Disciplined Traders Respect, Use Caution Days

2020-12-21

The prevailing sentiment toward 2020 is to give all that has happened a “one-star rating,” or less.

No doubt this year has been challenging in all walks of life. But for many traders, 2020 has delivered a silver lining in the markets.

John Carter, Founder of Simpler Trading, had his best year ever — multiple 7-figure trades and an 8-figure net gain across his accounts. Simpler Trading’s team members have entered a more cautious phase through the end of year where they are protecting their 2020 gains (record-setting years for some members).

Traders watch for opportunity in volatility, and a crazy year like 2020 can prove opportunistic for those who are trained and prepared.

One of the more important aspects of trading in any volatility is discipline — knowing when to be in the mix and when to sit on the sidelines.

Traders have one job, as we say at Simpler Trading, and that is to make money.

Often overlooked in that discipline formula is the part about sitting out — caution. Simpler’s traders regularly exercise the power of “caution days” (or longer if needed) to avoid losing any gains.

These are times to play the market conservatively and wait for setups as close to “textbook” as possible. Or, simply stay out of the market. The conscious ability to put the keyboard and mouse in a drawer and not trade is a powerful discipline that can save money.

What are examples of “caution days?” Be wary of big, market-affecting news announcements (Fed meetings), events surrounding influencing tickers (earnings releases or an IPO), and market events (options “witching” expiration). Or any session where the market is moving at a speed or complexity beyond your skill level.

While some events — and their volatility — can be played as opportunistic setups, these can be “caution days” for many traders who don’t have the skill or experience to navigate these increased-volatility sessions.

Remember, staying flat is OK because flat is a trading position. Again, this can be a very disciplined play.

Volatility shouldn’t be defined as “got my butt kicked.” Volatility should mean an opportunity to make money… if you know what to do. Otherwise, enjoy a mature trading position of sitting out the session and protecting what you already have in hand.

These last two weeks of the year hold the potential for volatility (like today with the huge market swing) and opportunity. But for some traders these may be a series of “caution days” to let the market continue as it may while sitting back with some egg nog or other holiday beverage and enjoy life away from trading.

Expectations are that 2021 may be just as volatile a ride as these last 9 months.

Flat, refreshed, and ready for new challenges may be just the setup to start off the New Year.

We Saw: Markets affected by new U.K. Covid-19 strain — 

  • Dow drops more than 250 points, then rebounds positive
  • Nasdaq, S&P 500 each pull back to just negative, almost flat
  • Lawsuits mount over lockdowns; Big Tech facing more lawsuits

We’re Watching: “Safe” volatility plays through end of year —

  • TSLA strength, outlook after joining S&P
  • How wild 2020 ends, sets up 2021
  • Plays in: PINS, PETON, AMZN, TSLA