How chasing trades only leads to sadness and anxiety

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• 0:00Speaker 00

  Happy Wednesday, everybody. It's Michael Martin. Thanks for being here. So I hope you enjoyed my little tribute to Rush and of course, my interview with my good friend Jared Dillian. He's great. Book came out yesterday. So I got a really good, good email from someone who didn't want to be mentioned by name. So I'm just gonna call her Juanita. Right? Isn't that the old joke? He's got a little black book just for women named Juanita.

• 0:32Speaker 00

  You missed the trade. You've been watching it all week. You've been watching it for weeks. You knew the setup was gonna be there, but you were watching it.

• 0:41Speaker 00

  Then all of a sudden, it breaks and you're not there. So what happened? And what do you do now? Man, this happens a lot, right? You have your screens. It shows up, but the chart's just not there yet. And you kind of want to do the terrible, worst advice that has killed more traders than anything else on planet Earth. I'm just gonna wait and see what happens. Right, so let's talk about what you can actually do and what you're actually feeling, right? Because there's always two parts to it. I've tried to focus mostly on the feelings part because that's the hardest part. It's also why I don't have 150,000 followers because they all want to watch charts. But that to me is the easy part.

• 1:24Speaker 00

  So when I think about why you missed it, it's because you don't have a system set up. You have the screening part, but then there's that tween part, right? Where you're kind of going through the puberty of it and then you're gonna go into young adulthood, so to speak, as a trader. So what I do is I don't have a list that I keep. I don't have a market minder, right? I put in an alert and it tells me like, okay, when this stock gets into this neighborhood, now I know I have to put on the coffee or the tea so that when the company shows up at the front door, I'm ready. You know what I'm saying? So it's always like, text me when you're close, kind of a deal.

• 2:04Speaker 00

  So this puts me now into, I have to take action mode. If you don't have an alert in, or an order, even better, you're gonna miss. You're gonna continue to miss. Because there's no bridge from where you're going and doing your screenings and how you're getting the names in the first place to execution, which is how we make our money. So I want to help you with that right away.

• 2:32Speaker 00

  It also could mean a lack of conviction. You have something that looks like a cup and handle, but it's not quite finished. And there's no rule that says anytime you see that first part of the cup, then the handle has to be there. The world doesn't work that way. So you have to anticipate that things might not go as clearly as you would like them to. That's what we call life on life's terms. So what I try to do at that point too, is to set up an alert. I usually put it slightly above where I think the handle's gonna form, using the cup and handle, for an example. And then this way,

• 3:13Speaker 00

  if I find that thing starts breaking out to new highs, my intuition tells me this might be one of those cases where the handle doesn't actually form and the thing's just gonna start making new highs right away. At that point, I put in a buy stop. My buy stops are normally above the market. I want the market to trade into my order and I don't want to chase. Chasing is bad. Chasing is what happens when you're not prepared for the move that you think is gonna happen, right? So when you say like, oh, I just want to wait, I just want to wait. Now, investors do this too. They're like, well, I know the thing's down 20%. Let's just see how it goes. This is how you lose a lot of money. So you have to take action.

• 3:58Speaker 00

  The one thing that day traders have over everybody else is that they have a finite amount of risk. It might be 2 cents, it might be 20 cents. But they know where their exit is and they know they're not taking risk home overnight. I'm not saying that's appropriate for everybody because look how much money investors make by taking stuff home overnight. So you have to figure out what's best for you. But chasing is really the lack of kind of conviction in that after I screen to the point where I put my order in. So let's fill in that blank so that you don't find yourself missing out on trades, sitting there, kicking yourself, feeling like an idiot. Because I can assure you, until you take action, it's not gonna go away.

• 4:42Speaker 00

  Right? It's gonna keep being there until you deal with it. That's how the markets work. They're always morphing and trying to kill you to take your money and to make volatility, like Jared said, volatility makes people do stupid things with their money. And the last place you want to be is to be smart enough to have the damn name on your list. And I don't care if you're scalping it or whether you're gonna try to build into a position more my style.

• 5:11Speaker 00

  You've done the heavy lifting to kind of get the name on your radar. Now here's the problem. Some of you don't bother putting in alerts because you have too many names on your list. So for those of you that have, I don't want to say the number, 30, 30, 30, 25 or 30 is too many. Cut it down to the ones that are gonna move now, like what's the catalyst, right? Because a new high doesn't really mean much unless it's a historic high or a 10-year high, something like that. If it's making a new weekly high, that's not a catalyst. That's not a material number, right? Two, the other thing that they don't tell you about volume is that the volume's only gonna show you at the end of the day. Right? If you have, I mean, look, if you have, say, 30 to 50%

• 5:58Speaker 00

  of the normal volume, trading in the pre-market, you can expect the day to be big, right? There's something going on there, even if you can't see the news headlines. So that's a good catalyst. Multi-year highs is a new catalyst. A 52-week high is good. If it's coiling and then it's breaking out, that's a good catalyst, right? Because now each time that you stagger up, look, go back and look two years ago at Nvidia before the 10 to 1 split, when it was trading between 400 and 500, right? It eventually gave way at like 505, 506, again, pre-10 for 1 split.

