Hi everybody, it’s Michael Martin. How are you doing? Happy Friday. So I should have mentioned the books that I read when I was younger, cause I know someone’s going to ask and I kind of record these the same day largely cause I need to batch produce them, otherwise they don’t get done and I’m just too busy. So I just finished recording Thursday’s episodes like a couple minutes ago. I, I’m like stupid me. Why didn’t I mention the books? Cause again, there wasn’t any online community. There wasn’t any Zoom meetings or teams or Slack. There were no discords because the internet didn’t exist the best that the next big technological ad advancement were. Those little beepers where the thing would go off and people would look whose number is that? And they’d have all the codes. Seven seventy seven was call home or whatever and they at least spy codes.
But when I didn’t know what I was doing, I did need to become edified. But I want to caution you on that, that you only need a little education. You don’t want to be an ongoing student in so many ways because ultimately learning new things doesn’t mean a whole lot until you actually put real money to work. So there were three books that really shaped me as I was kind of coming out of not knowing what I was doing to becoming moderately profitable on the how-to side. Of course there was Jack Sch Swagger’s Complete Guide to the Futures Markets. There was also a great book. It was pretty big book actually called The Futures Game. Who Wins, who Loses and Why By Richard Tools and Frank Jones. And that had trading systems and spreads and all this kind of stuff, which when you don’t know it exists, it’s because you’re like, oh, look at this other way people can make money.
But here’s the problem. All that stuff is like if some of you might be parents, you have kids, kid says, dad, I’m thirsty. I’m like, okay, go look in the fridge. What happens? They open the door and they stand there for 45 minutes. Why? Because you got milk, juice, water, you got diet soda, you know, got a whole host of stuff and they’re full of indecision. They’re thirsty, but there’s too many choices. So likewise with trading, really it doesn’t make sense to learn something intellectual. In my humble opinion, you might feel differently if you’re stuck in trading and you’re going to fill your brain with 45 different new trading solutions. I think that’s a disservice because just like the kid who was thirsty at the refrigerator, which is right over there, you freeze because now you don’t know what to do. And I’ve said it before, I’ll say it again. The best teacher that you can get for trading is your actual trading. That’s the best way to learn it, is to just do it. But you’re
Like, Mike, I don’t know what I’m doing. Well, and neither did Jeff Bezos when he set up Amazon. He didn’t know his ass from a hole in the ground. He just had a vision. So what’s your vision? Can you envision yourself doing this right? Can you look somebody in the eye, practice this in the mirror and say that you’re a profitable trader even if you’re not, because it changes your psychology. The other book I read of course was Market Wizards. It was actually such a profound, that book changed everything for me because I could see successful traders now as human beings. And I actually have, because you noticed that I have a bookcase next to me. I actually have a whole bunch of books. I have the Ketner book there. Anyway, I have two copies of Market Wizards. This was the hard cover that I kept at home as a reference.
And this was the, you can see it’s all yellowed and dogeared. This is the one that I would carry. I carried a it around with me and I would read it on the train. I’d read it we’re going up the escalator. It really had a profound effect on me because it let me know that these people were human. And they eventually became, they were quite well known, those folks back then. But obviously their legend has grown. But the stories in market wizards, let me believe or led me to believe that they were human and they were not exempt from being stupid. And if you look at any of them, there’s always a bunch of stories of humility where they had to pay some form of tuition, mostly because they either weren’t connected to their overall strategy at a hundred percent, or their emotional constitution shook them to make financial decisions.
That ended up not being great. Even the great and now retired. Bruce Covner had a soybean spread on and he lifted a leg, went limit up to limit down, lost a lot of money. Now those are good lessons to learn because they help you calibrate your own system. The late great Michael Marcus was taken, I think Thorazine or something because his feelings were so strong, you learn not to chase Paul. Tuda Jones was in the cotton ring and he put on a big trade when the thing was range-bound and he paid a price. So no one’s exempt. So if you’re feeling like you’re doing these types of things, we’ll join the club. It’s a good thing because you have to try, you have to invite failure, but sooner or later you have to pick something that works for you. Then once you make money with that, then you can kind of hone it.
I know there’s a sharp pencil out there who can back test something and probably find an indicator that might improve your accuracy a little bit. But I haven’t found indicators being predictive. They only tell you what you already know after the fact, as far as I can tell. So the whole thing of I want to learn more, I don’t think you can. No, how’s the saying go? It’s very difficult to intellectualize strong emotional feelings. Even if you have a big aha moment that people talk about, you still have to put the trades on because until you know what it feels like, right, you’re kind of guessing. You can’t theorize, you can’t. And humans suck at prediction. So don’t even start with me like, oh yeah, this would be a good fit. You don’t know. You don’t know until you put real money at risk. Now, I know some trading firms out there when they’re starting people off, they only give them a small line of credit, which I think is smart.
But they also don’t let you lose a whole lot. And the point of that is be, I think it’s a step better than paper trading because you have real money on the line. But two, it helps you conjugate who you are as a person, your emotional constitution with you know how to do. To me, if you come from the intellectual side, it’s kind of easy to learn the how-tos of trading. You’re a, in some way, shape or form. You’re adding risk and you’re removing risk. It’s really not that sophisticated. The harder part is finding the methodology that works best for you. And that’s why I found Market Wizards very much the first one. Anyway, I know there’s been a million more. The second one Victor’s in it. The first one has all the guys that I know in Commodities Corporation and this and that. And so I feel you can learn something from everybody, don’t get me wrong.
