Focus on process as your roadmap

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• 0:00Speaker 00

  Hey everybody, it's Michael Martin. So continuing on from yesterday about kind of staying grounded and not dropping your guard, there's a little something sneaky that goes on when you start making money and that is bet sizing, right? When the hubris kicks in, you start to think like, "Hey, I'm on to this. I can afford to trade a little bit bigger." And that just comes out of nowhere. There's no thought that goes into it. You've always wanted to trade bigger, right? It could be a sign of peacocking, bravado, machismo, whatever it might be. Everyone wants to make more money and when you start to get on a streak, you're like, "Now's the time to push."

• 0:41Speaker 00

  Now, generally speaking, there are times to push, but everything still has to be systematized. It can't be like, "Hey, today's Tuesday, right? Today we push." Like, there's gotta be a little bit more that goes into it. So, that too can be systematized. And, you know, one of the things that you can do is, especially when you're starting, is look at trading. We talked about this, one setup, just to get confidence. But then always say like, "Okay, I'm gonna trade 2% of my account." And whatever that becomes, right? That's my risk unit for the day. For whatever number of contracts I'm gonna trade.

• 1:20Speaker 00

  So that this way, as you start to make more money, that 2% risk unit will grow. Now, it's not gonna grow a lot overnight, but that's part of having the discipline is that you can't jump from, like, if you go from trading, say, 5 contracts to 10 contracts, to me, that would imply that your account has doubled. Now, you can do that when your account is smaller. That's the way it works, right? It's harder to double 10 million, it's easier to double 10K. So, the idea being is that, you know, that's a very drastic jump, you see?

• 2:02Speaker 00

  And if you start making money, it's easy to fall into that trap of saying like, "Now's the time to push. I've made some money and now I can afford to lose a little bit more." So, think about what is that number before you get there? And so, for those of you who haven't experienced this, let's think about, how do you go about increasing your account? Is by following your discipline. Then how do you increase your bet size? Well, you can do that at certain milestones, or after a certain window of time. Probably a long time, like 6 months. You know, your goal is to not lose as a speculator. You could be hell-bent for election trying to, you know, make a lot of money, but to

• 2:47Speaker 00

  me, the folks that have made it big and have made money, have kept money, they kind of did what I did, is that they took money out of the market and diversified. They bought other assets to perform for them so that if there was any problem in the market or something that happened that was drastic, it's not gonna change your lifestyle, right? Because there's a point where you wanna hedge that as well. And that would mean taking money out of your account and putting it to work, or having other people run that money, making sure that it's out of your arm's reach. I know, you know, I have followed the path of most of the folks who, I wanted, they didn't coach me, but they more mentored me. You know, they bought real estate, they did other things, they bought annuities, they did estate planning.

• 3:32Speaker 00

  So that this way, as you start to accumulate assets, you know, you put yourself in a spot where you really can't lose anymore. Because your quality of life, you're never gonna go back to the quality of life that you had before you started. Because you've taken the steps along the way to parcel cash out. And that would mean, yes, you have to take money out of your account and trade smaller, but that also gives you the peace of mind that you're not gonna drop your guard, or if you do, it's not gonna hurt you because you could lose all of your money, or some of your money, and you'd still be okay from a life standpoint. You know what I mean? So, as far as, as far as, you know, dropping your guard, you wanna focus on your process. Stay with that.

• 4:15Speaker 00

  And inside the process, have a determination to say, "Okay, when do I trade larger?" Because even again, if you go, look, if your account is smaller, sometimes you have to break those rules because there's just not enough money to go around. So you'll have to go from 1 to 2 before you can double your account, right? But for the most part, before you start trading 3 or 4 different setups where you have an A+ setup that might, you know, get a larger allocation, you might not be there yet. And I, you know, I've talked about this before, you don't try to shoot, you know, shoot, shoot too much, too soon. It's a lot to ask of a new person who doesn't even know who they are yet as a trader, to come up with 3 or 4 different setups and then vary their bet size and then be like,

• 5:00Speaker 00

  "Okay, have at it." That's a lot. That's a lot to have to digest. So, I always advocate, keep it simple. Trade one thing. Not one thing, but trade, you know, one style. Build your confidence up. Once you have the confidence and you have a little bit of a P&L, now you can expand. You know, the, the goal is to make sure you can come back and trade tomorrow, in many ways, in a very oversimplified way of looking at it, right? And that's where having your discipline, keeping your losses small, really comes into play, in that, you know, your, your goal is to come back and play tomorrow, so whatever you do from a risk management standpoint and bet size determination, has to be made with that in mind.

• 5:44Speaker 00

  Is that your goal is to come back and to trade, you know, today's what, Tuesday? You wanna be sure that you can be here all week. So, so that means, you know, you have to make sure that you, you learn to play superior defense is really the name of the game. You'll definitely make your money. For me, you know, when my account was smaller, I had to use a lot more leverage than I would even in today, in today's type of environment. So, think about, what milestone do you need to see before you start to increase your bet sizes? And bet size can be, you know, you can still, you can still bet, say, 2%, but trade more contracts. The problem with that is that you're giving yourself less room.

• 6:28Speaker 00

  You might get knocked out because of noise, right? So, you have to keep that in mind. When I talk about changing your bet size, what I'm really thinking about is the number of shares or contracts of options or futures that you're trading, right? And increasing the percent that you have at risk of the account. That's something that comes over a much longer period of time, in my humble opinion. But, again, why I stressed going to the simulator, is that you can test all this in a safe environment. So that if you do have a moment of hubris, you can find a way to say, "Okay, well, let me see how this is gonna play out. I can act on my hubris with paper money and see how it plays out."

• 7:13Speaker 00

  And it's not to humiliate you, that's not the point. The point is to calibrate your emotional constitution with what you know how to do, and then understand that every choice that we make, every choice that we don't make, right? It all, because it's the net size, it's like portfolio management. You know what you should do and you know what you shouldn't do, and there's always this blend of behavior that kind of predicts your outcome. So with the simulator, you can learn to have the discipline to do what you should be doing. And also, you can see the effect if you cross the line and do a few things that you shouldn't be doing. What's the effect of that? Then you can calibrate your emotional system with your behavior. And say, "Look, I thought I knew what I was doing and I tried all these things and it

• 7:55Speaker 00

  turned out to be, you know, I had some staggering losses, so I can't do that anymore. Good thing I learned it here with play money, rather than putting real money to work thinking that I was smarter than I was, or I had more ability than I did." Like, it's an evolution, and you have to love where you are. Where you are right now is fine. You don't need to push, you don't need to do anything, just be and enjoy where you're at, right? So, think about these types of things, because that's the, that's the one thing I forgot to mention yesterday, is that the scaling up part should be something that's a parallel with what's going on inside the account. If your account size has doubled, you know, then by all means, the number of contracts

• 8:35Speaker 00

  or shares can double, given what you wanna risk on a per-trade basis. Just realize that if you do go up from 1 to 2% also, or 2, 3, 4, 5%, you might put yourself in a spot to make a great deal of money, but you're also gonna have a higher variability of your returns. So that depends on your emotional makeup, right? We're all built differently. Some people can take that, other people cannot. So if you're kind of like creeping along, creeping along, creeping along, and then all of a sudden you increased your bet size, that's gonna change the shape of your equity curve. And at the end of the day, to me, that's like what we should be trading all the time, anyway. So, anyway, just a few thoughts about these things.

• 9:19Speaker 00

  Please keep your comments and everything coming. I appreciate you all very much. I'll see you tomorrow.