Volatile markets as we have seen lately make me think of George Costanza of “Seinfeld” fame. In one episode, he decides to do the opposite of his initial thoughts, which did not seem to be working out too well for him. Trust me, I have considered doing that once or twice in my option trading. Markets like these can really get you flustered and when your trades aren’t working out, you might be inclined to act like George and simply do the opposite of what you’ve been doing. If you have struggled with this, as many of us have, remember that if you’re not following a trading plan and basing your trades on technical analysis, you may as well be gambling.
Element of Luck
There is an element of luck (good and bad) when it comes to trading. As technical traders, our goal is to put the odds on our side and give ourselves an edge. We know if we do so we stand a better chance of being successful. That said, there is still some luck involved in terms of how the market moves and how the underlying position is affected. It seems like almost every day recently the market has opened with a gap and then had a big intraday move as well. Many traders try to force their opinion on the market or a particular stock, and that can be detrimental to their potential success.
Are you surprised when the market or a certain stock does not act as you anticipated? Do you feel like George and consider a rash change of course? If you have done any trading whatsoever, you have most likely formed an opinion about both individual stocks and the overall market. It is almost impossible not to. But what I see far too often is the disappointment from a trader when a stock has not performed as they predicted it would. I am here to remind you that stocks and the market have minds their own sometimes, no matter what you may think.
No Real Control
As option traders, we have free will (within reason and cash wise) to buy or sell whatever we choose, but we have no real control over what the market and individual stocks will do. The market sets the price no matter what our opinions may be. That is why there are buyers and sellers to make the market.
Let’s be real: We have all thought a stock, ETF or index was too high or low. I have received numerous emails lately from traders shaking their heads in disbelief. “How can the market continue to move lower even through several support levels?” The key is to remove your own personal thoughts and opinions from the equation, especially for short-term trades like swing trades, and focus on the technical aspect instead. Instead of asking why, ask yourself what has a better chance of happening based on your technical analysis. I promise you will be better off giving yourself an edge versus just gambling and hoping.
John Kmiecik
Senior Options Instructor
Market Taker Mentoring
