Consistency comes from trust

So I got a good email today from actually I got it last night from Eric. He said how I’m having, I know that this is a, what I’m looking at is a bull chart pattern, but I’m having trouble staying with it. And I’m guessing what he means is that he’s having trouble being consistent with trading this particular chart pattern. And so, Eric, thank you for writing in. First and foremost, my guess is it comes down to trust because if you trust the pattern, then there shouldn’t really be an issue. You could also have a trust issue with yourself. So maybe try to narrow things down. Maybe you’re trying to trade too many different patterns and you can’t just focus on one. Because it’s what I don’t know about this situation.

That’s going to because make me give you a bad answer. But I think if you focus on one and trade it small, you can see if you can get into the groove with it. And then if that’s not the case, then you could move on to another pattern. If that’s in fact the issue I don’t have enough information to go on, but you might be internalizing. Because as you can imagine, not every trade, even with a bullish chart pattern because works out. So how can you put the trade on and give it enough room to give yourself the biggest or the best chance to make money? Sometimes if you trade the chart pattern, you might be putting your stops in too tight. So one way you can get a around that is by investigating the chart pattern, seeing what the percent pullback is, and then making your bet size accordingly.

So that this way because getting into it that you can withstand a pullback or a move against you or bad timing, or just bad luck. If you try to price the thing for perfection, that’s awfully difficult because to be in that type of a trade, it’s hard to not get shaken out. You see? So a lot of people try to trade a certain size, but then put their stops in too tight because they can’t take the pain of losing money. Well, I don’t want to even get into that because if you’re good at trade losses are part of the business because it’s just the way that it works. And if you’re hanging on for dear life, my guess is you don’t have a rational understanding of losing money and what that means you might be internalizing it and ha you know, it affects your self-esteem.

Again, all of these issues are because what we coach to because it’s emotional, it’s not the chart pattern. That was an episode a couple weeks ago or whatever. It’s not the chart pattern, it’s you. So you have to find a way to get in the groove with that particular pattern. If it’s going to be one that you want to trade long term, I do think it’s awfully difficult to trade. You know, you see some of these guys on Twitter pumping out “these are all the bullish chart patterns.” Well, that’s just great. Thank you very much for your generosity and your insight. I can’t even believe that the clouds have parted and you’ve beamed down from Jesus Christ and the heavens all this wisdom on me. And it would be just so easy if I could follow these 16 or so chart patterns. Thank you. I’m going to name my first child after you.

So you’re sitting there saying, okay, these are supposed to be bullish patterns. How come I’m not making any money? It’s because that type of information doesn’t really help you at all. Doesn’t serve you. And as I’ve said, a few times, it’s about trying to get in the same groove with the chart pattern, because every chart pattern has its own vibe and has its own feel. And if you don’t give the thing, it’s like a relationship. If you’re constantly on top of your partner, they’re going to feel choked out. You’re not going to be able to breathe. So same thing with your trading. You gotta let it go. Put the trade on, put your stop in and walk away. If you’re too uptight about losing money or if you celebrate making small bits of capital because this tough business to be in, I’m always advocating for thinking big and not sitting there, especially if you’re newer because sitting there and watching it all day, trying to steer it. Because if you don’t have a plan sitting there in front of the screen, you’re going to find a way to try to do something that you shouldn’t be doing.

And because commissions are either zero or super low, you don’t really feel the burn of making bad decisions like I did when I was coming up, because commissions were very expensive. So trust me when I tell you the last thing you want to do is sit there and try to keep figuring out or pounding your head against the world, trying to fight through a particular pattern. So if you go and you figure out because what is it that you’re looking to do with your money in the first place that might help stop you from looking at certain patterns? I know it’s super deep stuff and it probably requires a much longer conversation than we can do here.

But when I look at the folks that I know who helped me out and mentored me, they really stuck to one thing and they just did it day in and day out. And that’s why many of them resorted to saying stuff like “good trading is boring” because there was nothing really special to it. They found a knack with one particular setup and they stayed with it. They didn’t introduce anything fancy from time to time, they had to adjust position sizes maybe for volatility, but that was really all it was. And then at the end of the day, they just followed the same routine almost mechanically day after day after day. And it was boring. They weren’t doing it for the excitement. So hopefully that gives you some insight. If I knew more, I might be able to shed a little bit more light onto the situation for you, but I appreciate you writing in. It’s all I have to say about it today. Folks. Thanks for being here and I’ll see you tomorrow.

