When You’re Trading With Scared Money

Hey everybody, it’s Michael Martin. So today I want to talk about managing your cash. When you’re newer to trading, you might be working and trying to trade concurrently When you’ve made money, you’ve probably set up some type of a budget. You might have a spouse or a partner who’s contributing to the bills, so to speak. And if you’re at the higher end of the institutional aspect, you have a certain lifestyle that you’d like to maintain. So managing your cash is something that’s at the heart of this business because as you’re making your money, you know, might be squeezing off some of your trading profits and putting that into your savings account or checking account. If you’re at a bigger place, you probably have a draw and then you get bonused out on based on your agreement, on your trading profits. So either way, you’re used to a certain lifestyle and you don’t want any threat to that lifestyle.
And so it doesn’t matter how much you’ve made or where you are, we come into the market every day at zero, right? And if you’re married with kids and you’re the breadwinner and you’re used to making a couple million bucks a year, very difficult, even with ample savings to all of a sudden have no trading revenue because the markets weren’t amenable to your trading style. So what I typically advocate is something that I’ve practiced myself is that I absolutely segregate and have strong bias versus what’s my risk capital versus my sleep tide stuff. So they say you should have several months of savings, an emergency fund, and this and that. So I would definitely look up those suggestions and follow them because they can remove a lot of duress if you know that your overhead is for your household. And that would include mortgage or mortgages, tuition for schools, which could be grade school, high school or college, maybe car, luxury car payments.
You might be looking at 50 K a month. Now if you had a draw and this quarter or these this month has been tough for April, for example, that can run a shockwave through your system in that the markets are tough given your trading style. And so you might find yourself in a spot of having a little duress. And what you don’t want to really do is ever put yourself in a spot where you’re trading with scared money. And that was important for me at the beginning. Cause I didn’t have a lot to lose. I mean, I had nothing to lose on from an emotional and a philosophical standpoint. But from a financial standpoint, I do remember how hard it was to put together my first grubstake for trading capital. And so I had to develop a plan, which I did very early on, and say, okay, I want to grow my trading account, but I also want to get to a point where if there’s a tough month, I don’t have to worry about paying my bills cause I have that money tucked away and I never cross that boundary and
Infiltrate those funds to be greedy. I like to know that there’s some sleep tight, God forbid, style money that you have earmarked and sequestered for your monthly overhead so that you can live a consistent and placated lifestyle choice that you’ve chosen to live and not have to sit down and talk with your partner or your spouse or even the kids and say, we can’t afford to go on vacation this summer. We can’t afford school tuition anymore, right? Because those are now much higher order of magnitude type conversations with the family, and it’s upsetting and it’s startling, especially for younger kids. So they don’t want to move. They have their friends, they have their routines, they feel safe in that routine. It’s not that they couldn’t do well if you moved from New York to Chicago. I mean, I’m not sure that’s where you want it to move given what’s going on in that city.
But maybe getting out of New York and heading to Florida or the tri-state area for Florida or Texas or Nevada or a place that’s got even Puerto Rico for tax purposes. Some folks are choosing to stay put despite the economic hardships that they might be having in their respective states. The main thing though is what are you doing with your family? You can’t worry about what’s happening with everybody else. You have to do what’s best for you. So in order to have a clean head when you come to the marketplace, knowing that lots of places, maybe even your firm are under somewhat a du under duress because the markets have been very choppy and difficult, you know, can take solace in knowing that you have six months of expenses earmarked in cash and are in savings, maybe money market, maybe even have treasury bills to make sure that your cash is insured, right?
Because you know about how cash works and F D I C and S I P C and all that kind of stuff. So you’d want to think about having maybe a cash equivalent that’s backed by the full faith and credit of the US government even though the rate of return isn’t there. Because if you own a couple hundred thousand dollars of treasury bills, that’s considered a security. So it’s different type of insurance than if you’re just carrying a lot of cash, but you’re probably up on all that kind of stuff. The moral of the story here is that you can take a lot of pressure off of yourself if you pinch away some of that trading capital that you might be having and fulfill or endow your savings account where you’ve paid the household bills from can calm your nerves because no matter what’s going to happen between now and the rest of 2023, you’ve got everything covered.
So now you can just focus on managing the risk in the marketplace. That can give you peace of mind. It might not be a big thing for some of you, but for a handful of you that might be what’s going on in the back of your mind is that you want to feel safe as a human being. Now, I admit some people trade well from a disadvantaged position. I’m one of them because my sixth sense kind of kicks in. However, that’s only unnecessary evil when you have to use it. You don’t want to deliberately put yourself in that spot because you know that you’ve got enough cash to take you through, say, August. But then after that, it’s a crapshoot that can put a lot of pressure on you to try to perform. And if you’re going to try to dig in and perform on your assets at a time when the market’s not amenable to your trading style, you could end up digging yourself into a bigger hole and then it gets back in your mind like, wow, I hope things turn quickly because I do only have one trading style.
Or maybe I have two trading styles. Neither of them are working really all that well. So I can kind of project what I think my income is going to be based on my share in the profits, for example. And so you can do yourself a good bit of good by sequestering those funds that you’re going to need batten down the hatches. I’m not trying to play Joe Financial advisor here, but cutting expenses that aren’t necessary might help take some of the pressure off too. The main thing is your mindset. If you don’t, don’t want to come to the market where you have to make money, what you want to do is come to the market where you are very, very happy to exercise your discipline and to follow your rules. You’re powerless over the results. But when you know your cash flow is tight and the results aren’t coming because the market’s soft, summers are kind of thin in terms of a lot of people on vacation.
July and August are slow, December slow. So you want to kind of think and put that into perspective. How do you project the rest of 23 coming or evolving given where you are now, given what you know how to do and given what you know have in both your trading account and your savings account. So again, we’re trying to conserve and be good stewards of your mental capital. Cause when it comes to the marketplace, the main thing you want to focus on is managing risk. Not having to put on trades because you know, need the cash flow. That’s a pretty lethal spot to put in. Can’t say that. I’ve seen too many folks in that spot work out of it by doing things that aren’t in their best interest when they act out emotionally. You don’t want to throw a tantrum. I’m not even talking about going on tilt. I’m just thinking about taking chances because what you’ve been doing hasn’t been working. And now you put yourself in a spot where you feel like you have to take a flyer or you have to step outside of the boundaries of what your discipline to be. Usually, it’s not like it’s going to dig you in a hole, but it’s not necessarily helpful again. And that’s separate from the basic
Experimentation that you might be doing, right? That’s something different. Experimentation is tiny, tiny sizes just to kind of put things on for size, see how they work, see how it feels, learn the market dynamic of a new system. That’s something different, right? So anyway, appreciate you being here. I appreciate all your questions. I’ve been given away the free copy of the audiobook version of my book, the Inner Voice Trading, which I published by Ft Press in 2011. You can get the audiobook version, look in the description below. If anything in the show resonates with you, please like and subscribe because I get good data on the kind of topics that resonate with you as an audience. And then that keeps me focused on the bullseye of what, what’s most important to you versus things that I might think are important but don’t really resonate with you at all. I don’t want to, even if the shows are only five to 15 minutes, I don’t want to waste anyone’s time on any particular day, even if it’s five minutes, because time’s very, very precious. And I appreciate you all being here. Thanks so much and I’ll see you tomorrow.

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