Hey everybody, happy Monday. Welcome back to this show. You Sexy Motherfucker. You can’t sing that on the YouTube is a foul word and it’s Prince who has been very well rest his soul. He didn’t let people really cover his stuff. So Sublime had a good comment a couple days ago on a video called How to Trade Your Equity Curve. And this is an important thing because I think many of you are doing the wrong thing, which is you’re putting on a trade and you’re watching your p and l like right away. Talk about that tomorrow. And he said he’s gotten some consonant dissonance maybe I don’t remember the way he put it, but it was too sophisticated for a simple mind like my own to understand other than I can infer that he’s having difficulty understanding what I’m saying and I can understand why, because I’m going to guess that sublime is trading one instrument at a time.
And the question came about why do you advocate puking out your whole portfolio if you advocate holding onto your winners? And so again, I’m going to guess that Sublime is trading one instrument at a time. So that is his portfolio or her portfolio. I don’t know who sublime is, but thanks always for leaving comments. Appreciate it. And that comes from my statement comes from having very, very thorough and rigorous experience in managing both portfolios but also having done backtesting at the portfolio level. And what that means is many of you might be trying to simulate trading rules, but you’re likely doing it one instrument at a time as opposed to having a set of general rules that you could apply on a universe of stocks or any number of commodity futures so that whatever your particular trading rule is, which I advocate for, you’ll get long.
If copper starts to move, then the system will trigger you for copper. If gold starts to move, it’ll trigger you for gold. Maybe you’ll get triggered for both at the same time. Now this is foreign to you if you’re a day trader looking at the indices. You don’t have to watch this video because probably none of it will resonate with you. It’s not where your head’s at. But for those of us that are a little bit more objective and aren’t trying to put several strategies on top of one instrument with by God if I keep changing the timeframe, I’m going to find something that’s going to work as opposed to being, I don’t know, much more objective perhaps, and certainly more promiscuous in your selection and certainly not forcing things when there’s no trade

There. You can find yourself in situations that you don’t want to be in just because you’re in your will and you’re like, well, all I’m going to do is trade the indices and I get it. If you have an underfunded account, the margins kind of work for you. The tick values are also very small, so it does allow you to get in the game. But the thing is is that we’re the sum total of all our habits. And so I kind of figure it doesn’t matter if you’re underfunded and you want to get in the game with the hopeful expectation that you can grow your account, you can still develop bad habits with an underfunded account and many people do because I get the emails and I have an understanding of what it is that they’re trying to do, especially when they don’t actually have a set trading plan.
They’re kind of all over the place. Then they watch their p and l again, we’re going to talk about that tomorrow. But from having back tested, let’s just say that your system is for equities and the parameters that you’ve set up for your order entry and your risk management provide for you to hold overnight over the weekend. And when things start to break out as a sector is concerned, you might find inadvertently that you’ll have several names like in the chip makers or you might have healthcare or you might have utilities. I don’t know what it might be. It could be technology. You might do it by capitalization. But over time over say the course of a week, you might see that you’ve accumulated a basket of securities in that portfolio. And when the bigger funds or the hedge funds are looking to acquire stock, they might actually go in and buy the sector or any number of disparate group of people might come in and put money to work.
At which point you’re sitting there and it’s great, you already own the names just like I advocate. You’ll wake up if the trends are right and you’re still in them, you’ll find that the wind is at your back and the bigger investors and the traders will come in with more capital and move the thing higher. They’ll be reluctant sellers. So those people will dwindle and now there’ll be a fight to acquire inventory, which can only happen when the market will go higher. Prices have to go higher for the market to clear and you’re long, so that’s good for you. Money will come in. Now from having back tested, you can also figure out, when you look at how a simulator works, you can actually go back and look at the day, the week, the month and kind of see what positions that you had during that period of time so that you could see where there would be a near term equity peak. Again, that’s going to be part of your trading style. What’s your portfolio heat, how many names you might have at a given time.
And then as that momentum can show up, it ebbs and flows into the portfolio. You can go back into the simulator and kind of see, okay, when I have X amount of names in my portfolio and the market surges, I’ve noticed that after it moves my overall account balance, I don’t know, say six, 7%. There is a natural reaction where the buying stops for the moment. There might be a small wave of profit taking volume could drop before the trend resumes. So you might find since you don’t know and you’re horrible at prediction as most people are, that it makes sense to not manage risk on a per instrument basis, but from your trading style and having seen from 20 years of history in simulation that when your equity runs six or 7% on average, that’s the best of it for that particular moment in time.
