Trading psychology of holding winners longer

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• 0:00Speaker 00

  Hey everybody, it's Michael Martin. Thanks for being here. So shout out to Dynamite D on YouTube. Left a great question and comment on a video called "Overcoming Your Fear in Trading." Brilliant vid, thanks. Can you please go into managing the psychology behind holding large positions over a longer timeframe? So you have to do like they say in any of the 12-step meetings, you have to love with detachment. Right? I don't get emotionally invested in the outcome of pretty much anything. All I can do is control my own behavior. I get filled. Let me give you a real example. I recently got in off that Cup and Handle on Intel. And it was a starter position. After the first two days, I was up about 1.25%. I moved my stop to breakeven.

• 0:45Speaker 00

  And some of you might look at me and say, "You're an idiot. You should be getting out. You should sell half. You should do this and that." But it only was like 1% to my portfolio, so that's not a number that I care about. That to me is a starter position. It's like going to the restaurant and I get the bread and the menu, maybe the water. I don't drink, so I'm not going to order cocktails. But I haven't even gotten to the appetizer section yet. So I don't want to get a big hard-on over a small gain. Now, if that's a big gain for you, awesome. We're all built differently. My fingerprints are different than yours, right? Not, one isn't better than the other. But for me, I don't want to be active every day. I don't want to be doing, I haven't, you know, engaged with bots yet.

• 1:28Speaker 00

  Maybe I will. I like the idea of having orders on the floor so that the market comes to me. But to sit there and to try to do that manually, like, that's old-school. Old, like, and also not appreciating the technology. I don't want frenetic activity. I'm frenetic when I paint. I'm gestural, you know? Like, if you watched me do this over time, this wasn't done in one day. But it's very physical. It's gestural abstraction. So it's a fight, you know, it's a fight with the paper or the canvas. This is paper. So I let go. I don't care about it, right? I care about where I put my stop. That's all I can do. That's the best I can do. So you have to let go and surrender.

• 2:13Speaker 00

  When you get into the bigger positions, you have to say, "Okay, 5:1. I could risk a dime to make 50 cents. I could risk a quarter to make $1.25." It all comes down to your timeframes. I start with a nibbler kind of position, right? That I plan on holding till December. Now, I could very well get knocked out for, had a breakeven. And I'll just come back in and get in again. Why? Well, I don't know how low it can go. I don't know if the move is a psych-out, you know? Or it's not a false breakout. Once it breaks out, it's a breakout. But I don't know if it's going to challenge, you know, 140, which would be, I think, an all-time high. So I've made a lot of money at all-time highs. So my goal here with the Cup and Handle was to get in for a starter piece, right?

• 2:58Speaker 00

  And by starter piece, I mean I have 10% of my, I don't have margin. I have 10% of my account in that name right now. And that's a starter piece for me. Emotionally, I might switch to options if I get too big, right? Because you don't want to have half your account in the name. I do subscribe to the Michael Marcus, Stanley Druckenmiller style of having more concentrated positions that you watch. But you have to understand that if I get in at 105 to say 110, by the time it gets to 140, I have so much in unrealized gains. I'm not afraid to give some of that back. I'm not looking to take a screen grab and send that out

• 3:39Speaker 00

  like a Massengill DB on internet to get praise. Like, that would be mortifying to me. Like, think about it. I'm 60 years old. Why would I peacock? Like, what's the matter, bro? You're not getting enough attention? And it's not the ethos of this channel, right? So the concept of holding the large positions over time starts with the premise that I'm starting with a speck of sand and I'm trying to build a beach. I might not get there. But I don't cannonball in, and I do sell everything. When it's time to go, it's, "Bye-bye. Get out the house. Don't come in for a cup of coffee or an extra nightcap or one for the road. It's time to go. I gotta go to bed. I get up at 4:35 every morning."

