Failing to plan leads to negative compounding

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• 0:00Speaker 00

  You know how they say failing to plan is planning to fail? Well, that shows up in trading as well. Hi, everybody. I'm Mike Martin. We talked at the Portfolio Accelerator about having your pre-trade checklist and having a daily plan as to how do you approach the markets. And so what occurred to me was the spiritual side of that because the actual how-to-do part, which we spoke about, whatever that was, on Tuesday, a couple of days ago, it's the spiritual side of it that I think doesn't get spoken about enough. And what do I mean? Spiritual, meaning the emotional, psychological, and what that does to you is if you don't

• 0:41Speaker 00

  have a pre-trade checklist and you don't know about power law and you're not really sure about your model, you just say, "Well, I'm going to figure out tomorrow. I'm going to wait for the opening bell." You know, so by definition, you're going to miss everything, right? Because that's what that means. You have no preparation. You're not doing any scans. You don't know what to anticipate. You're always going to be looking like, "Well, Kramer likes this," or "This prop trader likes this." And so that's my research. That's how I'm going to come across my names. I don't know a single person in the 37 years I've been doing this. I don't know a single person that's made a living. They might have gotten lucky in the short run, but I don't know anybody who's had any

• 1:23Speaker 00

  type of long-term sustained success by trying to pick winners based on somebody else's work. It's true when you're an artist, and I've done this myself, that you get books of Keith Haring and Pasquiat and Picasso or Salvador Dali, and you copy because you're learning the marks. You're kind of seeing how the colors blend. You're looking about light. What's the point of view? You know, and you kind of learn their gestural marks that way. But then you move on and you kind of, as you do that, you're still evolving your own particular style, you know, Cy Twombly, whoever your favorites might be. But when you let yourself off the hook like that, you're also saying, like, what's the

• 2:06Speaker 00

  relative strength of you actually caring about, you know, your model? And it's very painful to miss winning trades. It's painful psychologically, and the opportunity cost on your P and L is absolutely real, right? So when you think about not having that level of preparation, whether it's from the night before, the day of, and you don't have all those things calculated, and what's your why? Or what are the catalysts that matter to you? Right? Price can be a catalyst, right? And/or some other news feature. And there are people who scan briefing.com or whatever some of these other entities are.

• 2:48Speaker 00

  I even know high-frequency trading firms have programs that scan headlines and enter trades based on whether they think that headline could be bullish or bearish for a particular name, and they use that to add or remove risk. So when you're a speculative, you know, day trader, chart reader, that's kind of what you're trying to do just using your human brain. So by definition, you're going to be a day late and a dollar short, even if you're trading on one-minute bars, because the computers are going to work so much more fast than you could ever possibly work, even if you have hotkeys programmed. Doesn't mean you can't have some success, but you're playing in a game that's dominated by colocation of servers and extreme speed and low latency.

• 3:32Speaker 00

  So don't fall victim to missing out trades because of your lack of preparedness. Remember also that the feelings that you don't want to feel have as much control over you as the ones that do. So make sure that whatever it is that's making you uncomfortable, you address that because it's not going away. You know, I mentioned to you, I had gone through the Al-Anon program three times because I had very, very heavy drinkers in my life that I couldn't dissociate with, not family members, but in business. And they say, you know, love with detachment, you know, progress not perfection. But ultimately, when you thought about the person who drank, you know, they said alcohol amplifies your worst character defect.

• 4:17Speaker 00

  I think the market does that, too, and it forces people into either action or complacency. So you have to figure out who you are as a person in that. Because the things that you don't want to feel, the taking consistent small losses, okay, you don't have to do that, but if you do, if you don't, sooner or later, you'll take the mother of all losses. And that's what I mean when I say, "I'd rather feel aggravated and frustrated by getting knocked out of successive trades than not putting in my stop, getting blasted for a massive hit, and then feeling despondent or anger or rage." You know, because that's self-imposed, right? That's self-imposed. That's something that you could have avoided. You just chose not to because you didn't think it was going to happen to you. If you're around long enough, it will. If you're around long enough, it will.

• 5:01Speaker 00

  You have to respect the risk. And if you don't define what the risk is for what it is that you're trying to do, the risk will oftentimes define you. So don't let those winners slip away from the lack of preparedness or the lack of your wanting to address certain issues or you have hesitation. Where's that coming from? Because that'll give you good insight as to what you need to work on. You could always trade down to five shares, right? Because it all comes down to position sizing. If you look at fear and greed, it oftentimes will show up in your position sizing, whereas doing trades at the market might be the impulsive part, the FOMO part, that kind of a deal. I tend to think that the fear and the greed aspect really shows up in your position sizing.

• 5:44Speaker 00

  Well, there's nothing wrong about being fearful because it's like, risk is like fire. It's not necessarily bad, but too much of it could get out of hand. So you have to figure, okay, what's the right diet of risk that I need to take? Because then it's appropriate for me, for where I am right now. It could change going forward, but so that I can get my feet underneath me, here's what I need to do. Because the way you learn to trade is by doing it, right? It's experiential, like anything else. You want to be good at golf? You've got to go to the driving range. You've got to get on the course. You want to paint? You've got to get color and substrate and start making, marking things up and learn. That's how you do it. It's from the doing part.

• 6:23Speaker 00

  So if you leave things in your model that we spoke about even earlier this week, unaddressed, those are big holes. Well, they're holes anyway. They might not be big holes, but in my experience, if there's a hole, it's usually because there's something psychological or emotional that's holding you back that you don't want to address. And I can assure you that that is not going away. You need to go to the feeling and figure out what that feeling is trying to communicate to you, right? I know some guys who tried to trade. They have super-big egos. They're like, you know, "I don't take losses." I'm like, "Okay, good luck with that." You know, "Good luck with that." You know, the market will cripple anybody. Doesn't matter.

• 7:06Speaker 00

  And the only reason why there's people who've been doing this for a long period of time is because they were able to define the risk. And when you're able to define the risk, then you know exactly what the action plan is, right? You know, loss minimization. That is the name of the game. You have to think like you're an insurance adjuster. You can call yourself a trader, right? But at the end of the day, you're assessing risk all the time, always adding or removing risk according to the market activity that's unfolding. So, you know, be prepared and understand what all those feelings are trying to tell you. That's some of the stuff that we used to do and that we do do in the coaching part. It's not going to be so much of the cohort, but in the coaching is, you know, you build the plan around what you can handle emotionally and psychologically.

• 7:50Speaker 00

  And then we work on that so that there's no feeling that you're unwilling to feel, and that makes you very, very powerful. Anyway, check out some of these videos. Click the link below if you're interested in the cohort. I'll see you tomorrow.