Ganja:
Hi guys. Welcome back to another episode where Mike and I go over your guys’ topics, comments and questions. Today, we have a great topic. Before we get into that, I wanted to say thank you guys so much for all the support. We really appreciate it. Make sure you guys like and subscribe, all comments, help the algorithm. And with that we can get into today’s topic, which is actually an email, and I’m going to go towards the end of it here, and it says, in this regard, I was wondering how you reconcile these aspects with the fact that every time one wins money, there is a counterpart that does actually lose it. Does this create any contrast with the ethics and integrity you preach as essential aspects of trading and for which I could not agree more? It’d be great if you could share your point of view on this. What do you got for me? Mike

Michael:
Reminds me of that Brad Pitt line from the big short.

Ganja:
Does it

Michael:
You just saying it? How’s it go again? Yeah, yeah.

Ganja:
In the movie, the Big Short, the two smaller hedge fund guys, they were talking about how excited they were. They shortened the market. They won, they made a ton of money and they were cheering and screaming, and Brad Pitt’s character was like, shut up. Like don’t cheer today because families are going to suffer and people lost a lot of money. It was funny, as I was reading it, I brought it up. I was like, this is crazy. I was literally just thinking about that the other day.

Michael:
Yeah, I mean there’s a lot of ways to look at this from depending on how a person orients to the world, there are people who are hyper political and they feel trading is evil and that there’s no real skill that’s very self-serving. Then there’s folks who run money for big pensions and endowments and nonprofits for special interests. And so you have to take the thick with the thin and figure out what everyone’s motivation is. I think there’s a difference between seeking abundance and absolute greed for sure. I kind of remember that scene. I don’t remember what they were trading in the scene though, to make that windfall.
I’ve only seen the movie maybe once, maybe twice, but I’m just reading the email here. So the things that this comes in from Stefano, thanks for the email, Stefano, the paragraph before what Ganja read says, you often mention that one needs to find what makes them tick emotionally, spiritually, and psychologically. You could put in intellectually and physically there, and he’s kind of putting them all together. And so now it might seem like he’s wrestling with the fact that in order for you to make that money is coming from someone else’s account. So just on a street smart kind of way of looking at it, I just figure people are smart generally, and they’ve put a lot of time into knowing whether or not trading is appropriate for them. They’re constantly being told by any number of people, including myself, only risk money that you can afford to lose.
And when they say that, that means to me that means don’t lose money. That would be adverse, that would, if you lost the money, it would adversely affect your life. You need to have your running money, you need to have your bills paid. You need to have a certain level of lifestyle. Then after all that’s met, if there’s extra cash that you want to take from savings and start to endow a trading account, you’re going to win some. You’re going to lose some. In my experience, no one’s really been forced at gunpoint to open up a trading account and they’re ready, willing and able to have to risk capital in order to make it. Now, the trickier part is to understand that when you put on a trade, you really don’t know who on who’s on the other side of the trade. It could be a hedger, it could be an investor, it could be a speculator, and two, you don’t really know what timeframe they’re looking at because they could be short-term day players.
They could be longer term or intermediate players or they could be longer term trend followers, position traders, investors even. So even though they might have an unrealized gain in their account, you could find someone to offset the position on for a gain, and they might still be by virtue of the fact that whatever your R is, even your three R still might not even be one 10th of there are when you think about it. So we can’t say for sure that someone is absolutely getting smashed just because you’re making money when they’re in a trade because the person that you bought the thing from or sold it short to isn’t necessarily going to be the same person that you’re offsetting the trade on. You know what I mean? Yeah, yeah, no. So there’s always newer people coming into the market. So if I bought natural gas from someone who sold it, there might be another person coming into the market that’s going to buy it from me when it comes time for me to sell, whether I’m selling it at a loss or whether I’m selling it on a gain.
So I don’t think there’s a moral argument here as it’s part of the free economy and it’s a way for people to bring financial abundance to them. What I would caution people, everybody is again, trade small. That’s small, lose small bits of capital, especially when you’re starting out because you could find yourself in a bad situation very, very quickly. But I always wish everyone the best, even the people that are trading against me and that they all have financial abundance. I take any pleasure in seeing anybody lose. When I do see the bigger blowups, I know that especially at the pro level, you’re dealing typically with ego in many ways. Folks that know better but didn’t take the trade off. And to me, that’s a breach of fiduciary responsibility, especially if you’re running other people’s money, you owe it to them to keep the losses small, but in those environments, you’re kind of encouraged to bet very big, especially if it’s other people’s money.
I don’t feel any conflict in my own body in doing this. I feel you can be spiritual and still wish everyone the best. It would probably help if we knew who the counterparties were on all the trades, but you don’t. They’re deliberately anonymous from you. So I think you can still hope for everyone else’s financial abundance on their own terms, in their own timeframe. All you can do is manage risk in the ever evolving moment of right now. So if you get hung up on the moral stuff, it’s probably not probably a good fit for you. But here in my house we’re capitalists and I’m not doing anything illegal or unlawful. I’m not cheating. It’s simple risk management. That’s really all it is. So I don’t really myself have any problems with it. What do you think?

