Hey everybody, it’s Michael Martin. Thanks for being here. So today’s episode’s going to be on the following topic. Don’t personify your p and l. What do I mean by that? Well, I get lots of emails from folks who don’t comment on the channel, which is fine. I’ll take it anyway, get it? He said, Mike, I’m struggling. I’m not making any money. Every trade I put on is a loser. And I started to think about when I was coming up and then even after I had attained great trading and financial success. And it’s hard not to when you’re starting anyway, not to get sucked into your p and l, reflecting what your mood is and vice versa. So if a trader’s down and not making money, they can be sell in or depressed. If they are making money, they could feel like everything’s going great and they just won an Academy award.
But the truth is, if I were talking to you on the phone, I’d say, are you struggling? Or is it the market? Is the market struggling? Because as long as you have, you know, write out your trades what’s on your wishlist and you put in the orders that you want to put in, there’s no guarantee that they’re going to work out in the first place. So I take it that when you’re losing money, you probably feel bad, and that’s the struggle that you speak about. But the truth is, if you’ve put on all the trades that you wanted to put on, then I don’t see it really as a struggle. I see it as the market not being amenable to your particular trading style, specifically with the names that you were putting in the portfolio. So it’s very difficult to separate that when you’re younger and newer because you need trading gains to validate what it is that you’re doing and who you are.
You don’t need a PhD to talk about this stuff either, right? You just need real life experience. So you feel like, man, I’m, I’m really stuck and I’m struggling, but I feel like you have to treat this market as if it’s almost not an alcoholic. But if you had done the 12 steps of Al-Anon, it would probably make a lot more sense to you because you can’t predict what the market’s going to do, and the market is going to probably seem erratic a lot. And you don’t want to tie up how you feel based on how the market’s doing. If all you can do is stay true to whatever your discretionary trading rules are. If you’re a chart reader, for example, or you’re your systematized set of trading rules that you might do with a computer and everything in between, one’s not better than the other.
It’s just which is the best fit for you. To me, that’s really the best you can do. And you can still give yourself very high grades, yes, over the long haul, you have to be profitable, profitable, but I don’t feel like profitability makes you a good trader or not. You have to have a good attitude. You have to be coachable. You need to have discipline and persistence, and then the best you can do is put your trades on whatever happens. Once you add the risk to the portfolio is kind of out of your control, the next step would be to put in protective stops. Or if you’re making money to figure out where are you going to remove the risk, right? Or some of it we talked about staying in your winners longer so that you could increase the expected value of a trade. And we talked about how you could possibly maybe scale out of the trade starting at three R, then another third at four R, and then the last third at five R.
It’s just something to experiment with and go from there because at that time, it’s like a shopping order or going to Amazon. You’re filling in the fields, you’re entering your orders, and then the best thing you can do is walk away. You can’t control the outcome. So I think if you interpret or see this overall process from say, a 10,000 foot view, it should be a lot easier for you on your psychology in as much that the struggle is kind of made up right now, where can there be shades of gray hair? Well, look, if you’re in a 20% drawdown, that might be weighing upon you as well. But some of the best traders ever have had drawdowns of at least 20%. So I wouldn’t freak out about it in as much as it’s something that you have to live through and it’s something that you have to, the most important thing in my mind’s eye is to not start to over trade and not start trading larger.
You actually want to go the other way, because in a drawdown, I understand it’s frustrating and you don’t know there’s a lot of unknowns. So with the drawdown, and this is kind of ties into the question, you’re in the drawdown, and it’s not only you’re not making money on the individual trades, you don’t know when you’re dealing with the uncertainty of the upcoming trade and the uncertainty of how long is it going to take you to dig out of the draw down. So honestly, what I would do, or if I could speak to my 20 year old self is I’d say that’s all irrelevant. You can only focus on the ever-evolving moment of right now, put on your trades, put in your stops, and do the best you can that way, because behavior predicts where you end up. Now, I admit that that might seem a little easier said than done when you’re just starting out, but I think those of you who’ve been around for quite a while and are used to managing risk that drawdowns come and drawdowns go.
So you just have to dig out and stick to your method, stick to your knitting, right? That’s really what’s going to happen. That’s going to give you the fastest results the minute you start internalizing the thing and start feeling bad because you’re down. To me, that adds gasoline to the fire because it’s hard to do anything. Well, when you’re coming out of a, I don’t want to say a pissy attitude, but when you’re not em emotionally at your best, we talk about having, you know, have a fight with a loved one or a close friend or your partner and you know, hear the expression of emotional hangover. So when you come to the markets every day like that in that kind of emotional hangover, you know, kind of feel a little bit beat up, that might be a good time to flatten out the accounts.
And if it’s a Thursday, come back Monday with a fresh head, go take a long weekend somewhere. Get away. Because grinding, I haven’t seen grinding really work. Putting pressure on yourself when things are already challenging is a very difficult place to trade from. And trading is, it’s not necessarily hard, but it takes an enormous amount of focus and clarity on every day, and you really have to be at your best. If for no other reason that you want to make sure that entering your orders, your stops to get in and get out is an easy process. You don’t want to have to fret over it or second guess yourself. And when you’re in an emotional spot where you feel like you’re struggling, you get what you think about. So the struggle kind of persists, and you don’t want to give it that kind of power. You want to stay in control all the time, always managing risk, adding and removing accordingly based on your recipe. And that’s really the best you can do. They say focus on the process and stay out of the results. I know for newer folks, it’s kind of trying because you might not have put a lot of success points on the board, so you don’t have any after the fact kind of success from an experiential standpoint to back yourself on, and that becomes a real challenge for some people because they need the validation.
But anyway, I don’t want to blather on. I feel like you want to make sure that whatever your p and l is, you want to be mindful of it. But the key to doing this very, very well for a long period of time is to stick to your knitting and to make sure that on any given day, the best you can do is put your trades on, enter your orders. All right? You want some additional information on this. We talked about position sizing in another episode, and you can go back. It’s not uncommon for traders
When they’re in a draw down or they anticipate that a bigger one’s coming to trade smaller, maybe trade not as frequently. So go back and watch that. In the meantime, folks, don’t forget, I’ve been given away the audiobook version of my book, the Inner Voice Trading. You could get it one of the links below, and if anything on the show is resonated with you, please leave a comment, like and subscribe. Click the bell so you can get alerted when we do new videos. I appreciate everybody being in here. Keep the comments coming and I’ll see you tomorrow.
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