The emotional intelligence of reciprocity

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• 0:01Speaker 00

  What up, what up? Hope you're doing well. So there's, there's a lot of emails and requests to require, uh, record videos on those. I'm gonna try to get to as many. There's a lot that overlap, so I will give you a shout out, you know, via email and/or on the YouTube channel, but there's too many to list. Um, I want to talk about relationship status again. When we manage risk, you know, we do that in all areas of our life. We do it with our employment. We do it with our spouse or loved one. You know, you do it with your kids. You do it with your friends. And the best relationships to me are ones that are based on reciprocity and there's also some give or take.

• 0:45Speaker 00

  So when you think about like, I get a question a lot, Mike, how do you deal with losses? And it's like, you really can't tell when I'm making money or when I'm losing money because I'm, I'm always generally placated. I just don't care, you know, to be, right now I'm in, uh, hang on. I'm in a 2.1% drawdown right now. I don't care. Doesn't bother me. It doesn't, you know, trading losses and drawdowns, they don't affect me emotionally like they did when I was starting. Why? Well, for one, I got a lot of experience now and I know that I'm just one trade away from, you know, making it back the way I look at things. You know, I'm looking for, you know, five to one payoffs. And if I don't see that, I don't put the trade on. Like that's a go, no-go rule for me.

• 1:30Speaker 00

  I don't need to be right. I don't care about that. I'm really just looking for those types of setups where the payoff is just stupid money compared to what I'm risking. Like as I say to my trading pod and, and some of my closer friends, Victor, I'm risking a dime to make 10 bucks. That's kind of how I look at it. And I don't think that's new, right? I certainly didn't invent it. I invented it for me, my way. But I know that there's a lot of people who probably even better traders than me who, who have mastered that. Um.

• 2:03Speaker 00

  So about the relationship part, you have to remember that some days are giving days, where you don't feel like you're getting attention, you're not getting the love that you need, you're not getting enough sex, whatever it might be.

• 2:17Speaker 00

  And then there's other days where you're like, man, I'm spoiled rotten. I have the best friendships. I have the best partner out there. And that's kind of the ebb and flow of it. Every day isn't gonna be, you know, gimme, gimme, gimme, gimme, gimme, right? That's, that to me is not a healthy way to look at it, unless of course you're a narcissist. And then, you know, by all means, just keep, keep being you. But that's a hard, you know, people catch on to that after a while. And I jettison those people out of my life. You know, there's a lot of people who are like, they want to start sending me emails and start making like we're friends. And I know what's coming next. They want free coaching. And I just don't do that. I just don't have the time for it.

• 3:00Speaker 00

  And two, there has to be an exchange of value. If you, if you value my time and my insight, I'm doing what I can here. Granted, I had a window of time off, but I have to take care of myself because there's no one else to do it. And then I can come back when the timing's right. And, and you know that there's, first of all, there's a gigantic library. It was on 1,500 episodes between the audio ones that don't have videos that you can get on Spotify. And, you know, say, Apple Podcasts that go back to, say, 2017, sometimes go early. I've had podcast episodes starting in 2005 when I was doing more book review stuff.

• 3:42Speaker 00

  Now, so I want you to think when you put on a trade, there's some days, like when you have a relationship with the market, there's some days where you're gonna give and there's some days that you're gonna get. And you, that's how you start to learn to let the water go, go off your back like a duck's ass, basically. And just learn to chill and not internalize the losses. I'm gonna say this, and I'll, look at me. Losing money says nothing about who you are as a person. And two, it says nothing about how good or bad you are as a trader. What can give you insight is what does your equity curve look like?

• 4:18Speaker 00

  Right? You can make a lot of money and then give back systematic attrition of capital. Then boom, it ramps up again. Like you can learn about yourself if you study your own behavior. I mean, that's what I had to do. I didn't have a choice because there was no one else, no one else there to help me. Right? There were books and there were like a handful of people. But the folks that I knew that were trading were mostly execution people. They were not really managing their own money as they were executing. Well, there were some, there were some floor traders in like coffee, sugar, cocoa, COMEX, NYMEX that I got to know that were running their own books and managing money that way. But you know, they were like, look, on, on the days that I have to give,

• 5:01Speaker 00

  and this probably doesn't work in relationships, mind you, but it's like, okay, on the days that I want to give, I'm going to give nickels away. Nickel, nickel, nickel, nickel, nickel. And then on the days that I win, I'm taking quarters to 50 cent pieces. Like that's how it has to work asymmetry. Right? So that's how you start to learn to cope with perhaps what could be, you know, your 50 to 70% frequency of losses is that the 70% of the time, you're, I got a sunburn, so I'm a little itchy.

