No we're not talking about Snapchat. We are talking about streaks when it comes to trading. Traders are either on a hot streak, a cold streak, or on the sidelines; They’re in the zone or out of it. Most would like to think they are always in the zone or on a hot streak however that is often a lofty dream.
Successful long term trading is all about having the percentages on your side. By focusing on the percentages (not the dollars) you can keep your eye on the ball. However sometimes when we focus so heavily on the percentages we lose sight of the bigger picture. There are times when the markets are hot and times when they’re cold, your trading can also be hot or cold. When you’re hot you need to master running that streak for as long as possible, yet having the ability to be honest with oneself when you’re not fully seeing the market. For us we often see a change in streaks after a big loss, or a change in overall market conditions.
Leading up to the first correction (10% pull back from prior highs) in 2 years, we were for lack of better words on a fucking hot streak. Trades were clicking, members were putting up monster numbers. Kriss Knapp was up 50% in 2 months on his overall account, Adam Rav made over $125,000 in a week (has a 7 figure plus account), and the Alpha chat were putting up $200,000+ weeks in locked in profit when we were recently averaging around $50,000 prior. We were on a hot streak and the energy and euphoria was at an extreme high. There were talks of members shopping for Hublots and wanting to buy their first exotic car. We were at highs along with the market. There were subtle clues as we started to shift more defensive towards the end of the run (but we did not have a clue a correction was about to occur).
“Every winning trade isn't a good trade, every losing trade isn't a bad trade. Just because you’re making money doesn't make it a good trade.”
That big, bearish engulfing bar (opening the day at highs, and selling off the entire day, closing at lows) is a horrible sign if you are long. On the day, the Alpha chat as a whole was bitching and moaning as they were getting stopped out of trades and were not used to the market actually not going up. Human nature has been the same for thousands of years, and people love to complain, the market can be up 90 days in a row however one or two 1% down days and people get all fussy.
As technical traders we did not have to sit through much pain after that day and the market corrected for the first time in years. We were able to let the cash settle, let the group’s euphoria emotions settle and get back to business when the time was right. We let the market settle out and didn't have to try to be heroes catching bottoms, we just got back in once the market showed us that the storm was over.
The actual correction, the one that millions of investors were bragging that they were waiting for for years, lasted a mere 2 hours. 2 hours the market stayed in correction territory being down 10%+ from recent highs. This is why you have to be honest with yourself and your streaks. You need to know when to press it, and when to take the foot off the gas pedal.
This is a feat that will stay with you throughout your career. A tremendous baseball player will bat around .300% so at 1,000 bats the player will hit about 300 of those 1,000 attempts and teams will pay millions of dollars for that player to professionally fail. The ball player knows it's not as simple as hit the ball 3 times in a row and strike out the next 7. The player might strike out 20 times in a row then go on a streak and have 15 hits back to back and any other combination in between.
For professional traders it is often very similar, if we are right around 30% of the year it's a great year, and of those winning 30% trades, only a handful will really make our year. We don’t really know which stock will be the next NKTR and go from $25 to $105 in 3 months or the next ONCE to go from $50 to $90 in a quarter. We have to step up to the plate and swing the bat and keep swinging over and over and eventually with enough bats, we can point to the fences and knock a few monsters out of the park.
Now these streaks can last longer when people act collectively as a group even if those people do not necessarily agree amongst themselves. Our Alpha chat is a prime example of this, we have hundreds of members all trading a handful of the same stocks. One member might make 5%, the next might make 10%, another might hold for longer and make 25% while others who are even more patient might make 40-50%+ in the same stock in a few months, shit there might even be one or two who lose money in that same name. Everyone is working together as a team passing along information. How they fucked up, say they moved their stop too tight, or that they were too heavy to hold through the pull ins resulting in selling too much stock too quickly. Shit you could put 1,000 people in front of the same stock and they will all trade it differently, all that matters is who made money. Having a few hundred eyes watching your back and the stocks you are in, will often be more beneficial than being a lone ranger trading on your own. The reason for this is that a stock represents the conflicting opinions of thousands of buyers and sellers. Yet the major moves in stocks will be concentrated over a handful of days. If you are not familiar with the 80/20 rule, it tends to apply to stocks where 80% of the stock’s price movement tends to only occur on 20% of the trading days. Let's take a look at an example of this below:
As you can watch below in the video recap of this WDC swing, we took a loss in it earlier in the year before catching the big run that it went on. For an entire year WDC traded in a $20 range. Now that is still a big enough range to trade inside, however it really didn't do much, because for 80% of the time it just traded inside $77 to $96. Then, it finally gave us an opportunity to get in on tight risk. Did we know that this time WDC was going to fucking rage for 10 days in a row?
No shot, all we knew was that WDC was giving us a tight risk opportunity where 1-2% of risk could potentially yield 5-10%. This trade ended up giving us 15%+ and all you had to do was up your stop to the prior day’s low each day to catch the meat of the move.
You might be reading this and wondering, can trading be that simple? The rookie trader tends to need a bible to explain his fundamental analysis on some dog shit stock that he's going to sell $.03 higher. For us, our trades can be explained in just 1 to 2 sentences, we’re looking to buy here, get out here if we’re wrong, and sell above here if we’re right. We might not be right the first time and if given an opportunity to get back in we will take the trade again. Keep trading simple and keep the streaks on your side.
Do you have balls?
In the Group Chat explain a time when you were on a hot or cold streak (does not have to be specifically related to trading) and what you learned from the experience.