How chasing trades only leads to sadness and anxiety

0:00Happy Wednesday everybody, it's Michael Martin, thanks for being here. So I hope you enjoyed my little tribute to Rush and of course my interview with my good friend Jared Dillion, he's great. Book came out yesterday. So I got a really good, good email from someone who didn't want to be mentioned by name. So I'm just going to call her Juanita. Right? Isn't that the old joke? He's got a little black book just for women named Juanita. You missed the trade. You've been watching it all week. You've been watching it for weeks. You knew the setup was going to be there. You were watching it. Then all of a sudden it breaks and you're not there. So what happened? And what do you do now? Man, this happens a lot, right? You have your screens. It shows up. But the charts just not there yet and you kind of want to do the terrible worst advice that has killed more traders than anything else on planet earth.

1:01I'm just going to wait and see what happens. Right? So let's talk about what you can actually do and what you're actually feeling, right? Because there's always two parts to it. I've tried to focus mostly on the feelings part because that's the hardest part. It's also why I don't have 150,000 followers because they all want to watch charts. But that to me is the easy part. Because when I think about why you missed it, it's because you don't have a system set up. You have the screening part, but then there's that tween part, right? Where you're kind of going through the puberty of it and then you're going to go into young adulthood. So to speak as a trader. So what I do is I don't have a list that I keep. I don't have a market minder, right? I put in an alert and it tells me like, okay, when this stock gets into this neighborhood, now I know I have to put on the coffee or the tea so that when the company shows up at the front door, I'm ready. You know what I'm saying? So it's always like text me when you're close kind of a deal.

2:04So this puts me now into I have to take action mode. If you don't have an alert in or an order, even better, you're going to miss. You're going to continue to miss. Because there's no bridge from where you're going and doing your screenings and how you're getting the names in the first place to execution, which is how we make our money. So I want to help you with that right away. It also could mean a lack of conviction. You have something that looks like a cup and handle, but it's not quite finished. And there's no rule that says anytime you see that first part of the cup, then the handle has to be there. The world doesn't work that way. So you have to anticipate that things might not go as clearly as you would like them to. That's what we call life on life's terms. So what I try to do at that point too is to set up an alert. I usually put it slightly above where I think the handle is going to form using the cup

3:08and handle for an example. And in this way, if I find the thing starts breaking out to new highs, my intuition tells me, this might be one of those cases where the handle doesn't actually form and the things just going to start making new highs right away. At that point, I put in a buy stop. My buy stops are normally above the market. I want the market to trade into my order and I don't want to chase. Chasing is bad. Is what happens when you're not prepared for the move that you think is going to happen, right? So when you say like, oh, I just want to wait. I just want to wait. Now investors do this too. They're like, well, I know the things down 20%. Let's just see how it goes. This is how you lose a lot of money. So you have to take action. The one thing that day traders have over everybody else is that they have a finite amount of risk. It might be two cents. It might be 20 cents. But they know where their exit is and they know they're not taking risk home overnight.

4:11I'm not saying that's appropriate for everybody because look how much money investors make by taking stuff home overnight. So you have to figure out what's best for you. But chasing is really the lack of kind of conviction in that after I screened to the point where I put my order in. So let's fill in that blank so that you don't find yourself missing out on trades, sitting there, kicking yourself, feeling like an idiot because I can assure you until you take action, it's not going to go away. It's going to keep being there until you deal with it. That's how the markets work. They're always morphing and trying to kill you to take your money and to make volatility, like Jared said, volatility makes people do stupid things with their money. And the last place you want to be is to be smart enough to have the damn name on your list. And I don't care if you're scalping it or whether you're going to try to build into a position more my style, you've done the heavy lifting to kind of get the name on your radar.

5:15Now here's the problem. Some of you don't bother putting in alerts because you have too many names on your list. So for those of you that have, I don't want to say the number 30, 30, 30, 25 or 30 is too many. Cut it down to the ones that are going to move now. Like what's the catalyst, right? Because a new high doesn't really mean much unless it's a historic high or a 10 year high, something like that. If it's making a new weekly high, that's not a catalyst. That's not a material number, right? Two, the other thing that they don't tell you about volume is that the volume is only going to show you at the end of the day, right? If you have, I mean, look, if you have, say, 30 to 50% of the normal volume trading in the pre-market, you can expect the data to be big, right? There's something going on there, even if you can't see the news headlines. So that's a good catalyst. Multi-year highs is a new catalyst. A 52 week high is good. If it's coiling and then it's breaking out, that's a good catalyst, right?

