Stock markets are obviously closed today, but while you’re off work (hopefully!) I wanted to share some material I wrote recently for my paid Weekly Windfalls subscribers.
See, the past 10 years of my life have been absolutely unbelievable — in the best way possible.
I went from being an elementary school teacher to a millionaire, all by trading stocks and options.
My wife and I are out of debt, and I was fortunate enough to donate six figures of my 2019 trading profits to St. Jude!
But that doesn’t mean I can’t get better. We can always improve.
The person who thinks they know everything is probably the dumbest person you know, right?
1. Stay in School
Let me tell you — I’ve been in the trading game for about a decade, and I STILL learn new things about options and indicators every week.
Whether you’re just starting your options education, or you’re already a veteran trading spreads, there is always something else to learn.
It could be how to trade a put option, like I do in my new Smoke Signals service, or how to put on an intricate trade like the four-legged iron condor…
And while you can take the teacher out of the school, you can’t take the school out of the teacher – which is why I’m launching my new 12-week MasterClass VERY soon.
It will be a few hours a week, and guess what?
2. Look Before You Leap
In other words, do your research.
Sure, I encourage you to follow my trades — whether in Weekly Windfalls or my other services.
But the ultimate goal is to get you to the point where you can make your own trading decisions, should you want to tweak my trades or trade something independently.
So before you jump into something head-first, make sure you have a plan.
Start studying more technical analysis, which should be the first basis of any trade.
And if the technicals align, do a little fundamental research, too.
No, that doesn’t mean look deep into the abyss of a company’s past decade of earnings (unless you’re putting on a trade you plan to hold for a long while).
But it DOES mean making sure there are no events coming up that could wreck your trade, like an earnings release or a product announcement.
3. Don’t Get Into a Pissing Contest With Yourself
Read: Don’t throw caution to the wind because of ego.
So, if you had determined before you put on your trade that you’d take profits at 50%, and now you’re sitting on a 75% gain… what are you waiting for?
Sure, that same stock could keep going your way — you could double your money…
But you could also risk ALL of those gains by not being disciplined and sticking to the plan.
Is feeding your ego worth the risk?
On the other hand, if you had determined beforehand that you’d exit your position at a 50% loss, and you’re sitting on a 75% loss hoping for a Hail Mary…
Um… Good luck, I guess?
Not only that, but don’t be a stock chaser.
If you find you’ve been stalking a stock for weeks, waiting for the right setup that just hasn’t happened, don’t get trigger-happy.
Money is made in waiting, not trading.
We’d all be better traders if we learned to operate like robots (or serial killers?) and take the emotion out of it.
Sure, it’s easier said than done — trust me, I know.
But remember — it’s a marathon, not a race. And those who let fear, greed, and other emotions get in the way of making rational decisions are destined to lose more than they win.
4. Keep a Diary
Of course, everyone suffers losses. That’s part of the game.
Some are more familiar with losing than others…
The important part is how you react to those setbacks.
Instead of pouting or kicking yourself or quitting altogether, keep a journal of all your trades and learn from yourself.
Log what you’re looking at before a trade – areas of support/resistance, your risk/reward profile, your chosen option strikes and why, how much cash you allocated, ALLA THAT.
And, of course, go back and do postmortem analyses of each trade – how it played out, where you could’ve improved, the ideal time to take profits or cut losses, etc.
Soon patterns will start to emerge, and you’ll get a better understanding of what’s working for you and what isn’t.
And once you have that, you can start to…
5. Fine-Tune Your Strategy
When you get enough data from your trading log — and that includes paper trading before you start gambling with real money — you can isolate things that are working.
For instance, you might see a pattern that playing a 2.50-wide credit spread works better for you than a 2- or 5-wide spread.
Or that you tend to do better selling slightly out-of-the-money options, as opposed to the riskier at-the-money contracts.
Or that the Relative Strength Index (RSI) has been a fairly accurate indicator for a certain sector recently.
Or that you should lower your allocation to 5% per trade, because you sleep a little better at night that way.
You get it.
I have a checklist for my credit spreads, but each trader is absolutely unique. You might have a higher threshold for risk than I do, or maybe you prefer trading different strikes.
I can’t tell you what’s right for you — only you and your trade notes can do that (and maybe your spouse, let’s be honest… KIDDING, HONEY).
6. Get Balanced
Don’t lean too heavily on one side (bullish/bearish) or sector.
Often times, one stock will rally on news, and other stocks in the same sector will also get a boost — this is called a “halo lift.”
For instance, in mid-November, several retail stocks got a halo lift after Walmart’s (WMT) earnings beat.
On the flip side, if one stock drops notably on news, other stocks in that sector could endure a “sympathy swoon” and trade lower.
That’s why it’s important that your portfolio isn’t totally lopsided. If you were only bearish on only retailers in mid-November, you could’ve got rocked by that Walmart report, even if you didn’t trade WMT stock directly.
Along with having trades from various sectors, another way to add balance to your portfolio is with pairs trading.
This is when you have a bullish position on one stock from a sector, and a bearish position on another stock in the same sector.
That way, if industry news moves an entire batch of stocks one way or another, you’re not risking a total loss.
7. Don’t Rely on One Weapon
In that same vein, do you think the Allies would’ve won World War II with only airplanes?
They had a slew of weapons — tanks, submarines, grenades, spies — and it took a collective effort from them all in order to assure victory.
They were familiar with The Art of War.
It’s the same with trading stocks and options – the more weapons you have at your disposal, the better off you’ll be.
Because, guys and gals – we’ve been in a bull market since I started trading years ago! It defies history to say the rally will last several more years…
So when the market finally runs out of steam, those bulls who ONLY buy stocks or ONLY buy call options are going to be in big trouble.
That’s why I recently rounded out my arsenal with Smoke Signals, a service that focuses on more aggressive bearish option trading.
‘Cause I want to be READY when the bears start storming in.
As you know, I place more conservative option trades (credit spreads) in Weekly Windfalls. I’m also perfecting my bearish options trading in Smoke Signals, and I’ll continue to kick ass and take names buying small-cap stocks in Jason Bond Picks.
8. Don’t Forget to Have Fun
Yes, it’s hard to have a good time when you’re losing money, obviously.
But as with baseball or trading stocks and options — it’s all about averages.
If you win more than you lose — or, in this example, if you enjoy trading more often than not — you’re good.
Because even though you might’ve started trading out of necessity, like I did, it must have stirred something in you to make you keep coming back.
Maybe it was your first taste of a big win, or maybe you like the thrill of the hunt…
Whatever it is — it’s taken you this far into your trading career, and that’s nothing to sneeze at.
But if you find yourself in a seemingly eternal state of frustration or depression or anxiety, it may be time to take a few deep breaths and push “Pause” on your trading — even if it’s just for a day or two.
Watch a little Netflix, go kill it at the gym, or do something nice for someone who has it worse than you.
Then circle back and consult your trading journal (see Resolution No. 4 above), and dive back in with a clear head!
Just don’t give up, guys and gals.