Everybody. Michael Martin, hope you’re doing well. Happy Monday. Rangers won the World Series. It was pretty amazing. I don’t think they lost a game, an away game in the entire playoffs. That’s pretty badass. Some great comments coming in on the YouTube channel as well as via email directly through Martin Chronicle. So I appreciate everyone taking the time to watch the videos and it’s good to see that you’re all getting something out of it. Otherwise, it would be a labor of love I suppose. I mean, I guess it is in one way anyway, but it would be harder to continue making these if there wasn’t the valuable feedback in the process or that they weren’t necessarily beneficial or efficacious to use a bigger word. So I’d like to get right into a few things. There’s a few comments and I see all the comments and there’s a lot of questions.
There’s just some of them that I don’t know, they seem a little bit more unique or that they would apply to just one particular person or one kind of tiny little scenario. And what I’m trying to do with the YouTube channel is to play it out so that the comments or the things that I try to say here can apply to a greater swath of people, kind of keeps everybody engaged. If I kind of micromanage it down to one or two small situations, the channel loses its clout if it has any, right? So I have to try to appeal to as many people as I possibly can.
So one comment came in about when I say kind of off the top of my head, go to Yahoo Finance just because it’s free, not I care. I find Yahoo is kind of becoming the Daily Enquirer, the National Enquirer. If you look at the headlines, this stuff is too stupid to be called journalism. The comment was more along the lines of, I suppose trying to put together or look at the data would make a lot of sense after you’ve already built the system and it’s actually, I want to see if I can find and read it to you. I want to find the comment. I should have done this earlier. Sorry.
Yeah, I can’t find it. Anyway. I feel like you should try to look at the data first. I don’t think you need to be Joe expert chart reader before you look at the data, the whole point of building a systematized set of rules, which you can deploy with or without an engine like trading blocks or mechanica, you don’t need to have that necessarily. You should backtest everything. But you have to remember when I did it, I just got the data and I put it in a spreadsheet and then I looked at the data to see if I could uncover any clues as to when the bigger moves were going to happen or since we were talking about commodities and commodity futures especially, what are the seasonal tendencies?
And so I don’t feel like you need to have that is the hard work. The question came to be like once you’ve done the hard work, it would be easier to kind of pull down the CSV file with the particular instrument to look at the data and then go from there. When I really think the person was actually describing the hard work, which is take the data and start examining the data. Don’t worry about the charts because and around there, once you have the data on a spreadsheet, all you really have to do is figure out what your R is, what of your account you’re willing to risk, figure out a position size, and then you can better understand what your change in your equity would look like while you’re in a particular trade. You see what I’m saying? And I’ll think a lot of people have an irrational fear, especially around good trading practices like taking winning trades home overnight and over the weekend.
There was a fellow that I spoke with who lives down by way closer to San Diego who was kind of had monkey mind, which is hard to not have because there’s so much crap being thrown at you when you don’t know necessarily who you are yet or what you’re doing. It all seems kind of tasty, right? It’s like kind of going food shop and when you’re hungry or going to a restaurant on an empty stomach, you look at the menu and you’re like, I could order six, any of these six particular items and you kind of get frozen. So I feel getting the data and looking at the data, studying the data, that is the hard work. But to me it’s also the most rewarding work because again, just like anything in and around trading, anything in and around life, you get out of it what you put in.
And so studying the data, to me it might be work, but the payoff is so big to me, especially if people are struggling with a certain trading style, trying to look at more charts doesn’t solve the problem. I think you’ve probably kind of come to that understanding yourselves. You’re just shoveling sand against the tide is the way that I say it. The tide’s just going to keep washing it back up in your face. And so I feel like by looking at the data, you can see what are the daily changes. You could also see therefore if you see what the daily changes are, you can better see what the impact on your equity curve would be because you have to not only trade when you have an edge, but you want to trade your equity curve. So too much of that is lost when you’re looking at charts.
First thing someone does, lemme call up a chart, let me put on my indicators, or even better, I’ll have all my indicators saved. I’ll just type in the ticker and then I’ll have all this different shit blown out. And that to me is an amateur way to do it. It’s a cool factor because the technology is there and you can do it across screens and all this and that, but it doesn’t really tell you much about the data when you really slice it and dice it. So I prefer to look at the data because then again, I have a better idea, especially with the holding or the timeframes that I like. I get to see if I had this particular position and it wasn’t in an upward moving fashion, even though there are pullbacks or even basis in the uptrends for example, you get to kind of see what the effect is on your equity.
