Trading Better By Doing Less

Hey everybody, it’s Michael Martin. Thanks for being here. I got a good comment the other day about patience, and man, that’s something that I still think about to this day. It goes along the lines of how do you manage patience while in pursuit of your goals? And I’ve talked about patience a lot before, maybe not all in one spot, but it’s interesting because patience is really the act of not doing something that you might feel impulsively to want to do, for example. So what is it that you feel when you have to be patient? So for example, maybe you get in a trade, you’re a breakout trader, you buy the trade, it goes up a little bit, but it doesn’t go enough to warrant taking off the trade. Or if you’re still stuck and using price targets as opposed to letting the thing see, it’s unlimited upside, maybe you feel like once it stalls, now you are stuck, right?
Because now you kind of personify what’s going on with the security, even though the forces of supply and demand are at work. Sometimes when you see a protracted move, right, there’ll be a breakout, it’ll create a new range. Then there might be a natural reaction or a pullback from people taking profits, or maybe people who feel like the thing is overvalued at higher prices, so they’re entering the market short. Then you’re studying the volume. Typically, you want tighter volume, but every system could be different. And then you have to, I don’t want to say literally or figuratively, but you know, have to sit on your hands. So what does that feel like to you when you’re in a winning trade and you have to wait because it’s life on life’s terms? You take it a step back further. The people that do this very, very well are people who have learned that sometimes they can be their own worst enemy by forcing themselves to take action when no action is needed.
And they’ve studied their own behavior like I did, and realized that a lot of times when I was starting out, I was taking action because I felt I had to be doing something. And this is long before you could use hot keys and point and click your mouse and do this and that. It was much more troublesome to actually put in an order. It was also more expensive. So commissions have compressed 99 to a hundred percent depending on where you’re executing. My opinion, I use premium service because I want premium service. So you get what you pay for. But I think when you think about having to be patient, you’re really thinking about the feelings that you have to feel in between adding and removing risk. And I’m comfortable with those feelings. I don’t let my feelings overcome my judgment because I’m in it for the, I don’t want to say I’m in for the long haul cause that’s kind of a cliche, but I am in trades to hopefully let those grow to 20 R, right?
And if you looked at my own trading, oftentimes I’ll hold a futures position longer than some people hold stock positions. Now, I can’t fully load my account with that, but I could step my toe and add, step my toes in and add to my winners along the way. And if it keeps going up, well, I’ll keep buying. So you get to decide what it is that you want to do. I just found that when I acted impulsively, because I didn’t like what I had to feel when I had to be patient, I actually performed worse. And the double whammy on that is that you’re already in a winning trade. Now, all I had to learn how to do was to sit on my hands. That means I had to be able to let myself give myself permission to and be willing to feel every feeling that came up for me while I was managing risk.
This happens a lot for newbies as well as the folks who are making a couple million bucks a year that we consult to a lot of times there’s a lot, there’s a lot at stake, right? And two, it’s oftentimes a little bit more public than if you’re just trading for yourself at home, because you might be on a trading desk, you have a risk manager. You know, have someone who’s speaking with you every morning to say, Hey, how’s it going? What are we working on today? So there’s all that kind of stuff that gets in the back of your mind. It’s why one famous trader, I won’t mention his name as part of his client agreement, said three things. I promise to run my system. Two, I do not promise to make you money. Three, if you call me more than three times, I’m going to give you your money back.
Which of course is it. They’re not giving. They’re just resigning from the account because you’re having your account custodied somewhere and you just kind of resign from having third party trading authorization. But that’s how, it’s not an even necessarily subtle. If you’re a trader and you have client funds, for example, or people who are constantly asking you about your behavior, you find yourself in a spot where now you have to conjugate your behavior based on what other people think, and that unless you have a strong constitution, you have to be able to farm that off. I remember talking to Victorio when they were working at Quantum Fund together. George would call Victor every morning. I don’t think I could do that. I don’t want to hear from anybody, even if I know who, who the people are at the various firms that make these phone calls every day. And since largely the behaviors regimented on my end, the answer to the questions going to be the same every day. So in my way of thinking, right? Since they can see into the account, there’s no reason to have that phone call. Because if you say, for example, gold has been up to around 2000, historic high, this
And that. Imagine if for whatever reason, your system didn’t have you firing and being long gold, but the person called you in the morning and very subtly was like, well, what do you think about gold here? Or do you think it has more room to go when they know that you’re not in the gold trade? Are they trying to communicate something to you? Because people can be kind of sneaky that way. In fact, I would say more than half the people can’t actually articulate directly, like saying, I know you have your model, but what is it about gold that’s not firing? Like, why aren’t we in it? And so that kind of stuff can put pressure on a trader that has really nothing to do with his or her or their goals. You see, because now I have to fend off political stuff or answer questions to other people who really have nothing to do with my trading and may have political reasons to want to have to call me. It’s because they have to and they’re like, Hey, man, I’m just doing my job. It’s like, well, all right, well, our jobs aren’t going to work all that well together because I don’t want to talk to people about the markets. If I did, I’d be doing videos like Brian Shannon every day about the market recap and stuff. He’s really good at it. It’s not what I do. I could easily add my 2 cents to it. I don’t think that actually helps people, though.
