Hey everybody, it’s Michael Martin. Thanks for being here. I hope you had a good holiday weekend. I did. Today’s Friday, well, today is Friday, but it’s actually Monday for yous. I had a good Thanksgiving. I didn’t really eat that much, watch some pretty bad football and just did nothing. I like to have a day to kind of chill the most and not do anything, not think of anything. I also didn’t go shopping on Friday today because it doesn’t make me feel good to spend money. Someone asked about that a while back. His name is Michael’s good guy. I don’t please myself by spending money. Consumerism isn’t my deal. I live a very frugal life. What I do have is high quality stuff, but I just don’t have a lot of it in that I’m not into collecting things that I don’t need, and this whole Black Friday, cyber Monday thing is such a joke in that why you’re still buying shit you don’t need for half off.
I don’t understand why people think the way they do, especially if they have trading accounts that are underfunded. What is it that you need? I don’t really need much of anything. My best years. For example, even trading, I didn’t even have real time quotes. So anyway, I was speaking with a group of folks the other day and they were amazed as to how much marketing crap is out there geared towards day traders and day trading versus how the pros actually make their money. So I’ll probably doing some more content along those lines to see if it makes sense for you. Please be very vocal on what you think because again, I got better things to do than to create content that no one caress about.
I want to thank everybody for writing in and leaving the comments. I personally go through every one because it matters to me. I get a good pulse. That’s me taking my own pulse. I get a good pulse on what’s going on and what you care about. Also, the chats that you’re having amongst yourself in the comments. I tend to not encourage what we call crosstalk in that it’s difficult to give people advice on their trading when you really don’t know what it is that they’re doing or what their goals are, or especially how they want trading to serve them in their life. But again, win or lose, everyone gets what they want. So if you’re miserable and you’re still doing things the same way, somehow you benefit from that.
So today the topic is how soon do you move your protective stops if a position starts working in your favor? This is the gesture of when things start working in your favor. We talk with our hands in New York, I mean right away, which is kind of tricky because I advocate not looking at the screen. You definitely don’t want to be looking at your p and l during the day. That’s the worst thing that you could do because for the untrained eye, it’s going to induce you to do stupid things with your money. Take your wins too soon, which is how fear really pervades your trading. We’ll talk about that maybe tomorrow. So yeah, my whole thing is once I get filled on an order, like a hair trigger response, I put in my protective stops just to have peace of mind. I don’t really care about the outcome of any one particular trade, which is also why I don’t look at the screen and follow the chart and be like, oh yeah, it’s ticking up. Yeah, baby, I don’t care about that. I really put the trade on, put my stop in and then I go do other stuff. I have a couple of books on Basquiat over here that I’ve been reading. Again for the millionth time. I took a look at Brian Shannon’s book. Again, it’s a great book on anchored v Wap. Probably have Brian back on the show soon and a few other people.
So then I’ll set an alert and the alert isn’t a limit order, like a sell limit above the market that would take me out of the winner. The market going up is kind of intentional. It’s what I want the thing to do. So it would be way too early to try to get married on the first date. So I’m just trying to get into the position, have the thing work out, show me that I’m on the right side of the trade, whether I have good analysis, good luck or good timing, I don’t care. I’ll take all three, any of them because when things don’t work out, you have to take the dark side as well, Luke. So at the end of the day, you’ll set your alert. Where do you do that? Well, it depends, right? If you are using average true range as a position sizing mechanism, your entries and your exits are also going to be based upon that same number.
So depending on your sensitivity and your tolerance for risk, you can set that number at one half ATR. Currently on crude oil, the 20 day ATR is like $2 and 60 cents. So if you were short, which is the direction of the current trend, you might say you’re short at whatever, call it 77. So your protective stop can go in one half or one full ATR. It depends how you’re doing your position sizing and what number you’re using. And then as soon as it goes down, say a dollar 30, which is one half the ATR, right? So what would that be? 75, 70. You can adjust your protective stop to perhaps break even. I know a lot of you are like, man, a dollar 30 on accrued contract is 1,013 hundred bucks, and I’m like, so what
Are you doing it for? You can’t be happy making small amounts of capital, right? Don’t trick yourself into thinking that just because the number’s green that that’s necessarily good. You need to know what your why is, and in my opinion, if you’re going to do this, don’t go for blue collar. Don’t turn this into a working class job. If the trade’s working out in your favor, stay with it for as long as you can. The market will reverse at the bottom or it’ll start to consolidate and then you could start to think about stuff. But what you don’t want to do, especially if you’re not trained, is watch the thing tick in real time, in one minute bars thinking that that information is somehow going to help you because don’t know what you’re doing. You can’t think about this stuff on the fly. You need to make your decision first.
Put your stop in and then leave it alone. Don’t overthink things and don’t look at your p and l and get all fear-based. When you start making money like, my God, I’m just happy to be naked in bed with somebody. I’m going to take the first chance. That’s not how you make money. That’s in fact how you stay small. If you take small gains, you’ll never be a big trader. That’s not even just a truism. That’s an absolute truth. You have to let your winners run. Now, that’s tricky for some of you who like to offset your trades by the end of the day. I don’t know what to tell you. Some people just don’t like chocolate ice cream, so you’re going to have to figure that out for yourself. I’m not going to try to convince you, but I don’t want to have to reinvent myself every day, and that’s what they do every day.
