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Trader Mindset

Michael Martin is a trader and instructor. His show deals with the emotional and psychological aspects of trading and managing risk. His book "The Inner Voice of Trading" and features interviews with Michael Marcus, Bill Dunn, and Ed Seykota - who also wrote the Foreword. Get the audio book free at MartinKronicle.com.
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Now displaying: July, 2020
Jul 31, 2020
Bullish chart patterns show crowd behavior, but they can easily disappoint you.
 
This is where that saying "intuition becomes into-wishing" might come into play.
 
Jul 30, 2020
...your position is probably too big.
 
Learn how to trim the hedges along the way so that any particular earnings announcement is irrelevant.
 
Jul 29, 2020
You can fantasize about how much your account balance can explode if you get lucky.
 
However, margin cuts both ways and you can get blasted more times than not.
 
Protect your capital and play superior defense.
 
Treat every trade as serious business.
 
You can learn to do great things and grow your funds systematically.
 
Jul 28, 2020
One bad earnings report can impact several of the other names you own.
 
Trade your equity curve and cut your position sizes if vol increases.
 
Jul 27, 2020
Making a big bet before an earnings announcement is a gamble.
 
You can't infer what the company is going to report because "you see something" in the chart pattern.
 
Here are my thoughts.
 
Jul 24, 2020
This might be too "inside baseball" for some, but you can study the simulated backtest of a model and use the insights gained to go back and adjust your rules.
 
You can segment the winning trades from the losing trades and study both outcomes to improve your entries, bet size, and exits.
 
By doing so, you might be able to improve either your winning percentage or the expected value of a trade for the rules you'll follow.
 
 
Jul 23, 2020
Trading systems have different accuracy rates and ratios between winners and losers.
 
Knowing these ahead of time might better help you determine which is most suitable for you - at least to start with.
 
A trend following model might have 30% winning percentage with winners being 3 times the size of the losers.
 
A chart reading model might have a 70% winning percentage, but a winner / loser ratio that might be smaller than 3:1.
 
Both can have a positive expected value of a trade, so they can be worth following.
 
One might be a better fit for you although both are expected to make money.
 
Of course, knowledge of yourself first is the best way to evaluate trading rules when determining compatibility.
 
Jul 22, 2020
Your data feed might only include what we call normal trading hours or "outcry only."
 
For some of you, it might make sense to analyze what happens in pre-market and after-market activity.
 
You may be able to define a small edge to either improve your entries or exits.
 
For your exits, you might be able to effect a trade in the pre- or after-market to improve your price and limit losses or to better protect unrealized gains.
 
Jul 21, 2020
Most system traders can screen for tickers by price, volume, and volatility.
You can also add some overlays if you want and test those parameters also.
 
Here are a few thoughts on running screens.
 
Be mindful to find the data on the securities that don't trade anymore and add that data into your overall data to screen.
 
Else, you'll only be looking at survivors and it would be good to know how your rules would have worked if your model had initiated longs on ENE or BSC that eventually went bust, or other names that were taken over or merged.
 
Jul 20, 2020
Most system traders do not just increase their bet size on a whim.
 
Many have their risk systematized to be a fixed percentage of their overall equity conjugated with the volatility of the instrument.
 
They increase their risk systematically and only trade larger when their capital base grows due to gains or from adding capital to their account.
 
Chart readers can do the same thing although they have to do it by hand.
 
Be careful if you increase your size because you think "you are on to something..." and get too big too soon.
 
That can come from hubris which we spoke about recently in another episode.
 
You can look at your winning percentage and ratio of win size to loss size to help determine if/when you should increase your bet size / risk unit.
 
 
Jul 17, 2020
In this episode I recall how I got stopped on CSCO for a loss and why that was a great trade.
 
Jul 16, 2020
If someone you know is bearish and they're not short, they're full of it and probably like to hear themselves talk.
 
Do them a favor and call them on their nonsense. 
 
Ask them where their stop orders to enter the market are.
 
