Happy Friday, Evolvers!
The market kept chugging along this week with the SPDR S&P 500 ETF Trust (NYSEARCA: SPY) gaining another 2%+ at the time of writing…
Additionally, the index closed at its highest level in over a year on Wednesday as the June producer price index report showed just a 0.1% increase in wholesale prices, a sign of cooling inflation.
If inflation data continues to be reassuring, the odds of a recession (or major stock market correction) will get lower and lower.
I mostly stayed on the sidelines, only making one relatively uneventful trade on Rivian Inc. (NASDAQ: RIVN) that I sold for a small loss.
I’m waiting to find some ideal setups to capitalize on. I have my eyes on red-hot Carvana Inc. (NYSE: CVNA) for a potential short as the stock squeezed all the way to $40+ this week.
But for now, it’s time for our Friday Q&A! Sit back, relax, and I’ll answer your questions…
“I’m getting crushed (even when I use a small position size!) I think I’m being selective, but it feels like the trades I pass on go parabolic, and the trades I enter go south. What can I do to fix this?”
Even if you think you’re being selective, most traders don’t realize how bad the vast majority of setups actually are.
If you’re getting crushed, you’re very likely trading too much.
I suggest trading less and zeroing in on ideal setups…
Go over my Ultimate Options Trading Blueprint for Small Accounts to really drill down what an ideal setup is (consider The 3-Item Checklist) … then only trade those setups!
Focus on the chart patterns that work for you. Blow-off tops, first red days, and clean breakouts are gonna be your best friends right now.
Additionally, it’s critical to understand how quickly the value of options contracts can move.
You’ve gotta be extremely nimble in response, ready to cut (or add to) your position at a moment’s notice.
If you’re regularly noticing your positions going from green to red, my first thought is that you’re not booking profits quickly enough.
If you follow my trading, you’ll notice I’m relatively merciless about booking profits when my positions are 50%-100% in the green.
Furthermore, I’ll often sell half of my initial position somewhere in the middle of the pattern to lock up profits.
For example, if your position is up 100% and you sell half, the rest of your trade is risk-free. To use a casino analogy, you’re playing with ‘house money’ at that point.
By trading less and taking these crucial profit-taking steps, you should start to see slow and steady improvement in your performance.
That said, I can’t give you a catch-all prescription for fixing your problems. Only you can harness the power to turn your trading around.
“I have a day job that doesn’t always allow me to enter/exit trades when I need to. I find it frustrating with options because the prices move so quickly and I can’t always get out when I should. Any suggestions?”
First, you shouldn’t feel like you can’t trade because you have a day job. There are plenty of great traders who use it as a side hustle…
Many people don’t have the time or expertise to make day trading their primary source of income.
Take it from me. I remember it like it was yesterday…
Back when I was a general accountant, I was learning the ropes of the stock market as I was doing my day job.
In other words, I was trading as a side hustle until I could make it my main gig. There’s nothing wrong with that. In fact, I now encourage it.
And these days, while I may not have a traditional day job anymore, I do have another job that trumps trading every single time … my responsibilities as a father and husband.
But make no mistake, there are ways to guarantee you’ll get out at a certain price level (assuming the stock or option hits that level).
My suggestion would be to set a limit order to sell at your desired exit price. That way, if the level gets hit while you’re working, your contracts will be sold automatically.
This isn’t as ideal as watching the trade minute-by-minute, but it can potentially prevent you from completely blowing your setup just because you’re tied up with your day job.
However, I’d also like you to think about the positive aspects of being a part-time trader…
Having a reliable stream of income (that’s unrelated to your trading performance) can actually help you be a better trader.
If trading is your only source of income, that puts a lot of pressure on your decision-making.
But by having a guaranteed paycheck, you should be less emotionally attached to the money you’re trading … which can actually help your trading performance.
Have a great weekend, Evolvers!
REMEMBER: Saturday and Sunday shouldn’t be a vacation for traders. I want you to become a weekend warrior.
And before you go, see what my mentor does every Friday … Check out Tim Sykes’ Friday Routine!
I’ll talk to you all on Monday!