I’ve said people should go out and start trading on their own, even if you don’t even know what you’re doing, because the process of doing it is going to teach you more than any teacher can teach you, and you’re like, that doesn’t make any sense. Well, the goal is for you to develop a set of rules or chart reading skills that you’re compatible with, and only you’re going to be know how to do that. Even in the video I did with Brian, which is getting a lot of fanfare, lots of views and stuff on anchored vw, you still have to put those TR trades on to see how it feels, because ultimately, if it doesn’t feel well, two things are going to happen. The first one is, you’re never going to follow the rules, and two, you’re going to have to find a way to get comfortable with the rules or whatever you’re doing so that there’s some type of harmony, because otherwise it’s very hard to be successful at something that doesn’t feel good.
So again, we come back to patience. This all kind of ties into it. There’s feelings that you feel in your preparation. There’s feelings that you feel when you’re about to, when you’re setting alerts, there’s feelings that you feel when you’re setting your stop orders. Then you get executed. Now you’re in the trade, you’re managing the drisk, the trade, there’s feelings there. Then there’s feelings when you offset, either you could stop for a loss or you raise what we call your protective stop, not a stop loss below the market, but above where you got in so that you can still take some, convert some of your unrealized gains to realize gains, right? Then there’s the feeling that you have to feel overnight when the markets are closed. What does that feel like for you? What does it feel like to be long or take a position home over the weekend?
So when you look at all that and you string it together, you have your emotional system that you’re running concurrent with your technical rules, whatever those might be. So it gets to this much deeper conversation about what it is that, what do you want your money to do for you, right? Because the folks that are working at the big firms that are making several million a year, they have a very clear vision of what it is that they want their money to do for them, and it’s that vision that actually pulls them through their actual goal of trading. Well, say they trade well, that’s taxable income. Then they want to take that money, and some of them, believe it or not, don’t want to endow or further endow their own trading accounts because of how it’s taxed. They want to take the money, pay the bills, and then start and invest in real estate because of the tax treatment, the depreciation, the potential for cash flow and all that kind of stuff.
And so it’s the actual goal of having a family, personal, real estate investment, trust of investment properties, multi-family stuff. Maybe you own land that actually pulls you through your success in trading. And so therefore, I can sit back and say, while I’m in a trade, it’s working. I wish it was working out faster. I realize it’s stalled, but it’s still a winning trade. It hasn’t really moved the needle enough for me to warrant offsetting risk or even adding more, so I’m just going to sit still, because that’s part of my process too. It’s not just the actual doing. It’s the act of not doing, you see? So there’s a lot to talk about. I don’t know if I can do it justice, but that’s kind of what goes on in my own own mind when I think of having to sit on otherwise winning trades that have stalled a little bit or that are even kind of pulling back.
Some people have retracement. Someone says it’s a natural reaction. There’s a whole bunch of things that describe the same thing. You got the breakout, it went up a little bit, and then it’s come all the way down, maybe even almost to your point of entry where you’re at a break even for some of you, that might drive you nuts. For me, it’s kind of like, okay, we’re just getting started. So again, it comes down to mindset and what it is that your goal is. Lastly, I’ll hang up here, your goal should be around to process. Your goal shouldn’t be to make a hundred bucks a day, right? I think the folks that say they want to make a hundred bucks a day when they’re starting out, or if they’re, they’re at a day trading firm, or if they want to make a certain dollar value or percent rate of return per day, they still have to live to learn with the uncertainty.
And I think when you speak about patience and the things that you have to feel when you’re in the process of being patient has a lot to do with you being able to conjugate what it is that you’re actually doing in the marketplace with those moments in time where there’s no activity or there’s no movement in the underlying security that you already have in your portfolio, because it’s the folks that can better deal with that uncertainty, in my mind’s eye, that actually perform better because they don’t beat themselves at that point, and the markets, it’s hard enough to make money. I’ve said this before, in good markets, these aren’t necessarily good markets. There’ll be some names that go up tenfold, and that in and of itself, a singular name could be a market. I’m just saying for the overall tenor though, of how people feel about stuff, this isn’t like boom times.
It’s not like the mid to late nineties, for example. So if you embrace the uncertainty by having strict rules around risk management, and you embrace the uncertainty in your emotional system, which you also have to consider, I think you open yourself up to greater trading gains because it’s the uncertainty where you get paid, right? If that’s the risk, the risk of the unknown of how things are going to go, there’s a reward that goes with that. And all you need to do at that moment in time is know where your stop is, and that’s how you deal with the uncertainty. You say, well, no matter what happens, there’s my stop and I’m not going to negotiate that, and if I bought it 19 and my stop was 18 at 1820, I’m not going to drop my stop to 1750 because I don’t want to get knocked out of the trade and have the thing go back up against me.
Once I get knocked out. I’m willing to feel that frustration because I can only manage risk in the ever-evolving moment of right now, not what I think could happen in the future, right? We talked about that in a different episode about me putting on my optimum position all at once, and then realizing that I was getting knocked out of trades that eventually would come back and win. I had to find a way to minimize that impact. So I had to change and go to school on myself and change my way that I was adding and removing risk. Then I had to be patient with that process because I can only see the real results after the fact, after I’ve actually done and exhibited the behavior. So I don’t think anyone is immune from having to feel their feelings in and around being patient, but it starts with having a clear vision, a clear goal of what it is that you want your money to do for you. And then once you get that money, what do you want it to do for you then? So sometimes that can actually pull you closer to your goal and help you change your behavior today. It’s a super deep subject. I certainly don’t have all the answers, if you like, or if anything has resonated with you in this or any episode, please consider liking and subscribing because that helps me figure out what it is that you do so that I can create more of it. Thanks so much for being here, folks. I’ll see you next time.

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