I think you’re your own worst enemy and you’re probably way too hard on yourself. This is a business where very, very few people actually make it. It’s trying to get in a black belt in Jiu Jitsu. 85% of the people who first step onto a jiujitsu mat never get to change the belt, meaning they don’t even stick around long enough to get promoted to blue belt. 85% just don’t make it. I think the numbers are probably very similar for trading because the losers never show up, right? What does the guy say? Yep, my expertise, tax loss carry forwards. I could blow up. I could turn your 401k into a 101k, click below to find out how. Right? It’s like I didn’t even have to try. It was a natural. You just give me money. I vaporize your cash. Set phasers to stun. How does this happen?
Well, you need to learn and understand the difference about being a judge and using your judgment. The problem is that the beginning of your career, you don’t know anything, right? So you’re trying to be a judge and figure out what’s right and you don’t have any knowledge. You don’t have any experience, so you’re sitting there trying to be judge and jury, right, and look at your behavior, but you don’t have anybody anything to go on. All you can really do is write down what you thought was going to happen. Certainly write down the feelings that you were feeling around each and every one of those steps beforehand, and then write in the postmortem what actually went down. This is the quickest way to calibrate your emotional constitution with your behavior because the two are matched and they both go together. There’s two payoffs to every trade.
There’s the emotional and the psychological, and then there’s the financial. Hi everybody. I’m Michael Martin. I am a futures options and equities trader based in Los Angeles. Thanks for being here. I’ve had 36 years of experience and I wrote a lot about how I failed my way to success in a book called The Inner Voice Trading, which came out in 2011. I give away the audio book. The link should be in the description. You can check it out. The judgment part comes up when emotionally you can’t handle the result of any one aspect of the trade. That could be what you’re doing ahead of time in your preparation, which in my opinion should be done the night before, not the morning of. Know what you’re going to do. Also know what you’re not going to do. That’s the benefit of preparation is that you shouldn’t be taking flyers at the beginning of your career.
Now, look, if you don’t care about your money, it’s a fuck all anyway. Just do what you want, right? I’m not here to judge you. I just know what I had to go through to thicken my skin and also eliminate the majority of what I thought. I knew what I was doing, which I can share with you on my p and l. I didn’t in order to kind of have any kind of lasting success. It all started with eliminating the things that I was working on and simplifying the process. I spoke about that a little bit yesterday and a few people have written in. I’m kind of tired of telling the story because all of this stuff has been said before, but just so that you have it in one space, when I went to Wall Street, I thought I could do everything because I had access.
I thought I could do foreign exchange, I could do options. I could do stocks, I could do futures, and I could also rely on the firm’s research. A hundred percent of that was wrong. Research is really the opinion that’s compliance approved that you can use to have a conversation with somebody in order for them to give you money. That’s what financial advisors are doing. They’re not portfolio managers. I don’t give a crap what their titles are. I alchemists and senior this and that. It’s all for marketing at the end of the day, and I don’t mean to sound that way, but I’m not going to bullshit people in thinking that the business is really way run any other way. If you work for Morgan Stanley or Bank of America, Merrill Lynch or you’re in Wells Fargo, any entity that would be a considered a wirehouse, you have FOAG.
Your job is to “focus on asset gathering.” That’s how you get paid. The more money that you have in-house, the more fees that you get. You’re not a portfolio manager. You haven’t been trained for that. Even the training that they do in-house is poor at best. It’s ultimately risk reduction through diversification, and that’s not risk management, so let’s not even get into that debate anyway. The thing is when things don’t go as you had hoped, right? Because at the beginning you don’t even have a plan. People say, well, when things, what happened, it didn’t go as planned. Well, at the beginning you’re kind of figuring out what the plan is. For me, I went into town thinking like, okay, now that I’m in the game, I’m just going to lick my chops and figure this all out. I could just throw money at anything that’s going to work because now look where I’m at.