But I only needed to read the first version of Market Wizards, the very first one to help me understand that these are human beings and I’m really no different than they were on some level, even though they were much more established than me, except what came out of out in 89 ish. So that’s a long time ago. And so I had to go into the laboratory and I think that’s how you should look at your desk and your phone and your hot keys or whatever. It’s not necessarily a cash register, it’s a laboratory to experiment. Now you can put on trades and risk five to 10 bucks. You don’t have to risk a lot. The key is to get into the game and to get a feel, because that feel can help you improve your profitability as well. So go easy on the, I got to buy more books, I have to go buy more courses, I have to do this and that.
It might all be interesting and you might be really enthusiastic about being in the business, trying the business, but even if you know, have a 10 million line of credit at a big fund in Connecticut, I don’t want to mention any names, you know, still it’s about your emotional intelligence. The how-to part is not that difficult. If you’re in and you’re trading the energy sector, you know, can experiment by putting on a few small trades just to see how it feels. You might be able to do that in your personal account depending on what your firm’s compliance is. But ultimately all that how-to stuff is fine in paper. But the hardest part is the stuff that I talk about on this show, which is the emotional part of the business. Some people refer to it as trader psychology. I think of it more as emotional intelligence for the individual.
You could debate it. That doesn’t really, I don’t know that there’s a winner. You can call it really what you want. But sooner or later you have to take whatever you think resonates with you intellectually and put it to work in the marketplace and see how it works. Even if you’re back testing when you have trading blocks or mechanica, some of the higher end professional prosumer style trading simulators that allow you to test at the portfolio level. Or I have clients who have their own proprietary stuff that was coded in-house by people so they could test anything under the sun. That’s all good because it gives you an idea of is there a positive expected value? Or at least was there one. If you look back over the history of whatever, you’re back testing five, 10, you probably do minimum of 10 years, twenties even better.
The reason why you want to do more than 10 is here we are in 2023. Well, by the time you see this, it’ll be Friday, 10 years ago was 2013. Well, in 2013 you’re in the aftermath of oh 7, 0 8. So if you’re going to try to sniper, make sure that you’re back testing through some of the more arduous periods of time to see how your trades would’ve done because it’s hard to make money. There were periods of time that were very distinct. Bear markets where, you know what? 66 to 68, I know some of you don’t care, go back that far, but market got cut in half and we’re talking the s and p, we’re not talking about the semiconductor in index or whatever that nonsense is. So to me, the more objective that you can be, the more wisdom that you get because there’s no otherwise, there’s no, in this, I’m speaking for myself. If I was doing that type of a back test and I was kind of looking at timeframes that made my trading look good, no, there wouldn’t be any integrity in those numbers.
And I’m very hard on myself. I’m always asking questions, where’s my blind spot? Where am I wrong? What am I missing here? So those are the types of questions that I ask the folks who helped me come along. It wasn’t about specific trades. It’d be like, okay, what am I missing here? What do the old timers know from experience that I don’t seek? Cause I don’t have the experience. So let that sink in that you probably know enough already to be not just as successful as you are, but perhaps even more successful. And it’s not going to come down to learning more tricks to be. It’s to better understand who you are and how do you feel about taking chances? How do you feel around the possibility of uncertain outcomes, right? Because now you’re dealing also with magnitude and duration.
Magnitude and duration. Of course, we can talk about drawdowns because you need to keep your losses small. If you’re watching this on Friday, you could steal a rule from Ace Greenberg, which I use all the time. And that is, if something’s down that I edited during the week and it’s down, even if it hasn’t hit my stop, I just take it off the screen. Because good trades tend to make your money right away. You can use that to improve your trading. But the goal is to develop a system with which you’re compatible. That to me is the most important saying ever. And that compatibility means it’s ongoing, right? Because when you have what you do as a trader, okay, you’re going to evolve as a human being. And so when you look at, going back to my last point, magnitude in duration, that’s both for draw down and for winning streaks.
And winning streaks can be just as destabilizing as losing streaks. I’ll cover that on another episode, maybe Monday. But because that’s a big conversation. But nothing is going to help you succeed in trading more than experience. So that means putting on trades. They don’t have to be big whopper trades because don’t, don’t forget, if you’re looking to try to put on a, I think people call them hero trades or career making trades. Career making trades. If they go against you could also be career ending trades, right? Because they go together. Those are perfect compliments you see. So at any rate, please consider leaving a comment. I like the feedback, it helps me grow. Come up with better ideas. Don’t want to waste your time, don’t want to waste mine either. And then the show is for free. Please consider liking and subscribing to the channel. That helps me as well. Makes me feel good that the show is resonating with people, even if they don’t leave comments on specific things. And while you’re at it, if you’d like, there’s a link below in the description where you can get a free copy of the audio book version of my book,
The Inner Voice Trading. You can get it for free. Actually have, that’s it here. Inner Voice Trading Forward by Ed seko, published by Ft Press. I got an old picture, an old one. Why do you still use it? Someone had asked me that and I didn’t answer, but I should obviously, since I’ve shaved my head. So this picture was taken by a friend of mine who since passed away. His name was Michael. He died of als, Lou Gehrig’s disease. So it’s of emotional for me to remove the shot cause he was a good friend of mine. So I keep it there kind of as a memorial to him. I should probably update it though, because I can still love him and his memory and change the picture so that it looks more like what I look like now. That picture was taken probably in 2010. But any rate, folks, I hope you have a great, I hope you had a great week of trading and the earnings are upon us. Make sure that you bet the right amounts and that you keep your bet size consistent and I’ll see you on Monday. Thanks very much for being here.
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