So many fades as SPY attempts to break into ATH. I have traded through some choppy conditions but the past 4-6 weeks are some of the craziest. With all the noise happening today I think it’s obvious I’ll be sat out and waiting.
Whilst I don’t care what the rate cut is, I would be very surprised if we don’t rip and head higher in the days/weeks/months to come. It would be the most painful trade for many, as a lot of economists, fund managers and those alike have drastically reduced their exposure. We’re also flat on IWM for 3.5 years and up less than 20% on QQQ since covid highs in 2021. Which given what many are classing as a blow off top, is pretty lame. If you take into account inflation QQQ has double sweet fuck all. Yet retail seem to be hell bent on a complete market collapse due to current economic factors. Now just to be clear, I’m talking small-medium caps, growth names, risk on assets.
Since there will be no watchlist today, I’m going to address something else.
A post by the short bear (If you don’t follow him you should), Highlights how the majority of traders have had an abysmal month/quarter. Whilst I casually throw around the statistic of how most traders lose money, it’s important to note they do occasionally win.
They’re prone to small winning streaks (when it’s hard not to win), then give it all back plus more when the conditions change/worsen.
I cannot stress enough how sitting out and focusing on one good trade makes all the difference.
Just like August was an incredible month for us yet abysmal for most. All it required was 1-2 good trades and a lot of sitting out. This month is no different, the conditions are choppy and not particularly in the masses favour, yet there are some select opportunities to take advantage off.
Whilst there are many data points to increase edge and chances of success, risk to reward parameters are always the most important factor for me. Like I’ve stated previously, I want the odds of a 3 legged horse when betting on a stallion. Those odds don’t come around often yet it’s the foundation to my success as a trader.
Why? It’s hard to lose money if you’re right 50% of the time yet get 4/1+ on your winners. The RKLB trade in august was a 28/1 R/R trade. BNTX would have been around 55/1 had I not micromanaged. Whilst these examples are exceptionally high and not the norm, a 4/1 Risk to reward is the minimum I’ll entertain these days.
That’s why it’s easy for me to sit out and “miss” inferior trades/ideas. Some would say I leave money on the table and I totally get how you’d arrive to that conclusion. The problem is, if I’m focused on executing sub par yet profitable ideas, I’m too mentally exhausted to size and hold the A+ trades correctly. It’s also much easier to head into a deep drawdown when you mess with 40% hit rate and 2/1 R/R plays. Yes they’re profitable and in more abundance, yet its a mental strain when you’re in a 15% drawdown to suggest increasing your size on those A+ bets. Your mind just wants the drawdown to end and is fighting against your idea to hold for the move.
Some people prefer the consistency of day trading or taking less inferior trades in much higher quantities to even the curve. There’s nothing wrong with that, it’s a personal preference.
The problem with trading statistics is they don’t take into account life outside the charts. When I used to day trade or take trades with lower hit rates and R/R parameters, I’d constantly have to monitor the situation. So when I’m on a nice hike with my fiancé, playing golf with my granddad or even on holiday, I would regularly have phone/laptop in hand entering and exiting positions. When I was purely day trading I’d rarely leave the house during market hours.
I now make more if I do the opposite, by closing the laptop and avoiding the intraday moves as much as possible, I see the markets for what they are and not what I hope they’ll be. All of the legwork in swing trading is done when the markets are closed. Almost everything that happens intraday is noise and emotional baggage, leave that shit for somebody else to hold as its very heavy.
Conclusion:
Get better at filtering out the lower hit rate and lower risk to reward plays. This may mean you only take names with strong sales growth or names in a weekly uptrend. Or it may mean you only buy the best names every time the market pulls back more than 3ADR. There are so many parameters and so many ways to increase your edge, become disciplined enough to only take those A+ setups.
All of this will sound basic, yet most of you will have a plan not to take any new trades today and still watch market open. Praying your positions go further in your favour, regularly opening the trading view app multiple times an hour. You’ll be washing up, eating, pulling the car into the drive, making a coffee and still checking that little app hoping for good news. This creates an emotional strain, one that makes it very hard to stick to a rational plan. Set alerts for when you may need to monitor the situation aka exit and let the market do what the market does. Spend all of that brain power making sure you’re always positioned in the best possible opportunities and preparing to enter new ones.
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