And so instead of selling just them, each instrument piecemeal with your protective stops, there is wisdom to puke out the whole thing as you are at the optimum amount of upside at that moment of time even though none of your protective stops have been hit. So that kind of comes from simulation. It can also come from years of experience, but it does infer that you’re trading many names in the portfolio, not just one particular instrument. So for those of you, like I said, who are day trading, one particular instrument, this doesn’t really pertain to you because you don’t have that potential upside. And if you’re day trading one instrument, you’ll never have it because you’re never going to have risk overnight over the weekend and you don’t have to really manage a portfolio, you just have one name. So this is a more sophisticated type of an issue, a way of booking profits, and it does come from simulation.
So you have to know the numbers, you have to have definitive rules for your entries, your position sizing, which the simulator handles all of that. And then like I said, you could go back and kind of replay the tape so to speak, and look back in and see along your equity curve, what were those percentage moves when your equity curve was at a peak, what the subject of that video was was trade your equity curve. So that’s kind of what I was getting at. I probably didn’t do a good enough job of explaining how do you trade that way. Now many at least, lemme see several instances. You can kind of create your own little basket of securities and hit a button and all of a sudden all those names can be long or short in your portfolio so that you could trade the basket so that it’s not necessarily any one particular name but a basket of securities that you have risk on and then you have risk off.
So that’s another way to do it. It might be a little bit more sophisticated for some of you, but when you get into larger account balances and really want to multiply your cash as you evolve out of day trading, you’ll see that these types of things can really work for you very handily. But again, you’ll need a simulator and you’ll need one that can test at the portfolio level. That doesn’t mean one ticker at a time over several days. It means can it have memory? And remember your positions, mark everything to the market. Take into account where your protective stops are for the existing positions. Know where your buying power is, help you calculate your stops for your order entry for the adding risk to your existing portfolio. Then managing your equity all the way through that. So it’s pretty cool to see.
The better ones are going to probably run you a thousand bucks. And then you’re going to need a data source. You need the open, high, low close. You might need open interest if you’re trading commodity futures. So again, this allows you to have a basket of securities overnight over the weekend and really see it from a portfolio management standpoint. So it’s good for both traders and people who hold longer, right? Because you’ll have that marking to the market functionality for your positions. If you trade futures, you can also program in the role and all this and that for one, don’t really splice contracts in my own simulation. So there’s a couple of them out there. Like I said, they all have commas in their price point, but again, it’s like what do you want out of your trading? What are you doing this for? Are you just kind of ham hocking it as an amateur throwing darts during the day or are you really trying to make money and think of this like a business?
That’s why I’m always asking people, what do you put into your professional development? Because that’s not, even though it might be an expense on your accounting, it’s really an investment in your future. You might have all different kind of goals. You might want to get married, buy a house, buy a diamond ring, do this and that, and upgrade your life. To me, buying a ring for somebody or otherwise, that’s not an expense. That’s an investment in your future working with me. Yes, it’s going to cost you some money, but that’s an investment in your professional development. So you can expense it against the business, but it’s an investment, right? So that’s the way I look at it. At least that’s how I looked at spending my money in those particular

Things, especially when I had to get on a plane and fly from Los Angeles to Reno Tahoe every other week to be an active member in what was then known as the Incline Village Trading Tribe. It wasn’t local. I had to get on a plane and fly rent a car. So I didn’t really look at those as expenses. I’d looked at it as an investment in my future. At any rate, sublime, thank you for writing in. I appreciate you all leaving comments. I’ve noticed in the people are saying, I want to thank the algorithm for finding the channel. So when Ganja and I say, please like and subscribe, it helps the algorithm. There is evidence that people are finding us from those very actions. So thank you for those of you who’ve done it. You just don’t know who you could be helping. It could be someone much like yourself. So keep the questions coming for sure. I see everything and where I think I can add a little bit of intelligence. I don’t have all the answers, I only have some, but I’m happy to help everybody. Again, thank you sublime for your comment and I will see you all tomorrow.

