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Contact me for Coaching or questions

 https://tradermindset.com/contact

 
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In this episode, I refer to a spreadsheet. The video is here on YouTube.

FREE - Download a copy of The Inner Voice of Trading Audiobook: 

https://tradermindset.com/free-ivt-audiobook-tm

-------------
Contact me for Coaching or questions

 https://tradermindset.com/contact

 
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FREE - Download a copy of The Inner Voice of Trading Audiobook: 

https://martinkronicle.com/free-ivt-audiobook/

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High Performance Trader Psychology & Mindset Course 

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https://martinkronicle.com/terms/

In this episode, Michael Martin has a frank discussion about what you need and what you don't need at the beginning of your career. 

In one sense, your job is to survive. That means going slowly and playing superior defense. 

Many traders keep a full-time job to make sure they can pay their bills before going solo. 

Michael Martin discusses the "triumvirate" that every trader needs to succeed long-term trading the markets. 

In this episode, a reader asks Michael Martin about some of the markets he's trading. 

Most allocators know that you are powerless over the markets. But if you tell them the markets you trade, they'll have a good idea of where your performance should come from. 

Be mindful of all your trading activity and non-activity. Growing too slowly can be problematic, but so can growing too quickly. 

You don't have to double your position to have added to a winning trade. 

Try adding 20% to see how it feels. 

For best results, you'll have to backtest in a simulator to determine the best location and position size for adding to your winners. 

If you believe, like I do, that most markets don't trend and that trends persist, this might be a good tactic for you to look at. 

The hardest part of investing (and trading) is knowing when to take profits. In my trading, I'm using systematic exits.

Harder, is when I have a long-term buy and hold in my investment portfolio and I have to let go of a name that I've had for ages. 

See the corresponding video on Disney. 

You can create some interesting spreads between weekly and monthly option expirations.

Some traders buy the longer dated options and sell nearer expirations to pay for them. 

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There are traders whose sole responsibility is to create alpha in only one sector or in one commodity group. Sometimes, it might be in just one contract such as natural gas, for example. 

Since most markets are not trending, focusing on one sector can be a challenge if there is no direction or trend. Unless you've been trained...

These particular traders have learned to make money in natural gas regardless of the market environment. That ability did not show up overnight and it took a great deal of trial and error in order to understand the shifts between market environments. 

You can get there also, but you have to be willing to run more than one system. 

The key to understanding the context of "diversify" here, is that the trader deploys several systems depending on the market environment. 

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When markets are trending, they're long or short. When volatile and choppy, they have vol crush trades on. When consolidating, they have credit vertical spreads. And when seasonal, they can create calendar spreads in futures. These aren't day traders either. 

You can study the relationships between an underlying security and all the related instruments to find your trading edge. 

Admittedly, some of them have access to the cash commodity markets too, so that gives them many more combinations of relationships to study. 

I don't believe there is anything that can be called "advanced trading." Most of the time that I see that expression, it's in marketing literature. 

The best trading rules that make your money are easy to understand and simple to execute. Words like "advanced" are there to feed your ego. 

My take is that if a trader has a strong sense of self, then finding the right trading methodology is easy (or easier). Trading is largely psychological and emotional and the best traders acknowledge who they are and what they can handle, and act accordingly. 

I've said before "if you don't know who you are, then what you know doesn't matter" when it comes to trading. 

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We'll be adding much bonus content that we can't include in a podcast or blog post. Apple iOS version coming soon! 

There were times when I invited huge vol to my portfolio. It would run up 20% and then dive-bomb to -20%...that's intraweek!

The portfolio comprised of outright directional trades including long/short futures, debit option trades, and long stocks. 

What I found over time though, was that all this ebb and flow created an equity curve that looked like a heart monitor.

I had to find a way to create positive slope to the curve. That's how we keep score. 

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Moreover, it wasn't about the instruments that I was trading nor the combination of them, but HOW I was trading them.  

Once I determined that my up days and weeks were from a small semblance of skill and not luck, I had to learn to keep the profits that the market was "giving" me. 

Backtesting, I found the optimal points where I had to cut my losses and, more difficult than that, where to take profits without unwinding profitable trades too soon - to me, the hardest trade there is to make. 