• 6:34Speaker 00

  But it started to coil, you know? It would sell off from 5, this time, the next time it sold only to 450. Then it stopped at 475 and you're like, okay, people aren't letting go of this thing. And we're approaching historic highs. Those are tasty little morsels that you want to kind of get your hands on. So I would cut the list, right? Because that's the pink elephant in the room. Not everything out there is an opportunity. You need to think like, what's gonna move today? Now, when you turn your back on those names, just understand, some of them will move without your participation. The problem though, is that if you have 25 or 30 names going, it's impossible for you to do what you're doing and follow all of those names at the same time.

• 7:16Speaker 00

  So if you feel like you're just not there emotionally, because some of you might be like, I'm not ready for that. You know what I'm saying?

• 7:24Speaker 00

  And you want to just stay friends? Then you need to put alerts in for almost everything. Then write it out in your notebook. Okay, if the alert on Broadcom triggers, here's my action plan, here's my order. That's the best thing to do. It's not like, well, now I'm gonna set another alert. Don't be one of these alert people who are like, ready, aim, aim, aim. Like, it's time to do it or get off the pot. Like, what the hell's the screening for? What kind of emotional need does that satisfy to just be able to screen stuff, but then never take action? Remember, you can buy 5 shares or something. It doesn't matter the quantity anymore. Let that go. Back when I started, they used to have an odd lot penalty. It was 25 bucks. So if you want it to be smart financially, right? Think about it. If you wanted to put on an appropriate amount of risk for you

• 8:10Speaker 00

  that was under 100 shares, they'd actually charge you more money.

• 8:15Speaker 00

  You can't make this shit up. It's unbelievable. So here's the rule. Only one alert. You put in one alert. Pick your spot. And if it gets there, it's because you're, hey, I'm just texting you, I'm 5 minutes away. I'll be there shortly.

• 8:31Speaker 00

  That's it. So the alert tells you that it's now time to put in your order. So then, when you do that, you have to put in your buy stop. However, you're going to trade it. Right? Buy stops go above the market. That's how it works. So, think about that. Like, that should help you segue from, "I'm doing a lot of grade screens," to, "It's time to put the trades on." Sometimes, the chart pattern won't finish, and it'll look something like a cousin of the actual pattern that you want to be involved in. And it's aggravating, too, like, when you're watching it, and it's like, "Oh, it's perfect. It's beautiful. Look at this beautiful cup." And, "Wait a second. Now, it's up 15 bucks, and I'm not there." Why? Because you weren't prepared.

• 9:13Speaker 00

  So, sometimes, when you see the cup form, put an alert in, where you think the cup is going to stop forming. So that, this way, at least, the alert goes off and says, "Hey, this thing might rip in your face." And then, you can have to put on, like, I don't care, put on 25% of your normal position. Right? This way, if it does pull back, and then do, like, some type of amended type of handle part, you're not going to take a bath, and the chart pattern is still holding up. And then, remember that the handle might not look like a textbook handle. It might look like a broken handle. It might look like a short abbreviated handle. It might not have the depth. It might not even slope slightly down.

• 9:57Speaker 00

  It might just consolidate going sideways at the rim of the cup. So that's when you're like, "Okay, I can't miss this opportunity. I'm going to put an order in. If I normally buy 200 shares, I'd rather buy it at the lower part of the handle, if that actually forms. But I'm not going to miss this trade. And if it does break out sharply to the upside, and you're normally buying 200 shares, put an order in for 50. Put an order in for half. Right? And then, sort it out. Then, what you're looking for is, does the volume confirm that everybody else cares at that key inflection point? Because if you see, normally, on my chart, I have, like, a 10-day simple moving average, just to keep an idea of, okay, where is the volume happening at these key inflection points?

• 10:42Speaker 00

  It's a 10-day simple moving average on volume, and the volume, for me, is a histogram, right? And it's color-coded. I'll show you one of these days. I just don't feel like recording my screen these days. It's too much, too much, too much extra to have to interpret. So, at the end of the day, this way, your emotions and your intellect are aligned with what it is that you're trying to do. Right? This way, you won't miss out. Then, you won't feel the need to chase. Now, check it out. We have something in trading called continuation patterns. So, maybe it was your goal to see the thing,

• 11:25Speaker 00

  maybe see the top of the cup was, say, 50 bucks a share, and you were hoping the handle would come down to, say, 45 before it ripped and broke out, you know? In which case, you can get in it, like, you know, 46, 47, 50. No problem. Because we don't know how high it's going to go. And you don't want to sit there and be like, "Man, I got to sniper this entry at 46, 50, and if I can't get 46, 50, I'm not doing it." And then, the thing goes to 80 bucks. And you're like, "Why did I worry about $1.50 when that much money was on the line?" You see what I'm saying? So, don't be penny-wise and pound-foolish. That was something I had to overcome when I was starting out.