Hey everybody, it’s Michael Martin. So yesterday I kind of touched on the emotional side of knowing pullbacks versus corrections. Today typically we will talk about more of the specifics. Again, I don’t want to start looking at charts because that’s a bit of a snooze. Again, your position size is typically based on the volatility that you can take within the account, and your protective stop is typically adjusted for your position size and your position size is adjusted by the volatility. So it depends how you kind of back your way into the trade. Typically, people start with there, I think the popular expression is their risk unit. How much of their capital are they willing to risk on any one particular trade? It’s a really good idea to keep that number consistent. Don’t adjust it and change it because you have strong feelings for Nvidia, because some jackass tells you how AI is going to change the world.
The price will tell you what everyone else is thinking. That’s the truth, literally and figuratively. You can’t trade on other people’s recommendations. At the end of the day, a pullback is typically something that’s within, you know how I say if there’s an uptrend, things are moving up and down but in an upward fashion. So those down moves are kind of what people would consider pullbacks within an upward moving trend. A pullback is not necessarily a reason to get out of a trade because at that point you’re kind of like the whole thing about the trees in the forest. So I would not let that psych me out. A correction is perhaps, and you can operationally define this, how you see fit, because there is no universal definition where you could be like AV top, a sharp move against you. Piece of news comes out. It corrects if your stop is placed correctly.
That type of activity will knock you out of a trade. Is it frustrating? Not for me because I know what’s going to happen. If you are watching your p and l and you watch an eight R trade go to two R and you get knocked out, that’s the way it goes. Those things are going to happen. You can’t insure against that by taking small three R gains your whole life, you need to sit in for the bigger winners and sometimes the things will also take off and it’ll be announced that someone’s acquiring the company. Someone’s acquired a big position, there’ll be a 13 F announcement. There’ll be something that motivates the crowd to do something that you did a couple of weeks ago and now they have to rush in and buy the stock and you make a bunch of money. That’s the admission ticket that I speak about because you’re already inside sitting comfortably. So get used to that. So I would look at a pullback as just a small intraday countertrend move still within the parameters of staying inside the trend line or above the trend line in an uptrend. And remember, we’re not drawing channels, so there’s no reason to connect the tops, no reason to do that.
You draw trend lines below the chart and downtrend lines. You connect the tops, but there’s no reason to connect channels to think that that’s the only way the instrument can move is inside that channel. That to me is small-minded thinking. So I’m looking at my notes here. So a correction could be, well, maybe you have a two standard deviation move or a two or three ATR move against you. It really depends instruments to instrument. It also depends on how are you using leverage because in that moment of time, because the leverage cuts both ways, your job as a speculator is to play superior defense. Obviously, like we said this week, you have to demand gigantic gains from the marketplace. But if you’re trading with leverage, when you smell smoke, you have to assume it’s a five alarm fire. That’s why you have to honor your stops.
I wouldn’t necessarily call the correction of black swan, but moves can happen for various reasons. New fundamental data comes out. It could be legislative risk is new and hasn’t been digested by the market, but oftentimes when I’ve seen corrective or what you would consider corrective activity, people sleep on it and they’re like, it’s not so bad. I’m going to come by and buy some more tomorrow. So I can’t say that universally a corrective activity is reason to get out. What I do think you should do though, regardless of how you define pullback or correction, is honor your stops
And put them in. Leave them in. You could always think with the clear head overnight come back. Worst case scenario, you buy in at higher prices. It’s not the end of the world if the trend is going to go. You can’t think that the near term high is the only high, the absolute high or the move is done. A lot of people get the mistake of looking at a chart and they see it started here and it’s over here. It’s like, oh man, it’s in the top right corner. I moved as if this is the place where you exit the pros. Look at that as a good place to enter, in fact. So you need to know your timeframes. Don’t worry about buying zones. That’s all. Again, short term, kind of small-minded thinking and back out the chart, look at the weeklies or the monthlies and see what the overall market is telling you because that data is less random despite what everyone else is thinking because it’s a voting mechanism.
