Do this to optimize all trades

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• 0:00Speaker 00

  Hey everybody, it's Michael Martin. Thanks for being here. Hey, quick thing. I noticed in my analytics that a little, a little less than half of you aren't subscribers. It would help me learn a lot about you because I get demographics and all that kind of information. If you would click subscribe, that goes into my dashboard. It helps me figure out a lot of things, especially what's the best content that I could create for you, right? Because there's no reason for me to sit here and blather on. So, thank you for that. You can, if you hit subscribe, you'll get the updates from the new episodes and this and that. So, a question came in or comment on, on an earlier video and said something about, "Hey, if you're looking at 5 to 1 or 10 to 1,

• 0:43Speaker 00

  you're probably looking, not looking at 15-minute bars, you know, in terms of that asymmetry." And it's not necessarily the case. I think, when I say asymmetry, you know, you're looking at a chart in whatever your favorite timeframe is. What you can do is, take a look and see, okay, for my R, whatever that is, that'll be your 1, right? Your 5 to 1. It's your 5 to R is really what you're thinking about, right? So, if, if you're a scalper and you're, and you're risking 10 cents because that's what your firm has mandated that you can lose, or that, you know, if you have, you know, $100 per day as your max loss,

• 1:24Speaker 00

  and if you lose 10 cents on 100 shares, you still have, so that's 10 bucks, right? But you still, so you'll still have more buying power for the rest of the day. What I'm kind of getting at is, if 10 cents is what you want to look for your scalping stop, can you see that there's 50 cents or so upside in, from where your entry point will be? So, I don't think it matters. Like, swing trading, it's the same thing. You might see a swing where I got, you know, a 1 to a 5-day hold, and I might risk, say, 50 cents on this particular thing. Can you see 250 or better to the upside by looking at the chart? Like, where has the thing been? If it's near historical highs, right, or multi-year highs,

• 2:07Speaker 00

  then your upside has, has much more room. I'm not going to say that it's unlimited, but it's much more feasible.

• 2:15Speaker 00

  Right, so you can look and see like, okay, we had a stage two uptrend, then it went, which is it this way, stage two, then stage three, stage four comes down, stage one consolidation, look for where that breakout is and see where, where has the thing been? Right, so if you have a stock that is consolidating between, say, seventeen and twenty, and it's been to thirty-five, you can figure out like, okay, if this three-dollar trading range, I can either use a percent-based stop, you know, and get knocked out, I can use a three-dollar stop and put it towards support. So can I see fifteen bucks to the upside? Well, yeah, if it was at thirty-five or forty, right? That's twenty, fifteen, twenty bucks above.

• 2:58Speaker 00

  Then I can calculate, you know, my, my stop based on what the chart looks like, right? And then create the asymmetry that way and adjust my position size to obviously make sure that I keep my losses well within the, the parameters that will keep me financially solvent, but also not wanna, you know, freak out and throw my computer across the room because I took an outsized loss. So I don't, I don't think,

• 3:24Speaker 00

  I think it makes sense to use a consistent bet size when you're starting. This way, it kind of keeps you humble and it also keeps you sober in that if you think there's a sure thing or you have a really good feel. In all due respect, at the beginning, I wouldn't rely on those. I would make a note of it, but I would, I would, I would try to trade the things small. But this way, when you see the potential for asymmetry like this, like say you saw after, and it might be hard to do admittedly if you're only looking at one instrument. Or if you're just one of these day traders who look at stock index futures, you might not be able to see it on any particular day. It might show up once in a while.

• 4:07Speaker 00

  So you have to be a little promiscuous with your thought process and maybe scan a few hundred names to be able to find, you know, what you're looking for as far as asymmetry. The reason I look for that and I advise newer traders to look for it is when you have a five-to-one payoff potential.

