Seasonality: Trading With Perspective

 

Date: 4/2/2021
Author: Chris Hood

 


Be sure to check out new episodes of my video podcast each week, where my ace pupil Brian Jones and I talk the ins and outs of options trading- and give you insights and strategy that you can immediately put to work for you in the markets.


 

Thousands of would-be traders have recently blown up their accounts and decided that trading isn’t for them. Countless novices have just thrown in the towel.

It happens every single year.

The drunken revelry of big wins and profits from November through January often comes with a terrible hangover in February and March.

The market takes back everything it gave and then some, and people simply give up.

Don’t be one of them!

I have to admit it.

After 20 years of trading, there’s one rule I’ve yet to follow for myself. It’s written in large block letters on my computer.

“CHRIS! DON’T TRADE DURING FEBRUARY AND MARCH!”

Sure I made money, but it’s way too difficult and stressful for my liking. I don’t need any more grey hairs or years taken off my life.

Many top retail traders just don’t bother.

They make their yearly goal early then close the computer until April.

Call me stubborn, but I like the challenge. I know that despite the damage to my win rates, profit ratio, and all the other metrics I track, it improves my skills.

Build this mindset in yourself.

While some people sit at home and pray, I prefer to look at the charts!

A historical look at the major index ETFs’ performance (DIA, SPY, and QQQ) clearly shows that some months consistently outperform others.

You can see this in the charts below.

Over the past 10 years, the DOW and S&P500 have closed the month higher 100% and 89% of the time respectively! The NASDAQ has shown its best performance in July.

Just because you lost some money in February and March doesn’t mean you’re a bad trader. 

Those are tough markets for anyone!

Sector rotation, hedge fund rebalancing, sell-offs, and volatility will shake out those without proper mental fortitude.

November to January is a time to rake in all the profits you can to prepare for the leaner months ahead.

Next year, plan for it.

Raise your cash balance, focus on longer-dated trades, trade small, and only use the best set-ups.

Or just don’t trade at all.

There is a silver lining to these months, particularly in March. You have the opportunity to get in early on long-term trends. After major sell-offs, money begins flowing back into the weaker sectors.

Plays on ETFs like healthcare (XLK) and technology (TQQQ) and their leading stocks will pay handsomely in the coming months.

But you won’t get in on these massively profitable trades if you just quit.

“Survive in the bad months to thrive in the good ones!”

In the latest Hood Talk episode on the Rogue Investing Youtube channel, I take you through some key steps to determine where big money is moving.

Do the work, and you’ll be positioned for some genuinely MASSIVE profits!

Everyone looks for the easy route, but it just doesn’t work that way. Improving your psychological skills is at least as important as your technical ones.

In your journal, write down how you feel. Both about the euphoria of the up markets and the challenges of down months.

This exercise will keep you sane and in the game.

Assuming you intend to trade for life, you must learn emotional control and see the big picture. Some of the world’s best traders have wiped out MANY times before achieving success.

Drawdowns are just part of the process.

There will be highs and lows in your trading. Always. 

Just as one bad week doesn’t mean you’re a poor trader, one good year doesn’t build a career!”

Focus on your plan. Tune out the noise. Embrace both the good and bad.

Persistence pays off.

Next time we’re going to discuss two different strategies for setting strikes on bull call spreads.

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