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Developing your trading edge

So why have I been talking about all this emotional stuff? It’s because it’s integral to you developing an edge. And you know, when you think about trading edge, it’s not necessarily, it’s not all tactical, that’s part of it, but ultimately how you play it, how you pull it off, comes down to you. So this is more akin to know being a poker player, playing Texas Hold ’em. You might know how to rank a hand and know what hand beat what, but that doesn’t mean you’re going to be able to play the game. That’s the huge problem in the marketplace. These days is people find themselves on YouTube and Linda.com, and udemy.com and they’re buying classes that they think are going to help them trade, but are really just classes on how to rank a hand at the poker table – not necessarily how to trade based on your makeup.

There’s none of it that’s going to actually help you trade better if you do it the way I did it, you have to go trade and that’s the best educator. So developing your edge – there’s two components to a trade. There’s the emotional and the financial payoff. I think there’s two aspects to a trader’s edge and the edge is the tactical aspect. And then there’s what you bring to it. So again, if you don’t know who you are or what you’re doing it for, because you don’t have clear goals and, or you don’t know all those little emotional payoffs that you have along the way. When you looked at the episode of a couple of Wednesdays ago you’re kind of like stabbing in the dark. I’m sorry for the industry being so misleading to you and trying to sell in market stuff to you.

That’s I guess the American way, I only know the one way to do it, which is to know yourself, know what makes you tick, know what you’re doing it for. Because as even Stephen Covey, who’s not a trader to my knowledge would say “you have to begin with the end in mind.” So having said all that, that’s a huge reason why we were talking about the emotional stuff on all the moving parts or as tedious as it may have seemed there’s real calculus behind it in that it could be very, very revealing.

The good news is that if you go through the work, you can see where you have strong points and where you don’t. So there’s a couple of ways to look at that. One is you can play to your strengths. Two, you can always go try to fix the weakest part of your game. Because in my estimation, I was always the weakest part of my trading. And I think that’s a healthy way to look at it, because this way you don’t get into blaming the market and the Fed and all that other bull crap.

So it doesn’t matter. So when you do the work they always talk about the weakest link in the chain. I hate clich├ęs because I’m more original than that. But the point is is that if you look at the trading aspect and all the feelings that you have, you’re going to do everything that you can to go towards the feelings that you want to have. But you’re also going to be equally strong, if not stronger in trying to avoid in trying to avoid the feelings that you don’t want to feel.

So knowing all of that, as you get into it, you’d be a huge edge for you in developing your trading edge. We’ll talk more about that this week. Otherwise I appreciate you. Please consider subscribing. We have some episodes on YouTube, probably going to add more. We’re on Spotify and obviously Apple and Google podcasts. And if you’re new to the show, I’ve been giving away the audio book version of my book, The Inner Voice of Trading, which you can get for free at MartinKronicle.

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Planning for the feelings you want to feel

Think about setting some goals this weekend around the feelings that you want to feel, and also addressing the feelings that you don’t want to feel what’s going on behind the scenes there, because guess what? If you don’t want to feel a certain feeling right now, I’m going to bet a lot of money. You’re not going to want to feel it next year, five years from now, 10 years from now. Because there’s something about it that you fear or something about it that it bothers you. I was at the gym the other day and I oversaw two people arguing. I presume that they were a couple and I overheard – I couldn’t help but overhear – I was walking from the parking lot to the front door and the guy was like, “Well, why are you talking to him? What were you smiling at him about?”

And I was like, ooh, that sounds really gross. {sarcastically} Because guys know if your girl is looking at another guy, it can only mean two things: that she’s already had sex with the guy, or she’s going to have sex with the guy. And I’m like, man, there’s nothing unsexier than lack of confidence. Anyway, that’s just an observation. But what does it say about trust? What does it say about how do you feel about yourself? How do you have any self-esteem issues. Are you easily persuaded by other people who haven’t really proven anything, but you want to believe what they have to say, because that’s going to show up everywhere. Anything that has to deal with television – trying to make you depart with your cash. It’s all about entertaining you in such a way in a specific niche, like maybe infotainment around financial stuff to eventually market to you, a good or a service that you probably don’t need.

The one thing that we all need is a custodian. We need a place to hold the cash in the securities. But other than that, the execution part’s been commoditized. There’s only really one chart when you think about it. So that’s easy. There’s no such thing as Advanced Charting packages, all you need is one screen to see it. And then all you need is a one internet connection. Maybe you have a second as a backup, as I do. You don’t necessarily need real time quotes.

So you look at all the things that you’re doing, like what are the feelings of what you do and how do they conjugate towards your goals? Because you might find after the past year and I’m talking about goals oftentimes on Friday that your goals are really set up so that you can feel all the feelings that you want to feel in the order that you want to feel them.

