Happy Friday, Evolvers!
As you’ve probably noticed, I tend to field a lot of questions from students who are struggling with their performance.
But in today’s Q&A, we’ll take the opposite approach and try to help a student continue a red-hot string of killer trades.
Additionally, I’ll answer a common question about how I learned to trade options (as well as where I learned to do it)…
But first, let’s talk about what’s going on in the overall markets…
Yesterday we saw a nice bounce in the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) as the index gained 0.75% intraday.
I think this is nothing more than a relief rally, which the market was overdue for…
With that in mind, I’ve put a new trade on … I bought 3/10/23 $14 puts on the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO).
I’m using the $14.60 area as my stop, targeting a probable crash back down to $22,000 on Bitcoin ($14ish on BITO).
I’ve had mixed results attempting to short the crypto markets recently, but I can’t forget that I nailed my biggest trade of all time on BITO.
Anyway, that’s enough small talk for now. It’s Friday, so that means it’s time for our weekly Q&A!
Keep reading to see my answers to your questions…
“I’m on the biggest hot streak of my trading career. Now that my plays are paying off, I feel the temptation to overtrade. How can I fight the urge to make trades I shouldn’t?”
It sounds like you’re starting to build a cohesive, repeatable trading strategy. And that’s the first step every aspiring trader must take.
But now, you’re facing a ‘moment of truth…’
Will you have the discipline to stick with your strategy? Or will you succumb to overtrading, like so many others?
I hope you choose the former. And if you’re wondering how to discern between the trades you should enter and the ones you should leave alone, I’m here to help…
Over my many years of options trading, I’ve come to realize there are three indicators I want to see in every setup before I enter:
- Volume. I try to only trade stocks that are experiencing periods of elevated volume on a daily or weekly basis…
- Volatility. I wanna see wild swings in price action, which tend to lead to the first red day and first green day setups that I love to trade…
- Catalysts. I prefer to trade names with major news catalysts that could send the stock into further volatility…
Make sure to reference this ‘3-Item Checklist’ on every trade you’re considering.
Then, jot down the following notes and engrain them into your psyche:
- Timing is everything. Being early (or late) on a trade is the same as being wrong.
- Focus on the big picture. Don’t let intraday price action pull you out of a five-star setup.
- Stick to your strategy. Never let FOMO or greed tempt you into trading a subpar setup.
- Don’t try to be a hero. Sometimes the setup looks great, but the trade just doesn’t pan out. Cut your losses quickly and move on to another play!
I hope you can overcome the urge to overtrade by focusing on these crucial reminders,
“How did you learn to trade options from Tim Sykes … when Tim Sykes doesn’t trade options?!”
Sykes works very hard to make sure that the ideas he teaches apply to all aspects of the stock market. (That includes the options market.)
This is the best part about Sykes’ strategies — they aren’t specific to one area of the market. His chart patterns can work for any kind of trading (penny stocks, large caps, options, crypto, etc.)
Now, this doesn’t mean you should start trading stocks or sectors you’re unfamiliar with just because a pattern that you recognize appears on a random chart.
On the contrary, what separates Sykes’ top students (like me) from the 90% of traders that FAIL is our ability to use his lessons in our strategies, regardless of what asset or market we’re trading.
Let me explain…
In the beginning, when I first joined Sykes’ Trading Challenge, I focused on trading penny stocks.
This is how I drilled Sykes’ 7-step framework into my brain — by initially applying it to the market it was made for.
I had a serious ‘aha’ moment when I first discovered the options market.
I couldn’t believe the gains that were possible and I knew that Sykes’ pattern would apply to options trading if I got a grasp of the market…
And while there are a lot of unique factors to consider when trading options vs. stocks, the most repeatable patterns and setups don’t vary greatly between the two.
First red days and first green days (both patterns I learned from Sykes) apply just as much to options as they do to stocks.
It’s more the mechanics of options trading that work so differently. (Spoiler alert: That’s the part I had to learn myself, separate from Sykes’ lessons.)
All in all, Sykes helped me learn the broad strokes of the stock market and taught me what patterns to look for.
Then, I applied that general knowledge to the technical nitty-gritty of the options market on my own.
Bottom line: Don’t think you can’t take chart patterns from one market and apply them to another.
Have a fun and productive weekend, Evolvers!
Use these days away from trading to reset and recharge.
Then, come back on Monday and crush the markets!