Building compatibility between you and your trading rules

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• 0:00Speaker 00

  Everybody, Michael Martin, Happy Wednesday. So, there's something that hit me the other day when I was out doing my early morning walk. And that was knowing the market environment, knowing that when you see this type of volatility, if you do have a good sense of timing, you can harvest a lot of cash. But you can't take your eye off the market. That's kind of one of the caveats. For me, what I've learned to do is basically babysit a book of stop orders. I know where I want to get in, I know where I want to get out. When I'm in trades, I have alerts that say, okay, when the market goes here, adjust your position. If the criteria are there, I may even add, right? Like you talked about the Intel trade that didn't work out.

• 0:41Speaker 00

  But it occurred to me too, that when you think about expected value and accuracy, there's something that I haven't seen spoken about. Someone might have done it, I just haven't seen it. And that is this. If you look at folks who have super great accuracy, I want to probably say that, I don't know what the actual number is, but it's very rare. And take out the bot trading, right? And the high-frequency trading, that's kind of more computerized. What I'm talking about are people who are discretionary chart readers, right? If they run a system, or a set of rules where they have, I don't know, 70, 80, 90% accuracy, and I know there are people out there, that type of trading requires you to be in front

• 1:26Speaker 00

  of the screen for as long as possible. I don't know too many traders, in fact, I can't think of one trader that had 70-plus percent accuracy rate that wasn't glued to the screen. They had a phenomenal sense of timing, but they had to see it. Bingo! And they had to rock and roll, twist and shout, right there, live. Hotkeys, mouse, whatever it was, Level 2, So's Bandits back in the day. And they had to be there to take advantage of it. Now, you know, that has become slightly harder, because algorithms are written to scan for keywords across headlines, they're looking for cross-markets, they're looking for all different kinds of things, and it's very difficult to beat the computers and the algo

• 2:11Speaker 00

  traders. You can beat other people, though, who are outside that realm, kind of like the second responders, if you will. But that, again, requires you to be in front of the screen. So for those of you who are kind of starting out and trying to figure out what your model's going to be, and what kind of trader you want to be, just understand that if you are skittish about taking risk and you think that you're going to be super accurate, you ought to know coming into the game that that's going to require you to sit in front of the screen. A lot.

• 2:47Speaker 00

  You're going to have to develop a sense of patience too, because what happens is if you're sitting in front of the screen all day, you could be trigger-happy with no particular edge. And that's a disaster, that's just you churning your own account. So there is no correlation that says, by watching the market all day long, all of a sudden you're going to have some kind of deterministic model, Tab A goes into Slide B, and just dance off into the future happily ever after. It doesn't work that way. If you look at any of the successful guys who were trading short-term stuff, you know, they all had to go through their kind of like trading, if this is a big fraternity, sorority of all the men and women, they had to go through their hazing period. I did too.

• 3:29Speaker 00

  Lucky for me, there wasn't a lot of short-term trading in those days, because it's just too damn expensive.

• 3:37Speaker 00

  Now, so you would say like, those with accuracy model is one that has typically lower expected value, right? So, one that has less accuracy, you can allow the names to move, they have higher payoffs. That's where you get your 3, 4, 5 to 1 payoff, they take a little time to play out. So you're going to have probably half the accuracy, 35, 40%, than those really accurate systems. But because you're giving the thing more time, you probably have a smaller position size on, you give the thing a little bit more room, you don't have to be in front of the screen all day. It's something that you might be able to monitor, put your trades on in the morning,

• 4:18Speaker 00

  go to work, maybe you're working from home remotely, maybe you have to go to the office. But your orders are already in, your protective stops are protecting your capital, and you let the market activity unfold day after day after day. That's a different model, right? So, you may be in a position where you want to try to be in front of the screen all day, but just given the environment that you're in, the career that you have, you might be married, you might have young children, and it's just not conducive for you to try to be a short-term trader because of the distractions that you have and the commitments that you already signed up for. You know, as a father, you know, I will say that there were times when I put trading aside.

• 5:03Speaker 00

  I took a year off when my boys were younger, just because I could. Because I couldn't, I knew I couldn't get those years back. And I had the best father ever, rest his soul. Greatest man I ever met in my life was my father. So you have to think like, what is it that you want out of the situation? I can't bury myself into the world of trading when I've made my bet. You know, I have two kids.

• 5:28Speaker 00

  So, you have to trade the reality of that. And as long as you stay happily married, so you can't check out, you know, you got young kids, they got to get out to preschool in the morning, very difficult to start, you know, trading the pre-market, or otherwise, unless you have a very, very understanding spouse and/or a nanny who can help out. And that's just the understanding that they're going to handle the morning, and you're going to handle everything after the close and picking them up that way. That certainly can be negotiated, but you have to communicate that super clearly. I wanted to be not a helicopter dad and one of these devouring fathers, but like I said, I had a great father.

• 6:12Speaker 00

  I loved him very much, and I wanted to make sure that I honored my own father by being like him to my own sons. So, I had to make a decision in my life about how to break up my day, what was it that I could do? And it wasn't like I was completely out of trading, but it was more like I would do all my work at night, I'd call my orders in very early in the morning at like 5 o'clock Pacific time, and then I'd have my, you know, like I said, I'd have my buck slips with me, with my orders. So if the phone rang, and Gerard, or Mike, or Deb, or Paula would call and say, hey, you're done on this thing, I'd be like, okay, let me give you another order, which was on the back of the card, that was the protective stop. And that's kind of how I ran my trading business, is that I was a business owner, and everybody

• 6:57Speaker 00

  else was kind of doing the work. And I kind of knew, like, okay, if I get filled here, and it goes here, I might add more. If it, you know, if I get filled on something, here's my protective stop. Then I would say, okay, if it goes here, so I'd have all that, all that stuff calculated ahead of time. So just understand that the dynamic of your day and the commitments that you have in your life are going to play a part in what you're going to be able to do as a trader. There's just certain realities. And I'm not saying that you can't become a very accurate trader in terms of your trading style, but in all my years of experience, and I'm coming up on four decades, I don't

• 7:35Speaker 00

  know anybody who had a 70-plus percent accuracy as a discretionary chart reader that wasn't sitting in front of the screen all day to get that. And it didn't, they weren't born with it either, they had to watch thousands and thousands and thousands of instances to develop that skill and that sense of timing, right? So, I talked to you about this because no one can sell that to you, a box of shit, right? There can't be a book on it. But it's one of those trading reality things that I think some of you who are kind of just starting out should know ahead of time, know what you're getting into. Because the minute you take your eye off the commitment to your craft, you're really downshifting, right?

• 8:19Speaker 00

  And to me, when you say, well, let's just see how it goes, waiting is a form of slow quitting. So don't bullshit yourself. You know, this is about, this is all about reality. You're going to do a lot better the more you can deal with the reality of the situation, and then program around it, you see? And succeed by addressing the reality of the situation so that you can make it work and create some ecology for yourself, so that you can have success for the time constraints and the commitments that you've already made for yourself. Thanks very much for being here, I'll see you tomorrow.