Hi folks. Michael Martin. Thanks for being here. So I want to reiterate something, even at the risk of sounding something perhaps a little bit repetitive when you are in these systems and you’re trying to trade them, I would trade them super small at the beginning, maybe again for three to six months, just to kind of see how it works and how you can get your spirit kind of connected to your trading rules. There might be small tweaks to make, but I want to stress how important it is for you to trade the thing. Take your trades to have to discipline, to actually put on the trades. You don’t have to risk a lot of money, but the goal is to develop that consistency day after day after day. So that might mean putting on trades even when you’re in a drawdown.
So excuse me. So you might find yourself very frustrated. The pro trader is going to put on those trades no matter what. That frustration’s not going to get in the way of good discipline, right? Because that’s where behavior predicts where you end up. But I mentioned a few weeks back about keeping your draw down small. So I want to just highlight that again for five seconds. And that is whatever you don’t lose, you don’t have to earn back. So I like the idea of starting small and losing small bits of capital frequently so that when you add that all up, you’re still only down maybe one or 2% to your capital. That means you have worst case, 98% of what you started with. Now that doesn’t sound so sexy, but it does a lot for your mind because if you’re putting on those same trades with bigger risk units, you could otherwise find yourself down five to 10%.
Now that’s the point where you start to get and put more pressure on yourself financially. Why do I say that? Well, because at about 10% you need what? 10, 11% to come back to break even. It’s when you get between 10 and 20 that things get super dark and it seems to really start to accelerate against you. And you want to try to do everything you can to not even decelerate your draw down, but you don’t even want to get to the point where you have to decelerate it. And the only way that you can do that is to trade small, keep your losses small, and then when you find yourself in the draw down, don’t quit and don’t stop taking your trading rules and your signals, but take a haircut on your capital and trade it smaller. So that might, I know this kind of sounds crazy, but this is really how people manage their p and l really well is when they find themselves down, say one or 2%, they might start, instead of saying, I’m trading 98 cent dollars, at that point, I might start trading 80 or 75 cent dollars just to deliberately trade it smaller, to let the market and my trading style kind of get together and have some chemistry start to dig out.
You put up 3, 4, 5 winning trades, then increase your size back
Because the more you can keep that draw down low, I mean that to me is the Huges selling feature out there because you can lead and say, I do 26% combated annual growth rate, or I can make 20 times your money. That’s all great, but the allocator that’s worth his or her salt, it’s going to come and say, well, what’s your worst draw down? Why did it happen? How long did it last? What did you do? Did you change your behavior? So you’re going to find that people are going to more grill you about how do you handle those moments in time where you you’re not necessarily struggling, but you’re in that drawdown phase of your track record and everyone has ’em.
So those are very important questions to ask if you’re going to seek public funding. And it’s very, very important I think, for your mental game because you can trade like a banshee. Maybe you’re doing 20 trades a day, I don’t know who’s listening. It’s hard to tell. But if you do all those trades on and you’re only losing nickels and dimes, it gives you so much more opportunity to emerge from that quicker without having done any real lasting damage to your mindset. So whatever you do, whatever you system you’re trading, whatever chart pattern you’re looking at, whatever setup you’re doing, make sure you’re prepared, pref, preferably the night before, and know exactly where you’re going to get out and what the dollar values are. Me, myself, I double and triple check the numbers. Spreadsheet calculator, but then you do the phone execution. The folks can read the order back to you and sometimes find the errors too or if there are any, or just to double check the math. Anyway, please like and subscribe to show, and kind of keep doing it this way. And if you have any suggestions, throw it in the comments or reach out to me through the blog. You can also get a copy of the audiobook version of The Inner Voice Trading for free at Martin Chronicle. Go help yourself, and I appreciate you all being here. I’ll see you tomorrow.
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