So what ends up happening is if you are in a certain equation right now getting certain results, it’s almost predictable that the goals that setting aren’t going to be hit because you’re not doing anything to change the emotions. And if all the emotions that you want to feel and all the emotions that you don’t want to feel have led you to be right where you are right now. And you’re unwilling to change any of that, your behavior’s not going to change. And if your behavior’s not going to change, how are you going to get different or better results?

So sooner or later, you have to confront within yourself the feelings that you want to feel as well as the ones that you don’t, because they’re going to keep showing up, not just in trading, but in your overall life.

So I think you should try to plan and make, make a goal around being the star of your own movie. Don’t play a supporting role and dream a really big dream, something big and audacious. That’s outside of your comfort zone. Because in doing that, you’re going to really learn a lot about yourself. And even if you come up a little bit short, it might, you might find yourself having hit a goal that was beyond where you thought you could go. That leads to increased confidence and the feeling of being unstoppable. You see. So if, think about setting a goal and start with imagining yourself, being in a very, very different place in your world, think of being in a spot that’s far beyond what you thought is possible, because then if you can imagine it, you can kind of converge towards that spot, but it has to start with the belief that you can get there. And part of that belief system is addressing a lot of the feelings that are in your life because they really control everything that’s going on.

And I’ve seen it. I’ve seen it in my own life from where I’ve come from and where I was born and raised to what I’m doing today. You’d no one would’ve ever made such a bet that this is, this is where and I’m kind of just getting started in many ways. So you can do the same thing, but you have to want to, and you have to be willing to go through periods of great uncertainty and go through, at least at the beginning, going through feelings that might not necessarily feel good until they themselves become habitual. And then you can expand your comfort zone and build it out that way.

But that’s how great things are done. If you want to see a good example of this in real life, that really doesn’t have anything to do with trading is go watch if you have it on Disney+ there’s a six episode, little mini docu-series on a company called Industrial Light & Magic – ILM, as it’s known here in LA is a company that was created by George Lucas in and around needing a special set of tools to create the special effects needed for a Star Wars.

I guess that would be Episode IV – A New Hope. It was the first movie, but the way he did the prequels it’s actually episode four and they didn’t, they couldn’t use contemporary methods. So they had to actually invent the tools along the way. So eventually that company be became Industrial Light & Magic. And in the documentary I’m through, I think I’m through four of the six. They’re talking to Steven Spielberg about Raiders of the Lost Arc and the guy’s face melting off. They’re talking about the tauntaun that Harrison Ford is on when he is going about to rescue Luke in Episode V on the ice planet of Hoth. And none of that had ever been done before. So they had to imagine it and invent it along the way. The key thing to all of that was the belief that they could do it. Isn’t that what president Kennedy said, how did you all get to the moon? And what did you need to get to the moon? He said the will to do it.

So where is your will to get stuff done on a scale of 1 to 10? Because that in and of itself might be very revealing about the probability of you hitting any or all of your goals is if you don’t have the will to do the work, you might just be minding f’ing yourself, but I believe anything’s possible. And if you set that goal and then you have the will to achieve it, you’ll certainly get pretty damn close.

Anyway, I appreciate all the feedback. And thank you, thank you for your nice comments. And like I said, the feedback means a lot kind of points me in the right direction because to be honest, this thing is a gigantic time suck. If you have any questions about this, I typically don’t kiss and tell you can reach out and if nothing else I’ll point you in the right direction.

And that’s it please consider subscribing we’re on YouTube, Spotify, Apple Podcasts. I appreciate all the feedback. Like I said, it helps me steer things and be efficient. Because I don’t like wasting my time or wasting my efforts. I have a lot of other things that I’m working on. Have a great weekend folks. I’ll see you Monday.

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First dates and chemistry

So following from yesterday, this is what I think Richard Dennis was getting at in the first Market Wizards book. When he said something along the lines of saying “I could publish my rules in the Wall Street Journal, and no one would follow them.” There’s a certain curiosity to see how people might make money trading. But again, if there’s no emotional compatibility, those are rules that aren’t going to get followed. Even if you know the rules are going to make money. So that’s why I find it a great mystery in life. Why people will go out and buy other people’s systems because you could be out hundreds to thousands of dollars to just see the curiosity, pull back the curtain, so to speak, but never really have the emotional connection to work the rules.