In this episode, I remember how I had to make tough decisions around blue-chip names when you're taught that selling them is a sacrilege. (Watch the attached video to see what I mean.)

Our first order of business once we add risk, is to keep losses small. Once I did that in concert with learning tactical ways to take profits, my equity curve took off.

And that's not having to change my orientation to trading, the instruments I traded, nor the timeframes within which I traded.

Those two seemingly small adjustments led to huge gains and I didn't have to do that much to turn this situation around. 

Frustrated about your trading? Maybe you're fine right where you are and you just have to accept "what is" and take life on life's terms. 

I see this a lot in traders who always want to be somewhere else when they are doing fine right where they are. If this sounds like someone you know, listen in...

In this episode, Michael Martin discusses the evolution of your trading rules and system design. 

Although it takes a bit of time and effort, building a systematized set of trading rules is worth it in the long run.

Instead of reading charts to come up with trading ideas subjectively, each evening you'll run your trading rules to generate orders which you'll enter the following morning. 

In this episode, Michael Martin recounts how he developed his original model and how it evolved into what he's doing today in trading and teaching building models and systems. 

Start with long-dated Call options and turn them into a Bull Call spread by selling the upper strike when the underlying reverses down. Cover that leg when the vol crashes. 

You can create other structures too, such as condors or butterflies all based upon a core holding of long dated calls. 

If you put every dollar you have to work, you don't give yourself any room when Murphy's Law kicks in. 

If you keep some dry powder, you'll be able to able to withstand some shocks to the system, as well as have capital to deploy when something falls into your lap.

Michael Martin interviews options trader and portfolio manager Hari Krishnan on the current environment and how traders can position themselves with options to capture greater profits. 

Krishnan is the author of The 2nd Leg Down: Strategies for Profiting after a Market Sell-Off. 

Crypto investing is missing some key components that an investor's are used to in trading equities, options, and futures. 

In this episode, Michael Martin discusses what's missing and why you should measure 8 times and cut once in the crypto space. 

With the likelihood of the fed tightening, investors who rely on certain instruments for income are in a tough spot.

They can use options to transfer the risk and hold their current positions.

Key inflection points can happen with the fundamentals as well as the technicals. 

I've seen too many traders try to trade something on a hunch because they thought earnings were going to be a blowout.

It's much more complicated than that. 

There's the EPS, top-line growth, expenses, one-time charges, and forward-looking statements that get reported. 

I've seen companies beat by $0.02 per share, but the forward-looking statements are bearish or cautious and the stock sells off. 

Trading on hunches is a gamble: you don't know the probabilities nor the expected values. 

If you can't model it, you can't trade it. 

If you believe the adage that "good trading is boring," then system trading is boring to the nth degree. 

There are days, sometimes weeks, that I don't generate an ORDER, never mind a trade. Then there are times when there are so many orders, you have to write them all out first in a general ledger and number the tickets. 

On the flip side, system trading is also very peaceful because I'm able to scan thousands of instruments in less than a minute and not worry that I'm missing out of an opportunity. That is a mental advantage if nothing else.

Focus on your process and stay out of the results - you're powerless over them. 

All you can do is control the "controlables" - that is, your behavior.

Seasonal commodity spreads can be very a reliable type of trade for your portfolio.

While commodities are surely not for everyone, commodity spreads are considered "hedged" because the trader is simultaneously long and short the same commodity but in different expiration months. 

A great source of information on spreads is at Moore Research Center. You can find them on the internet at www.mrci.com. 

Some investors will test you by asking you questions that are deliberately off the mark.

Stick to you message throughout even if they try to knock you off balance.

You might take a meeting as a CTA and someone interviewing you might say something along the lines of "We're looking to allocate $10MM to a crypto-only portfolio in the next 5 days" when they know you're looking for assets. 

It's ok to laugh at them and say "good luck - I hope there is a short selling component to the model."

Tell them that it's "not terribly wise to make such an allocation on short notice." Most want some fight in the dog. 

Stick to your message and what it is you can do and leave it at that. Otherwise, you'll look amateurish if you're all over the place. 

