It’s impossible to ignore that the stock market has changed drastically over the past year.
Anyone who traded 2022 the same way they traded 2021 got smoked.
And now, anyone who trades 2023 the same way they traded 2022 will likely face the same fate.
This is due to the nature of the stock market — it’s constantly adapting to the sentiment of the millions of people who trade it.
As traders, we must do the same — shift our strategies with the market conditions.
But here’s the thing…
No one — not even the most “expert” analyst — knows what’s in store for stocks this year. (Anyone who pretends they do should be laughed out of the markets.)
With such uncertainty following the worst year for stocks since 2008, how can you make sure you’re prepared for any upcoming market conditions?
The answer lies in your trading playbook. Keep reading and I’ll show you what I mean…
Build Your Bag of Tricks
Every trader needs a diverse bag of tricks to pull from during different market conditions — this is your trading playbook.
Think about professional athletes. I love basketball and I’m a die-hard San Antonio Spurs fan…
The Spurs don’t have one play they run on every team. They have a deep playbook of strategies to use (depending on the opponent they’re facing).
This year, I want to approach my trading like the Spurs shoot hoops…
Depending on what chart I’m trading, I’ll have a variety of patterns and setups that I can use.
That doesn’t mean I’m ignoring my absolute favorite strategy (buying puts on overextended momentum stocks with a ton of volatility)…
But if the market calls for it, I’ll be ready to flip sides and buy calls — like my recent 83% win on Rivian Inc. (NASDAQ: RIVN).
If you’re still developing your playbook, take your time. Don’t rush it.
Remember that your trading journey is a marathon, not a sprint.
When I was building out my bag of tricks, I pulled inspiration from great traders that I admire…
If I hadn’t joined Tim Sykes’ Trading Challenge, I’d probably still be a clueless newbie with no playbook.
Sykes taught me that I needed to adapt to survive in the stock market.
But sometimes, what’s required for trading success can go against your most innate personality traits…
Don’t Be Stubborn
I’m a naturally stubborn trader. I want to nail every setup to the absolute maximum.
In other words, I’m a perfectionist. And this part of my personality has its pros and cons.
I’ll always recommend that you strive to be the absolute best trader you can be. This part has helped me to reach the heights that I have in my career.
But there’s a fine line between steadfastness and inflexibility…
If you think you’ve found the one-and-only strategy that will work in every market condition — you’re wrong.
There’s not one trading pattern that works 100% of the time. I’ll let you in on a hard truth … one day, your favorite setup will stop working!
I experienced this throughout all of 2022 (when momentum setups disappeared and I was left with fewer juicy short opportunities)…
And in these moments, if you don’t have a diverse playbook to pull from, you’ll be left in the dust by other traders who do.
Take it from me. I’m always working toward fighting my stubborn urges and viewing each setup objectively.
And when I’m able to do this, I trade better than ever.
Bottom line: Don’t be stubborn — be nimble!
Examples from My Playbook
Here are a few examples of strategies I’ve added to my options-trading playbook over the years:
- Buying puts on blow-off tops. Blow-off tops happen in a single day when a stock forms a euphoric peak of volume and price action … an ideal time to buy puts!
- Buying puts on first red days. Another good time to buy puts is on the first red day after a long stretch of green closes.
- Buying calls on confirmed bottoms. Playing double bottoms (and bounces off of key support levels) has been working in this market (e.g. my RIVN trade).
- Buying calls on first green days. Buying calls on the first green day (after a long stretch of red closes) is one of my favorite ways to go long.
Expand your bag of tricks and don’t stubbornly stick to one pattern after it stops working.
By making your playbook deep you’ll potentially find more setups that fit your favorite strategies.
And in a time as uncertain as now, that’s something every Evolver should strive for.