The Hardest Part Of Trading Is Waiting

Today I wanted to write about the waiting game of trading that too many overlook and since it is FOMC day, I’m not going to send out a recap, there is too much that is going to change after the recap goes out. I am including the link here with the live tape that will expire at the open tomorrow. so open up the database and enjoy the trades as they come in.

Link

What a brutal 3 month stretch we’ve had. We had the ceasefire in April and then we went straight up everyday for 2 months and now since the highs at the time on June 2nd we have gone nowhere. The S&P is up .16%, the Nasdaq is down 3.9%, I am up 14.5% and Intel, my largest position by a mile is down 8% since.

So how am I up 14.5% in that timeframe? Patience. I never once rolled up my 60/80 call spread even after it was $60 in the money and I continued to roll up my short puts higher and higher. I never chased the name. The name was down, the time decay did its thing and I outperformed. This is where trying to do too much will burn you. I know there is this idea that you have to do alot to get the desired results you want but the reality is if you’re sizing up your trades to 1-2% of your book, even if you’re nailing 70-100% returns on those trades at say a 57% average win rate you will never achieve what you think. The issue your facing is a sizing one. You have to find your conviction trade and press it and wait, that’s it. Warren Buffett would have been forgotten over the last 15 years if he didn’t make 50% of his public portfolio Apple in 2016. His returns outside of it were pretty mediocre the last couple decades. He took losses on many positions along the way. The importance of understanding this is people think guys like Buffett don’t miss. He missed alot, but he never missed when he sized up a trade. This goes to what I’ve done the last 4.5 years on this substack. I have tons of misses on small trades, but I have never once missed on a large bet when I’ve made one.

It took a lot of patience to send my book up 1000% in 4.5 years. Multi month trades were the bulk of returns. When you’re focused on 1 minute candles, day trades, and short term day to day thoughts, you’re never going to position yourself for that potential big move because you’re too busy thinking in small timeframes. You’re watching other people on twitter gloat about a 300% return on what they won’t tell you is .25% of their book and you begin to question where you’re failing and it causes many to quit. I’m here to tell you that even with nearly $11m in my trading book you see now everyday, the reason I don’t swing at weeklies nearly ever is because if you lose that money it is gone. With a longer term position I can work my way out of it if need be, I can sell short calls vs it, I can sell puts if it goes lower, I have multiple options to wiggle out of the trade. I am not a junkie, I use leverage, but I’m alot more conservative than it would appear on the surface. Every move is calculated and the goal is long term, a couple weeks at a minimum. In times like this where we go sideways, who wins? It’s the people selling puts, selling covered calls, the ones harvesting premiums. In trending markets these people still do well but their approach is too conservative, in times like this, they look like geniuses.

So in these times, I just want to say don’t get frustrated, learn from your mistakes and adjust. When the Nasdaq is red over a 3 month period like this, if you’re in alot of high beta you’re going to underperform, that is life. The question now is how do you fix it so you don’t underperform the next period of weakness. If you look at the last year, outside of April/May and the ceasefire rally, the market has been pretty bad. It has been a rough last 10 months in the markets minus that 1 massive move up. Most people think they’re savants with the market, they’re really just byproducts of the fact the market is trending 90% of the time. It’s the times like this where you really find out who is actually talented because they find ways to adjust their style to what the current environment calls for to outperform in periods of weakness. Don’t get discouraged, we always get through these rough patches and go back to the trending market, we’ve gone up and to the right on the market for over a century with a few small blips along the way. Use the option flow to find the thesis that interests you and size it up and be patient.

Maybe for now in this weakness you begin to sell more puts, you know the put sale column everyday in the recap, we’ve backtested those and you can read years of data here where over 80% have expired worthless. That is about as powerful a data point as you’ll find on any substack out there. You can look for put sales expiring in the short term and sell those for the time being until the market settles down. There’s many ways to win at the market and being long only short term calls isn’t always the right approach. If you’ve done that the last 3 months, you’ve been chopped to pieces by this market. Being able to change your approach is a sign of growth as a trader.

Have a great day and good luck with FOMC.