It's always good to look back and analyze what happened in the past. Often times it can help shape the future (good or bad) and how you trade moving forward. Many of the lessons I've learned were scripted out well before the recent mini-crash we saw in equities so it's fitting to talk about now because my comments might not have hit home without the recent market volatility.
Key Points from Today's Show:
1. Look Down, and Then Up
- Position sizing is critical, especially when markets are volatile.
- You have to cover your downside risk, or position size appropriately before you look up.
- Your position size can 100% help protect you from a down move, giving you the opportunity to add more premium.
- When you have taken care of position size beforehand and IV is high, it gives you great opportunity to add premium.
2. Set Up Roadblocks Against Doing Bad Trades
- It is hard to psychologically get yourself out of a position that seems like it is the best position right now.
- You have to set up roadblocks for yourself so that your trades do not get influenced by others.
- These roadblocks are personalized to you as a trader, dependent on what influences your decisions.
3. Habits Win
- The person who is most consistent and persistent eventually wins out.
- Successful trading requires you to have a habit of position sizing appropriately.
- You have to create a habit of looking at the markets, analyzing, position sizing, and adjusting your portfolio.
4. Future Cast Your Winners
- You have to envision the end game; envision where you want things to go.
- You have to play out trades in your mind where things might go in different situations, and preplan your adjustments.
5. Accept Possible Failures
- Trying something that seems unpredictable at first is tough, but you have to accept that you will have failures along the way.
- It is irresponsible of people to assume that they can get into anything without experiencing roadblocks and failures along the way.
- Accept that you are going to make bad decisions and that you have to get through them.
- If you expect failure to come, you are waiting for the opportunity to learn from it.