• 4:25Speaker 00

  Your need to be accurate drops precipitously. If you have a one-to-one payoff, you need accuracy, what, 70, 80 plus percent? For that thing to make sense and it's not realistic for you. Like, look, some of you, there's maybe two of you out there that might have a phenomenal sense of timing. By all means, do it that way then. You don't need better than one-to-one. But in my experience, it's hard to be accurate to that level for a very, very long period of time. So when you find the asymmetry, where you have asymmetric payoffs, that's what that means. Like, I can get, I can make five of my R as a potential. Doesn't mean it's gonna happen all the time. My act, my need for accuracy drops. In fact, if you do the math,

• 5:10Speaker 00

  with a five-to-one payoff, I can be accurate only one in five times and still make money. Now, I can't make a living with that at a 20% accuracy and a five-to-one payoff, but the key is, I'm not losing money. I'm not going into drawdown. And what you don't lose, you don't have to earn back. So now it's like, okay, the market sucks. I got five-to-one payoff. I'm only, my accuracy is dropping, not because I'm a crappy trader. It's the market's not amenable to my particular trading style. So that's where this is going. It's not like to be greedy. It's more like, I'm doing this almost as a defensive measure, where you look at five-to-one or something like that. Because if five-to-one is seeable on the chart,

• 5:54Speaker 00

  it, to me, it makes three-to-one much more feasible. And if you ran a book with three-to-one payoff and even 30 to 40% accuracy, you're gonna make money. So you can use that as a go-no-go kind of a filter, you know, depending on your timeframe. So that's really what I was getting at. But I don't think it matters, the timeframe, because I think you get to choose that. And by choosing whatever your R is, right? Or whatever the one part of the five-to-one. So if you're risking a nickel, can you make a quarter? The math is fourth grade math. You could do it in your head. So that has helped me enormously. I didn't know how to articulate it at the time. But over the years, when I look back, like, that to me is almost a saving grace for me.

• 6:38Speaker 00

  Is that I, you know, because it was too expensive going to, you know, Monday's episode of which decade was harder. Well, it was harder to trade more frequently. Like I said, up until decimalization and the online advent of the online brokers, which put pressure on the wirehouses to kind of cut the commissions and that those commissions got cut for even employees. Like, we didn't get commission free trading. So, um, that, that to me can help you quite a bit in that don't get excited about the ideology about whatever it is that you're looking at, whether it's, you know, biotech, or if it's an oil service company, you know, you know, we're talking about correlations

• 7:19Speaker 00

  coming up and, and how do you know whether it's like, you know, is Valero Energy up because of crude, right? Because higher crude prices could mean more profits. But what's going to happen when the Strait of Hormuz opens, for example, and there's downward pressure on, on crude? So at any rate, I would, I would look to those things, you know, given, given yesterday's lesson on having an answer for every potential outcome, then knowing your five to one payoff, if it exists or more for the timeframe that you're trading, you're going to have gone a long way to have answered a lot of questions to help you filter

• 8:04Speaker 00

  without actually having to have a screener. You see? And that puts, you know, that's free. You know, that doesn't cost you anything. Now, there's, there are screeners out there that can help you, you know, and some of you might be part of trading firms or, or pods or what have you, where you have other resources. That's great. But again, that didn't exist when I started. So I had to carve it all out of stone myself because there wasn't no such thing as a pod when I started, right? There weren't really prop firms. There were, there were, there were, the prop firms were all professional, you know, in that it was like D E Shaw, the Bear Stearns prop traders, like there weren't, it wasn't, if anything,

• 8:45Speaker 00

  it was, it wasn't even a cottage industry. It was like a desk inside of a bigger firm. There were very few companies that were doing it, you know, on their own that way or, or had, but would provide opportunity for so many of you like you have today. That's a much newer, newer, newer, um, thing. Anyway.

• 9:07Speaker 00

  You can read about and hear all about that in the Inner Voice Trading. I give away the audiobook version of the book. Go to Trader Mindset, you can get it for free. Thanks to you all for being here. I appreciate you. I'll see you tomorrow.