Interview With Michael Martin Part 2

Interview With Michael Martin Part 2

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Michael Martin: Emotionless trader. Let me tell you something. I’ve sat two feet from Bill Dunn and he is not a guy who is emotionless, yet he’s a full systematic trader. You know, mostly through the blogosphere, you’ll read stuff that you can eliminate emotions. Well, human beings are emotions and you’ll never eliminate emotions, at all. I’ve been both -- right now, I’m a full discretionary trader, obviously I use computers to help me calculate where my risk is, but in terms of coming up with trade selection, you know, I use a whole host of stuffs which I can get into, you know, later. That’s not really related to this question.

And I’ve been a full systematized trader. And, you know, you are fully emotionally engaged no matter how you’re doing it. In fact, if you do have a system and it has positive mathematical expectation and you allow for zero discretion. As soon as you hit F9 and hit Run, and you have to put your first trades on the floor, or execute them yourself, electronically, you find out very, very quickly that you are still lit up like a Christmas tree when it comes time to trading because you have money on the line, you have expectations, you have people who trusted you with money, and they want results.

And so, on several levels, you know, we have emotion running through your body. Trading systems, mechanized or not, really just helps you get a lot closer to your emotions quicker than if you were going to sit and try to wait to do things discretionarily, which typically take a lot more time to do because you don’t know anything when you’re starting.

Mark Soberman: Right. I mean, do you think it’s important obviously to feel the emotions of trading, but are we supposed to be balanced? For instance, should we feel -- well, not exactly feel similar things when we win or lose, but maybe the heightened nature of the emotions, whether you have a winner or a loser, I mean, are we -- should we strive for some balance in that?

Michael Martin: Well, I think there’s two questions there. One, is you are feeling your feelings, whether you like it or not. You’re feeling feelings. You put a trade on and you make, you know, $200 in the gold trade. Or if you can make, you know, 50 pips on a ForEx trade that might light you up. And so you are going to feel those feelings no matter what. Likewise, if you get stopped or if you’ve got, you know, the Yen, they intervened on the end. Interventions don’t work but they do it anyway for some reason, you are going to be feeling your feelings.

What you want to find is that, if you have big dips in your feelings and you get depressed or emotionally, you know, wiped out from your trading, either because you’re spending 10 hours a day in front of a screen, which I do not do, or you spend, you know, 50 hours a week of preparation to put on two trades, or whether you’ll just like to sit there and double-click your mouse to make 10 pips on a trade, that all feeds your emotional system. So whether you’re aware of it or not, isn’t irrelevant. You are an emotional person. You are an emotional system. Take the trading out of it, if that helps make it clear.

All of our experiences have led us all to be together on the phone today, whether we like it or not. So something resonated with all of us to be here today, I know it sounds very granola bar, but that is how the world works. Now emotionally, it’s satisfying to give back to the community, it feels good, right? I’m helping people, most of whom are strangers to me. Hopefully, they got something out of the book. Maybe they didn’t get anything out of the book. I cannot deny anyone their experience from the book. Go to bed. I wrote the book. I wanted to write. It was very hard to write without getting way too Zen and whatever. And there are plenty of books out there that do a better job of being Zen.

So I would say if you’re feeling strong spikes or lows in your trading that’s where your journal comes in. You have to write that down because people tend to, myself included, we tend to wash things out or, you know, soften them over time. And that it wasn’t really that bad and that’s a truism, you know, when things are great, they’re not as great as they seem. And when things are down, they’re really not as bad as they are or they seem to be at the time.

But I find that a short list is better than a long memory and I keep a journal. In fact, I’ve got five of them for various reasons within eyeshot -- eyesight, you know, right here. Everything from preparing for today, notes that I took through your questionnaires. I’ll write everything down just because it’s good to reflect when I’m a little bit more meditative and see, “Okay. Well, what can I do with this? What kind of resources can I build or, you know, right here, everything from preparing for today, notes that I took through your questionnaires. I’ll write everything down just because it’s good to reflect when I’m a little bit more meditative and see, “Okay. Well, what can I do with this? What kind of resources can I build or, you know, right here, everything from preparing for today, notes that I took through your questionnaires. I’ll write everything down just because it’s good to reflect when I’m a little bit more meditative and see, “Okay. Well, what can I do with this? What kind of resources can I build or I took through your questionnaires. I’ll write everything down just because it’s good to reflect when I’m a little bit more meditative and see, “Okay. Well, what can I do with this? What kind of resources can I build or why did I feel a certain way when something came up? How did I set myself up for that?” And so I think that -- does that better answer the question?

