Entering into my 3rd decade of the Stock Market, after having managed, advised and trained thousands of investors, I’ve managed to get my version of Options Trading For Dummies down to under 5 minutes. After going over what CALLS & PUTS are, Strike Prices, and then how to get in and get out, the light bulb turns on and it’s the same answer every time: WOW!
When you begin to witness and be part of some of the trade alerts and see 200%, 500%, sometimes even over 1,000% in under 2 hours you start to ask yourself “Why didn’t I find out about options when I first began trading the stock market?” Then you begin to learn how you can show up any day of the week at any time, use the basic Options Trading For Dummies signals to look for, and whammo – you’re in and out of a trade before your seat even got warm.
Due to the virtually unlimited opportunities to take trades when the market is open, here is where the fine line gets overlooked:
Traders, especially new ones, easily become stock market addicts once they’ve been in or seen a YUUUGE trade pass before their eyes. With all of the pumping by the media, guest analysts and the rest of the internet’s financial community, this now two decade long mainstreaming to the average investor has lured in millions by the “Rich & Famous” lifestyles anyone rookie can achieve by simply playing “the game.”
There’s a lot of truth to that concept how any rookie can make it when some guidelines are provided, supported upon, and religiously lived by. But just like when you’ve reached the legal age to drink, smoke or drive, an addict will go to any length to support why a few more beers are fine, another pack of smokes won’t hurt, or why those rims and tires cost more than the car itself. While the other vices which are more common addictions have real no time limits to them and only short-term gratification from them, the stock market’s 225 days a year, 6.5 hours per regular trading session time limits adds significant pressure to the addict in the form of FOMO:
Fear Of Missing Out
With new All Time Highs being issued like Gold Stars in a kindergarten class, the fuel to the fire of needing to not miss this bull market just adds to the problem where traders are piling into the market for their next fix. This is precisely why a strong support group that can take that rope in your hands which makes you think you’re a cowboy come in to play – those you can count on to see things for what they are and look to walk in and out of the casino rather than trying to rob every 7-11 they pass.
The stock market is a “sure thing”, a near guaranteed way to make money.
It’s so easy – You just “buy and hold” stocks and the market will return 10% a year just as it has over the last 100 years.
Buy and hold four mutual funds (25% in each of growth, growth & income, aggressive growth and international) and then bingo – you will make 12% per year.
This is where the problem lies in that we live in a microwave world with uber-speed internet today and seeing money sit in something for a year, let alone a month, is too far out, too slow of a growth plan, and too small of a return. Even if you were 150% sure with a money back guarantee that in 18 months, you’re $1 would be worth $2, the mass majority of traders would still opt out because of all the BIGGER GAINS flashing before their eyes day in and day out.
Why Options TRUMP Stocks
In my simplified version of Options Trading For Dummies, I make a point to use the under $25,000 daytrader rule to your advantage. Since funds clear overnight and there is no limit (with most platforms) as to the number of daytrades you can take, the options trading strategies which work best are those which get in and out in the shortest time frames, allowing only the winning trades (or sure things) to be held overnight. Here though also lies the bigger problem since that allows for, lets just say, to drink as much as you want without risk of driving home drunk – as long as your car is repossessed to pay your bar tab.
Freddie Mercury and the 70s/80s rock band QUEEN made the term famous: I want it ALL and I want it NOW
Because of these UNLIMITED source of trading opportunities, becoming an addict by way of needing to be glued to that screen from open to close, day in and day out, some issues do and will present themselves which HAVE TO BE confronted.
10 Steps Program For Stock Market Addicts
STEP 1: Admit You’re An Addict
Step one starts with the man/woman in the mirror. Realizing you’re addicted to the markets is the first step in solving the problem. One simple way to take the necessary precautions to avoid this from really becoming a problem is to have a funded account, spend a few sessions watching the markets (so as not to miss a beat), but make no trades whatsoever. There is never the last “trade of a lifetime.” Be willing to take the steps necessary to remedy the situation.
STEP 2: Yesterday’s Trades Are Yesterday’s Farts
We’ve all had farts that cleared rooms and peeled paint of the walls, those that had nothing behind the loud force, and even those that made our eyes the size of dinner plates when we realized it wasn’t a fart. It doesn’t matter what your portfolio was yesterday, two months ago, or even 20 minutes ago when before you got short on that stock that ripped faces off upward. You are where you are and deleting the data of the previous trades is as important as changing that underwear when a stain got left in them. You will know better than to force that feeling next time and the same applies in terms of coming to grips with needing to look forward and forget about the good or bad past trades.
STEP 3: You Are Not A Bad Trader
Most traders, especially when they’re in their first few years of trading, have a tendency to believe that by selling a loser, that makes them a loser. Even worse than that, some judge their ranking based on the amount of money made on a trade versus the perfect execution of a trading plan. Both of these are fast track ways to cause more mistakes which usually gets masked by assigning the blame of why it happened to anyone and anything else other than the trade. Unless you can deflate a football, don’t expect that every single trade is going to be a touchdown or that you’re going to end the year with 0 bad trades.
