I wouldn’t recommend coming to the market and saying, just be a sugar trader. You’d look at me and say, Mike, you’re an idiot. So I wouldn’t recommend coming in and trying to trade the MQs, the Nqs or the EINs, the ess either. There’s too much opportunity in thousands of other names, but when you’re underfunded, you’re forced to cope, and the last thing you want to do is make your trading strategy a coping mechanism.
Now you’re going to force trades. You have to find something. So then what do you do? You start to downtime with no training. You’re looking at one minute bars. What looking for divergences? Well, that’s great for all your hard work. Then what are you doing taking your gains at two

To one, three to one? So I see those accounts, they end up churning themselves. So you can disagree with me, but I’ve been there and that’s what happens. Two, your count is so small. Small moves in the underlying instrument can really hurt you. So I had to be hyper. And again, don’t forget, I started a time when stocks traded in eighths and I would have to pay at least 25 to 50%, not 50, at least 25 to 50 cents commission round turn. It was usually 25 cents to buy it long and then another 25 to sell it long. So 50 cents, if I bought a $20 stock, I would need to go to 2050, $20, 50 cents just to get out of the trade flat and whatever gains I had, were going to go to pay the commissions, I still get a tax bill. So I couldn’t focus on these little spurts of activity in the marketplace here.
It wasn’t going to work for me and move the needle. So that’s why I had to grow my account fast. That kind of shaped me. The fact that I was underfunded shaped me to develop really good habits, like add more money to the account, take my losers quickly, add to my winners, take the risk home overnight. Obviously I’m looking at strongly trended things. I’m not looking for pullbacks. Scalping was stupid. I still think it’s not enough money, and I know there’s a few people that do it, but if I’m going to put the work in, I want to get paid. I don’t care about scalping and being cute with all that. There wasn’t enough money in it, right? Because the way I look, scalp units are a fraction of what your normal risk unit would be. So if my normal risk unit’s a hundred contracts, a scalp unit is 10 contracts for me, what do I care about making nickels and dimes on 10 contracts?
It’s not worth the work. Plus in futures, I have unlimited lost potential whether I’m long or short. So it doesn’t pay for me. The expected value is too small for it to make sense further, not at that time, but now even if there was a big three a TR move in my favor with a scalp position, it doesn’t move the needle enough for it to mean anything. It’s a rounding error. It’s not even right. It’s really small. So I don’t want to be in the risk. I don’t want to do the work for no money. The key part is the flexibility. Some of you might also be getting alerts or be part of discords or telegrams and this and that. I’ve seen a lot of these things and they’re like, every day we’re going to send you 15 of our top names. The trading engine’s going to generate these things and we’re going to send you text messages for these alerts. Well, that’s great. And you’ve heard me say nothing against these people because they’re doing hard work. They’re trying to provide a valuable service, but without a plan, how do you know which one of those to take? Do you take the first one or do you ham and haw?
How do you do that? And then if you’re losing money and you get another signal, do you take

That one or do you blow out the one that you’re losing in? If you have more money in your account, you could at least put two or three names on. Pull the weeds, let the flowers go. Let the flowers bloom. So this is why I think if you have an underfunded account, you put yourself in a tough spot. Again, I’ll give it to you that you will definitely learn the craft of trading by being in the game and learning how to trade. Absolutely, absolutely. And if that’s the goal, then by all means do it. But just realize that when you’re underfunded, you start to develop what I consider bad habits. Now, a handful of people have gone on, started the same way and eventually figured it out. But I’m going to also venture to guess that the way they’re trading now with a million dollars or even 500 K under management is a hell of a lot different than when they did it with a couple of thousand dollars.
And so I just want to have a little straight talk with you. That’s really what I think I do in many ways is be the voice of reason. It might not be what you want hear, but I’m not putting a stick in your eye. I’m just telling you, what are the realities of what are you going to face once you’re in that space? Again, my hat’s off to you trying to trade, but you want to have the flexibility. You don’t want to have to be like, well, I have to force this trade. I only have enough money to afford the margin for the MQs. Right? Again, that’s great, but you’re going to be watching every tick, which is a no-no, you’re going to be probably trading your p and l, which is also a no-no. And to me, you start developing bad habits. God knows I’ve had ’em, right?
I used to smoke. So again, if you develop bad habits, they’re awfully difficult to break. So I would say save your money. Give yourself some flexibility, have your own set of rules and not take indicators or alerts from other people. There’s a couple of different types of alerts. I’ll talk about that this week as well. But you need to have a plan and say, okay, here’s where I get in. Here’s where I get out. Here’s the inventory that I’m going to carry. In my case, when I was underfunded, I used to say, okay, if I was in a $20 stock and it went to 22 and I was risking a dollar, I will add that other, what did I say? I had 5K, and I would take my money and say 2,500 to futures, 2,500 to stocks, and of that 25 hundreds, I would put 1250 to work right away.
Whatever amount of shares I could buy, I’d put the 1250 to work. If it went up five or 10%, I would double down and increase my position by a hundred percent. I’d double my position. I would adjust my protective stop to where I’m risking still $1 maybe to break even, and sometimes I get knocked out. You know what I mean? Because in the short run, things are volatile and things are very, very random. So it was very, very aggravating as well. So then I have to fight the feeling of not coming back to the market all pissed off. It’s one thing to be an athlete and to be motivated this way, but when you get aggravated

Trading and you try to take that feeling and come back and seek revenge against the market, you’re going to lose once in a while. You might get lucky from a timing standpoint, but you need to be in optimal mental shape in order to trade. So don’t take this the wrong way, just understand that I’m giving you what the flashing yellow lights are going to be once you fund your account. Some of you I know are already going through this, so I’m kind of preaching to the choir. The majority of my viewers are new people by a big number every episode. So that’s why I speak. I’ve never met them before because the majority of people I haven’t. I have a lot of regular viewers, thanks for being here. But if you’re new to the show, we talk about the mental and the psychological aspects of trading, which is 80% of it.
And if you’ve been around the block enough times, you probably know that where you’ve had to look yourself in the mirror and say, what the hell am I doing? Why I shouldn’t even be in this trade. I’m losing money if no business being in the trade in the first place. I have countless conversations with people who are just in that spot where they’re dying to trade. They’re like, Mike, yeah, but Mike, I want to get involved now. And I’m like, yeah, I get it. But just understand that especially in futures are built for institutions, the rules are built. They’re hedging vehicles, right? They’re not a capital asset. It’s a risk transference device. So it’s for hedgers. The fact that as investors or the archaic term, a speculator you can jump in is really incidental. You just provide liquidity, but the rules aren’t built for you Institutions, they have lower margins, they get better fills, they got much more services and that we can participate when the rules are definitely lopsided for the home team, if you will. We got to really be careful about that. So think about this and mind your capital, find ways to add. If you’re working a salary job and you’re making money, think about ways to add into your account to build it up, because the more money you have, the more flexible you can be, the more trade opportunities. You don’t have to worry about like, okay, I’m in a winning trade, but I got another signal. How do I know I still don’t suffer? Opportunity cost, you see?