6:17Because we now each time that you stagger up, look back and look two years ago at Nvidia before the 10 to 1 split when it was trading between four and 500, right? It eventually gave way at like 505, 506, again, pre-10 for one split. But it started to coil, you know? It would sell off from five. This time, the next time it sold only to 450, then it stopped at 475 and you're like, okay, people aren't letting go of this thing. And we're approaching historic highs. Those are tasty little morsels that you want to kind of get your hands on. So I would cut the list, right? Because that's the pink elephant in the room. Not everything out there is an opportunity. You need to think like what's going to move today. Now when you turn your back on those names, just understand some of them will move without your participation. The problem though is that if you have 25 or 30 names going, it's impossible for you to do what you're doing and follow all of those names at the same time. So if you feel like you're just not there emotionally because some of you might be like, I'm

7:19not ready for that. You know what I'm saying? And you want to just stay friends? Then you need to put alerts in for almost everything. Then write it out in your notebook. Okay, if the alert on Broadcom triggers, here's my action plan. Here's my order. That's the best thing to do. It's not like, well, now I'm going to set another alert. Don't be one of these alert people who are like ready, aim, aim, aim. It's time to do it or get off the pot. Like what the hell is the screening for? What kind of emotional need does that satisfy to just be able to screen stuff but then never take action? Remember, you can buy five shares or something. It doesn't matter the quantity anymore. Let that go. Back when I started, they used to have an odd lot penalty. It was 25 bucks. So if you could, if you wanted to be smart financially, right, think about it. If you wanted to put it on an appropriate amount of risk for you that was under a hundred shares, they'd actually charge you more money. You can't make this shit up. It's unbelievable. So here's the rule. Only one alert.

8:21You put in one alert. Pick your spot. And if it gets there, it's because you're, hey, I'm just texting you. I'm five minutes away. I'll be there shortly. That's it. So the alert tells you that it's now time to put in your order. So then when you do that, you have to put in your buy stop. However you're going to trade it. Right? Buy stops go above the market. That's how it works. So think about that. Like that should help you segue from, I'm doing a lot of great screens to, it's time to put the trades on. Sometimes the chart pattern won't finish and it looks something like a cousin of the actual pattern that you want to be involved in. And it's aggravating too, like when you're watching it and it's like, oh, it's perfect. It's beautiful. Look at this beautiful cup and wait a second. Now it's up 15 bucks and I'm not there. Why? Because you weren't prepared. So sometimes when you see the cup form, put an alert in where you think the cup is going to stop forming so that this way at least the alert goes off and says, hey, this thing

9:25might rip in your face. And then you can have to put on like, I don't care, put on 25% of your normal position. Right? This way if it does pull back and then do like some type of amended type of handle part, you're not going to take a bath and the chart pattern is still holding up. And then remember that the handle might not look like a textbook handle. It might look like a broken handle. It might look like a short abbreviated handle. It might not have the depth. It might not even slope slightly down. It might just consolidate going sideways at the rim of the cup. So that's when you're like, okay, I can't miss this opportunity. I'm going to put an order in if I normally buy 200 shares. I'd rather buy it at the lower part of the handle if that actually forms, but I'm not going to miss this trade. And if it does break out sharply to the upside and you normally buy in 200 shares, put an order of income for 50, put an order in for half. Right?

10:25And then sort it out. Then what you're looking for is does the volume confirm that everybody else cares at that key inflection point? Because if you see normally on my chart, I have like a 10 day simple moving average just to keep an idea of, okay, where is the volume happening? At these key inflection points. It's a 10 day simple moving average on volume. And the volume for me is a histogram, right? And it's color coded. I'll show you one of these days. I just don't feel like recording my screen these days. It's too much extra to have to interpret. So at the end of the day, this way, your emotions and your intellect are aligned with what it is that you're trying to do, right? This way you won't miss out. Then you won't feel the need to chase. Now, check it out. We have something in trading called continuation patterns. So maybe it was your goal to see the thing, maybe say the top of the cup was say 50 bucks