And for those of you who do have that irrational fear about the boogeyman overnight, you can better ascertain as to what the pullbacks would do in terms of a two or a three day drawdown if you want to look at it that way. I think if you’re holding on too tightly to your money, it’s going to be hard for you to make your money grow. And there is definitely some wisdom in that if you constantly are watching the market, especially when you’re in a trade because you’re in fear, I can almost predict with a hundred percent accuracy that trader’s never going to grow because doing anything in life from a fear-based standpoint doesn’t really pay off. Now you have to respect the risk by all means, but under the chapter that says, the watched pot never boils. If you’re going to sit there and emotionally invest yourself and watch every tick, you’re likely to induce yourself to do something that’s not necessarily in your best interest, which would be to think abundantly and to grow your wealth.
If you’re doing that, you’re satisfying other needs. That to me aren’t financial. You’re using the math and the numbers to make a decision that satisfies you emotionally, but the payoff at that standpoint is definitely an emotional one, not a financial one. So that’s why I advocate, and it might make sense for you to hear when I say turn off the screen or go walk away, put your stop in and walk away, don’t look at it. I think many of you would be panic struck to do that. But the thing is, until you get comfortable with that feeling, which you can see in the data, you can backtest and see, okay, well here’s what it would’ve looked like. Here’s how I can conjugate or calibrate it better. My feelings if I was in this trade, could I handle it? Especially when you look at a winning trade that might’ve pulled you, maybe it would’ve added say, one to 4% of your equity.
So say your equity went from a $100K to $104K, what did that look like on its journey to $104K? Because then once you can observe that, you can say, okay, I can learn to get comfortable with this. Because we talked about how do you grow your wealth, how to think abundantly. It’s typically you have to trade really big and sit on a news event, put on a whopper of a position. If it ticks two or three points ticks against you, you’re out or you have a smaller piece and you let it grow. But the idea that you’ve got to churn every day is a working class way of looking at it. And it’s not a way to build abundance. It’s a way to take a blue collar mentality to a white collar job. And that’s why I say I want to be a business owner.
I let the stops do the work for me, and then I let everybody else to come in and buy the name after I’m long. So they have to pay me an admission ticket, and I know there’ll be days when it goes against me, but I don’t buy pullbacks, and I don’t try to think like you read in the newspaper, Stanley Druckenmiller is doing this, or Soros is buying these penny stocks. Soros doesn’t buy penny stocks, first of all, but those are the assholes that are writing that bullshit on Yahoo, right? That’s retail, really schlocky kind of stuff. So don’t buy crappy stuff, buy quality and buy it when it’s going up.
And you can see for yourself, sometimes things might move, if you think about it, if something’s going to double in its price, so go from $24 to say $48, let’s just pick a number out of the blue in order for it to go to $48, it has to have gone through $36, which is a 50% move. So if you’re smart and you’re looking at the data, not looking at the chart, you can go back and look at tons and tons of data and say, okay, let’s apply a little conditional probability to this. What is the outcome, right? If you want to think about conditional probability, let’s define it first. And that would be what is the probability of a second event? We’ll call it event B, given the known probability that you can observe in event A, so you can go study. It certainly helps if you use software and some of these simulators, but you can do it by hand.
I know I did. And say, okay, I have a name that I’m looking at. It’s up 50%. What’s the probability if I look at hundreds of these instruments that the move continues and I go to $48 from $36 to $48? Because I think a lot of folks miss the bigger moves. They don’t understand the data and they look and they say, oh, the chart, it’s at the lower corner in the lower left corner here, and now the price is in the top right corner. I missed the move. And they don’t envision that the thing can kind of go through the top right corner, the northeast corner, the top right quadrant because of limiting beliefs, maybe anchoring just psychological term, but that’s where the winners are. So discretionary chart readers, if you’re struggling, look at the dailies and the weaks, and if it’s not in the top right corner, it’s not a buy.
Don’t worry about making nickels and dimes rallies in downtrends. That’s chump change. You want to get paid, I think you do anyway. You don’t want to be cute and be like, yo, I just nailed this trade. So anyway, think about that. Looking at the data, it could also better help you calibrate when you see the numbers and see like, okay, I went from a $100K to $99,750, then it came back up to $99,000 then it was at a hundred thousand two, $200, then it went to $101,000, came back to a $100,800. And so you can kind of see the thing ebb and flow on its way up, which is kind of characteristic of up moves and that the thing moves up and down in an upward fashion. So your job is to find the stuff that has positive slopes and have a position size on that’s congruent with your temperament, your personality, your understanding of the markets and your tolerance for risk. And you can see that on the data. You really can’t see that on the chart. The chart speaks to the instrument’s behavior. The data can help you speak to your behavior. I’ll leave you with that. Thanks very much for being here and making comments, and I will see you tomorrow.
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