Investors may fear volatility, but I thrive in this environment.
What I really love is the renewed interest in options trading.
And I want to welcome new traders to the fold, because there’s so much to learn.
It’s important to get started on the right foot…
Which is why I created a short video detailing 10 tips to survive trading in the COVID world.
Click here to watch training video
After you’ve watched the video, I want to dig into these topics further.
It’s one thing to hear these tips and understand them.
Applying them to your trading takes some practice.
And that’s what I want to help you do right now.
1) Keep your trade size small
Risk management is the name of the game.
In fact, I see more traders blow up their accounts not because they’re winning less than successful traders, but because they’re losing more.
Markets like these create fear of missing out (AKA FOMO), tricking many of us to risk way more than we should.
Increased volatility means increased price ranges.
I adjust my trading so that my losses are still the same size as under normal conditions.
Assume for a moment that I’m trading Apple.
A year ago, the stock may have an average-true-range (ATR – a measure of typical price trading ranges) of $4-$6 over a 14-day period.
Now, we’re lookin at something closer to $15, a 300% increase.
Adjusting the size of my trade is pretty straightforward.
I want to cut my total position to 1/3rd the typical size. This also assumes I expand my stops and targets by 3x.
For example. Let’s say a year ago I would have bought the stock at $250. My stop would be $245 and target of $255.
If I wanted to keep my losses to $500, I would buy 100 shares.
Fast forward to now, and that same range is $235 to $265. To keep my risk to $500, I will only buy 33 shares.
2) Focus on one area of the market
In the video, I talk about becoming proficient in one sector.
A lot of newer traders think you need to constantly trade the market with different ideas and strategies.
Nothing could be further from the truth.
Nathan Bear is a great example of someone who practically uses the same setup over and over.
In fact, he’s so specialized that most of the time, he’s only looking at 10-20 stocks.
Which sector and strategy you pick doesn’t matter. Just make sure you’re comfortable with it and that it’s liquid enough (has enough trading volume) to support your strategy.
3) Follow someone with a proven track record
When I first started out trading, I read every book on trading I could.
The internet was still in its infancy.
I made plenty of mistakes trying to learn how to trade, blowing up several accounts along the way.
You name the mistake, I probably did it.
That’s why we created RagingBull.
I don’t want traders to have to learn markets the hard way. And everyone has a unique trading style.
That’s why we have different gurus available to match you up with.
No matter who you choose, it’s a lot easier and less painful to start somewhere then to start nowhere.
4) Keep a trading journal
I cannot tell you how many traders try and give up on this crucial step.
This is the single greatest asset a trader can have, and it doesn’t cost a thing!
An honest trading journal logs the entries, exits, setups, dates and amount risked for each trade.
You don’t get to skip trades because they didn’t work out or weren’t perfect setups.
Newsflash – those are the ones most likely to destroy your account!
5) Be ok sitting on the sidelines
Fun fact – most traders don’t know where the market is headed over the next 3-5 days.
The few times they do is when it falls into one of their setups.
Trading is not the same thing as investing.
Investing takes a much longer outlook.
Trading is transactional.
You don’t need to trade every day.
Successful traders wait for the setups to come to them, not the other way around.
When you start looking for trades, chances are you’ll end up forcing things that don’t make sense.
And the last place you want to do that is in a volatile market.
6) Have a gameplan
Sounds simple enough, but I rarely meet a trader with one.
A gameplan doesn’t need to be this 800-page novel that covers all the aspects of your trading day.
It should focus on answering important questions such as:
- Where are the events this week to look out for?
- What are your milestones and where are you at achieving them?
- How is your main strategy doing?
- Are the markets in a bullish, bearish, or sideways trend?
- Which strategy works best for the upcoming week
Ideally, you want to create a trading plan each week and each day.
They don’t need to change much. Rather, you update them with relevant information.
7) Brush up on your options basics
I’ve been trading options for decades and yet I still learn something new at least once a month.
Even I go back through the options basics from time to time, not because I think I forgot something, but I often see something new.
A great place to start is with my Ultimate Beginners Guide to Options trading.
It’s a free resource you can use to brush up on your options basics.
8) Learning to interpret Implied Volatility
As an options trader, one of the most critical components of option pricing is implied volatility.
Implied volatility tells us trader expectations for the percentage move of a stock, quoted on an annualized basis.
What’s interesting about implied volatility is that it often overstates actual volatility as well as is mean-reverting (meaning it heads back to the average).
While these appear difficult, they just take a little practice more than anything else.
You can read more about implied volatility in my blog post here that goes into more detail.
One thing to remember – implied volatility is like demand for options. The higher the demand, the greater the expected move
9) Respect your stops
The simplest and yet most difficult of all the steps.
Rather than tell you how important it is, let me give you a practical way to practice this.
When I need to work on respecting my stops I do one of two things.
First, I constantly talk through my trades with a friend. If it sounds stupid, they’ll point it out real fast.
Second, I practice losing!
Yes, I actually practice losing.
I take a simulated account or a microscopic position in a margin setup. Then, I focus not on my target but adhering to my stop.
It sounds ridiculous. But one of the hardest things is accepting your stop in the moment.
By actually practicing it, I take away that pause in my brain that prevents me from doing the right thing.
10) Enjoy the process
Trading took me years to master. Even still, it messes with me all the time.
BUT I LOVE TRADING!
Doing this just for the money isn’t a great mindset to success. Focusing on the P&L makes things so much harder in my experience.
Instead, I focus on decision making, just like I did when I played poker online back in the day.
Let me tell you something – trading is WAY MORE FUN when you do it in a community.
And that’s why my High Octane Options service doesn’t just get you access to my streamed portfolio, trade alerts, and daily outlook.
You get access to the RaginingBull Bullpen chatroom where we provide education, exclusive interviews, and daily content with live traders as well!