Ganja:
I think that the only real ethical or moral argument to be made is only for people who are cheating. I think that otherwise you go into trading understanding that there is a chance that you’re not going to win, and it’s probably not small if you’re just starting out. If you don’t know what you’re doing, there’s probably more of a chance that you’re going to lose. So I think if you kind of stick to the core tenets of what you just said of don’t risk more than you’re willing to lose and obviously don’t cheat. Cheating’s not good ever, and just take your time, start small. I don’t really think there’s a moral argument to be made. I mean, if that’s the case, obviously they’re very different, and I’m not trying to draw a comparison, but then you should go around to every seven 11 and stop people from buying $3 lottery tickets.
It’s a similar concept, but obviously one is gambling and they’re quite different. But yeah, it’s like only risk what you’re willing to lose. And I think once you do that, then there’s no argument to be made. And sure, I get that somebody could be struggling or could have a form of gambling addiction, and then they also transfer that onto trading, but that’s unfortunate and that person should definitely get help. But that’s a completely different thing. You can’t treat the whole market like that. You just said it could be a big fund, it could be like a hedge fund, and it’s in their own timeframe. You don’t know what they’re losing or what their timeframe is,

Michael:
Right? Yeah. It’s important to understand too, when you’re starting out, you’re really running your money, but then when you get older and you go pro and you start running other people’s money, you’re serving a bigger purpose. You know what I’m saying? I’m impacting people who I’ll never meet for the good. Not that I’m not meeting them for the good, but handling their money. They’re going to get financial benefits. Some of these organizations are going to be able to go on for years and years and years beyond what their wildest dreams were because I was able to make them money and they go out and serve charitable cause or what have you. That makes me feel good. But again, it can be political. I think morals or ethics, I’m not doing anything that’s outside. I have impeccable compliance history.
Amateurs might say that you don’t create any value, but they obviously don’t understand how the markets work. They don’t understand how much math and science actually goes into it, and how much emotional integrity that you have to have when you manage risk because it’s really not about me. I’m trying to serve a bigger purpose here, so I don’t look at it or take it personally. It’s not like I’m getting beat. It’s like I’m standing century. I’m safeguarding people’s capital. Even in the commodity space, there’s no better person to do it than me. I’m not going to let them get taken advantage of. I’m not going to fall victim to stupid fads. I’m not going to get sucked into the memification, if you will, of certain names or certain trades. I’m a protector. I’m Michael Lee Archangel, and so who better than me? You see? And so I can see it on both sides, but as long as people have money and as long as individuals that I work with or for my job is to help them achieve their goals, that’s the primacy of my planning is to help them achieve their goals.
If other fiduciaries don’t have my sense of discipline, then it’s up to them to have to meet the standard as far as I can see it just in competition, you join a game, someone’s going to win, someone’s going to lose. You want to try to keep your losses small, especially if you don’t have a lot of money, which again is part of the paradox of trading is like you have to be in it. But if you’re thinking that you don’t deserve, if your politics are so messed up that you don’t think people have the right to earn money or to make gains, it would be impossible to take out your credit card or any cash and buy anything. Everything is going to be marked up for a profit margin, right? Salaries have to get paid. That comes from people spending money. You can’t think about being a victim every step of the way. That’s kind of how the world works. Even in government stuff, that money comes from taxes. So you trace the money, where’s the tax coming from? Well, it’s got to come from your AGI. It’s got to come from revenues. All the money’s got to come from somewhere. So there’s probably a few angles that you could look at this. I don’t have all the answers. I can only answer for myself.
I don’t know what the contrast with the ethics part would mean though, really. As compared to what though?