I had four Nobel Prize winning teachers at school, so now I’m Captain America and I failed miserably. I failed. Why? Because I was all over the place, so I had to cut and think, okay? After I looked at all my trading results, this is judgment, not being a judge. I beat myself up for about a minute and I said, what I’m doing is failing. That’s for sure. The overall process isn’t working because I’m shoveling sand against the tide. Whatever I shovel, it’s coming right back up in the surf. Okay, where do I have a glimmer of hope? And that was in commodities trading. I had a knack for it, thank God. Second best was probably stocks, probably because I had strong sense of the fundamentals, no charting experience options, poor, poor. Maybe to break even foreign exchange. I didn’t like it because again, you have to remember, this is 36 years ago.
You can’t come look at today. Was he like, of course. Why is he not trading? Foreign exchange? Foreign exchange used to be able to trade 200:1 in the handful of places that were available. What I didn’t like about it is that I needed to be able to turn off. I didn’t want to. The big money centers are what? Sydney, Australia, Tokyo, London, New York. Then it goes back to Sydney. It’s a 24/7 market, and I didn’t want that bullshit in my life at that time. I didn’t care about the opportunities. I needed to have sanity. I needed to find a process that I could replicate day after day after day, not to have a big seven day day, if you will. So foreign exchange was out of the question.
Plus at the time, you have to understand that most of the scams now, it’s the AI stuff, but most of the financial scams were taking place in foreign exchange, so I didn’t want to have anything to do with that, and you can go look it up. Don’t ask me about it. I don’t want to waste time on the show about, because this show is about emotional intelligence and traitor psychology, especially geared towards folks who are beginning and haven’t found the consistency that they’re looking for. So to follow my own advice, that’s exactly what I had to do is to say, okay, where can I find the consistency? Now, you have to understand too, I was in a wirehouse and my branch manager was kind of less than enthused that I was going to start really trading commodity futures. The commissions were huge. Round turn on one contract was $125.
Hello, and day trades were, I think I want to say $75 to $90. So with very little capital under management, say you had a million dollars, your ROI, your ROA on your account balance could easily be $250,000 in commissions. Whereas if you were buying and selling equities and bonds because it was a stock and bond kind of joint, you could probably see, say ROA return on the assets under management. That’s what that means between maybe one in three, if you did more aggressive kind of trading, that might go to somewhere between three to 10 and commodities were easily 25%, so you could do a lot of gross commissions with a much smaller asset base. When you started to get into the folks who had done the fee for service kind of stuff, which was a very small sector of the economy at that time, their ROA would be anywhere from 0.5 to maybe two depending on what their fees were, and so I of course wanted to make money and I wanted to make money for my clients.
I had to marry those two things up. That was definitely both being a judge and using my judgment, and so I had to know that I was kind of swimming upstream because what they wanted me to do was to do the same thing that every wirehouse manager their people to do, which is to bring in more money. That’s how everybody makes more money is bringing in assets. It’s not trading the assets. Once they’re there, they want you to delegate that to the managers that they have in house. You’re just the umbilical cord to bring the money into the firm. They’re really not looking for you, even though that’s the fun part. They want you to delegate that to somebody else. Now, I wanted to get a trading job, but I couldn’t get it because in those days it was like, well, you have to have an MBA.
Now, that’s obviously stupid because it’s been proven mathematically that having an MBA doesn’t mean absolutely anything in terms of being able to create Alpha as a trader, but maybe it was a way that they needed to decrease the amount of applicants that they had. I don’t know. I never understood why that was the case or why you would even have to go to business school at night if you wanted to trade unless it was something bragging rights. But that was a really stupid call on Wall Street’s management at the time. It was wasted a lot of money and a lot of resources, a lot of wasted resources at the firm level. So I always bookmarked that too. I said, wow, they’re having all these people do that. They’re spending millions and millions of dollars on that and it’s not really helping their p and l.
