Everybody, it’s Michael Martin. So I got a comment from Rock in the comment section. That’s where comments go. Typically, not all the time, sometimes they’re spray painted on the wall about how do you go about designing a process that’s good for you.
So I think of it like shopping for a suit. There are some folks who like to get custom made shirts and suits, and then there are folks who, because of how they’re built, are actually able to go to the store and buy something that kind of feels pretty good, but then has to have it tailored a little bit, whether it’s the waist or the inseam length, get the jacket, get the sleeves. So that might be cheaper ultimately than getting something made from scratch. So it depends on your budget and likewise with trading. So you can go to any of the big department stores and buy a brand named suit and then have it kind of tailored so that it fits you better than it would off the rack. But also that I in implies like is it, what’s the color right? Is it worst at wool? Is it een, right? Is it, what’s the thread count? What’s the color? Is it two button? Is it three button, right? Is it for casual wear, like as a blazer or is it meant to be worn with a shirt and tie? Is it double breasted? Because if you’re shorter,
Double breasted suits make you look shorter, right? If you’re bigger, they also don’t look really good on big guys. So having said that, do you want the pants cuffed also at the bottom, for example. So when I look at trading, it’s very, very similar. What asset class are you going to look at, right? Because there’s four or five, right? There’s bonds, you could trade bonds, not bond futures, but you could actually trade bonds, you could trade equities, you could trade options, you could trade interbank, foreign exchange. Then you could trade futures and you within futures you could actually trade foreign exchange or currencies in futures that have standardized sizes. Which of those is it going to be, right? How do you make that decision? Then what’s your holding period’s going to be? What is your holding period going to be?
Are you going to hold things in the short term or are you going to hold them a little bit longer? Are you going to use leverage or not? In addition to, for example, like in futures, there’s already embedded leverage holding period. What’s your risk unit going to be? How much money are you going to fund the account? So there’s a lot of those things that have to get done first. Then as I’ve said before on the show, I think a lot of it actually comes to trial and error now, whereas you might be able to see a discord or a tweet or you can go to StockTwits and see certain types of styles. My guess is if you’re in equity or interested in equities, you might have a certain interest in a certain sector of the economy.
The good and bad of it is that you might look at, say for example the media putting a lot of attention on AI right now, you might be attracted to that sector of the economy because you think there are big gains to be had there. Well, where there are big gains to be had, there are also big losses to be had. So you have to be objective and smart enough to realize that if it was really easy, everybody would be doing it. You see there are lots of factors that go into the marketplace. There’s lots of politics too. For example, in the oil market, depending on what political persuasion you are, there are people who like to think that speculators can push around markets, especially the oil, especially the oil market. My belief is that is not the case because anyone who’s in futures knows that it’s the cash market that drives futures, not the other way around.
Opec for example, right now you’ve got crude around $70 a barrel, Saudi Arabia to meet needs oil to be above 80 to kind of meet its growth numbers and what it wants to do in its economy and some of the projects that they’re working on. So they’re advocating to cut production. If you cut supply, prices are going to go up. Yes, speculators will stop being short and they perhaps can add to the long side of things. But so you have to kind of deal with all that nonsense. Never, nevermind the fact that futures trading and equities trading are completely, they’re similar. If you’re on the outside and you study gender studies or something, you never took a finance class in your life, it all just looks like, hey, whatever these people buy, they’re speculators. There’s no math and science. You just put trades on and you make money and it’s always at a cost to the hum to everybody else.
And that is not the case. The future’s markets are really an insurance market where the equities market is secondary trading of hot potatoes on some level. So we can talk more about that in another episode. But risk transference is one of the main aspects of futures trading and that’s that really has nothing to do with equities trading. So you have the philo, the philosophy and the understanding of how markets work that are is going to also be part of your education. So again, no one said this was going to be easy. I can’t say go read this book. There are books that I like. Most of them deal with history though not how to trade. You’ve heard me say on the show that I think the best teacher of trading is you actually doing it. So whatever asset class you’re interested in and whatever names you are doing it with, think about how much money you’re willing to lose to learn your craft.
