Date: 3/16/2021
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.
We’ve all been there.
The market’s open, but NOTHING is moving. Flatlined like someone just pulled the plug on its life supports system.
Well, it’s not dead, but not really alive either.
Nothing on your watchlist looks particularly compelling, but you’re a trader, so you have to do something.
Right?
Absolutely not!
Sometimes the best thing to do is NOTHING!
In volatile markets (consider the past few weeks), it’s impossible to predict what tomorrow will bring. Why would you force yourself into a mediocre trade set up just to do something?
I know why. Alongside GREED and FEAR, the two primary emotions driving poor market decision sits another one that can destroy you.
IMPATIENCE
Unless you learn to recognize and control it, you’ll find yourself heavily overallocated. You’ll be in an unmanageable number of questionable trades.
These positions can quickly drain your capital and blow up your account.
When the market is throwing off contradictory signals in uncertain conditions, you should raise your cash balance.
Lower your risk. Never increase it.
You’ll hear traders talk continuously about having a position in GOOGL or QQQ or any of the other thousands of available underlying stocks and ETFs.
What you must realize is this.
Cash is also a position – one you cannot lose!
If all of your money is tied up in trades, you’ll have no dry powder to take advantage of when great setups present themselves.
Great traders are opportunists. They wait until the perfect moment, then pounce on their prey like a wild animal. You must hone this skill as well if you want to succeed in the markets.
Ok, time for a bit of self-reflection on my part.
I may have 100 positions open at any given time.
Some of these are short-duration trades I’m playing for a week or less, while others are longer expiration calls or spreads with over three hundred days to go.
This is an extremely high volume for most traders, but I am literally in front of the screen for 8 to 10 hours a day.
My platform is customized to give me alerts on nearly everything that’s going on.
Recently I’ve been working towards reducing this number and exiting my poorest performers earlier to free up capital.
When deciding how many trades you need, particularly in uncertain markets, ask yourself these questions.
- Do I have the time to devote to managing these positions?
- Do I have the skill to manage positions that move quickly against me?
My guess is your portfolio is FAR too large for your skill and time investment. But don’t worry, you’re not alone. It’s a common problem with an easy fix.
Trim it down. Close your existing trades before adding any new ones.
Each person is different.
Find the portfolio size you’re comfortable with and stick with it.
When there’s nothing to do, then do nothing!
Stop pushing buttons just to push buttons. Sit on your hands and wait for the right time to trade.
So you can’t do that?
I have an easy solution. Switch over to your paper account and place trades there. Practice new techniques and get impatience out of your system without risk.
The is especially true in market conditions that trade strategies you don’t know. Stop trying to learn with real money.
Never play games you don’t understand!
As cold as it sounds, I have zero sympathy for people who lose money due to ignorance or lack of self-control.
If you don’t take the time to learn what you’re doing before risking your capital you deserve what you get.
Your trading platform may look and feel like an Xbox, but it isn’t. Treat trading like a video game, and it will destroy you.
Unless you’re already super-wealthy – which most retail traders aren’t – there’s no respawn option. You can’t just dump another 500-750K into your account when it hits zero.
You’re broke, and you’re finished.
Play it safe and smart.
Next time we’ll discuss some of the finer points of technique, setting profit targets on credit spreads.