• 4:23Speaker 00

  So I will nibble my way in over time and then reinvest my gains into my protective stop for the entire position. I don't scale out because I don't, there's no, I don't have any special emotional intelligence around regret. I don't have regrets. I always do the best that I can for wherever I am in my life. I don't have regrets. I ask the girl for the phone number or some way to keep in touch. You know, I don't take chances with the law. I don't speed. I, I'm pretty boring in that regard, you know? I'm very white-bread. I put my orders in, I got my protective stops in immediately. Usually good for the day.

• 5:04Speaker 00

  I'll watch overnight if it's futures, because it's much more liquid now. But I scale in and then I keep adjusting my protective stop up. One way to think about this tactically is like, look, if you were going to risk, say you had 100K, you could risk $1,000 on every trade. Well, you can always set it up, even if you buy more, right? Into the position, you can always have it so that you have only 1% at risk at any given time. Right? You can do the math. Now granted, if you had double your position, you have to adjust the distance between now where the market is, what your average cost is, excuse me, and then where your protective stop is.

• 5:48Speaker 00

  So that means, you know, you have to be mindful of where the ATR is, because you don't necessarily want to get knocked out from noise. Two, I, I talk out of both sides of my mouth, which is hard to do. What do I mean by that? Well, depending on where you get in, like with the Cup and Handle that you saw on Intel, that's textbook, right? That was a textbook chart pattern. It was a little deep on the cup part, but it is, it is what it is. You don't get to, it's, that's the way God wanted it. So you don't get to bitch and bellyache about how it plays out. So at that point, on the initial piece, it's straight-up percentages. Some of you might say, "Well, I'm going to trade it smaller because the percent for me is too big. I'm going to look at dollars, right?

• 6:33Speaker 00

  And see, that might be more affordable, right? Maybe it's going to be less affordable. It really depends on the pattern." So you could say, "Well, if it takes out the bottom of the cup, that's where I'm going. That might be more than 1 ATR, so I'm going to trade smaller shares or fewer contracts if I'm buying my calls or selling puts or whatever I might be doing." And then it's like, okay, the activity starts to unfold. You have to, you know, you have to look at the structure and the percentages. But what I mean, I'm speaking out of both sides of my mouth, is that I will absolutely vacillate between percentages and structure if the structure is there. I always want to improve my exit. So if the structure gives me a better exit, where it creates a base, like in a stage-two uptrend, right?

• 7:18Speaker 00

  You can have four or five bases, typically max, in a Weinstein, Stan Weinstein, stage-two uptrend, right? So you can accumulate more into, after the breakout, and then say it creates a base. Well, you can look at the bottom of the base then as your support. And then see, okay, which is better now? Is, if it takes out like 5 to 10 days, depending on how big the base, how many days in the base, the more, the more days then, the more significant the support is, right? As opposed to two or three days, which you could look as like a swing low.

• 8:01Speaker 00

  So you look, you know, 10 days, five days, 10 days. You can say, "Okay, well, if it takes out this low, I could get trapped, but I don't know that it's not going to come all the way back and maybe retest the moving average." At which case, you can use a continuation pattern to get back in. We talked about that. So the idea is, is just to always define your risk, right? As I've said before, I've been in documentaries, I've been in TV, I've been on other shows. Like, if you don't define your risk, it defines you. So you just want to always be, I think Paul said this in the Trader documentary, you just got to always be trading and managing your risk. Like, I don't want the activity, my activity is more like a spy behind the scenes. I'm adjusting my stops all day. Like, that's the activity.

• 8:46Speaker 00

  It's not to act, I don't do anything at the market. I'm either buying as the move continues with buy stops above, not stop limits, just buy stops. And then I have protective stops underneath my position. So that if the market reverses quickly, you know, I'll get knocked out. How much am I going to add? I don't know. I think a lot of it depends on the behavior of the instrument. It's a relationship, right? I'm in a relationship now with Intel. But I know that it's eventually going to be a spouse that cheats on me. There's going to be a day when the thing just doesn't about-face. The point is, I'll be there to puke the whole thing out. And it's liquid enough to take my entire order, probably with minimal or very, very, very little slippage and skid. It's time for a tea break.