STEP 4: Only You Can Save You
Blame is easy to throw around, but if you truly want to begin the repair process, you HAVE TO accept responsibility for your situation. When you get done blaming the market, your advisor/money manager, Wall Street and finally the cat, it comes down to accepting that it’s your fault for trading all day every session. As soon as you accept this, it all starts to come together in a way that trades begin to land in your lap, entry and exit plans work out perfectly and you begin a streak which you always knew would come. Moving forward is easier when you see the highway rather than the bumper of the car in front of you.
STEP 5: “CHANGE,” for lack of a better word, “IS GOOD”
Markets, sectors, and the algorithm that runs it, changes regularly while a variety of factors, interest rates, currency risks, political events, Geo-economic challenges, appear to be the reason why. While one week SPY & VXX are the money maker, suddenly its FANG stocks then it’s Oil stocks or the Biotech stocks. Does it really make sense to blindly trade one?
Since markets are constantly in a state of flux, you’re focus must be also or else you become victim of “The law of change”: Change will occur and the elements in the environment will adapt or become extinct and that extinction in and of itself is a consequence of change. This is why you have you’re 2-3-4 setups ready to go and if they don’t set up, it’s one of 225 days off or your portfolio’s progress “will likely become extinct.”
STEP 6: Help Is Not A Weakness
Ever here traders say: “if you don’t know which way the markets going – DO NOTHING.” This market has baffled and confused, even the best of investors (just see the November 2016 Election overnight recovery) and WILL continue to do so for as long as it exists. Having a group you can count on to see what you don’t, to point out likely tops/bottoms, and help keep the Bull/Bear in you on a leash is not a weakness – its a benefit. Never be afraid to ask, or get help, if you need it. If the group you’re in isn’t getting you that help, find a new group.
STEP 7: Master One Change At A Time
Change is part of evolving and it’s rarely ever easy or painless. First admit that trading is NOT tough, NOT confusing and NOT fraught with doubt. As a general rule of thumb when it comes to Options Trading For Dummies, gradually make changes by watching them and testing them instead of making the change and doing the same trading you would usually do. A simple example would be to use the Fibonacci Retracement study & the Fibonacci Extension study and watch it perform for a week. You may see that it works with some indicies, but not so much with stocks (or vice versa) and you can then apply it to another change like a religious Stop Loss when you enter a position.
As you adapt and begin to apply changes, you will cleanse your trading pattern of the evil seeds of greed & revenge over time.
STEP 8: Have A Plan – Trade A Plan
Anyone can open up a trading account and try and guess what amount to put in and when to sell. However, since you took the time to clean up your habits so as to take full control of your financial destiny, the best way to move forward is with a clear, concise trading plan. Both the 32Trades and the 50Trades goal-based investment strategies are simplified to a point that the toughest part of trading, the mental part, is put to bed since the BIGGER PICTURE is the Options Trading For Dummies strategy. If part of your stock market addiction was trying to get ahead without the proper road map, a goal-based investment strategy like these two will put you in the fast lane before you know it. Dump the think/hope strategy and find a plan that will provide the end result you are doing this for.
STEP 9: Use Your Addiction As An Advantage
Since you’re already an addict, GET A REWARD FROM IT. Learn why what happens happens. Without being in it, see it happen exactly as you had planned. Love that you have taken your addiction and used it to become a self-proclaimed guru – even if its just one ticker or one study you have mastered. Implementing your designed strategy and then seeing them implemented according to plan builds up your confidence and is when the work truly begins. Once you plan inside and out so every move you make has a reason and a purpose, as soon as you begin to live that plan to match performance, time and value horizons you designed and plotted, you will begin to love that plan, believe in it, and refuse to deviate from it as it has become a part of your daily life.
STEP 10: Live Like The Champion You Are (Becoming)
As simple as it sounds, it is that simple. You just ended a week where you made 3X you’re monthly salary, go have a great dinner out somewhere and tip like a Rockstar. You just ended a week and complete 2-3-4 of your pre-planned trades on your strategy, go online and book a holiday weekend to a place you always wanted to go to. These small, self congratulatory actions will reinvigorate how you’ve taken control of your situation and justify why you’ve progressed immensely from your prior addictive traits. The markets will continue to change, be volatile, be bearish, be bullish, but you’ve gained control now when you can see when to trade wand when to watch.
With 225 trading sessions a year, there will be lots of opportunities to make money along the way and while you’re group you depend upon and plan continue to support you’re drive towards your goal – when that week passes when you didn’t make a trade, you won’t be itchy and scratchy, in need of a fix, but instead excited because your plan will work for you and you will reach your goals. There is no “get rich quick” plan so when the trades are there – crush them, when they aren’t, smile and appreciate how far you’ve come and how much closer you are.