Mark Soberman: Yeah, I mean it does. And I think, like for instance, you know, one of the -- maybe the mantras that we have at NetPicks is, you know, get in, get out, get done. You mentioned how, you know, you sort of do not spend 10 hours a day in front of the screen. You know, we try to teach a concept called “Power of Quitting” and people hate the word “quitting” because it seems so negative.

Michael Martin: Right.

Mark Soberman: We try to embrace the word quitting and say it’s actually a power. And I know one of the things in your book that I remember I’m hearing a lot is, you know, the importance and the principle of, you know, really keeping, you know, your loses small. I would say almost that’s one of the mantras that I kind of took out of the book. And I think academically most traders and people probably listening, you know, I think that everybody would agree that that’s a word of your theory. But I know and we try to teach people, get in, get out and get done, power of quitting, they can’t stop, you know. So it’s the same thing, you know, how do you really get people to embrace, you know, why it’s so important to keep your losses small and not sabotage yourself when you let those. I think you say somewhere how, you know, every big loss was originally a small loss or something like that. I’m sure I’ve misquoted you, but something to that effect.

Michael Martin: Right. I say something in the book that, you know, it’s very difficult in America because we’re taught to be capitalist from day one, which, you know, I’m a savage capitalist. And that, you know, winners never quit, quitters never win. But my take is that, if you can, you know, like you say, get in, get out and get done or get down, you know, just chill. Take a day off. Put some time between yourself and the trading because you will have more equity in account. I can’t tell you how many guys that I know call me back and say, “I feel humiliated to have to tell you, you’re a great guy but my equity is down 90% and I’ve done nothing but spend the last month revenge trading, again, in the crude oil market.” And, you know, it’s really sad but, you know, people want to take it out and try to bully the market. And the sooner you can surrender to the fact that you are the small banana in the crop when it comes to any market that you’re trading, whether it’s Amazon, GE, you know Foreign Exchange, inter-bank, you know, foreign, you know, currency futures, it all comes back to your emotions.

Now, you can trade into bank and level yourself 200 to 1 if you want and find a way to do that. You can trade currency futures. You can trade the minis. I know guys that don’t want to trade the minis though because it’s emasculating. Now, that to me is completely retarded. I don’t know why anyone would think that because, again, they’re not trading for the gains, they’re trading for ego and bravado, and to pump their chest maybe. But that to me isn’t trading, that is to me is being immature and childish.

As far as getting in, getting out and getting done, you know, you have to keep your losses small. What I try to do in the book is actually break down the trades because that’s a truism and I don’t, you know, obviously there’s been a thousand people who have said, “Keep your losses small.” But saying it and not conjugating it to your emotions doesn’t do anything for anybody. So in the book, I try to say, “Keep your losses small and this is how you do it. And oh, by the way, this is the important part, this is what you’re going to be feeling when you have to keep your losses small.”

So for example, if I say, you know, “Is it get in, get out and then get done?”

Mark Soberman: Right.

Michael Martin: Right. So when you get done, your listeners and your students have to be patient. So the question I write in the book and something that we can talk about today is, “What do you feel like when you have to be patient? What does it like for you?” You know, teach me and tell me what it’s like when you have to be patient because patience is not a feeling. Patience is really a state of mind. It’s a place of being. Maybe sitting still, sitting on your hands. I know some of -- I know someone listening right now would find that that it would be absolutely heretical if I said, “Log out of your trading system today and turn the screen off. Don’t watch the markets in real time.” They’d be like, “Well, that’s not what traders do.” And I’d say, “Well, that’s what your definition of trading is that you see yourself in front of a screen all day watching the markets.” That to me is entertainment. It’s not trading. But if it works for you, great, who am I to say? I say take out your journal and write down, if you can, if you’re man enough to write down what you’re feeling when you have to surrender. Does that really mean quitting or does it mean regroup and come back tomorrow with a clear head so that you can go out?

Paul Tudor Jones used to have records and records of data whereby he would keep track of his daily equity run, something we can get into later for those of the listeners who are looking to get allocations. And he would have rules and say, “Well” -- he never wanted to have a month where he was down more than 10%. So when he was down 8% or whatever, he’d be cutting his positions and getting done, as you would say, and being in cash. Now, even if he had a week to go in the month, he would take the time -- take the rest of the month off because on his track record he never wanted to have a, you know, 10% of a 1,000+ basis point down month on his P&L. He used to do it for weeks too. He didn’t want to have like a 2% week or, excuse me, a 2% day, and then the other rules for the weeks. I have to look up their numbers but I know we had them and that’s how you have very, very rigorous risk management.

