The Shocking Truth About What Just Happened In The Market

rouletteThe market is crashing, the market rallied, it’s earnings week, Greece is in trouble, the banks are failing, and the list, quite frankly, is endless.

There are really only a few things that matter in trading and none of them show up on CNBC, Bloomberg, or any other news outlet.  On a very basic level, the only two things that matter are making positive expectancy decisions and keeping your mind right.  The reality is that the more news you focus on, the further you’ll stray.

What matters?

I’ve been away from the blog for a couple of months and in that time I’ve moved across the country twice (worst summer ever), trading options (very well given the market conditions), and thinking about what makes sense for Theta Trend.  Over the past few months I turned off the news completely (including myself), ignored Bloomberg, and completely shut out the Financial Blogosphere because I was feeling like it was heavy on the garbage and light on what matters.

The sad truth about my dark, hopeless addiction to Zero Hedge is that I’m yet to use any of the information profitably.

I’ve been thinking quite a bit about why we trade, why people follow markets, and ultimately what matters.  No system wins 100% of the time, but when systems are working well people tend to think they’re invincible.  Quite frankly, psychology is the most important part of trading.  Most people think it’s the rules or the system.  It’s not either of those things.

Most people will never become consistently profitable.  They’ll dig around for the next indicator, news event, hot tip, or whatever seems like it will make a buck.  If that sounds a little too familiar, it’s because I’ve been there.  You can choose one of three paths: look within to find success, keep looking, or give up.  Unfortunately, the simplest things are often the hardest.

Could options be the secret to consistent trading?

One of the reasons I’ve always liked trading options is that they give you the opportunity to make money not having a directional opinion about the market.  Directional opinions about the market are a little like voodoo mixed with gambling and the only people who come out ahead are the ones who manage both winning and losing trades well.

So far this year has given non-directional options traders an excellent environment for selling premium.  That will change and the important question is when.

The best options traders I know manage risk well and trade a consistent set of strategies.  Further, they tend to stick to a handful of liquid indexes.  Selling options is a process of hitting a bunch of base hits over and over again.  Everything works great as long as you don’t get taken out in a big way and know when to adjust or get out of a trade.

This year has been great for my trading and here are a few reasons why:

  1. I’ve really only traded Butterflies and unbalanced Iron Condors.  I have not chased other markets or ideas.
  2. My trades are all in $RUT or $SPX (mostly the Russell).
  3. I know my adjustment points and exit points when I enter a trade.
  4. The market conditions have been excellent for market neutral options trading.  This, I promise you, will change.

No, you’re NOT responsible for your success . . .

For anyone who is new to non-directional options trading, congratulations on picking a great year to start.   The problem (and danger) is that too much success can lead to the belief that we’re responsible for that success.

Success is made up of both luck and skill.  For non-directional options traders, this year has provided a healthy dose of luck. As options traders, we manage trades and luck makes that job easier or harder.  This year the management part has been relatively easy.  Everything will work out over time as long as we don’t mistake luck for skill.  One of the many lessons I’ve learned as a trader is that when things are going extremely well, it’s time to be aware and cautious.

Now that the mood is dampened, there’s one obvious question left to ask.

Where do we go from here?

If you’re on my email list and you completed the poll I sent out, thank you.  I enjoyed reading your responses and the immediate direction of Theta Trend is going to be based on your feedback.

Going forward we’re going to focus on how to trade more consistently and look at actual trade entries and exits.  I’ll continue to cover Vertical spreads and start introducing some content on unbalanced Iron Condors.  I’ve spent the summer refining some rules for unbalanced Iron Condors and I’m ready to start sharing.  As an aside, I have some reasons that I prefer unbalanced Iron Condors to standard IC’s and you might just agree.

Feel free to shoot me an email if you have any additional thoughts or hopes about what you’d like to see covered.

Thanks for reading.