If everyone’s so damn bullish on ai, why isn’t NVIDIA seven 50? Serious question. So that’s kind of how you start to calibrate the hype and keep yourself out of bad situations. But pullbacks are nothing to be afraid of because that’s what your protective stop is for. Now, pullback is a word you would use for something that’s up trending. If you’re short and the market rallies, I suppose that would be perhaps the precursor to corrective activity. Admittedly, there’s a chart called V tops and then there’s V bottoms. Those are kind of difficult to trade in terms of calculating a buy signal. You’d have to see maybe if you were looking at bigger selloffs where things where the selling became kind of cataclysmic and it became concave down, Y equals negative X square kind of a deal, inverted parabola. You can look and see sometimes those markets do get washed out and if you’re looking at some kind of channeling indicator, there might be room for something that’s a snapback.
But again, that’s a countertrend kind of like I’m going to get cute and scalp with the market. Whereas maybe you could make some money that way. Buying an oversold market long or using a call option, let the market rally back up to your strikes or to your stops. But those are all unique spots to be in. I don’t know that you could build a business on it, especially if you’re starting out because in my experience, when there is that big kind of cataclysmic selling, that’s usually the first spot. Even though there might be a wave of short-term buying, whether it’s the shorts covering or value players trying to come in and accumulate stock on a lower valuation basis. You remember valuations come from earnings, not PE ratios, and the earnings part is very difficult to predict going forward. So you can only really trade on the past pe.
So what happens when the PE goes from 30 to 20 or 30 to 18 and you’re like, man, there’s value here, but then the earnings get cut again and all of a sudden the stock is down 50%, but now the multiple is 40 and you’re like, oh my God. Now the thing is way overvalued at a lower price. What happens, and I’m not the only guy to say this, but it kind of comes from school of hot knocks. The cheaper prices don’t mean value. So what I would do for yourself though is kind of define what your risk is. If you’re risking one half or 1% and you’re using any number or multiple of standard deviation or ATR, you can use a half an ATR. You can use a full ATR, you could use two ATR with whatever that risk unit is. And then you could think, okay, well I define a pullback then as twice what my volatility measurement is.
I think of a correction maybe three or four times that you can come up with your own measurement based on what you observe because it’s all based on your personality and your temperament for risk. There’s no universal understanding. Obviously, if you have a stock that gets cut in half in one day, it’s probably safe to say that was a correction, right? The day after Kramer made that big rant about Bear Stearns or close to it, the thing went from 30 to 15 in a day. It might’ve been the same day, I don’t remember. It was a long time ago. But the thing is based on your trading strategy and how much room you normally give the thing, that’s why you have to operationally define, because if you’re in the business of giving the thing two ATR move, if there’s a two ATR move against you, well that’s what you were planning for based on what your own algorithm is for position sizing. So for you, a correction might be a five standard deviation move, right? Not in one day, but I guess that’s really what that is though. It is in shorter timeframe, but say a five ATR pullback in the move, you could be pricing for very volatile moves, especially if you’re trading for futures. That’s really up to you to figure out how you want to do it.
So that’s how we can begin the conversation. I don’t know if there’s more to say on it, but you really have to define that for yourself. A pullback to me is just part of a natural reaction that happens in a move. Move doesn’t have to be overextended. I know I’ll be doing more of that in our groups to kind of look at it and to study it, but that just requires an enormous amount more of preparation on my part, and I don’t have the time to do that for these types of videos. Maybe there’ll be a premium aspect to the channel here where we can kind of borrow some of that recorded stuff and make it available. I don’t know yet. I like doing these for free, but ultimately this is the time that I can afford to give away and help you all, which I’m willing and it’s my pleasure.
I think it’s my responsibility to do it. That’s my intention. But when it starts to becoming more time intensive, then I have to look at other, there has to be an exchange of value. This is what I’m willing to do under the charitable give back to the community way more time commitment makes it more professional, and that means compensation on some level. But we’ll have to see. I don’t have that worked out yet, but at any rate, it’s been a good week. I appreciate your comments and keep watching the show. Go back and watch the earlier episodes because there’s really chapters. I’m going to try to create two, I don’t know how I’m going to do it just yet, but I have the people to help me and start to think in terms of playlists and then organizing the themes and call the playlist by the theme so that for those of you who are in various stages of your trading, can come into the show, especially if you’re new here and look at a particular playlist and get a whole host of episodes that speak to that theme because we do have the transcripts and we can kind of search for kind of keywords and kind of bracket these things out so that you can go on a bit of a diet of a particular subject matter that we cover in the overall scope of the show, which is kind of related in that it’s all traitor psychology and emotional intelligence, but within that, there’s some specialty stuff that speaks to managing risk on entries and exits and position sizing and different things that might resonate with you at different times during your own kind of trading upbringing, if you will.
