It’s the last Friday of the year, Evolvers!
And what a year it’s been…
The S&P 500 ETF Trust (NYSEARCA: SPY) is on track to close the year out with nearly 20% losses.
For an index that averages 8% gains per year, 20% down is a historically terrible return.
Let’s be honest, we’ve all felt the pain of this bear market…
Even for me — a trader with a negative bias who loves trading put contracts — this has been a particularly difficult market to trade.
In fact, 2022 has been the toughest environment I’ve seen in my 12 years as a professional trader.
So, if you managed to squeak by with small gains (or limited losses), give yourself a big pat on the back.
And if you came out of this year with sizeable gains, mazel tov! Zero in on the aspects of your game plan that led to these gains and maximize them heading into 2023.
But for now, it’s time for our last Friday Q&A of 2022!
Keep reading and I’ll answer your final questions of the year…
“If you could go back and change one aspect of your trading in 2022, what would it be (and why)?”
One word … discipline!
2022 will go down as one of the most undisciplined years of my trading career. I’m determined to change that next year.
But what do I mean by discipline exactly?
As a trader, discipline is the ability to pick and choose the best setups to trade … and to not get FOMO or chase plays you shouldn’t be trading.
Lack of discipline can lead to overtrading, which is what happened to me at certain points this year.
In my early days as a student in Tim Sykes’ Trading Challenge, I was enamored by Sykes’ ability to pick the right setups, then cut losses (or book profits) quickly.
His commitment to these principles left me in awe and I’ve attempted to carry that discipline with me ever since.
But in 2022, I failed to do so at several key moments…
Instead of cutting losses and moving onto a different setup, there were times this year when I wasn’t trading well but continued to trade anyway.
This is a HUGE MISTAKE that I want every Evolver to avoid moving forward. Learn from me so you don’t have to learn the hard way (by losing money).
If you find your trading performance slipping, step away from the markets for a short time. Don’t double down when you’re lacking discipline!
This year will serve as a stark reminder of how great trades can be wiped out by a lack of discipline, which ultimately crushes your confidence (the most important mental strength a trader can possess).
“Can you break down your recent Rivian Inc. (NASDAQ: RIVN) trade? How did you pick your entry and exit?”
First, let’s recap how I approached my entry into this trade…
This play was more about Tesla Inc. (NASDAQ: TSLA) than it was about RIVN … I bought calls on RIVN as a sympathy play to TSLA.
For anyone who missed my breakdown yesterday … a sympathy play is when you buy a stock in the same sector as another stock that’s making a big move in an attempt to catch a delayed reaction.
So, when I saw TSLA making a first green day on Wednesday, I knew I could potentially catch some sympathy moves in RIVN (if I timed it perfectly).
The key to my entry was confidence and quickness to the trigger. Had I waited much longer, I wouldn’t have gotten the entry I was looking for.
But I got in just at the right time, buying RIVN 12/30/2022 $18.50 Calls for $0.22.
On the other hand, the exit was very simple. My plan was always to sell the RIVN calls into any gap-up on Thursday, and I got it right away…
RIVN opened at $18.38 before rising to just under $19…
When I saw the stock struggling to crack the $19 level, I knew the chart was hitting resistance. It was time to take my profits.
I sold the calls yesterday morning for $0.40 … an overnight gain of 83%!
This trade is an example of how you can potentially play the upside on a stock without trading the crowded name itself.
A little bit of creativity paid off this time! Congrats to anyone who banked on this play with me, like Kevin:
$RIVN sympathy play solid 4k win to end the year on. We are GREEN on the most chaotic trading year of my life. Thanks @EvolvedTrader so many great lessons learned. The main one being i would have made more letting small wins add up then trying to hit big. @timothysykes pic.twitter.com/5xdbVwYIri
— Kevin Norton (@TraderTurm) December 29, 2022
Have a great weekend and a happy new year, Evolvers!
Stay disciplined. Get ready to take on another wild year in the markets next week.
And let’s make a promise to each other … 2023 will be the best trading year of our lives!