• 9:35Speaker 00

  This is Teepigs, English Breakfast Tees, great. I don't have a relationship with them. So then you let the market activity unfold. Your stop is standing sentry. You don't have to look at it. Right? You don't have to look at the market. The stop is there, it'll take you out. And if I get knocked out, my next step would be to, you know, let it consolidate maybe? Or, most likely, see like, how does it behave for like, a continuation pattern? Because you are gonna have sometimes those herky-jerky moves that wing, you know, knock you out. And so, you know,

• 10:12Speaker 00

  I can't speak much more about it. I've also, it's kinda like, let go, let God. Like, I don't get emotionally invested in the outcome. I've already, if I retired, which is something that I think about a lot, because I really just wanna paint and write anymore.

• 10:26Speaker 00

  I love to teach and give back and help the new, the new generation. I have already had all the success in this business that I'll ever need, okay? I've had a blessed life. I've met the best people, they've mentored me. I had to learn it, learn it on my own. And so, at the end of the day,

• 10:45Speaker 00

  if, if Intel goes to 300, I don't care. I just don't care. If it goes to 140 installs, I don't care. And it's the same feeling as if it goes to 300. That's where you have to learn how to placate yourself. You can't be like, okay, I buy stock, stock goes up, therefore I feel good. I buy stock, stock goes down, I feel bad. That's ridiculous, that's immaturity. That means to me that you don't understand how to run money. Because it's like, you're, you know, thanks for the gumbo, Mickey, like, we can't... It's not to receive pleasure. This is a, this is a game of discipline and affecting your rules as an overlay to a market full of daily chaos and mostly randomness.

• 11:27Speaker 00

  And if you can find a way to kinda see something through your own calculus to exact money out over time, then you'll be in the 1% that make it. For me, I don't wanna turn trading into blue collar despair. I've mentioned that a thousand times. You know, my life already growing up was like a Raymond Carver short story. I don't wanna live it now that I'm 60, dig it? So, I wanna make as much money as I can for doing as little work as possible. That means I don't wanna sit in front of the screen. If I grew up in New, you know, um, not grew up, but if I was in New York and I had better access to say where many of the, the legit prop trading firms were,

• 12:10Speaker 00

  then it would make sense, because there's a community, there's an office. I wouldn't work remotely, you have to be in, you know, in a, among a group of people. And then, yeah, we would set some ridiculous goals to say 10 XR accounts, that would be great. But, I'm in Los Angeles and that community doesn't exist here, right? People go to law school, then they go work in the mailroom for 25 bucks an hour. It's the most amazing thing, um, at like, an agency. Then they become assistants, and you know what you do as an assistant? You're not necessarily listening to phone calls. You're, the agent you work for has his or her parents coming in from Westchester County, New York, and you have to book the car to get the parents to wherever they're gonna be staying.

• 12:54Speaker 00

  Right? Or, you need to go to Whole Foods to get creatine supplements for the person. Like, there's, it's more of a personal assistant job, it's a ridiculous thing. So you're sitting there with a law degree from USC or UCLA, and you're doing, you're not doing anything that, related to the entertainment business.

• 13:16Speaker 00

  So that's a different, that's, that would be a different game. If I was in, more around the culture of, you know, traders. It would also be good, because that'd be closer to like, the art community.

• 13:28Speaker 00

  You're watching this on Monday, right now, I'm actually, well, not right now, but by the time you're watching this, I'll be in New York.

• 13:37Speaker 00

  And I'll probably be on my way to MoMA. And then maybe, I think, the Whitney, I'm gonna try to hit both of those, just to kinda see.

• 13:46Speaker 00

  So you have to, to me, it's about detachment. You can't, if you're trading bigger with bigger positions, as long as you can define your risk, then there's no damn problem. Two, if you trade bigger and bigger and bigger, but you always have 1% risk on, then what's the problem? Because it's the same 1%, your account might be bigger, right? If you take 100K to 120, you could still risk, you know, 1%. So what is that? 1,200 bucks? Because now you're indifferent. Well, it's the same 1% that I had when I put the trade on. Why does it become a bigger deal? Because I have 20,000 of unrealized gains. You gotta chill.