Anyway, it’s been a great week. I always appreciate you being here, and I thank you for taking the time to write. It means a lot to me. As always, if you have things that you’d like me to consider or send them over, I’ll definitely, I look at everything. I only try to comment on things that I know I can speak from experience because no one needs bullshit theory, and yes, I can give you my hunch. I appreciate you thinking that that might be valuable, but I really always try to speak from experience because I know that I’ve had to live through it, and that makes it much more real and I think also much more believable for those of you who are watching. So thanks very much for being here. I hope you have a great weekend and I’ll see you Monday. I.

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This is an automated transcript

So I want to address a reader question that came in. It’s like, well, when do you know to, where do you know to put your stops? When do you know when to do it? Well, obviously you put your stops in right away, but I think really the question is how do you know the difference between a pullback and a correction? That’s really the question because the math of entering your protective stops and then adjusting them higher is really all fourth grade math. At least it was in New York state. But what happens is people start looking at charts and they start trying to uptime and downtime is if that is going to give them information and listen to me very closely, you cannot prepare for a trade on the fly if the market is open and you’re trying to sit there making decisions, especially when you’re newer, you can trust that your instincts are going to betray you.
The more you can understand that. Now, take a week off from trading and just understand that you are the human being at this stage are the weakest part of your trading. So was I, right? So this is not a kick in the head that overthinking things at the exact wrong moment typically isn’t going to serve you. It will relieve you of the stress of having a trade on. But if that’s your approach, I would take some time off from trading and understanding that there’s a different way to look at risks. There’s good risks and there’s bad risks. What are bad risks? Risks associated with overtrading because commissions are free or nil, you’re doing 13 trades a day, too many. There’s not that many markets that are trending, and unless it’s at a bright spot where the things that you are in are really, really trending and you’re adding to your winners and adjusting your stops accordingly, there’s really not that many orders to have to enter.
So I don’t, there’s nothing really as far as I’m concerned, that you need to do to prepare on the fly or to try to make a decision on the fly. Everything that you need to know how to do, you can do the night before or worst case scenario. If you want to be less prepared for the day, do it the morning of. But I’m not a guy who’s trading news headlines. Even if I’m in a winner and a negative news headline comes out, I don’t adjust on the fly for that because I watch the price. How is everyone else behaving? Because I know what my risk is and I’m comfortable with what my risk is, whether it’s my initial one half or 1% or it’s one half of 1% after I have a big gain. I don’t sit there and try to interpret that information and start holding committee meetings and for the love of God, I don’t want to be on a headphone listening to other people talking about stuff.
I don’t need anyone else’s opinion because I’m comfortable with what the risks are. How long did it take me to get to that spot? Well, pretty damn quick actually, within a year. And I was a guy who was trying a lot of things because I knew I had to experiment with real money in order to figure out what was my process, what were my chops, chops like my trading chops, what were my techniques for artists, their gestural marks for Van Halen. You know what it sounds like when he’s playing, right? Same thing with the edge from U two or Andy Summers of the police or Alex Lifeson of Rush or Steven, how of yes, or Alan Holdsworth or my teacher Mike Stern. You listen to them, they’ll have signature sounds and that comes from doing a lot of playing with their guitars plugged in and the amps on.
And so likewise, you have to do the same thing. You have to trade with real money, figure out how risk feels for you, and get used to feeling good when you have risk on and the market’s moving in your favor. Okay? I got tired of taking small gains because it didn’t move the needle enough for me. So I used that real life experience to change my behavior because I needed to make more money. I couldn’t care about when I started. Total return on the s and p was 12 point a quarter percent, and it was about 10 for the DAO at the time. If I remember it’s going, there’s cobwebs up here.