Ganja:
I think it was like, oh, if you do see it as a bad thing somebody losing, then how does that contrast with the ethical code that you set and that you have, if at all?

Michael:
Yeah, I mean, so my ethical code is do unto others, be a Christian about it. And so I just figure whoever’s coming to the marketplace, to me, okay, this is a really good question. It adds a different dimension and you think about it that way. I look at the market as a professional place. It’s a place where professionals meet. So if amateurs or newbies want to come in, and I was a newbie once, I don’t use that term in a condescending wake, which means to talk down to people,

Ganja:
Never judge

Michael:
Costanza stanza. It’s a professional environment, and that means the people who want to participate, there’s a certain level of stance. You go to Disneyland, you see Mickey standing there with the finger. You got to be this tall to go on the ride, and if you can’t meet Mickey’s finger can’t play. So that’s the way I actually look at the market, which is probably helps people understand why. Sometimes you might hear me speak as if I’m trying to discourage you, and in some ways I am. It’s because the level of competition is high. It’s an all-star league, if you will, and you can jump in as an amateur, but you have to understand everything that goes with it is you’re coming in used to playing a pickup game of basketball in a parking lot in your neighborhood, and you’re going against the dream team because that’s who’s out there.
So if you want to try to test your wares and go for it, I don’t, I’m never going to be a dream killer, but I’m going to be very practical and explain to you the reality of what’s out there. There are people who are just so skilled at this, who have a good feel, who have money, who have technology who’ve taken their beatings and are at the top. Forget having won Michael Jordan, you got 1200 of them on any given day coming against you, maybe more. And so if you go into that type of environment expecting to beat Michael or Kobe rest his soul in a game of horse or a game of 21, you have nothing to lose by trying, but be practical, be realistic. And so to me, if that person shows up at my house where the pros are, it’s not like it’s Augusta National where it’s members only, but you’re playing in a game against competition that has you far outmatched before you even know your ass from a hole in the ground before you even know what you’re doing. So to me, when you do that and you engage in the market anyway, your losses are on you at that point. You see? Yeah, I even know now as a 35 years of experience, I live in a paradigm of personal responsibility and if I lose money, it’s on me. There’s no one to blame.
Who are you going to blame if I’m acting intentionally?
So I think the question kind of begs, do you feel bad from the losers victims? I don’t think they’re victims at all. I think they’re people who consciously decided to open up a margin account or some type of equity trading account and they decided to have a go for it to them. Maybe they’re winging it, maybe it’s disposable income. It might not be their kids section 5 29 college savings plans. It might not be their 4 0 1 K plans. Again, when I say to people, you need to understand if this is appropriate for you, that’s kind of what I’m getting at money. It’s hard enough to get the grub steak in the first place. Is there a better thing that you can be doing? Could you buy section eight housing, for example, and earn rental income? Could you buy and sell wine? Could you do something that might put you in a higher chance of winning

Ganja:
In competition? That’s not for everybody. I think that’s one of the things I think this question is really, or the answer to the question is you really have to, it’s like what are your expectations in the market in the first place? What do you want? And I think that would kind of answer most of that. But one thing I wanted to mention is you talked about how they’re not victims, the people starting out or not victims. I’ve kind of believed that too because it’s like when I started cycling and I got put on the varsity team, I was the youngest guy on the varsity team, and it’s obviously a little different because in trading there’s more anonymity involved. But when I got on the team, I was fresh meet all the varsity guys wanted to not necessarily put me through the ringer, but they were happy they had a new playmate. They were like, oh, great, we got some more competition, someone else who can push me further. So to them it was exciting. And I remember one of the first practices we were working on, it’s kind of like a game of chicken. How close can you get to another person’s handlebars while you’re going through a corner together,

Michael:
Pull your elbow in the cheekbone and knock ’em off?

Ganja:
Well, and that happens. That happened to me in a race, but that’s what they were preparing for. That’s what I

Michael:
Would do.

Ganja:
So these guys were preparing me for that. You

Michael:
Pushed old ladies down the stairs.