It’s just like when my friend says, “Hey, would you set me up with so, and so?” I’ll say, sure, why not introduce the folks? They go out on the date and I’ll see them in class? “How was the date?” “Meh…”

I’m like, I know exactly why the date went flat. You have two very, very good looking people. They go out on the date and the date’s flat. Why is that? And it’s not, because the two of them are both narcissistic it’s because they don’t have any chemistry. And so likewise, when you’re looking at trading, you need to have an emotional chemistry with what it is that you’re doing and seeing how somebody else does it is interesting. But it doesn’t mean you’re going to be able to pull it off. And then again, you start to feel bitter because you think you can buy your way out of it and it doesn’t work that way. Now you might understand what I say. And I’ve said before, I’ll say it again. Now the best teacher of trading is you trading because you get to see right away what resonates with you and what doesn’t you have to look at your grubstake as tuition that you’re going to pay, perhaps all of it. You’re like, “fuck that. I’m not paying all this money to do that.” Okay. Well great. But the thing is is that if it’s worth having it, isn’t going to necessarily come easy or be cheap.

And if all those trading books were worth their salt, why do we need 45 new ones every week? Wouldn’t the definitive “How to Trade” book be written that everyone could just follow? It’s because people are lazy. It’s the same reason they go to the gym, thinking that lifting weights are throwing around kettlebells are going to help them lose weight. When the reality is, is that on some level, no matter how you break it down, they need to run at a caloric deficit, the weight lifting’s good and the discipline part’s cool. And I know there’s lifting weights does stuff for your bone density and all that crap. I don’t want to get into that bullshit. At the end of the day, if you’re trying to lose weight, you have to cut your calories. And that does’t feel good because people like to eat.

Same thing in trading. You can buy every book under the sun, but that’s not going to teach you how to, you can even take a course about learning how to trade. And that’s not necessarily going to teach you how to trade because none of that is conjugated with who you are as a person. Because what I’ve been trying to get at for the past two years doing the daily show is that the best thing that you can do is take your money and do it put on some trades.

There are a few things that I believe are absolutes that you shouldn’t do. Don’t buy shitty penny stocks. Don’t start doing bad habits that are hard to break. Do the things that really, really successful people are doing, which means people who aren’t on Twitter, people who aren’t on StockTwits or social media. What are the legendary guys doing? How do they handle their day? How do they manage risk? Because you could scale that down to make it work for you, because again, is the goal to feel good or is the goal to make money because sometimes good financial decisions don’t feel good, especially if you’re not used to them. And this happens, doesn’t matter if you got $5k or $50 million.

So that’s why I’ve advocated to save you money. I’ve been doing the show for free to save you time, money, and effort in that if you don’t know what makes you tick, which is hard to find out, I fully admit, it’s so easy to just go to frigging Linda.com or udemy.com, or anywhere else and buy some course or whatever. And you think you could buy your way into the business. And those same people go out and buy 14 monitors that depreciate 50% in one month.

So you have to think, why are they doing that? Well? Because they want the feelings of being in the trading business, which is very different from being a profitable trader. Those are two different things. So love me or hate me. I’ve been genuine and I’ve been truthful. And everything that I’ve said has been consistent in that the only way you’re going to learn really how to trade is by doing it – everything else is a side show. And it’s meant to make you feel insecure and how to separate you with your money so that you could deal and undo the feeling of uncertainty.

One of the reasons why we basically give away the “how to” stuff – the courses if you will is because it’s me working with the person 1-1. It isn’t cheap and it’s never going to be cheap. Because I’ve spent 35 years perfecting my craft. And if you want a quick solution to something with guaranteed results, unfortunately it’s not going to cost you $300.

So we give the “how-to” stuff away because the harder part of the teaching is getting the person to fully understand who they are. What makes them tick? Do they have goals? What are they doing during the day? That makes them feel good, but actually doesn’t do crap to help them trade better. Where does fear kick in and stop them and shut them down? How do they understand their current environment? How do they understand the environment that they grew up in?

So it’s pretty deep process and it’s a lot of work and it’s definitely not for everybody, but that’s the only way to have success in my mind’s eye is to learn about yourself. And then what ends up happening is the feedback that I get from clients is that they not only are trading better, but their life is amazing because so much of this stuff is these emotional equations show up everywhere.

Anyway, we’ll pick this up again tomorrow. Please consider subscribing on YouTube, Apple podcasts, or Spotify. I’ve also been given away the audio book version of The Inner Voice of Trading book – a book I wrote in 2011 for FT Press. You can get the audiobook version for free at MartinKronicle.

