Unrealized gains don't just disappear

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• 0:00Speaker 00

  Hey everybody, it's Michael Martin. Thanks for being here. So, my good friend Tina, who does a monster amount of commenting on the channel, shout out to Tina, also said something the other day about, last week actually, about learning to sit on profits. She said, "With large caps, I used to sell for 1% to 3%. Next step was getting to 10%. Yesterday was the first time, holding to 12%. Should have held." The things you spoke about, to will perhaps change that. Seeing a 12% gain rarely happens, probably from always selling too quickly. And, you know, I needed to heart that because I think, if you look, you have a lot more larger winners in your portfolio than you probably know.

• 0:45Speaker 00

  What happens is, you get too scared, when you start making money, that it's gonna somehow go away. Along the lines of, you know, for those, the blind who once could see, kind of a deal. Now, I can share with you, I've had plenty of trades that went up a quarter point, or half a point, and I gave it back. That, to me, is not the same as letting a winning trade become a losing trade, because you have to operationally define that. If your goal is to make monster gains, then that has to be money that you're willing to risk in order to stay in the trade, especially if you're just putting on a starter unit. So, that is not an overarching, absolutely universally true statement. Don't let a winning trade become a loser. Yes, of course, if you buy something at 20,

• 1:29Speaker 00

  it goes to 35, and your protective stop is at 18, you're not doing it right. That's different context. And all these trading statements have to have an enormous amount of context. They're not universally true. Again, if you're a scalper, and you're risking 10 cents to make 40 cents, then for sure, you have to act quickly, because you're risk on, risk off. But if you are more of a longer-term trader, and you know you're gonna build into the position over weeks, right? In that seminar, you could see, I was holding the initial three purchases of the sugar for six weeks, right? So, it all depends on your timeframe, and what kind of risk you're putting up.

• 2:12Speaker 00

  Because there's a certain amount of risk, that's a margin of error, right? It's rounding errors at the beginning, and so you get to determine what that is for you. For me, if it's a half, a quarter to a half a percent, is a rounding error. I don't care about that, because I'm just getting started. And in the sugar, you know, I was buying it at whatever, 9, 10, and I kept buying it up through 12. That means the thing was up 20%, and I was still buying. You see what I'm saying? So, if you're on a short-term timeframe, yes, you are risk on, risk off, and that's okay. I got no problem with that. That's how you're built, and that's where you're having success, or that's where you wanna experiment, for sure.

• 2:55Speaker 00

  But you have to remember, the goal for me, was to always amplify things. I wanted to make leaps and bounds, so I had to isolate, you know, as some of the market wizards guys would say, the only the A-plus trades. If it wasn't A-plus, I didn't put it on, because I didn't want to be engaged with a lot of market activity with suboptimal opportunities. You know, you have to remember, most markets aren't trending. And that's the trend followers right now, they're getting killed. So, you have to pick your spots, right? And so, if you're putting on a starter unit, that is like, you're risking, you know,

• 3:38Speaker 00

  1/4 of 1%, or 1/10 of 1% of your capital, the small moves up or down, don't really move the needle. They're just starter positions, right? It's just like, you don't go to a restaurant for a seven-course meal, and then write the Yelp review based on the bread and the water that comes at the beginning. So, it all depends, kind of like, on how you see things. I think, for short-term traders, which would be scalpers, day traders, and probably even most swing traders, they're probably risk on, risk off, right? They're waiting for their setup, their speed to the market is a huge asset for them. They put the risk on, and then what they're looking to do is try to minimize the losses, right? They might adjust their protective stop, then they're looking to scale out

• 4:22Speaker 00

  at some type of a ratio, they're making measurements, they might trail with a runner, but they put the optimum piece on first. I don't know too many scalpers who are adding. They could be out there, I just haven't seen a lot of them. And same thing with day traders. They kind of nail it, right? And then they offset some of the risk when they can, maybe move their stop to break even. That's not uncommon to do in the options market, either. But, for my tastes and preferences, I knew that I was much, I had the benefit to, and this is just a natural thing, is that I was born with a cast iron stomach. I didn't mind the risk. What scared me the most when I started was that I just didn't have a lot of money to lose.