• 12:10Speaker 00

  So, the continuation pattern that you're going to look for is the same one that a lot of, you know, the late bloomers have. I call it a late bloomer trade. Is, after the breakout, a couple of things are going to happen. Profit-taking's going to happen. The faders, of course, because they're just built this way, are going to sell everything short. And it's going to eventually catch up to, like, a nine-period exponential moving average on the intraday basis. Maybe, it pulls back to a 10-day simple moving average on the daily chart. You can use either of those, and then, the reflection off of that, off of either of those moving averages as your place to add into your, and make a full position, even if you're paying a higher price.

• 12:55Speaker 00

  Paying higher prices doesn't mean anything other than, you're buying when there's other buyers. And that's important, because, especially, if, at the end of the day, you can confirm that the volume is there, now, you know the institutions were probably stepping up in a big way, and they're the ones who are going to buy on lower prices because they think there's better value. I would, I would think, early in your career, that the mantra that lower prices mean better value isn't for you. Leave that for the institutions. For us, it just means lower market cap. If you're not a CFA, you can't say that there's better value, because, to be frank, I'm not one. You're not one. We don't know what we're talking about. So, let the CFAs figure out what the value is.

• 13:38Speaker 00

  And then, watch what their behavior is. Because, remember, if you've been in any type of romantic relationship, love is what you do. It's not what you say. So, if they really love it, let's see the volume spikes. Let's see 130% of the average, right? So, if you have 10 million shares, that, on that, is where the, in my, in my case, it's a lavender line. You'd want to see, you know, 12.5 to 13 million shares at that inflection point. Now, if it's not there, you just have to be ready to pay superior defense and know where your protective stop is, not just on your first piece, but on everything. And I want to talk about that, too. I don't typically scale out. I'll scale in, but when the party's over, it's, it's bye-bye.

• 14:23Speaker 00

  It's time to go. Everyone's got to go. And so, what I would do is know these things ahead of time. I know I did an episode about this several weeks ago, about having a plan for everything. Put the alerts in, then have a notebook that says, alphabetized, so you can look the tickers up quickly. If my Broadcom, what is that? AVGO or something? Top of the list, boom. If this alert gets triggered, here's what my order's going to be. No questions asked. Now, guess what? I can tell you, there were days and days and days where I put in orders to have things bought above the market, meaning, the current market values here. Obviously, I have my buy stops above. And you can go weeks where nothing happens. Right? If you've watched that, the beginning of that webinar,

• 15:08Speaker 00

  there was early sugar that I got into, and I was putting buy stops in for that, that March sugar contract for six weeks before it hit 12. But that's the discipline that you need. It's like, "Okay, look, I don't know if and when and why it's going to break, but if it does, I'm going to be there." And on that trade, I doubled my position, but I was patient. I didn't buy pullbacks because I didn't know. But that's how you get through it, and that's how you don't have to chase. Then, you'll use a continuation pattern if the pattern that you were looking for, say, a cup and handle, for example, didn't formulate the way you thought it would. Because sometimes, they don't. They look like they have birth defects, if you will. And they don't exactly formulate the way you want them to.

• 15:52Speaker 00

  You can, you can add to the winners after at key inflection points, like those moving. Because, watch what happens. Sooner or later, the thing's going to go sideways and kind of catch up to the moving average. Right? So, you can wait and see, okay, does anyone else pop in there? And if that, if it, if it, if it doesn't work to the 10-day simple moving average on the daily chart or the nine, the nine EMA on intraday's, doesn't matter what kind of bar you're using. One-minute bar's got a lot of noise on it. So, if you're doing two or three at the low end, figure it out. We're going to talk about simulation tomorrow, by the way, because I get a lot of questions on the simming.

• 16:36Speaker 00

  You'll see, you know, sooner or later, the institution's going to pop up. And, and, and if those don't work, if you're watching daily charts, and that's the timeframe that you trade off of, you look for the 10-day first. If you're doing intraday, the nine EMA has evidence of having efficacy. If all else fails, look for VWAP. Not anchored VWAP, but just look for VWAP and see what happens there. Okay. So, those, that's a good rule to help you not, when you miss trades, or you had hesitation, which could be, you know, lack of conviction, start to fill in that plan, because I can assure you, it's not going to go away until you take action and you take a stand. And that means you have to be decisive.

• 17:21Speaker 00

  I said that 1,000 times on the show. Traders have to be decisive. You have to take a, take an idea. And look, if that scares you, buy five shares. Buy 10 shares. There's nothing wrong with that. Just get in the game, because then, now, it's a process. And the process will, you can get used to the process. Then, once you, once you do that enough, you can build the confidence around that. And now, all of a sudden, it could become one of the strongest parts of your game. Anyway, folks, thanks for being here, and I'll see you tomorrow.