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It’s not the chart, it’s you

So you’re talking about relationships yesterday or the day before and guy that I know is going through a breakup. So it reminds me of match.com or any of these other dating apps, for example, some of them have an algorithm where after you put up your data, they try to match it up with the data of another person of the gender that you’re interested in. And then at least you’re kind of targeting inside a group of people with whom you may have type of rapport. Sometimes they just have a search engine kind of built in and you can kind of seek what you’re looking for. Certain height, certain religion, certain blah, blah, blah, and then all within a certain distance from where your zip code is. So it’s like screening for stocks. So I think what they’re talking about at that point, ultimately is giving you the tool to find compatibility.

So as that relates to managing risk, I believe each system and every chart, every chart pattern has an emotional response attached to it. Every zig and zag of a head and shoulders chart up gives feedback. It’s not just P&L…it’s not just tick and tick multiplied by your position size, which is obviously what makes and loses your money, the position size. It’s also, how do you feel when you’re inside that chart pattern? So as you can imagine, when we talked about this a week ago today, we talked about the feelings that you needed to feel either through perfect compliments Coca-Cola and pizza. And then when you think about those perfect compliments, what does it make you feel like? Does it feel different if you just have pizza by itself?

Does it feel different if you just have the Coke or how does it feel when you have the two of them together? So when you look at your emotions, you might need to see your emotions unfold when you manage risk in a certain sequence. We went through that, go back to last Wednesday’s episode. And we talked about how do you feel about the research part first, you’ve got a screen. So that might suck for you. You might like that part. And this way you can kind of learn about where are you good in that process of finding the names, creating your wishlist, putting in your stops to let the market come to you. How do you feel about the risk being put on? How do you feel while the risk is on? And then how do you feel about managing it when it’s either making or losing you money? How do you feel when you get out of the trade, either having made or lost the money, and then when you reflect, how do you feel about the entire process. How do you feel about yourself after that process?

So that’s why I like to say it’s not about the chart pattern because the chart pattern is there to basically evoke emotions from you. It represents crowd behavior. Doesn’t necessarily say anything about the fundamentals of the company in the short run, but how people feel about the prospects of that company. When you summarize or you create the sum total of everybody, else’s behavior. Now, some folks like to believe that that means those charts are reliable and that that’s predictable. I, myself don’t find myself in that camp because I don’t think there’s anything that you can trust. And the minute you kind of re resign your need and desire to play superior defense is when you’re going to take the biggest losses that you’ve ever imagined. So it’s not that the things aren’t trustworthy it’s that anything can happen at any given time.

And all you can do is control your own behavior. So if you become emotionally invested in the outcome of a certain chart pattern and you add risk and it betrays you intentions equal results, what is the betrayal trying to teach you? And where else does that betrayal show up in your life? That’s what I’m saying. Like this is deep sh*t. Most people don’t want to talk about it, because I could go to f*cking Udemy.com and sell you a course on How to Trade for $97. But I find all of that to be terribly worthless.

So when you look at certain chart patterns and you look, take, take your favorite chart pattern, I don’t care what it is. And imagine being long at any one particular point. And, and then the chart evolves to the next point. How do you feel about that? Then it zags against you. How do you feel about that? Then it moves in another direction. How do you feel about that? So then what you do is go back to the same chart and vary your entry. Because I’ve yet to see a back test that shows what’s the expected value of a particular chart pattern. So you need to learn, how are you going to respond emotionally to what the chart pattern might evolve to? How do you feel if you’re let down, how do you feel when things work out the way you had hoped they would. And I didn’t come up with this expression, but it’s out there. And then that says expectations have built in disappointments. How do you feel when you’re disappointed? How do you feel when you disappoint yourself? How do you feel

When you’ve been living your life with a certain belief system only to wake up one day and to realize that you’ve been played. Like day traders, waking up and finding out that they’re not the ones who are actually making the most money on wall street, do you feel betrayed? Because you believed somebody without really knowing the facts. Did you want to believe that? So we talk about responsibility. Same thing could be said for trading systems. Each trading system evokes an emotional response. It evokes emotional responses in calculating position, sizes, entries, magnitude, and duration of draw down sharp ratios, Monte Carlo testing. So the fact that you could use any of this stuff and have it match up for you right away is a miracle. It’s probably one of the reasons why people struggle and or fail very, very quickly is because they can’t latch onto something with which they’re compatible.

Why will because they don’t know their emotional constitution. They don’t know the equation and they don’t know the sequence of emotions that they need to feel when they want to feel their best. So when they’re trying to match that up with trading, it’s a crapshoot that they’re ever going to get it. So what I’m trying to say, and I’ll say this in conclusion and stop talking today, you can buy a system or I can teach you one, but you are not going to follow it. Even if it makes money, if it doesn’t feel good for you based on the feelings that you need to feel based on the feelings that you don’t want to feel and based on the sequence of feelings that you need to feel.

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