And so I was thinking like, okay, what’s alpha versus beta? Well, beta could be market risk. I also kind of look at it as the return that you get with market risk. If you were to buy and hold something that’s very, very public, like say the s and p 500, the alpha part is what you can do from your own ingenuity as far as I would know, above and beyond buy and hold. That’s what is unique to you. That’s what you bring to the table as a trader, money manager, portfolio manager, whatever role you might be playing Prop trader, it doesn’t matter to me. Titles really don’t mean much. It’s all the same thing.
And making, say I outperformed the market and I did 15% when the market was doing 12 on average. Forget about even relative returns, you’re still losing money. Relative return would be like, well, the market was down 10, but I only lost three. Well, I don’t get paid for losing money. So that’s what brokers do at the wirehouse. It’s like, well, we outperform the market, our diversification, all that stuff matters. And it does kind of matter. Realizing that diversification is risk reduction, not risk management. So you say to yourself, well, 15% market did 12. Look at me.
That feels good for two minutes. Like a girl winking at you on the subway platform on your way home to see your wife. So that matters, like I said, for about seconds. And you realize 15% rate of return on a $5,000 account. I can’t really get a ticker tape parade for that in the Canyon of heroes in lower Manhattan that it’s not going to work. So I needed to think, I was talking about Tuesday. I needed to demand more from the marketplace, but I also knew that I had to do the work, which meant I had to do good analysis. I had to throw away things that don’t work point and figure charts. I had to stop trying to trade more frequently again because the commission structure and the bid asks, spreads were all in eighths and it was very expensive to trade. Short term. We had probably a quarter in the bides spread and at least an eighth markup on the way in and the same thing on the way out. So three eights twice means I needed 75 cents on a stock just to pay for the damn trade. So the short-term aspect of trading and even reading the tape, which I became very, very good at, was not my cost structure to my business was too high if I was working as a prop trader inside Bear Stearns, for example, different ball of wax.
But that wasn’t the case for me. So I had to find a methodology that worked and I had experimented with real money getting to the point where I was like, man, I don’t mean to sound greedy. That was the second stage was, I need to make more money, but I don’t want to be greedy. I don’t want to be reckless and I don’t want to make stupid decisions. But I really had to think 50 to a hundred percent rate of return to move the needle. Why? Well, because each and every week we got paid once a month. And so it was like, again, I had a couple hundred bucks in my pocket and two weeks left of the month, and I was really tired of that. So I said, well, which feeling do I want to get rid of? Do I want to still feel that feeling of being dead ass broke or do I want to feel the feeling of taking small wins and having those emotional wins but still no money? So you get to decide which feeling do you want to feel more frequently? Which one do you want to mute?
And I said, I can’t celebrate small wins because it’s not moving the needle for me, and I’m still having these two week issues coming into the end of the month. Again, this is going way back to when Adam met Eve and was looking at the apple, I suppose when I was starting out. And so I needed to find better behavior. That means I had to get used to stuff being very, very different quickly, and there’s no one to cry to. There was no there one to reach out to. It was me and my higher power, me and my maker and a couple park bench days and long walks through sheep’s meadow and the great lawn for play in Central Park in New York City. So I said, if I’m going to do this, it has to make sense for me financially.
It has to be worth the effort, it has to be worth the angst. All of that stuff has to pay off for me. So it wasn’t a big window that was maybe, I can’t remember exactly, but six months to a year. But I remember it being quick because I was like, I can’t afford to take small gains because it’s not moving the needle. IE my account balance enough. So I had to think bigger. I had to think about getting into moves that were going to sustain. At least they had the opportunity to sustain themselves. And if I got knocked out, I got knocked out, the only thing I could do was manage my risk in real time, and that was with my protective stop order.
And I didn’t fuss about slippage and skid and use limits or this and that or better because that again was fear-based and I didn’t care about slippage. If it was time to get out of the trade, the idea is to get out of the inventory. Don’t worry about the damn price at that point. Some of you try to get too cute with like, well, I can’t take the slippage and skid and I’m unwilling to sell it there. Well, good. That’s how you invite bigger losses. To me, putting limits on those types of things is you end up losing more when the thing goes down because now your limit can’t get struck because it’s way below or way above deal with the slippage and skid because that’s going to be a smaller number when your stop gets triggered and the order becomes a market is a market order. That’s how that works. When stops get elected, the order becomes a market order and you get filled next in line. So the slippage and any skid that you might have at that point is going to be minimal compared to whether you’re hanging on for dear life with another price qualifier where you need the price to be a certain level. If the market starts moving sharply against you, get the hell out. Just as an aside.
