What is the hardest trade?

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• 0:00Speaker 00

  Hi everybody, it's Michael Martin. So a question came in via email. "Michael, what do you think is the hardest trade in the market right now?" You know, and, well, you know, buying crude oil at these levels, in that standpoint, could be one. But I think, generally speaking, the hardest trade is sitting on your hands when you're in a winning trade. That seems to be the one that, year after year, day after day, until you can learn the emotional part, to stay with your winners for as long as possible, in accordance with what you want your money to do for you, like knowing what your goals are, that, to me,

• 0:44Speaker 00

  is the hardest trade for most newer traders. Because they want to be validated as traders, and printing big wins, you know, is part of that, because now they have a definitive piece of evidence that, whether they were just had dumbass luck and they were in the right place at the right time, or if they actually have skill and can create alpha, on the other side, we have to take both. I'll be lucky too. Knowing that, and being able to behave around that, is really the stuff that legends are made of. You know, when I think about the trades that the guys in Market Wizards did earlier on in their career, and then the ones I get to see them put on while we were kind of all

• 1:27Speaker 00

  trading together, not in the same account, but we were all trading and sharing ideas, it was how they learned to deal with the uncertainty of everything. It was like, "Look, I got my stop in, that's the best I can do." We never even sat and looked at the markets. It's just gonna be like, that's where it's gonna go. And it's not, I know some of you are gonna say, "But like, Michael, it was a different day and age then." It really isn't. Because if you look at the moves and some of the names that you follow, and how they run up and how they run down, some of you might have taken profits too soon, and had left a lot of money on the table. So you have to go back to the drawing board and say, "Okay, those are very, very expensive trades then, because I did well."

• 2:09Speaker 00

  Like, maybe you made 5% on your account balance because of some particular trade, but if you could have made 15, you got the steak knives, you got the door prize. And it could have been a great trade, right? And it might have meant something for you at that point, but the pain of sitting in the winner became too much. And again, if you start overthinking things at the wrong time, it tends to undermine you. "Undermine you," there's no "D" in it. So you have to think, like, "How can I learn to sit on my hands? What are the feelings that I'm gonna have to feel while I'm sitting on my hands?" Right? What is that for you? That's something that you can learn now, and talk, and think about.

• 2:54Speaker 00

  Like, when you start, you know, when you put on a trade, and this'll happen if it hasn't already happened for you, what happens when you put on a trade and you're normally making, you know, 400, 500, 600 bucks? All of a sudden, you have intel, like, from last week, late last week, it's up 10% in the day, and now, for the first time in your career, congratulations, awesome, I knew you could do it, you have gains that have a comma in it. What do you do? For some of you, it might be a rounding error. But for some newer traders, it's a milestone. So emotionally, do you need that win?

• 3:34Speaker 00

  Like, I started with 5K, so that was a 20% return, now it'd be, you know, 1300, right? Yeah. It would, yeah, well, 2600, the same move, right? 2600. But you get the picture. So what do you do with that? Do you sit on your hands and say, "Hey, it would feel really good to lock in this first big realized gain, over $1,000?" Or, "Over 5K, over 10K, over 25K? Doesn't matter to me what the number is." This is where meditating, and writing in your journal, and thinking ahead, and putting

• 4:16Speaker 00

  yourself in that situation, so that you can feel your feelings, right? What are the future feelings? Right? Because is it better to say, "Okay, I'm up 25K, this would be my first $25,000 realized gain, but there's no reason to sell right here. So now I have my emotions that are affecting my judgment, and I'm putting on trades because I want to feel good." In my experience, doing trades so that you can feel good, there tend to not be good financial trades. Now, for where I am in my life right now, to keep the analogy going, if I got filled at 22K, 25, or say, 28K, it's all the same to me.

• 5:00Speaker 00

  I don't, I'm not micromanaging it. Yes, you can take out a pencil and put it in your spreadsheet and figure out what those actual numbers are. But I'm not getting that fussy over it, because the goal for me is to handle the trade the right way. I know if I do that 100 to 1,000 times, it's gonna play out. Sometimes I'll print 32K, other times, I'm gonna walk away with 22. The goal is to manage your behavior, because your behavior predicts where you end up. If you do this long enough, and you want to print 25, from an emotional standpoint, you'll get there. You'll get to 50, you'll get to 75, you'll get to $143,000 gains on single trades. Right?

• 5:44Speaker 00

  But you can do yourself a big favor, and not make this business harder on yourself than you need it to be, by having a plan set up ahead of time for how you're gonna handle things. So that it's just regimented. "Here's the situation, here's where my protective stop goes." And let the market come to you. If the market doesn't get there, then there was no reason to offset it. Right? Just looking at the screen, get your emotions going? Right? Because to me, that's an immaturity thing. It was for me. It is gonna be for you, and it's gonna be for everyone who's watching this show for

• 6:26Speaker 00

  the first time and wants to get into the business. It's just money. It doesn't say anything about you as a person, it doesn't, you know, because I know a lot of rich assholes. So, who cares? Like, it doesn't say anything about your intelligence. You want to come back to like, what we were talking about in Monday or Tuesday's episode, about dropping your guard and following your rules. The best you can do is follow your process. You're trying to steer the results now by saying, "Oh, I have this big gain with a comma in it," or "I want to print 25 for the first time." You know, you might feel like an idiot. Suppose you cap it at 25, and two days later, it could be plus 40. You can't feel good about that.

• 7:10Speaker 00

  You can't say, "Well, you don't go broke taking profits." But the opportunity cost, just like avoiding big drawdowns, right? Because drawdowns compound, it's a big issue for investors. You don't want to have opportunity costs, it's a real cost. You know? And that can mean a lot. Why? Well, because suppose, what's the difference between taking, say, 25K versus 40K as a winner? Well, let's just say that there were a few other trades that were coming up. Maybe there was even something that was like, "Hey, I have a hunch on this, I want to take a flyer." If you printed 40K, no, you have an extra 15K in your account, you can take 1 or 2K out of that, right? That you otherwise wouldn't have had.

• 7:55Speaker 00

  And see, like, okay, are my instincts really firing here now? Right? Is now a good time that would warrant my taking a flyer? Because I've done much better than expected over the last XYZ amount of months in my own behavior. So again, go back to the previous episode, I'll put a link in the description, where you kind of want to have a plan for any possibility of what could go down. And this way, your behavior is kind of determined beforehand, you don't have to make any decisions on the fly.

• 8:37Speaker 00

  Now, look, if you have 10 years of experience, by all means, you've earned the chops, you've got the level of success to entrust your instincts on the fly. But for newer folks, they're not there yet. They haven't gone through, they don't even know what market cycles are, never mind know how to trade across various market cycles. So the best thing that you can do is set up your plan, and know what you're gonna do ahead of time, so that when that activity starts to unfold in the market, you just say, "Okay, here's the situation, here's what my rule was." Boom, you followed your rules. You can worry about the money afterwards, right?

• 9:20Speaker 00

  You can look at that afterwards, and then kind of do a debrief, and say, "Okay, how can I improve upon this?" And that's the best you can do. You can't beat yourself up. Right? But that, to me, is the hardest trade, because it's the one that people don't know how to handle, and it's the one, in my humble opinion, is the one that most people are not prepared for. So check out the links. I also have a cohort coming up, that's gonna be limited to a dozen or so people. I'm building a waitlist right now for it, it's in the description below with the other links too. Anyway, thanks for being here, I'll see you tomorrow.