Consequences of dropping your guard

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• 0:00Speaker 00

  Hey everybody, it's Michael Martin. Thanks for being here. So today I want to talk about dropping your guard. I got a great comment from Doov, Doov0DTE, options trader, on a video called "The Unspoken Keys to Trading Success." The question is, "Do you have any advice on how to deal with the slow amplification of confidence greed, or even that mindless laissez-lez that creeps up over time and attacks our discipline and/or consistency?" And so, yeah, I haven't been there about 7.3 million times myself. I think you can find yourself in a spot where, if you start making money, you'd be like, "Hey, I got this down." So what happens? You drop your guard, you start skipping steps,

• 0:44Speaker 00

  you don't put in a protective stop, you might trade a little bit larger, you might, um, any number of things, right? Anything could go on. I could go on and on about it. But the point is, is that you're having a mental lapse on the emotional side. Technically, you already have the results, right? Especially if it's over the longer haul and short run, we're all lucky, even myself. And the question is, what is it, what's that triggering event? Is it a winning streak? Is it that your account has hit a milestone number, right? So you can think about this, and I was always good at this. I had a strong inner voice. And that was, I could project myself into the future and see like, okay, if I do this behavior today, here's a potential outcome in the future.

• 1:29Speaker 00

  How am I going to feel about that? And then I would be like, okay, that's the future, emotional future value of my either doing something or my lack of doing something that I should be doing, right? Because you have misfeasance and you have malfeasance. And I'm not talking about crime. I'm just talking about, you know what you should do, like the word sophomore, right? The wise fool, you know what you should do, but you do the wrong thing anyway. Because you know you could probably get away with it. And it doesn't mean like you're committing crime. It could be cutting corners, you know, working and, you know, getting paid for, you know, an eight-hour day. Most people only put in five hours of quality work. So you could figure out where that shows up in your life.

• 2:14Speaker 00

  All I can say is that I've learned the hard way that dropping your guard, it might feel like Pareto efficiency, where I can put less inputs in and get the same results. But that sense of hubris usually is that, you know, they say pride's a big banana peel, or someone said that, right? And you don't want to put yourself in a, in a spot where, you know, you start to lose money because you were careless. No one's going to care about your money more than you. You have to treat it like a newborn child, right? So I learned, like I've always said, the best trading teacher you're going to get is you doing it. And so I think this is where the simulator can come in.

• 2:57Speaker 00

  And I know we've had, I did an episode on the simulator as well. And I think that's where you can really practice and see for yourself, do you have the discipline to stick with your rules? Because that's really what's going to matter most when you're trading with live money. You don't trade with the simulator to prove that you can make 1,000%. That's stupid. Who cares about that? It's not real money. And it's like when you play those online poker games with Play Money, everyone gets $100 million and some idiot, for, you know, on a nine-handed table, you know, four of them push all in. Because they just want the rush, right? They're not playing. They don't know how to play. So the point of the simulator is so that you,

• 3:41Speaker 00

  without doing any lasting damage to your financial situation, can try out your rules and most likely test yourself. Like, do you have the discipline to come back and do what's right, day after day after day? What's right? Entering your buy-stop orders above the market, and then putting in your protective stops. Pretty much all there is to it. You can do all the analysis. That's the easy part. The making money part comes down to, how much uncertainty can you learn to live with? And obviously, you need asymmetric payoffs. The key to the asymmetric payoffs is making sure you keep your losses small.

• 4:20Speaker 00

  And/or keeping them at a level that you're comfortable with. Maybe they don't have to be small. If you have five-to-one payoff, hey, man, trade 3% 4% risk units for all I care. It's your money. But the idea about the sim is to learn to have that mental fortitude to come back and do the same thing, as mindless as it can be, day after day after day. That's the best I can do, right? They say, "Focus on the process and stay out of the results." So when you start to get drift, you know, you start to drift away and you're, you know, you're window shopping or you're watching, taking your eye off the ball, as they would say, it's easy to slip out of having a lot of discipline because it's, it takes a lot of time. For me, I got onto that part early.

• 5:05Speaker 00

  And I said, "The discipline is what's going to save me." Yeah, it's going to make me money. But more importantly, it's never going to put me back in a spot where I'm going to have to caddy golf bags or wait tables again, or do a combination of some other, exchange my time for money. So I knew that that, that was my wingman, to borrow the analogy from Top Gun. It's like, I'm not leaving my wingman. My discipline is the focus here. That's the asset to what I have. It's not the making money. It's not the expected value. Because all of that doesn't, that's fantasy land. That's all in the cloud. Even before the cloud existed, that was all in the cloud. The only thing that makes that come alive is the magic juice of me sticking to my discipline and living it.