Because there is a form of tuition, there’s an emotional tuition and there’s a financial tuition. The financial one’s easy to understand. How much of money can you put into a grubstake to fund a trading account? And then how much of that are you willing to lose? And I say willing because that needs to be a number you’re comfortable with. Then you’ve got the emotional payoffs. How frustrated are you going to be if it takes several years for you to figure it out? Because that’s a reality for many people. For me, it was over four years. I had other funding sources and other income streams, so I didn’t have to trade with scared money. I didn’t blow up, but I didn’t figure it out as fast as I would’ve liked. But the journey made all the difference on some level. Cause I really got to learn what I liked.
I got to learn what I didn’t like, and through lots of trial and error, enormous amounts of trial and error, I got to really figure out with cold, hard cash and bonafide numbers where I had skill and where I didn’t go to Wall Street and think that I was going to have spend the majority of my time being a commodity trader. That’s just the way things fell into place for me. But I wouldn’t have known if I didn’t try, if I went in saying I’m just going to trade the Dow components long and short. Maybe I could have made money eventually doing it, but I was willing to try everything and I was willing to invite a lot of failure because that’s where you really learn about things. You have to learn about yourself in the process and what are you willing to tolerate as you go through this learning process.
For example, if you’re watching the show, chances are you were a freshman at high school at one time. It didn’t matter how much you went to bed at night and wished you could wake up and be a senior. It was just a matter of staying the course. One day it’s going to happen, but man, there’s a lot that’s going to happen in between there that you might miss out on if you were so stuck in not being happy where you were. So you have to find a way to enjoy the process of learning and just say, every day you learn one new skill. Every day you find that there’s one thing that you know how to do, but it’s not compatible with who you are as a person. Because so much of this is about compatibility. Not only what are you interested in, but what can you actually pull off tactically.
Because again, as I’ve said, I’ve kind of coined the phrase, we don’t get paid to know stuff. The biggest mistake you can do is try to learn a million things and not trade any of ’em. You want to trade ’em as you learn and see if they make a good fit. There’s always new stuff to learn. There’s always an evolution that’s going to occur even in the asset cla. Once you gain some skill and you know that you can create alpha, there’s still going to be learning to do. But what you don’t want to do, again, if you don’t, you have to figure out with your financial advisors what you can afford to lose and if trading even makes sense for you. So that’s a decision that you’d have to make long before you even listen to this show. But then at that point you have to put yourself in a spot to say, okay, I’m embarking on something, sir Edmund Hillary with my Sherpa, and we’re going to be the first two people to make our way up Mount Everest in the early to mid 1950s where there’s no rope ropes, there is no base camp set up.
You’re going to do it all by yourself and you can talk to other people and yes, you can be involved with discords, but in the end it’s not going to help you. You’re on your own no matter what. And to me, that would be a big first step is to understand the philosophy of what it is that you’re trying to do and what’s the nature of the markets that you’re trying to trade. Because it’s like going to another country where they don’t speak English. That’s what in effect you’re trying to do here. You don’t know. You don’t have any fluency in what it is that you want to do just yet. Now you can develop it, but it’s going to take time, right? It’s going to take time and you have to practice. So I would get used to that and be comfortable with that emotionally, because if you don’t, you’re going to hijack your own system and stunt your growth.
Worst case, you could trade too big and lose your money and then you’ve set yourself back even further, you see? So that’s it. Otherwise we’ll get too specific and I don’t want to get into that right now, but I appreciate y’all being here. Trading’s not easy. There are difficult times for everybody, even if you’re a pro. And the question then becomes how do you keep your emotions and your psychology in check so you don’t force things. You have to go with the flow and just ride the waves when you can. And if there aren’t any waves and it’s low tide, well then you just got to sit on your hands and wait for the tide to change. So that’s a huge part of it too. There’s so many different parts that going into finding are designing a set of rules that you’re compatible with. A huge part of it is knowing yourself, right?
That’s why we have in the coaching, in the online coaching, there’s like 10 lessons that speak to you, getting to know yourself in addition to the how-to part, because it’s that important. And no one’s talk, no one talks about it cause they can’t sell it, right? That makes a lot of sense, duh. Right. So at any, that’s my 2 cents. I always appreciate the comments and the questions. If there’s more, you know, can reach out via email and if you want to just ask the question, I don’t need the backstory, please. There’s too much, too much to read and I’m too busy. But if you write in a simple question, I’ll try to get to answering it as soon as I can. Appreciate y’all being here and I’ll see you tomorrow.
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