Welcome back tackle traders! Can you believe we are in the fifth month of trading already! With the exception of a few sectors that have yet to report, earnings season will soon be in the rearview mirror yet the market is unchanged since the beginning of earnings season. I find myself wondering if the seasonality sentiment of “sell in May and go away” will stand true this time around. The S&P 500 is sitting in the middle of key support and resistance levels and it feels like we’re on a halftime show of the bulls and bears. Although we touched the 200 SMA last week, we did not close below it. In fact, we had a huge rally following that 200 SMA test. We are creatures of habit and rather than conform to the new market conditions, most will attempt to pick a side and play it. I tried (key word TRIED) to pick a direction only to find myself on the other end of the spectrum. Before long, I found myself staring at the chart of SPY like Ryan Gosling character Noah in the movie The Notebook asking “what do you want”.
The conditions we had in 2017 and in the first few weeks of 2018 have changed. We now have to factor in volatility something that was nonexistent until the end January. If you don’t understand how volatility works or need a refresher there’s no time like the present to sharpen your skills and add some extra tools in your trading tool belt. We can all agree that it’s easy to trade on a bull market. From a technical analysis standpoint our eyes and well trained to recognize bullish patterns especially when the market keeps hitting new highs which was the case in 2017. It’s also easy to pick a bullish strategy and when the system rules are applied and followed, it is smooth sailing. Being long stock, long calls for directional trades is one way and you can trade covered calls, bull puts or naked puts for monthly cash flow. The same can be said for neutral a market. Selling options with low delta for higher probability using credit spread strategies is easy enough to do once you know how to build the trade.
Trading bearish especially for a newbie can be tricky at first. For me it wasn’t the concept of shorting a stock that threw me off, it was order entry that got me. Yes, it’s easy to say that shorting is the opposite of being long but when it comes to actually entering the order I caught myself entering something incorrectly. If you are like me and find it challenging here are a few things that might help you out in terms of order entry. After you’ve mastered technical analysis and your brain can identify bearish patterns the next thing is to prep the trade and if all the numbers fit our rules the next thing is to enter the trade. For example, if stock XYZ is trading at 101 and you can do one of two things. Short stock or buy a put option. When entering the order it will read like this
Entry – Sell -100 XYZ at or below $____ to open
Stop Loss – Buy 100 XYZ at or above $____ to close
Target – Buy 100 XYZ at or below $_____ to close.
Entry – Buy +1 XYZ (option expiration) at or below $____ to open
Stop Loss – Sell -1 XYZ (option expiration) at or above $____ to close
Target – Sell -1 XYZ (option expiration) at or below $_____ to close
Besides shorting the stock and buying a put option you can trade credit spreads such as bear calls to cash flow. These are some of the basic strategies to trade down but we aren’t quite there yet so what should one do when the market can’t make up its mind about a direction? Well, now would be the time to start adding some volatility strategies such as strangles, straddles and debit condors to your trading system. If you are not familiar with these strategies yet, you can search the topic on Tackle to find a video or blog about it. When in doubt and you are not sure what to do, reach out to your coaches, mentors and tackle community for some ideas and always remember that sometimes the best trade is NOT making a trade. You can do what we preach over and over again and that is PRACTICE! Paper trading new strategies in preparation for a market condition you have yet to trade in is vital to any trader. For example, you need to know how to protect your portfolio with put options before there is a market correction. If you have never day traded then practice day trading. You might be able to pick up some profits to offset some of your longer term trades when we have a big day in the market. Maybe it’s forex or futures trading to take advantage of the markets after hours. Whatever it is you know you need to perfect do it paper trading when the emotions haven’t kicked it in. Being that this the 16 year anniversary of Allen Iverson’s’ “we’re talking about practice” rant I feel that we need to give practice some love for all the love it didn’t get on that day! Lol So please practice, practice, practice on your paper trading account and should you happen to have a different outcome than expected then oh well we’re talking practice! Until next time Tackle Traders! Go Caps!
Untill next time traders,
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- Emily Muiruri, an Entrepreneur, Real Estate Agent and Business owner. Born and raised in Nairobi, Kenya before her family moved and settled in Maryland. She began her trading journey in January 2015 after 17 years of Property Management in the Self-Storage Industry. Emily uses different strategies to trades stocks, options and forex. Although still a student learning and enhancing her trading skills, she has strong desire to teach women to take control of their finances and become traders. Writing blogs is one of the ways she’s is looking to spread the word and get more women involved. Emily knows that with the right education and trading system women can be successful traders
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