Everybody, it’s Michael Martin. Thanks for being here. So I get a lot of emails from folks who are frustrated about what they’re doing, and they’re ready to throw in the towel and shape and turn things around. They want to fix things. They get frustrated that they’re not making money. They put a lot of faith into a certain technique or chart pattern, did a little okay, but in the end, it doesn’t leave them fulfilled. They’re not making money. They’re frustrated, and even in a short window of time, like a month, they’re ready to change gears. And so you have to understand that when you change gears, you’re kind of getting the worst of it. One of the things that Michael Marcus showed to me is that you could find five, we named five great traders that we knew who were all legendary. And we said, okay, imagine if you could trade like any one of them.
The idea was to find one role model, and certainly he was a role model for me. But then the next would be if you wanted to trade like Ed Seko Monday, Michael Marcus Tuesday, Bruce Kaner Thursday, you would effectively get the worst of all of them because what happens is everyone has a certain style that’s unique to them and is unique to yours. Yours is as unique to you as your fingerprint. And so what happens is every style of trading will in fact, in fact, have a drawdown. What’s random when you look at the simulators is the start date, a lot of them will default to January 1st. Well, guess what? That’s not the first day of trading for a lot of people. When’s the first day of trading? Well, it’s probably the second day or the day that the account is funded. So that could be June 13th, it could be August 2nd, it could be September 25th.
Doesn’t matter what it is, but you’re not going to typically trade on a calendar year basis. So with each of those styles and techniques and tactics and emotional intelligence, each of the people might have drawdowns that occur at different periods of time. They might have different magnitudes. They obviously all know how to make money because they’ve done, but the idea is that if you’re going to try to do that, you really have to pick one and stick with it. Why? Well, if you remember, there’s a paper out there that I think Tom Baso wrote that said you how you want to buy a CTA when they’re in a drawdown, because that’s kind of like pulp buying on a pullback. If you have a commodity trading advisor or anyone for that matter who’s trading a purely systematized, not a single discretionary trade in that system, look at what happens. You trade it, markets are amenable. You harvest some cash markets kind of turn, you still follow your rules. You could get into a drawdown, right? But then you recover. So when you think about it over a 20 year period of time, you’re going to have an equity curve where there’s spikes, trust, spikes trust. And then basically the idea was that as long as the manager followed his or her or their rules day after day after day,
You actually buy the CTA on the dip because you know that the drawdown is within model. Hypothetically, anything that has a 20 something percent compounded annual growth rate is probably going to have a 20% drawdown, certainly 15%. So then you have to say to yourself, okay, if the manager’s in a 10% drawdown and they’re purely systematic that we know in model that it can get to 2022, they’re down 10, the average is 15. You could take a flyer and invest money with that CTA while they’re in the drawdown because the recovery part is kind of on its way the bottom of whatever that drawdown is. The problem is, is that if you’re doing everything on a discretionary basis and one day you want to trade like Tony Saliba and do options and butterflies and broken wing strategies, no problem. But then the next day comes and you want to trade your half a million dollar account like it’s 2 million because you’re afforded four times leverage with day trading, buying power.
That’s a different mindset. And I’m not saying that you can’t get there, but that’s years of training and mental preparation and insight on the marketplace. So I think if you’re going to system hop, which is a way of saying, I’m going to trade different styles and different techniques, at least at the beginning, you’re going to get the worst of it, not the best of it. It might seem like being flexible is a good thing, but what ends up happening is you can’t predict where your trading style is in the market in an ex anti, excuse me, in an ex post after the fact kind of understanding. So the only way you can do that is to actually put the trades on now would take a special type of intelligence to understand when someone’s model is going out of favor. And that’s probably not a skill a person has within say, the first three years.
Maybe there’s a super sensitive person who has great feel could be the case. In my experience, those people are very few and far between. How do I know? Well, because I’m one of those guys and it still took me quite a long time to eliminate the garbage that was taking up my energy and my time so that I could focus on doing one thing and doing it very, very well nowadays. Yeah, okay. You might be able to shorten the curve because when I started, there was no internet, there was no wireless technology, there was no discords cords.
Anyway, that’s the world that we live in. You get an 18 year old kid who doesn’t know, was asked in the hall of ground, have 90,000 members in a discord, and you got a guy with 35 years of experience of knocks, and you can get 1300 followers on your channel. So that’s the way the world works. So my thesis is pick one thing and get really, really good at it, and don’t start hopping from system to system because you get discouraged. How do you know? Well, you got to look inward. You know, really have to look inward and think, did you give the system or the rules that you had wanted to trade the at first?
Did you give them enough time? Because just because you went into a drawdown doesn’t necessarily mean that the rules are crappy or that the system isn’t worth following. We talked about that, right? Someone comes in, they don’t do any research. They come in, they put 25% of their countdown on one name, they make a bunch of money, and they’re like, straighting, easy when they just got rewarded for what we would call bad behavior. So it’s possible for you to do hours and hours of work and preparation and put trades on and finish the week down one and a half percent. That doesn’t mean it’s not a system to follow. That’s the hard part. So you really have to investigate and manage your own expectations when you look at what’s, what is the behavior that went on with that system. So those are my two thoughts. Don’t want to go on and on and on, but there’s a lot of ways to look at it. This is certainly one way. There’s probably others. Thanks for being here. Folks. Please like and subscribe. Do you want to take a minute, leave a comment. That would be helpful. If you want to reach out through the blog, you can also suggest a topic that I’ll cover here in the future. If I think there’s anything I could say that’s halfway intelligent, that’s worth your time. Thanks a lot for being here, folks. I’ll see you tomorrow.
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