11:27of share. And you were hoping the handle would come down to say 45 before it ripped and broke out, you know, in which case you can get in it like, you know, 46, 47, 50. No problem because we don't know how high it's going to go. And you don't want to sit there and be like, man, I got a sniper this entry at 46, 50. And if I can't get 46, 50, I'm not doing it. And then the thing goes to 80 bucks. And you're like, why did I worry about $1.50 when that much money was on the line? You see what I'm saying? So don't be penny wise and pound foolish. That was something I had to overcome when I was starting out. So the continuation pattern that you're going to look for is the same one that a lot of, you know, the late bloomer's half, you know, half, I call it a late bloomer trade is after the breakout, a couple things are going to happen. Profit takings going to happen. The faders of course, because they're just built this way, are going to sell everything

12:29short. And it's going to eventually catch up to like a nine period exponential moving average on the intraday basis. Maybe it pulls back to a 10 day simple moving average on the daily chart. You can use either of those and then the reflection off of that move, off of either of those moving averages as your place to add into your and make a full position. Even if you're paying a higher price, paying higher prices doesn't mean anything other than you're buying when there's other buyers. And that's important because especially if at the end of the day, you can confirm that the volume is there. Now you know the institutions were probably stepping up in a big way. And they're the ones who are going to buy on lower prices because they think there's better value. I would, I would think early in your career, the mantra that lower prices mean better value isn't for you. Leave that for the institutions. For us, it just means lower market cap. If you're not a CFA, you can't say that there's better value because to be frank, I'm

13:32not one, you're not one. We don't know what we're talking about. So let the CFA figure out what the value is. And then watch what their behavior is because remember, if you've been in any type of romantic relationship, love is what you do. It's not what you say. So if they really love it, let's see the volume spikes. Let's see the 130% of the average, right? So if you have 10 million shares that on that is where the, in my case, it's a lavender line. You want to see, you know, 12 and a half to 13 million shares at that inflection point. Now if it's not there, you just have to be ready to pay superior defense and know where your protective stop is, not just on your first piece, but on everything. And I want to talk about that too. I don't typically scale out. I'll scale in, but when the party's over, it's, it's, it's goodbye. It's time to go. Everyone's got to go. And so what I would do is know these things ahead of time. I know I did an episode about this several weeks ago about having a plan for everything.

14:35Put the alerts in, then have a notebook that says alphabetized so you can look the tickers up quickly. If my broadcom, what is that? AVG or something? Top of the list. This alert gets triggered. Here's what my order's going to be. No questions asked. Now guess what? I can tell you there were days and days and days where I put in orders to have things bought above the market, meaning the current market values here. Obviously, my buy stops above. And you can go weeks where nothing happens. Right? If you've watched that, the beginning of that webinar, there was early sugar that I got into. And I was putting buy stops in for that, that March sugar contract for six weeks before it hit 12. But that's the discipline that you need. It's like, OK, look, I don't know if it went and why it's going to break. But if it does, I'm going to be there. And on that trade, I doubled my position. But I was patient. I didn't buy pullbacks because I didn't know. But that's how you get through it. And that's how you don't have to chase.

15:35Then you'll use a continuation pattern. If the pattern that you were looking for, say a cup in hand, for example, didn't formulate the way you thought it would. Because sometimes they don't. They look like they have birth defects, if you will. And they don't exactly formulate the way you want them to. You can add to the winners after, at key inflection points, like those moving. Because watch what happens. Sooner or later, the thing is going to go sideways and kind of catch up to the moving average. Right? So you can wait and see, OK, does anyone else pop in there? And if that does it work to the 10-day simple moving average on the day of the day, early chart, or the 9 EMA on intradays, doesn't matter what kind of bar you're using. One minute bars got a lot of noise on it. So if you're doing two or three at the low end, figure it out. We're going to talk about simulation tomorrow, by the way, because I get a lot of questions on the swimming.

16:36You'll see sooner or later, the institution is going to pop up. And if those don't work. If you're watching daily charts, and that's the timeframe that you trade off of, you look for the 10-day first. If you're doing intraday, the 9 EMA has evidence of having efficacy. If all else fails, look for VWAP. Not an anchor VWAP, but just look for VWAP and see what happens there. OK, so that's a good rule to help you not when you mistrades, or you had hesitation, which could be lack of conviction. Start to fill in that plan because I can assure you it's not going to go away until you take action and you take a stand. And that means you have to be decisive. I said that a thousand times on the show, traders have to be decisive. You have to take an idea. And look, if that scares you, buy five shares, buy 10 shares. There's nothing wrong with that. Just get in the game because then now it's a process, and the process, you can get used

17:39to the process. Then once you do that enough, you can build the confidence around that. And now all of a sudden it could become one of the strongest parts of your game. Anyway, folks, thanks for being here, and I'll see you tomorrow.