It makes me wonder what they’re thinking about despite the power that they have. Sometimes not doing things is good just in trading the majority of what you look at has to be disqualified. Not everything’s an opportunity. So that’s what I did is I just said, I’m putting all this stuff on the side. I’m going to focus on what I can do well because really the only way I’m going to survive here is can I find something where I can make money where it’s as effortless as possible where everyone’s making money, the firm’s making money. Of course, the client has to make money first and then the firm. I get a piece of what the firm makes because I wanted to have fun. I didn’t want it to be a chore. I didn’t care about selling some muni bond fund. There was a great muni bond manager who used futures to hedge when interest rates were going up, and so he had the best performing muni bond mutual fund, and there were guys in the office who were cold calling people in New York City trying to get them to put up $50k into a muni bond mutual fund, and I was sitting there saying, this is the worst.
This is the absolute worst. Listening to these guys, they’re passionless. They don’t give a shit about the product. They certainly don’t care about the people on the other end of the phone. It’s just a numbers game for them, and I didn’t want to play a part in that. So I knew very early on that I was there just for the education, like going to the police academy or going through some kind of a hazing situation where I was going to learn as much as I possibly could, but I think I really think I was planning my exit much more early than I thought I would or I had previously disclosed because culturally I wasn’t a good fit. I am a tough dog to keep on the porch. That’s why I work for myself. I do my own thing. No hard feelings, but if I’m going to fail, I’m going to fall on my own sword. I’m not going to listen to some other guy start to tell me how to do things. So I had the perfect build to be a trader. I don’t care what anyone else thinks. I trust myself. I trust my own instincts. Everyone else can flake off.
Once I started putting points on the board, the manager started giving me a little bit more breathing room because in those days, they wanted you to go out and get five different licenses. After you got the seven, you’d get the 63. That was your blue sky, and then this is before the 66, so then you’d have to take the series 65 to do the fee-based business, which I had no interest in doing either. I wasn’t going to give the money to some other manager. I went to Wall Street to learn how to run money to be a portfolio manager trader. I wasn’t going to give it to some other jackass. I didn’t care about CFAs and my instincts were good. Most of that stuff is super political. Anyway. Then they wanted you to get your life and health insurance license to do estate planning. You could also do fixed and variable annuities as well as life insurance because if you had the securities license, I had the series seven, you could get it with the six.
You can do variable product and then very, very end, you got your series three, which is for futures. So I of course, being my own guy, I did the seven, the 63, and I did the series three right after I had no interest in Look, life insurance is a very, very important tool. I’m bullish on life insurance, but I had no intention of being that type of a person in a Wall Street brokerage firm. That was not anything that I thought about at all. So I eventually went and got it because I had to learn how to play the political game, which I did rather adroitly, but at the end of the day, it was more just to show everybody that I was a team player and it wasn’t exactly hard to do. It was no more difficult than passing the written exam for your driver’s license.
It deals with what are the uses and the appropriateness of investments, which is kind of like the ethos of the majority of the exams. They really allow you to market to the public. They don’t actually teach you how to do anything. You can take the CMT designation, you can get a CFA, you can get CFP. Now they have all these other designations because it’s a huge business to sell those designations, and they’re all probably very endow you with a lot of information, but then you have to find a way to go make money with it. You see what I’m saying? It’s not a panacea, no, like I’m going to anoint you CFP, and all of a sudden all this estate planning client is going to come to you or you’re going to pass a fantastically different difficult three part exam, the CFA world, and then all of a sudden you’re going to become Joe stock picker.
It does not work that way at all. You still effectively have to have a system with which you’re compatible despite what you know or what you don’t know about fundamental and technical analysis to create alpha, and if you can’t do that, you really have no business. Who cares about your analysis if you can’t make money? So I was able to make a shortcut and figure that all out. Then I added stocks back in because I eventually was able to take the field that I had for commodities into stocks, and then later I backed my way into options as well. They required a little bit more time, so I had to marry the amount of time that I had in the day with the amount of analysis that I could do effectively to be prepared for the next day. That was what I was juggling. How many different instruments can I look at to find trade setups to write out my orders so that I can go to work the next day, prepared to both be on the phone and find clients, but at the same time manage a book of orders and positions because you have your stops for your order entry.
