Stay in May and Give It a Weigh

Hey Traders,

Once again, I hope you had a profitable week and didn’t get sucked into paying up for a busted earnings trade.

Now, I don’t know about you, but I can’t believe it’s already May!

I’ll be coming to you soon with some of my favorite stocks and sectors for this month, but in the meantime, now is as good a time as any in the calendar year to do a portfolio check.

Kind of like how you get your temperature taken before entering various places these days, to make sure you’re virus-free … 

Now’s a great time to take the temperature of your trading.

Some hedge funds like to do quarterly channel checks, and “window dress” their portfolios so they look better for prospective investors, but I often like to step back and reflect on my personal trading at the one-third calendar marker — which is right now.

Instead of “Sell in May and go away” — a trite, outdated phrase, in my opinion — I prefer to “STAY in May and give it a WEIGH.”

After all, losing trades happen to the best of us, they’re part of the game, but the key to LONGEVITY in anything is LEARNING from your mistakes so you don’t repeat them.

So today, I’ll walk you through ways to evaluate — and hopefully improve — your trading for the remainder of the year.

Wallow in the Losers

Most of you have probably heard the saying, “The definition of insanity is doing the same thing over and over and expecting different results.” 

Well, that logic also applies in the trading game.

Of course, every stock is different, and every day in the markets is a new one with fresh undercurrents, so there’s NO winning strategy that’s literally repeatable when trading stocks and options.

If there were, I’d be doing that instead of writing to you!

But every trader has a bad habit or two they need to break.

This weekend, I encourage you to do some self-reflection — take a look at your trading so far in 2021, and do some postmortem analysis.

Take a gander at your losing trades, specifically, and try to identify where you went wrong, and how you might’ve adjusted to achieve a profit.

Sometimes it’s as simple as, “I made the wrong directional call.” 

Maybe you thought a few stocks would rally, so you bought call options just in time to see the shares nosedive.

If an underlying stock made a major move against you in early 2021, study the charts and see where it went wrong … 

Were there any technical signals that foretold the move? Perhaps a key moving-average cross you missed, or another level of support or resistance that went under your radar?

Hunt for chart patterns that may be playing out under your nose, then keep your eyes peeled the rest of the year.

Or, maybe some of your losers in the first few months of 2021 were due to NOT doing your due diligence

Maybe you just got lazy about checking the collective Wall Street calendar and made an ill-timed trade or two ahead of earnings — an easy habit to correct.

Not as easy to correct? Not doing your due diligence on your option strikes.

I’ve told you before that I like to shop around before committing to an option strike, and I rarely follow the crowd. 

Instead, I’m making trading decisions based on the raw data — like implied volatility (IV) — and my own technical analysis, because a lot of the time there’s a better “deal” than the strike attracting the rest of the Street.

Do a retrospective analysis of your strike selection — was there a better option that could’ve made you money?

Maybe if you’d bought the 97.50-strike call options, instead of the cheaper 100-strike calls … Or perhaps you would have fared better going out another week with your options expiration …

Study your losing option trades over the past few months … and try to spot any repeating pitfalls.

OR, maybe your Achilles heel is not knowing when to exit your trades.

Perhaps your long call on Stock XYZ would’ve made you money earlier this year, IF you hadn’t been so trigger-happy and cut losses too soon …

On the flip side, maybe it would’ve been profitable — or MORE profitable — had you hit the exit sooner, instead of letting GREED get the best of you (which also happens to all of us).

For me, at least, once a trade is up, I NEVER want it to become a loser, and sometimes I end up tapping out too quickly.

Fear and greed are dominant emotions when you have money on the line, and successfully keeping your head straight when you’re neck-deep in a tense trade requires a conscious effort — trust me, I know.

But recognizing these emotions when they come on is the first step to controlling them.

Whatever it is that’s holding you back from making more money, Traders, it’s key that you try to identify and overcome it!

After all, hindsight is 20/20 for a reason … but sometimes in order to put your best foot forward, you have to look back. 

Until next time!

Your Only Option,

Mark Sebastian

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