Ganja:
Well, if you call an 18 year old kid, an old lady, then yeah,

Michael:
No, I’m just saying it’s the same mindset, right?

Ganja:
Right. It is. But anyway, so in this drill, my teammates started giving me a little bit more elbow one even actually pushed me to see if I’d fall over. And it’s like they were just testing me. Ultimately, they wanted the best for me, and they actually didn’t really think maliciously at all, but they were testing me. And I wasn’t a victim by any means. It was my personal choice to continue going that direction.

Michael:
It’s totally on you to be there. And so that’s why I don’t, again, I don’t know that where the angle, if it’s just a straight up comparison of what I’ve preached and try to be spiritual and loving and all abundant, I think it’s possible, again, for everybody to win, you do have to have extreme amounts of discipline. You do need to keep a good attitude, especially when you’re losing money, when you can go on tilt and do bad things and lose a lot more than you necessarily wanted to. But let’s be clear, if people come into the marketplace, and I generally think they’re warned 18 times to Sunday that you can lose money for things, even in the risk disclosure document, you list all the different ways people can lose money, then at the end you say, this document can’t possibly delineate all the ways you can lose money. So to me, at that point, even if the client gives you money and they lose, you’ve effectively tried to talk them out of giving you money in the first place. So if they go forward with that and you lose, right? Losing isn’t forever. Draw downs are part of the business. So I mean, what are we talking about? Do I feel victimized or am I going to claw my way back?
So it’s a simple question, but it’s also kind of sophisticated. I think you could answer it politically. You could answer it from a cultural standpoint. There’s certainly a spiritual aspect of it. There’s a capital way to answer the question, and I’ve touched on a few of them, but I don’t feel guilt for winning because I don’t sit around clicking my heels. I just think, this is who I am, this is what I do, this is my nature. Make money for people in the markets. And so someone’s got to do it because how else are they going to afford retirement? How else are the endowments or the foundations going to exist? Because these people, on a 5,000 year plan, these are entities that outlive the people who funded the accounts. In most instances, they were the grantors at the beginning, but then after they have to turn it over to other people, trustees and directors who have a lot of fiduciary responsibility, and I’m there to help them. So that’s my bigger purpose in this.

Ganja:
And one thing to add to that is no human should ever win 100% of the time all of the time ever. Because nobody, first of all, you can’t, it’s not physically possible. Not everyone can get first place. And also if you’re winning all the time, then you don’t appreciate it as much. There has to be some level of drawdown in anything in order to fully appreciate what you have and to not be greedy with it. Yeah.

Michael:
Yeah. I mean, I don’t think it’s practical to, I think that you’re going to win all the time. There’s a huge charitable component also to what I do in terms of who I work for, what I do for free, how much money I give away, how much volunteering that I do. So personally, I feel like I have a good balance of giving back in many ways, giving of my time, giving of my effort, giving of my money. And so I’m comfortable with that right now. It’s something that I look at all the time. I tend to be generous as a fault as it goes, but I don’t think you should wrestle with that. If Stefano is wrestling with this, I don’t think he should in as much, that people have every opportunity to not put their money in the market. And so if they lose, they’re not victims by any stretch.
They’re not a victim of circumstance. They’re not a victim of anything. They’re giving it their shot, they’re shooting their shot, and it’s really incumbent upon them to understand what they’re getting involved with. And that, especially at the beginning, I think they’re outmatched, they’re outgunned, they’re out ability. There’s a million things that are going against them. Unfortunately, there’s only one way to learn it, and that’s to be in it. So more to follow, but that’s really all I have to say about it based on my unique experience and the environment that I’m in now and what my thoughts are.

Ganja:
Yeah. No, I think that’s a good place to wrap up today too. I hope we answered the question. I think we did pretty well. With that said, make sure you guys like and subscribe. I’ll comments, help the algorithm. We really appreciate the support. Oh yeah. And I will see you guys in the next one.

Michael:
Take care. Okay, everybody, thanks for being here. Please take a minute like and subscribe to the show. You could also leave a comment. I don’t have all the answers, so it’s good to get some feedback. Also, if you would like to support the show, check out the links below. You can get the free audio book of the Inner Voice of Trading, and also information about the course that I teach with Victorio. Thanks for being here, folks. I’ll see you tomorrow.

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

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

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

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

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

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

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

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

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

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

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

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

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