• 14:24Speaker 00

  If some of you are old-time football fans, you might remember, a running back came out of Pitt, named Tony Dorsett ran for Tom Landry at the Dallas Cowboys. I was a Steeler fan, I was a center, so Mike Webster was, was the guy's best center ever. But, they asked him one time, like, when he scored a touchdown, he would literally just drop the ball in the end zone. And they, someone asked him in an interview, like, Tony, how come you don't spike the thing and do the funky dance? And he's like, dude, I've been here too many times to have to keep doing that, right? You got, you gotta act like you've been there before. And so, the same thing with trading is like, just get used to making big gains. That's the whole reason why you're putting the thing on, right? You don't wanna make a million, 25 basis point, quarter point wins. If you're scalping, that's the game, that's different, though.

• 15:09Speaker 00

  I'm talking about taking risk home overnight, position trading, you know, working into things that are gonna be as, at least as much, if not more money, but much less work. Less manic, frenetic stuff. I don't want that in my life. I want peace and calm. I drink decaffeinated coffee in the morning. I don't want the jitters and the leg that goes a thousand mile an hour that could, you know, power the city of LA. Anyway, I think I made my point. You just have to be able to define your risk, and then you won't have to worry about how big the position is. If you're trading liquid enough names, I'm not talking trading market caps at, you know, before now, you know, in the pre-market with rug pulls. If you're trading big liquid names, you know, that have a lot of, you know, a lot of healthy options market,

• 15:54Speaker 00

  and, and a lot of liquidity, you'll get good fills, don't worry about the spreads. You know, just focus on where you're gonna put your protective stop. And then let it go. And then get used to making big money. Right? You have to figure out, right? I talked about the coaching, we have a cohort coming up. One of the first things we're gonna talk about is, okay, we're gonna look at entries, but when we look at the exit part, we have to discuss, like, what's the point? Like, what is it that you want your money to do for you? Do you wanna be the trader who's right all the time? Because you need that validation for your ego? Or do you wanna sit back, have everyone think that you're a jackass, like me, and, you know, make bigger gains? On a per-trade basis, you know, wherever the market's gonna go and reward you over the course of the year.

• 16:39Speaker 00

  Look, some years you might make 20%, another year you might make 200, doing the same thing. That's just the way it works. You know, you can't go and fabricate that. That's just market dynamics.

• 16:52Speaker 00

  So, so put it in your mind, like, what is your intention? And then manage the risk accordingly. You don't have to freak out, like, so, so I'll close with this. If you have a position that means like, 5% to your portfolio in terms of return, so you have 100K, you put a trade on, and now your account's 105, because of one position. The way my mind works is, like, I don't care 104, 105, 106, it's all the same to me. I don't worry about that and say, man, I didn't get out with at least 105. I don't have those kinds of goals. My goal is to read the tape, follow the market with some judo, or jiu-jitsu, mostly judo, though, and say, okay, where are the forces? Right? Because when the force is too strong for me, I've gotta flip or sweep, and then stay on top position.

• 17:38Speaker 00

  Which means I have to put in my stop and get knocked out. That's, that's fine, I can always get back in. So I really look at the market forces and say, okay, what am I prompted to do, given the market forces that exist today? I don't know what's gonna happen. I can't manage risk in my portfolio today, based on what I think is gonna happen next week. I only have, you know, the ever-evolving moment of right now. See? So I think if you start to incorporate that mindset, right? Because the rules are easy, you put in your protective stop. But that's the easy thing to do, it's like filling out the fields in an email. The hardest part is like, to put in your stop and to stop beating yourself up over it and second-guessing yourself. You have to stop that. Because you could be 20 years old, you could be 85 years old.

• 18:23Speaker 00

  You'll, you'll have enough data, after the fact, to second-guess every single thing that you do in the market on any given day for the rest of your life. So you gotta let it go. You have to figure that, you make the best decision that you can for the information that you have at the time. And then the rest of it is just mind effery. You know what the F stands for. Anyway, I love everybody here. I appreciate you being here. Check out the link below, if you wanna learn more about the cohort. I'll see you tomorrow.