Hey everybody, it’s Michael Martin. Thanks for being here. I’m a Los Angeles based trader. If there’s one thing I could have told my younger self that it took me years to kind of understand where I would want to outperform 99% of my peer group and kind of make it to the pro ranks, this is never fall in love with the outcome of a probabilistic event, right? It’s so hard to do. I admit, when I was younger, I didn’t have any money. I needed to grow my account very, very quickly, and I wouldn’t throw temper tantrums, but I would certainly get emotionally invested in the outcome because I needed it to happen very badly.
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When you’re trading a system and you know that it has positive expectancy or positive expected value, and you can stick to your discipline, the best thing that you can do is enter your stops and follow your rules day after day after day. Because even if you go into a drawdown, rest assured that if you follow a system with very simple rules that has a positive expectancy, it’s only a matter of time before you make the money that you want. I’m going to say that again. If you’re following a set of rules that has positive expected value, your goal is to take every attempt. You can’t sit there and try to figure out which one to take, which one not to trade. That’s why I try to say simplify things, focus on one strategy, and then have the discipline and the emotional fortitude to just replicate that trade day after day after day, across many, many instruments.
If you’re looking at one particular instrument, you might become emotionally invested in needing to make it with that particular instrument and force yourself into traits that you really have no business being in because you have to find something that fits on that particular instrument, contract number of shares, what have you. So man, and it wasn’t like I had anger issues at all. I’ve always been kind of even keeled. I like to have fun joke around, but internally with my inner voice, I would chew myself apart. How could you be such an idiot? How come you’re taking profits too early? I never really negotiated with my stops. I would test to see if my intuitive strengths were there or not at times. Most of the times they weren’t. So I really honored my stops, that’s for sure. But man, by not getting my hopes up, how many times you hear that when you were a kid, don’t get your hopes up.
Santa might not bring you this and that. By not getting my hope, hope, let me say it again in English, without getting my hopes up on any one particular trade, I learned to just take everything in stride. And then I became much more even keeled about my trading because I was like, look, tomorrow’s another day. The best thing I can do is follow my setups, put my trades on, or sometimes I had systematized rules for certain CTA programs that I was running. I can get into that a little bit later if you’d like, but follow my setups, follow my rules, and just realize that we’re dealing with probabilities and on any given day, anything can happen. The thing that I have to do, and this also helps your outperformance, is if your peer group or your cohort are renegotiating their stops or adjusting them down, when the move is coming against them, there’s a higher probability that they’re going to lose money.
The best trades tend to start making you money right away. So if you’re able to take losses quicker, then when your system hits, meaning it’s amenable with what the market’s showing you, you have less that you have to earn back to get back to your previous high watermark or your breakeven, right? In other words, what you don’t lose, you don’t have to make back and you get to profitability. That’s really how you get to superior performance. So in that, keep your stops in, make sure you honor your stops, but just take it one day at a time. The winners will come. I promise you that the winning streaks will come and you’ll be like, I don’t even know what the hell I’m doing. Not in the sense that you don’t know what you’re doing, but I’m not doing anything differently than I did two months ago when I was in a 5% drawdown and now all of a sudden I’m up 17%.
That’s how it happens. But here’s the key. If you start to negotiate with yourself and be lazy on your stops and not keep your discipline, that’s when you can get into substantial drawdowns and that can really hurt you on your performance, and that’s when you find yourself down 25%, 35%, and that’s kind of hard. Now you need to see a big number on the upside to get back to breakeven. A few other things is consistent position sizing. I know that there are, in the shorter term space with scalping and day trading, swing trading, there’s lots of colorful language that people use in, here’s my scalp unit, here’s my swing unit, here’s my day trading unit, and without any proper training, and if you’re doing it yourself, I, I would really cut all that crap out and focus on one thing. What are you really good at?
Even if it’s just a hunch at the beginning, focus on one thing if you’re trying to do too much, this also can feed into you becoming like I’m emotionally invested in the outcome of the trade, and that leads to frustration. Without a proper process to deal with that frustration. Maybe because you have expectations about how things should go, that’s when you can start to get into trouble and start doing stupid things with your money, right? Frustration leads you to not have discipline to want to revenge trade. They want to renegotiate your stops, and that in most cases makes things worse. At least it was for me. So don’t become emotionally invested in the outcome of any one particular trade. Tomorrow is another day. Your goal is to be able to make this a marathon and be able to come back and play tomorrow. You don’t want to blow up and get into a spot where you’re despondent because you’re in a 40% drawdown because you thought
You were going to play He-Man with the market. That will always work against you. Very, very few people can do that, and if they get away with it, it’s lucky, and then it’s actually bad because it teaches them what to do. But if you don’t get your hopes up, it helps you focus on your process. Then you just take every other trade in, every signal, I should say, every setup, whatever it is that you’re using, chart pattern set up, mechanical set genome trading rules, you’re kind of placated. You’re like, okay, let’s see what the market does today. The best thing I could do is stick to my discipline and put the trades on. If I don’t go on tilt, that’s a good thing. So I don’t want to think about the outcome and start daydreaming about how great life can be. That’ll all be there in terms of your having a goal and you’re kind of coming into having a vision for yourself, but the vision of how you want your life to be different in the upcoming year is going to come from your constant or your consistent behavior day after day after day.