Hey everybody, it’s Michael Martin. Thanks for being here Friday’s episode, hope you had a great week and you have fun plans for the weekend. Please like and subscribe. It gives us good data. It helps us with understanding engagement, so let’s take a look at a couple of little odds and ends that I can kind of put together. It’s kind of like a smorgasbord of comments or questions this week. I think I did a good job with the earlier episodes this week. Wouldn’t say that, and this kind of came in as a fragment of a comment where they heard me describing something and they said, I can infer that you’re a discretionary trader. And so I mean, that’s not the case, but it’s hard to refer to a trade that you were in and not really refer to the chart or refer to a trade in an after the fact kind of manner and not really refer to the chart, which when you listen to it, you’re like, oh, he’s reading charts. Now I have a pretty good sense of timing and how other people are going to behave. That’s more or less how I do it.
But after so many years, I can also, if you pulled up a chart and looked at it or asked me to look at it, I’d be able to see in an instant whether or not this would be on my radar or on my watch. You would call it a watch list. I would call it as the computer being able to pick up whether or not this would be a name that we would be in anytime soon because I wrote the code, I wrote the system, I know how it works, so I can look at a chart and say, this wouldn’t be a candidate for me. It would be, but I can see it and look at it like it’s a foreign language and say, ah, I noticed that those words, that’s Portuguese. I noticed the words. Those are Italian. I noticed the words. That’s Chinese, which you could speak it in Mandarin or Cantonese so I can look at the chart and see who would be into that particular trade.
Not day traders. I don’t care about, like I said, the small time stuff, but where bigger the institutional moves are going to come from. So that much is absolutely true, and I think it would be reasonable for a person to hear me speak about a trade after the fact and think in listening to me that I was in fact sitting there reading charts. I don’t do that. I have looked at charts, but I mostly do it at night if I do it and just to get an overall tenor of where the market is and how things are behaving as their follow through. I’ve developed that skill, but it took a long time to do it, but I’m not sitting there looking at charts intraday. I don’t. I have better things to do with my time. A few other
Folks are wondering like, okay, if you don’t use sell limits and you have a protective stop in that you trail or you trail structure again, because there’s a couple of ways that you can do it to take your winners off. To me, a reversal is when the market is telling you that the move for whatever it was worth is over, at least in the short term because those are different than stalls, which to me would be if you’re looking at some type of phase two uptrend, you have bases where the thing trades horizontally for a while before it breaks out to the upside. That’s something different to me. A bonafide reversal is when the market is saying the buying, at least in the near term as evidenced by the data, is showing us that more sellers are kind of coming in at these levels. The buyers have dried up, and so in order to have distribution, market prices have to drop in order to clear the market, and then you have to look at the volume which you can study.
So if you were interested in learning how to hold onto your winners longer, you could go and do that trail structure and adjust your stops higher trail with a percentage based protective stop and then to not get sucked back into the trade from an emotional standpoint, you can really look at reversal. There’s probably a few ways to do it. Victor sio wrote about it what he called his two B, as in the letter B reversal in methods of a Wall Street master. That would be an interesting place to start. Or if you looking at basis within phase two style uptrends, then you could count, sometimes you can get lots of bases. On average, I would say there’s probably four or five in a solid kind of level two, phase two uptrend. So after you can count those legitimate bases, which is a bit of an art and a science I’ll admit, you might see the market get toppy and the base five gets super messy and it gets super wide.
You’ll see volatility kind of grow and expand at market highs like that. So when the volatility kicks in and you’re still in the trade, we talked about it yesterday or the Tuesday, I can’t remember from one day to the next, you can use that as a time to trim, right? Because that is an in-flight mechanism. Trim your position a little bit. If the volatil spans and you’re still making money, you can do that and have it as a bonafide system rule and or figure out where is the support in that fourth or fifth or sixth base in that otherwise uptrend, because sometimes news hits the tape, it causes a scatter, a bunch of opportunity for people long and short, but it doesn’t necessarily mean the move is over. So I think the position sizing part in the managing of the trade and your ability to make money comes down to can you withstand the ebbs and flows without watching it tick by tick.
You see, that could be very, very helpful for you if you’re learning to try to stick with winners. Now again, if you’re looking at a chart that is exhibiting this type of behavior, get the open, high, low, close and volume data, maybe the open interest if you want to look at that too. If you’re trading futures and just look then what happens in terms of percentages of the underlying price movement day to day in each of those bases as the market’s moving higher, what would those changes have looked like in your account balance? If you had n units of risk based on a volatility adjusted position sizing algorithm, because then you could see that you can then calibrate your position sizing with your emotional constitution. The more, as they say, if you can’t stand the heat, get out the kitchen, right? So you can calibrate your system or at least get used to it through practice and iteration the different styles of vol when they kick in.
And then you could have the tools in place ahead of time that would be systematic that you could adjust your position sizing even if you were risk on risk off, which just means you buy one risk unit, you take it off. You don’t have to add. It is possible that as long as you have more than one contract, that you can still adjust your position and stay in the trade where you’re not necessarily taking a winner or a loser, but you’re just trimming the hedge and you’re adjusting the position size based on volatility. I told you a couple of days ago how I do it. You can find a way that works for yourself and hopefully that’ll be awesome. Anyway, it’s been a good week. I appreciate you all being here. Keep the comments coming. I like to engage and provide content that you find is valuable as you go through this. It is doable. I think you can learn, I think it’s harder to develop a feel. Some people, they were always picked last in gym class, and it’s not to be mean-spirited, but they just weren’t coordinated. So it might be the case that you know somebody or maybe you yourself are having a very difficult time
Developing a feel. That could be time to pivot and try something else. Try another strategy. But I do know this, if you’re going to do trading, you need to make sure you’re getting paid, and by that I mean you got to make big money. Don’t do this for nickels and dimes. Don’t wake up thinking 200 bucks a lot of money, even if your account is smaller and as a percentage of that account, it might be meaningful because words have power, they have meaning, and if you attach that meaning to it, now all of a sudden there’s more importance to it. There’s more importance to it when there shouldn’t be. So you really have to do this is really a game of mindset. Self-awareness, traitor psychology, emotional intelligence. The how-to stuff is not terribly difficult. That’s why I’ve always said, if you don’t know who you are, doesn’t matter what you know. Need to know yourself. You need to know what makes you tick. You need to know why you’re doing what you’re doing, and don’t just go through the motions. This sh*t’s important. Okay? Anyway, appreciate y’all being here. I hope you have a great weekend and I’ll see you Monday.