• 5:07Speaker 00

  It wasn't that I was scared of the risk, but the risk of ruin, as it's called, was much bigger, when you have a smaller account size. However, what goes with that, though, because you have a smaller account size, it's much easier to double 5K than it is to double 5 million, right? So, you have to take the thick with the thin. But I think, most of that all came from mindset, which I know you can adopt right now, because you can make up in your mind, like, "I'm gonna do this, and this is how I'm gonna do it, and I'm gonna make up my mind to do it that way. I don't know when it's gonna click, but as long as I persist and I stick with it, I'm gonna figure it out my way." Because like I've said before, we're all very different from one another

• 5:49Speaker 00

  in how we do this, in that our trading strategies, our emotional makeup, our temperament is as unique to one another as our fingerprints. And so, there is no one particular way. You don't have to do it the way that I do it. Follow your favorite guru on the TV, right? And, you know, about the gurus, I wanna say this, because people have a lot of judgment, which I think has to be addressed and kind of hammered down. I think I've mentioned this once before, but, you know, I grew up playing golf. I started choking up on my mom's clubs when I was very, very young, like, 7 years old. I eventually played down to like, a 3 handicap. I caddied at some of the best courses. I caddied for club champs. I caddied for pros, or the pro, right?

• 6:34Speaker 00

  I caddied for two of the club pros at Quaker Ridge. And, you know, there are people out there, who have an enormous amount of insight on the inner workings of things, and they're really good teachers. They might not have the experience, though, that you're looking at. Like, not every great teacher has to be a market wizard, right? I know a lot of great teachers who don't really trade. They come from the psychology side of things, and they're good at explaining things. And I know I've mentioned this once before, but I mentioned a few names out, like Jim McLean, Jimmy Ballard, David Ledbetter, and Mark Harmon.

• 7:15Speaker 00

  Like, these are all enormously great golf coaches, and to my understanding, I don't think any one of them has ever won a major tournament. I don't know if they've won any tournaments, like, or had tour cards, like, they were teaching pros. But these are the people that are called upon by the best golfers in the world to help them with their game. So, don't be a snob, and think that somebody has to have some kind of special credential, because I don't think there are any. If you can get one little iota of wisdom from this channel, or from any other channel, you know, take it and use it to your betterment, right? That's what it's there for.

• 7:57Speaker 00

  So, be humble, when you're in your learning process, because the folks who have experience can show you the ropes, and put things into context, so that you can help you get where you wanna go. You know, this show is for free. It's a labor of love, that I promised, you know, I would do, as I hit my success and my milestones, because I felt that there was a type of intellectual greed, when I was growing up. There was no community, there were no meetups, there was no internet, none of that social stuff. So, it was hard to figure out, like, who's even trying to be a prop trader? Because very inside business. It was a small community.

• 8:40Speaker 00

  There were a couple of firms doing it, like David Shaw. There was a unit inside of Lehman. There was a unit inside of Goldman. Bear Stearns had very good prop trading. But, you really needed to know people, and if you didn't know people, getting intro'd to those people was impossible, and God knows I tried, right? Now, it's a different world. You know, now you have people who have different levels of experience over longer periods of time, and, you know, the goal there for is to pass the wisdom forward, so that you could go out and kind of do the success, at least from my perspective, and live the life that I've lived, meaning, that you at least had the opportunities

• 9:22Speaker 00

  to have the choices that I've had, which was outstanding. So...

• 9:29Speaker 00

  Be open minded to try to learn from as many people as you possibly can because so much of this stuff is really, really hard in that there's anybody out there who's willing to try to help you, you know, is a good thing. It costs, it costs a lot of time, money and effort to try to put, put wisdom out there, right? And it, it's all contextual. So there are probably a lot of things that I say that just don't resonate with you. And that's okay. You know, that's, you know, there are other people out there who might speak to you better than I do. But I'm coming from a good place. Even if I use stories from yesteryear, I use the stories from yesteryear because you probably might identify more with that part of the struggle. Right? These days I don't struggle because I'm not trying to swim upstream.

• 10:13Speaker 00

  I try to keep everything simple and keep moving forward that way. But one of the things that you can do though, in order to get the less frequent 10 to 12% wins, if that's what you're thinking about, is to sit on your hands more. Don't spook so easy when you have gains, like don't be so quick to take them off. Let them grow, right? Because you don't know when you take a 4% winner off, that it couldn't grow to 5, 6, 7, 8, 9, 10. Right? And if it can't, if you don't let it get to 10, how's it gonna ever get to 20? Right? So some of the guy, you know, learn from what the guys were saying in the recent Market Wizards book, is that they didn't impose their will on top of a trade. Right? I think there's, there's, there's one flaw, flaw or character defect, doesn't matter

