The last three weeks have made for some incredibly difficult trading. Why?
Well, of course we had the macro reasons like…
The President got diagnosed with COVID while there was a confirmation hearing ongoing on a disputed Supreme Court justice, while the pandemic raged. Then, as the polls continued to note a possible shift in power, the market began pricing in one candidate winning over another. In the midst, we also had a FAANG earnings week, along with potential government oversight on big tech. If that wasn’t enough, we also saw COVID cases rising substantially, then we got news of a COVID vaccine, along with election ‘results’ and a contested shift in power.
Now what’s this look like on the charts…?
Remember, trading’s about recognizing patterns that give you probabilities. When the patterns are all over the place, that greatly cuts your probability of accuracy.
The past few weeks, we’ve seen COVID stocks roar, then tank — tech stocks tank, then roar, and alternate energy and energy both rise, then fall — and fall and rise, substantially. I think John said it best: “the market is acting like that one relative that had too much chardonnay at Thanksgiving.”
Sometimes, the question isn’t, “What do we trade?”
It’s, “What do we do after all this craziness?”
My answer is, it’s time to tame my trade monster.
I wrote about the Trade Monster earlier this year here.
But if you missed my series…
What’s a Trade Monster?
Your trade monster is the human piece inside of you that works against your ultimate goal as a trader — which is making money. Your trade monster is the one that overtakes your better judgment, your methodical self, your logical trading steps. Your Trade Monster is the guy who keeps you from following your plan, and ultimately, sends you into a downwards spiral. This is similar to a baseball player who’s struck out three times in a row, and now can’t even hit a foul ball.
What does your trading monster look like?
A trading monster makes its appearance when traders become too emotionally invested in the market. A direct side effect of this monster is a trader losing money even though they know what they should be doing.
When it’s time to Tame your Trade Monster, going back and looking at trading psychology is critical. Check out this Trading Psychology class I taught with our founder, John Carter, for our double take on how we handle these times.
Taming my Monster
This newsletter is as much about what to do when things go wrong, as it is about what to do when things go right. It’s my goal to teach you from my experience, whether good or bad. Getting whipped around these past few crazy weeks has told me that it’s time for one thing… it’s time for me to tame my trade monster.
What does that look like?
Well, I closed out most of my positions, leaving myself with just a handful of tickers to look at. I stepped away from the market for two days or so and worked on my fishing skills. This is critical to do when you begin to feel your trade monster rearing its ugly head.
The absolute worst thing you can do after getting whipped around by the market, is putting even more trades on, to try and ‘make up for’ the stops you took.
Taking stops, is a part of trading.
Gaps — are one of the worst parts of trading, because oftentimes, you can’t take a stop where you may have wanted to. These last three weeks, have had a ton of gaps. Traders always ask me what I do about gaps. And, if I fear them.
I always tell traders that I don’t ‘fear’ the gap, but I always know it’s a possibility, and that’s why I primarily attempt to position with full risk. In the next episode, on the Tuesday Trade edition, I’m going to walk you through the ‘worst case scenario’ when the market gaps. I’m going to talk about a big loss I took on Zoom (ZM).
In trading, it’s critical to recognize ‘What is the worst that could happen?’ whenever you put on a trade. So, I’m going to show you the worst… so that you can learn from the bad, as well as the good. Stay tuned for next Tuesday’s episode!