So again, going back to Tuesday’s lesson with today’s lesson, I needed to move the needle because I was tired of getting into this comfortable routine where I’d come in, boot up the machine, look at the things, do this and that. You can get into this rutt of behavior that makes you think you’re being productive, but you don’t have the results to show for it. These are the results right here. And I was very honest with myself in saying, I’m doing all this work, but it has to add up to something, and that means my account balance has to go up at a sharp angle. It has to go parabolic. That’s what I was demanding from the market because I was putting in the hours I was doing the work. Then I quickly understood that my behavior has to be aligned with what I’m thinking. And that happened very, very quickly.
It felt weird, but it all felt weird to me. I didn’t know I had no experience, so I had to be ready, willing, and able to invite all those emotions into my life. That’s how I got onto this. I always had a strong inner voice from when I was a young kid, but I always was reflecting like, why do I feel this way? Why do these feelings come up? Well, because they’re all new experiences and new experiences are always going to give you some type of emotional response. Sometimes they’re going to make you feel good, sometimes you’re going to be scared, sometimes you’re not going to know what to say. So you give it the catchall phrase, the cul-de-sac of all emotions. It feels weird, which is kind of a bullshit way of explaining things. And I wanted to have more integrity with myself, so I used much more colorful language language that’s not appropriate for mixed company.
So it wasn’t that I was hard on myself, I was just very honest and said, okay, how do I conjugate this behavior with what my goals are? And if there’s a variance there, it’s probably because of an emotion. And that’s where I started to think sometimes the feelings that I want to feel are on the other side of feelings that I’m feeling right now, and they’re really strong and they make me want to turn around and go this way because safety feels better. But safety means no risk. Reward comes with risks. So are you taking emotional risks? Because for the younger folks out there, if you are 24 to 34 and you’re trading and you’re afraid to lose money overnight over the weekend, I’ve got good news for you. The majority of the money that you’re going to make in your career are in the years before you, not behind you.
So whatever you lose in the market, you could still earn back. It’s time to let go. They say, let go and let God praise Jesus. So I needed to get comfortable with those uncomfortable feelings and say, this is what the pros do to make the money. Somehow they get comfortable. And I could remember being in trades, adjusting my stops, and literally I’d have to leave the office and go walk around the block to get out of the nervous energy, do whatever it takes. But I wasn’t going to undermine my own success by trying to overlay an emotional strategy to a good trade and knock me out of an otherwise good market that was making me money because I knew at the end of the day, all my activity had to go add up to me growing my account in a parabolic manner, and that’s what I demanded from the market.
I also had to demand that from myself. Those were some, I don’t want to say growing pains, but those were the things that, that was the hazing of it. That was the emotional hazing is you need to find a way to calibrate your system. This is my system with your behavior and what the market’s showing you. And all three of those things need to be aligned. Don’t get used to taking small gains. You’ll get way too comfortable and never make any money. And I didn’t care again about making 15%. If that’s the way the chips fell, then that’s the reality. But that wasn’t my goal making 15% when the s and p was doing 12 and a quarter on average. You have to think one, two, 300% and think that that’s possible. And if you aren’t trading short term and you have your numbers, you can calculate the expected value of a trade, then you can use Kelly criterion and kind of figure out how many trades do you have to put on in order for you to hit your goals.
You might come to the realization that what you’re doing feels good, even if you’re making money, but you’re not going to come close to hitting your goal. And in my mind’s eye, you might not even be getting paid what you deserve to be paid, but you will be rewarded by the universe commensurately, no one makes millions by taking the easy way out and by easy way out. I don’t just mean the physical activity, I mean the emotional way. It’s two payoffs to every trade. It’s true for everybody. Kovner, Paul Jones, everybody. There’s payoffs, no one’s immune. Anyway, I appreciate you all being here. Please like and subscribe as Ganja says. And if you haven’t already gotten a copy of the audio book version of The Inner Voice of Trading, you can get it at Martin Chronicle in the top right corner. It is for free. And that’s it. I’ll see you all here tomorrow.

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