• 10:58Speaker 00

  how you want to call it. But one thing I think is prevalent in the marketplace and people would make a lot more money if they stopped taking their winners too soon. That's the thing that's stunting your growth, even though you're making money, you're, the opportunity cost when you have a winner in the portfolio is like, let it go, let it grow up. You know, I, the analogy I would make there is like, you, you go and you start a garden in the spring, you till it, you put fertilizer, you plant the seeds, you got the netting, you pull the weeds, and then the tomato plants start flowering and then you pull them. Like, you're just getting started. And to me, it's like, yes, you, if you want to work like a dog for your money, then by all means, you can definitely do it. But there's other ways to making money that are legit.

• 11:42Speaker 00

  And the old school guys that I learned from, which are still doing the same things today, they're buying starter pieces, adding to them, and they're letting the market do the heavy lifting. Doesn't matter what regime it is, trends persist, once they start going, you just have to wait for them and be patient and not force things. So that's something that's absolutely doable, but you have to have the mindset for that. You know, you can't be worried about giving back piece of your gains in order to stay in the trades to make more money. You have to live with that uncertainty. And then be completely comfortable saying, yes, I might be up 5%, but I'm only going to take it off at a 4, 3 or 4% winner. There's nothing wrong with that.

• 12:24Speaker 00

  If your goal is to catch a 10%, 10% winner, like that goes with the territory. There's nothing wrong with that. There's no upper threshold that says, up, when it gets here, I am out. I am O W T out. Because that's the only way I can feel good about myself. So I ask you to challenge everything that you've heard. The whole thing like, don't let a winner become a loser. That needs some context. Right? Because I do that all the time. And it's not to say that I don't know what I'm doing, it's just for my style of trading, there might be a lot of noise around the original signal that I don't spook on. Because I know I'm looking to add.

• 13:09Speaker 00

  You know what I'm saying? So those initial gains, I don't care about them. I don't care. It's better for me, yes, if it makes money and it starts moving in the direction if I'm long, but then I'm like, okay, do I add based on percentage move? Or am I gonna wait for it to kind of create a base or some kind of structure and to let me to add? And then, you know, if it's the same, you know, obviously if I buy something at 10 and then another one at 12, I have a break even at 11, and I could manage the risk according to that 11, if you will. But if I come back and get knocked out at break even, I don't fall to pieces over that because I'm just getting started and for my style of trading, like, that's gonna happen. It's gonna, that's the way that it works.

• 13:52Speaker 00

  And that's the price that I pay for less frequent wins. You might be making and taking and this and that, but you might not have the, the larger sized gains because you make it and take it, but you have a, a higher frequency of wins. So that's why I'm saying like, it's really up to you, like, how do you want to do this? Do you want to have smaller, more frequent wins or less frequent, larger wins? Because you can't tell or know for sure that when you're doing it your way and taking smaller, consistent, maybe higher frequency wins, you have no way of saying that that's the definitive end of the move. You've just made up in your mind that that, that's the way you want to do it. I want to scalp and sell at the first two minute bar closing below a nine minute EMA.

• 14:36Speaker 00

  That's your conscious decision. But that is not predictive, that the move can eventually go further, even if it goes down in one ATR below the, the nine EMA and then recovers towards the end of the day. By then, you're gone, you've made your money, you've had your win. Awesome. I support that. But that action, action that you're affecting does not, is not indicative or predictive of what the market can do going forward. It's just your style for managing risk. I have a different, different emotional constitution where I might use that same starter position that you have, but live through a dirty, a dirty diaper a little longer if it comes back on me and, because I'm looking to add. The benefit for me is that if I do sit through that, I'm taking paper cuts as losses and

• 15:21Speaker 00

  I don't even sweat that. Right? So anyway, I appreciate all your feedback, I appreciate the comments, you know, keep them coming. If you're stuck on something, you know, reach out, there's a link in the description, I'll point you in the right direction. You know, we're all in this together, there's no one right way. Right? The goal is to, is to find something that you can dig and that you can have compatibility with. It's a lot like dating. A lot of good looking people out there, but why are you with the person that you're with? It's probably because you have good chemistry. You need to find that same type of thing in your trading. All right? I appreciate everybody being here, have a great weekend. I'll see you, is Monday a holiday? Maybe I won't.

• 16:05Speaker 00

  If there's a holiday coming up, I'm not gonna do, because you won't be here. I'll just do one the, the following day. Have a great holiday weekend. Take care.