Now, at the end of day, the allocators are going to want to see how you perform under pressure when you were down, how long the draw down was, and what your daily vol is. So you do yourself a big favor by actually taking time out and putting some distance between yourself and then feeling whatever those feelings are because if you think you’re going to bull your way through it, you’re not going to rationalize your way through a draw down, you know, that’s suicide. And that’s my two cents on it.

Mark Soberman: Sure. Well, it’s interesting because we have a strategy that we call Keltner Bells and it’s all about swing trading ForEx and we all know that ForEx is basically open 24 hours a day and, you know, any of us who have tried to trade ForEx, you know, for 24 hours know that that’s, you know, that’s when we know we’re good, obviously, quickly. So we teach something called Snap Shot Trading which is basically taking a snap shot of the market two times in 24 hours and letting the rest just sort of do what it needs to do. And it drives people absolutely crazy who have, you know, the strategy from us because they can’t stand to be on the sidelines. They can’t stand to potentially miss a trade at 2:00 in morning or 2:00 in the afternoon. And I think it’s a lot to do with, you mentioned a lot about like just sort of natural human nature and, you know, how smart people. They just, you know, they hate being wrong. We’re all thought a certain way in, you know, in school when you trade, you really have to just realize that, you know, being wrong is going to be something that’s going to happen on a regular basis. You are going to miss a good trade, you know, all the time by being patient like you say, you know, waiting for those odds to really be stacked enough in your favor. I mean, you know, how do we kind of get around? I guess the way that we’re quoted as human beings, to actually be able to, you know, adapt to a strategy that’s telling us to do the exact opposite of what’s comfortable for us.

Michael Martin: Well, that’s the get in part, right? I mean Jason Zweig wrote in “Your Money and Your Brain” and Jonah Lehrer probably wrote one of the best books I’ve ever read in my life, “How We Decide”, talk about the prefrontal cortex and how, as human beings over millions of years, we have been conditioned to respond to opportunity, whether it’s at the casino, whether it’s with a loved one, significant other, whether it’s trading. And that’s the get in part. And I think a lot has been written about, you know, missing opportunities in trading, it’s not that big of a deal. Yeah, sure, if gold is going to go from 400 to 3,000, there’s probably a couple of spots that you can get along, so that any one trade is really incidental to your career.

Two, if you’re so inclined and unless, of course, you like beating your head against the wall and thinking that you actually have skills that you don’t currently have but for some reason you should be aware at 2:00 in the morning if there’s a big move in the a currency, you probably have expectations of yourself that far exceed what anyone else would expect from you. Two, you can program something to look for those types of opportunities where you don’t even have to be there with an algorithm or some type of high frequency trading solution so that this way you don’t actually miss the trade. You don’t have to be awake for it either.

So you can look at in your journal again, what does it feel like when you feel like you missed an opportunity, and what does that really mean to you? What could you have done differently? You know, because the goal is to have balance and harmony, not just between yourself and your trading but in the rest of your life. If you kind of pull the Jack Nicholson, you have, “All have work and no play make Jack a dull boy,” and you know, you’re in a scene from The Shining.

And so you have to have balance in your life so that everything works for you, not just your trading mechanism but, you know, what you’re looking to get out of it emotionally, right? And trading has to be both emotionally rewarding as well as financially rewarding. And whatever feeling you keep feeling from your trading is part of your system. So if you feel frustrated because you’re missing opportunities all the time, well, that’s really your system. And so if you keep doing it, I don’t really see anything wrong with that system. It’s a system to deliver you frustration. It’s working perfectly. Don’t change it. But if you what to give yourself a break and trade during normal hours, then, you know, focus on, you know, the 9:30 to 4:00 p.m. racket or whatever time frame you’re going to delineate for yourself and say, “Okay. Here are the hours I’m going to trade. If it’s going to happen, it has to happen within these hours and then I’m going to turn off the machine.” You know, there’s a point where you have to turn if off and go do something else. Go read. Go for a hike. Go outside. Go the gym. Go surfing, whatever it is that you do, go do it because everyone in the book has something. Everybody in the book that I spoke with has a way to get away from the market. They do not obsess. Obsession is not a good thing.

If you would like to listen to the entire interview, or hear interviews from top day trading authors in the industry, visit: http://netpicks.com/authorseries.

About the Author:
Mark Soberman is CEO and Founder of NetPicks, day trading systems and strategies since 1996. To listen to the entire interview, and to access more exclusive interview with top day trading authors, be sure to visit http://netpicks.com/authorseries.



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