They come to the market as far as I can see unprepared and try to figure things out that day. Like I’ve said kind of tongue in cheekly, there’s like three dozen guys who I know who have really, really good sense of timing and can do things like that. But the majority of people, although they can look and see what other people are doing within day trading or swing trading, they don’t have a feel for it. They were the last kids to get picked in gym class, if you know what I’m saying. And so look, I’m not calling your girlfriend ugly, but at the end of the day, if you don’t have a feel, it’s time to move on and let time heal all wounds and extend your holding periods and invite the success that you think you want at least. But I would adjust going back to the main topic, that you would adjust your stops as soon as possible. If you’re trailing structure, that’s a little bit different. You can wait for the end of the day, leave your protective stop in, wait for the market to close, check out the screens after the close. Maybe you don’t even adjust the stop. You put the same order in the next day. I’ve done that for weeks on end.
I’ve done that for weeks on end. In fact, I’ve done it for six weeks at a clip in a particular trade. I might’ve shown it with you, it was probably one of the longest times too, where I got in early in like oh 5, 0 6 on a sugar trade and it stalled and it went sideways. It didn’t knock me out, but every day I would call the floor, put in my protective stop and it would just sit there, and that was from, I want to say through the entire month of September into the first half of October before it started making new highs, and I added more to my position.
So you have to have the discipline and the stick to itness to be able to handle that and not necessarily worry about what happens day to day. I think some of you’re watching your p and l much too closely, and although I believe you have to trade your equity curve, which I’m not going to get into right now, you do have to stay away from looking at your p and l. If you’re trying to trade your daily p and l, chances are you’re a very small-minded thinker, and without the right training and without the right discipline, that is going to induce you to make decisions that are not in your best interest. You think they are because they feel good, and your feelings at that point in your life are like facts. But you learn if you’ve gone to any 12 step program, that feelings aren’t facts, so you have to find a way to subvert your strong feelings and realize that what feels good is not a good financial decision because of the fight or flight mechanism.
There’s probably a lot of reasons, but fight or flight is one of them. As a trader, you’re putting yourself in harm’s way, and the quickest way to make more money is to let your winners run. Take it home overnight. Take it home over the weekend. You always have protective stops. Don’t be afraid of what you can’t see. There’s no boogeyman under your bed. I can say maybe once a decade, there’s a trade where it moves sharply against me, and so that’s not enough. It’s not material enough to scare me from doing good financial decisions. In other words, some of you are so afraid of overnight risk that you’re like, oh, no, no, no, no, no. What are you crazy? And I look at that and I say, the opportunity to cost to you, the opportunity cost for you in that space of having that feeling of this is costing you millions because when things are trending, you’ll be making money for reasons that you don’t even know, and I think a lot of you might be uncomfortable with that.
You have to know shit. You got to have your stuff all lined up. You got to have your hockey. You got to have your mouse here. You got to have your headphones with the thing on. It’s too close to your mouth, by the way. I don’t need to hear every pop and snap out of your mouth, so get rid of that. That doesn’t serve you. If you want to make money, put on a small piece and let it go. It’ll grow to really, really big stuff. Quida doing that is to adjusting your stops. You could do that every day. Like I said, if you adjust using ATR, you can set alerts. If you’re trailing structure, whether it’s support resistance or swing lows or swing highs, you can figure that out based on your trading, but that’s what trading is to me. It’s adjusting a book of stops. One day we’ll have a discussion too about some of these guys who are saying the market makers can see your orders. Well, guess what? They can always see your orders. Unless you’re doing things at the market, which I don’t advocate, they can always see your stops and limits. Anyone with a frigging level two can see them, so I don’t see what the big deal is.
You have to protect your capital despite what these fear mongers are trying to sell you. You have to protect your capital. That’s job number one. Two, if something’s going down and you’re long market makers don’t want to own stocks that are going down, they don’t. They would much rather match you with someone else. They have to have inventory. That’s part of the deal about being a market maker, but they don’t want to be heavily long in their own book, in their principal account, which is what that is, right? They’re trading with firm capital at that point, so don’t worry about the boogeyman or something that doesn’t exist. Your protective stops are going to serve you in so many great ways and alleviate you of duress. Just let the market action play out. The market will tell you when the move is over at the end of the day.
But again, just to close this thing out, I would definitely say if you’re going to use some volatility measurement, whether it’s ATR or standard deviation, then set the alerts on your phone or what have you. When you get the alert, go back in. Change your protective stop, and if you’re using structure, that’s something that you could do after the close and prepare your order and adjust your order and then enter it again the next session. Appreciate all the comments about this kind of stuff, but really it’s really that easy. At the end of the day, you’re just adjusting a book of stop orders, and that becomes easy stuff to manage. You don’t have to look at the screen. The market’s going to go where it’s going to go regardless of whether you’re looking at it or not, and I don’t particularly find that entertaining, so I don’t really do it.
I don’t feel bad about losing money, and I don’t get overly excited about making money. I just take it all in stride and manage my stop orders. That’s the best that you can do. Remember we talked about control the controllables. That’s all I can do. Powerless over the outcome of anything. Trading is probabilistic. The sooner you get used to that, the sooner you get used to sitting on your hands, the more money you’re going to make. That’s the way it worked for me and about a million of the other people that I know who were at my level. Anyway, it’s good to be back and I’ll see you tomorrow, Wednesday. I’ll be here with the G-Man himself, ganja. All right, have a good one.