I find this happens with people who are looking for attention and trying to show you how smart they are.
 
What a snooze. 
 
I don't care about opinions and theories. 
 
If this is something you're falling victim to, you can gauge your own level of self-deception by listing all the entries you have for your theories. 
Jul 15, 2020
Selling short on valuation at historic highs is a quick way to lose a great deal of capital fast. 
 
Selling long on valuation is a quick way to incur staggering opportunity costs and missed opportunities. 
 
Don't try to be smart - focus on making money.
 
Jul 14, 2020
Buying a pullback works in raging bull markets until it doesn't work anymore.
 
Is it a 2-stage pullback...or is it the end of the trend?
 
You don't want to be buying when the trend reverses.
 
Know what you're going to do beforehand.
 
Jul 13, 2020
It's easy to get blinded by our success when we're in boom times like we're in now.
 
If you get used to it, you can lose perspective and forget that sometimes what's around the corner is going to be more than just a short-term pullback.
 
In this episode, Michael Martin remembers what happened during previous boom times in his career for context.
 
Jul 10, 2020
You want to trade rules that are robust.
 
That will give you a better chance of surviving when the markets inevitably change.
 
Backtest your rules with a minimum of 10 years of historical data.
 
Jul 9, 2020
I don't worry about trying to make realized gains each day.
 
It's not my goal to reinvent myself each day - I want the market to do the work for me.
 
Focus on process and the results will follow.
 
Jul 8, 2020
Raise you hand if anyone from your clearing member has called you when you're in a protracted drawdown or are overtrading and they tell you to stop...
 
Jul 7, 2020

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Jul 6, 2020
So let's say you get five signals. You don't know which one to take. Will you take all of them with the requisite amount of risk that you're willing to take, then you let the market activity unfold. The market will tell you which one's going to be the best one. You can count on it.
 
So if you're taking it home with you, you have your protective stops, whether you're trading off of a reversal, or whether you're doing some kind of swing trading technique, or whether you're trailing with ATR or whether you're trailing with structure, there's a whole bunch of ways you can offset winners which are hard to visualize on an audio only format.
 
So I'm not going to get into it here, but the market will unfold accordingly in ways that you can maybe predict - maybe you can't. But the point is that if you sit on your hands and let the auction process work, the market will let the individual name one of the five, maybe even two of the five, raise their hand and say, I'm the biggest winner.
 
Now, maybe you'll be lucky enough to say, Hey, that was the one that I was going with. But you don't know. There were times when in the mid 2000s, when China was buying up as much of the commodity markets that you could possibly get, you'd get signals on the same day in tin, zinc, nickel, high-grade, silver, and gold.
 
And you'd be sitting there saying I got the entire metal complex is firing longs, which ones do I take?
 
What do you think you should do?
 
 
Jul 3, 2020
Focusing on your process can keep you placated as we said yesterday.
 
It can also help you improve your attitude.
 
When you're not chasing your tail or going outside the boundaries of your trading rules, you're conserving a great deal of energy.
 
When you don't react, you develop of quiet sense of confidence about you.
 
It doesn't mean you're infallible, but you're in control.
 
You can take that feeling of being in control of your behavior and repurpose it.
 
Then it begins to compound.
 
Day after day, week after week - after a few months you can look back and see an change in yourself.
 
Jul 2, 2020
Focusing on your process can keep you placated.
 
It can also help prevent you from getting too emotionally invested in an outcome that you don't have any control over.
 
This is good advice and something that can help in life also.
 
We talked about having an expectation about a trade that you've been stalking for several weeks. 
 
One where you saw the set up a mile away, yet it reversed in your face. 
 
I've learned the hard way that such expectations have built in disappointments. 
 
When you focus on the process you go to bed at night having done your best - and that's all you can do.
 
You're powerless over where the markets go. 
 
Jul 1, 2020

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What parts of your process can you delegate and even improve your results?

You can learn to trade and make money without being there.

Click here to get your free copy of The Inner Voice of Trading audiobook.

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