Then you have your stops for the positions that you’re in. You’re either going to add to your winners, you’re going to get knocked out of your winners, or you’re going to put in your protective stops for your newer positions and get knocked out. So that’s a babysitting job that has to be done without any errors because errors cost a lot of money, you see? So I was very quick to not judge myself. I also didn’t have any help. That’s why I have the show. There wasn’t even the Blackberry two-way pagers at the time, which were the very, very early blackberries. There was no wireless technology. There were no discords or telegrams. Of course, there was no internet, and I made a promise to the universe and to God and said, if I ever had any whiff of success, that I would be ready, willing, and able to help anybody else who was in a similar situation and they didn’t know where to or who to turn to, which is why I do this show every day for free.
It’s part of my promise to God. It’s the spiritual, it’s think and grow rich really, right? And so if you can take any of this and run with it, go knock yourself out. Obviously there is more premium stuff, but you got to show me the money. At the end of the day, I’m happy to help point you in the right direction and also understand that a lot of what you think you need to be doing, you don’t need to do. So if I can help shorten your learning curve, that’s going to save you time, money, and effort. You hopefully can get to be a success or get that consistency that you want much more soon. So again, thinking about being a judge and using your judgment, I think judgment is like decision making in many ways. You have to figure what’s the opportunity cost. If you’re going to do something in lane A, you’re going to forsake everything else in the other lanes, and that’s just the way it works.
There’s opportunity cost everywhere. So I got lucky in that I stuck to my knitting and I stuck with futures and got super really, really, really good at that, and then built other practices really around that, and it took a lot of time. It took a lot of time, and unfortunately, there is no, the folks in the marketing world want to make it sound like, yep, you could make $2,500 working 20 minutes every morning and then go bang your girlfriend the rest of your day. Good luck with that bullshit if you’re susceptible to those types of pitches for the love of God. Here’s Mike Martin’s rule. If you see someone who’s your age pitching you something on Instagram reels, delete it. Honestly, they don’t have enough experience to know what works or what doesn’t work. They haven’t been around long enough. You have to be able to backtest things over 20 years.
That’s my judgment right now. If I’m sitting in my judge chair and you’re coming to me saying, I have this idea I can scalp in day trade all the big seven, the magnificent seven, I’m like, okay, well go back to ’07, ’08 and tell me how you would’ve done in those very dark times. You see what I’m saying? So you have to be around the block a few times. You have to have been around the block a few times to really sit around my table and have a conversation. Other than that, it just seems like a marketing come on and more power to you. I don’t begrudge anyone trying to make a living, but at the end of the day, most of these marketing pitches are there to separate your money from you and whether or not you can ever make money with what they’re pitching is up for discussion. So it comes down to why do they price things the way they do it? They price it because they know you probably don’t care about $40 a month or a hundred dollars a month for your discords, your $40 a month for your funding challenge, this and that. You got to remember the funding challenges. Again, this is me using my judgment.
I am hardest on myself or I was hardest on myself when I made emotional errors. And the reason I made emotional errors was because my intellect was limited, and I was a pretty smart guy. I was a really good student, but my experience with running money was limited. So I had a lot to learn by being on the job, and that allowed me to do a lot of experimentation. So tagging in from yesterday’s episode, you need to start to fall in love with experimenting, and that means your capital is input. It’s not something that you can sit and hover and protect. You have to use it to roll the dice in order to figure out you’re panning for gold, and sometimes you’re going to come up with a little bit of gold, but you’re really trying to find that vein of or that’s going to get you what you really need and that’s going to cost you money. You’re going to have to experiment, so you have to let go of where that money, where it is and how you’re going to get it. But I wouldn’t beat myself up because in the beginning, I think what think about trading is very, very difficult. Anti is very different from what you’re going to find out post.