Every once in a while, the market will open below the point where you would have stopped out your long position or above where you would have covered your short position. 

The best practice is to offset the position right away. Bad situations become worse. 

Your first loss is your best loss. 

Aggravating as it might be, this has not happened enough to me to convince me to stop holding positions overnight or over the weekend. In fact, I'll go so far to say that holding my positions are what I attribute the majority of my gains to. 

You need a great deal of help when you're getting started. That doesn't mean you have to give away the house in order to get it.

For one, I'll help you as much as I can with what I know that will save you time and money. 

Second, pay as you go compensation plans have the most flexibility, as opposed to "you were here at the beginning, there are two of us, so you get 50%." That's a bad deal.

When you align your goals with your overall behavior, you'll have harmony in your life and business. 

Coach your clients about what they should expect. It will save you tons of time in work and having to explain things, and in the process make you look like a pro.

It's the differences that sell. Your potential clients are looking for more than just performance from you. 

Spend some time taking notes on this episode if you're looking to get new assets from potential clients.

There are a ton of moving parts to your trading business. Pick your partners carefully - sometimes you can't unwind things as fast as you set them up. 

Everyone flirts hard to get your business and the best deal you can strike is on the day you walk in the front door - it only gets worse after that - and that's why people change firms. 

Measure 8 times and cut once. 

If volatility increases while you have an existing position on, you should probably cut the size of the trade down to reflect the new vol. 

Market vol is increasing due to higher level of discomfort and uncertainty, but don't go adding new indicators now. They're not as telling as you'd think. 

In this episode, Michael Martin discusses the various reasons you might consider to add short selling to your portfolio.

You can short sell for real returns, or you can use it to cut the vol in your long-only strategy. 

If you enter a short sale late as can happen with breakouts to the downside, you might have it rally in your face before it becomes meaningfully profitable.

In today's episode, Michael Martin discusses one way that you can enter the market short with a more improved entry - and potentially less risk.

The most valuable information is not necessarily the recent data. 

Michael Martin discusses what you can learn from a historical chart. Names mentioned CMGI, Munder Net Net Fund, Vertical Net, Cronos, Bitcoin, and Cisco. 

Most rookies are looking to take profits when the have a winning trade. Professionals look to continue riding the trend for all it's worth. As I've said here before, inexperienced traders need the boost to their self-esteem by posting smaller wins to validate their behavior as traders. Small or not, a win is a win and that's what's important to them. We advocate something that takes a little more evolution. 

I have found in almost 30 years of teaching that a trader's unwillingness to add to winners is more of an uncomfortable, emotional problem than it is to understand the math involved.

Like any behavior, it takes some getting used to, but if you do it enough times, you can make it a good habit and replace the bad habit of having price targets.

You're doing the work anyway, you might as well get paid for it. 

Study how the security behaved after you took profits at your price target. What percentage of them continued to move in your favor?

What was the average gain beyond your price target that you might have earned had you stayed in the trade?

It looked like some of the markets were about to run, but they all came back. 

How do you handle snap backs? 

Michael Martin discusses how he handles quick reversals in the markets immediately after he establishes a position.

When it's time to chill, it's time to chill. Spying on the market during the time you've earmarked to put some distance between yourself and the market defeats the purpose of the break. 

I don't use them per se, but I test the intraday data around key inflection points in a simulator. I don't look at nor study intraday charts. 

Your max risk per trade is just that - your max. You might consider trading within that risk measurement. Why? Murphy's Law. Take that into account when you are position sizing your trades. 

You can normalize risk across all instruments so that you can think of each security in terms of risk units, that is, shares or contracts per unit. That's achieved by calculating the volatility of each instrument. In position sizing this way, you won't trade one more aggressively than another. They'll all be the same risk % to your overall account. 

For example, given the prevailing volatilities, 26 contracts of Sugar might be equal to only 6 contracts of Crude Oil in terms of percentage risk to your capital. Each would be a 1% risk unit even though Sugar has 4x plus more contracts than Crude Oil. 

You have to surrender control for this strategy to work for you.

If you're hyper-vigilant once you're filled, or you have a strong emotional need to monitor your trades tick-by-tick, this isn't for you.