• 5:50Speaker 00

  Same for you. So each and every day, you have to, your goal is to execute your process. And that means allowing yourself to feel all the feelings that you would have to feel and still take the actions that you know you need to take. Where can this show up? Well, you know, the biggest slips can happen after you've had big gains. Because it's like, hey, man, now I've made it. Just doubled my account. I made 50% in a month. Da-da-da-da-da. Whatever it is for you, doesn't matter to me. It's all legit. Congratulations. But now the question is, can you still do that when you've got this new feeling in your body that you haven't had before? Because that's foreign, right? The first time you double your account, you're like, okay, this is, I can do this.

• 6:34Speaker 00

  I don't know if I'm lucky. Don't know if I'm good. I'm being a guy. Most people in this, watching the show are guys. You're going to say, "I'm good." I know I did. Then the market finds a new way to humble you. Why? By inveigling you into thinking that you're on to something and then you could start to cut corners now. So for other, it doesn't matter the timeframe. Doesn't matter if you're a scalper. Doesn't matter the asset class. Your goal every day is to follow your set of rules. Okay? That's it. And the rules would include, you know, obviously, scanning, position sizing, entering, and where do you exit? That's the full system, right? That's the full system that you have to execute every day

• 7:19Speaker 00

  and stick with the program. Otherwise, you're taking on, you're adding another element of risk as if there's something else emotionally that you have to want to overcome. Everyone in the, you know, my dead grandmother said that good trading is boring. And so can you stay with that monotony, day in and day out? Because then you're done. You know, you put your orders in in the morning. Like, right now, it's almost 11 o'clock Pacific time on the day I'm recording these. I got my orders in. I'm not looking at the screen. I'm talking to you, to you all through my, uh, my Sony camera. So, and my H6. Well, whatever, this mic is something different.

• 8:03Speaker 00

  It's a what? It's a Shure. Surely, surely, you must be joking. Don't call me Shirley. So what I would think every day, when you think about your mindset work, focus on coming into terms with your goal, what your goal is. It's not the monotony of go and do in your scans, finding your wish list, looking for the pullbacks, looking for the opening range breakouts. That's all part of it. But the key is to think of it as an enclosed circle of rules. Entries and exits, adding and removing risk. And then knowing like, what's the right position size to have, given, you know, your tolerance for risk. When you focus on that, you tend to not slip up

• 8:46Speaker 00

  and tend to not, you know, drop your guard. Right? That's, that's at least how I experienced it. Is that you're a human being. Don't beat yourself up. But just make sure that you've got now your situation built so that you, you have the mental fortitude to follow your rules. Maybe even write them out. You know, I have little notes that I put everywhere. I have one, two, three, four, five notebooks that I jot things down. I try to keep those things in the forefront of my mind. You can, so instead of saying like, my goal is to make 500, 5K, 50K on a particular day. It's really, my goal is to stick to my discipline. That's it.

• 9:30Speaker 00

  If you can do that every day, I think you'll have a great career at doing this. You'll have a great, a great opportunity to make money or to whatever, whatever your goal might be. So that's what I would do, is find a daily reminder, whether it's a post-it note or something that you put on your calendar, you know, on your phone, and just review that as the, as the day unfolds. Because it's not necessarily to find the ticker. It's to find the ticker, know what diet of risk you want to go on, meaning position size, how much, how much you want to enter, or where you want to enter, excuse me, where you're going to get stopped out if you lose. Then if it starts making money, what's your plan on taking profits? There's a million ways to do that. You don't have to review it here because I've done it on 75 other shows already.

• 10:15Speaker 00

  So that, to me, is the goal. Your goal is to exhibit the discipline that everyone else can't. And that's why you've made it, or that's why you are in the process of making it. This is a game of emotional intelligence. And, and the how-to part, to me, is the easy part. The harder part is doing the monotony, day after day after day. You know, people say, and I've mentioned this before, "How hard was it to get a black belt?" And it was like, well, it was easy and it was hard. The easy part is I just had to go to class. The hard part is I had to go to class every day. That took something. There were days I didn't feel like going. A little older, my body hurts. You know, I need more time to recover. The younger guys, they're like, "Let's go again." You know, and so I think trading is the same thing.

• 10:59Speaker 00

  To be successful, you have to come at it every day. The key is, you have to exercise your discipline. And that's what separates you from the 97 to 97, 98, 99% of the people who can't make it, is they can't stick to their knitting. And they undermine themselves. It's not, doesn't make them bad people. But that, to me, is the real difference between, you know, the superstars that I, you know, that I knew, that mentored me, that, you know, friends with some of them. To, to the newer folks, is to try to convey that, that the trading in and of itself, yes, the markets changed, the commissions, commissions have changed, electronics have changed. But ultimately, when, there's one thread that you can kind of delineate and trace

• 11:43Speaker 00

  from the very, the folks that I know from like, say, the first Market Wizards books, to the younger crowd that's doing very well today. And that is that they can, they had the discipline to do it day after day after day and not wander, you know, off the farm of their rules, so to speak. Anyway, click below, get your free copy of The Inner Voice Trading. Thanks for being here, and I'll see you tomorrow.