• 5:32Speaker 00

  You're just giving away pennies and nickels, but you're taking dimes to quarters to 50 cent pieces. Right? Those will probably be less frequent. Right? And then if you're adding to your winners, you're waiting for those opportune times when the, the market's let out a little gas. And then the move is resumed back to the upside. But that might help you start to think about, you know, your relationship with the market and how you perceive yourself as a trader, how you perceive your ability. Again, think about giving away nickels to make quarters.

• 6:05Speaker 00

  Right? And that'll, that you can do the math. And then think like, you have to be in it and you can't internalize it. I would probably review, you know, maybe quarterly. Some people look at it every day. I think that's a little too much because on any given day, it's awfully difficult to know what the hell's going on day after day. But maybe like,

• 6:28Speaker 00

  At most weekly, and I believe in doing postmortems and stuff, but people have gone off the deep end with analysis and stuff. They're spending four hours doing analysis and postmortems and stuff. And the easiest thing to do is just chart your equity curve. Right? Because if you look, think about it. I also tend to cut away people who are negative. Like, got some neighbors and they're like, I hate this guy and this politician. I hate this guy, hate Gavin Newsom, I hate Newsom, hate all this and that. And I'm like, fuck you coming to me in the morning. The first thing you say out of your mouth is how much you dislike some other person. Like, why do you think I would care about that? And that's why would you want to bond with me over your dislike for another human being?

• 7:12Speaker 00

  So completely, you know, no emotional intelligence whatsoever and kind of tone deaf on how to deal with people. So I'm thinking like, okay, I just got to jettison that out of my space. And I don't want the negative feelings of my trading to infiltrate going forward. Right? Those trades. So what I'll do is I'll look at my equity curve and just kind of see, okay, if I'm having bigger swings, maybe I have to cut my position size. Or if I'm having bigger swings, maybe I have to get out of like the semis, for example, and switch, right?

• 7:50Speaker 00

  You know, we'll get into this a little bit more going forward. But remember, two lower prices don't, it doesn't mean better value. It just means lower market cap, right? Now, in the case with Micron, they had really good earnings. So you can let that kind of go. But remember, good fences make good neighbors. So be, be kind to yourself and think about,

• 8:16Speaker 00

  how do you actually measure your own success? Because part of it is going to be like, in a relationship, you got to give something to get.

• 8:25Speaker 00

  And I tend to look at my equity curve. And then when I look at the postmortems, it's more like, okay, did I do the best that I could for what I knew at the time? I don't want to start overthinking things and start bringing in the Monty Hall thing. And like, I got to switch the doors now. Like, I kind of have my thesis, I go with it, and I know where my stop is. If the stop gets hit, I could always get back in. But I don't want to start renegotiating things because how I feel about being smart or how I feel about losing money.

• 8:56Speaker 00

  And that's what makes that a very genuine process. Is know that you're gonna have to give away nickels to get the quarters that you want, or better, right? That you're gonna have to stay with the risk and take it home overnight, right? That's another thing that came out of Market Wizards is they all kinda came to understand that the money is made, the risk and reward, right? There's the emotional risk and the financial risk. And part of the emotional risk is how do you feel about taking risk home overnight? Cause that's how you get paid, right? So I think that's, those might be some good examples of how you can kinda go to school on yourself and just think that you're in a relationship with risk and the market. And on some days you have to give, some days you have to get.

• 9:38Speaker 00

  But just make sure, and again, I don't think this is gonna work in friendships or romance, but make sure that on the days with the market that you give, that you have a set determined level and then that's it. Now you could take that a step further and say, not just on a per-trade basis, you could say on the day. I know a lot of day trading and prop firms have daily loss limits, weekly, monthly. I think it'd be a good idea to have some of those in mind. Anyway, thanks for being here. Don't forget to get your copy of the audiobook version of The Inner Voice of Trading at Trader Mindset.