2020 has certainly been a year for the history books in many aspects. We have had a worldwide pandemic that sent certain industries to a screeching halt and other sectors skyrocketing. The overall market has also had a rollercoaster of a year with a strong move down to long term support levels and then an even stronger bounce back up to new all time highs.
The US also held its election, which still seems to have a debate over who won. With all this uncertainty about 2nd shut downs, and the next leader of the free world, it would make any trader cautious about how to invest. Though it is easy to say look to stay in cash before jumping back in, these are unprecedented times. If a trader had stuck with that mentality when the first shutdown from the coronavirus first broke the news, they might still be in cash today. So though I full heartedly believe that staying in cash can sometimes be the best decision, it doesn’t mean I don’t want to stop trading. What’s a trader to do? How do you not become an emotional trader in this new world we find ourselves in?
Well, one way to start jumping back into trading is to do so on a small scale. Take your Normal Risk Tolerance, and look at cutting it in half. By lowering the capital risk you put on for each trade, (and for your overall account) you are able to still take trades, but do so on a smaller scale. This should help in keeping your emotions out of your trading, and let you stay on track with your trading plan. When we start to see things return to a bit more normalcy, then you can always work your way back up to your normal risk tolerance.
The next thing to consider is waiting for the perfect setup. It is easy to want to jump into as many trades as possible, but are all these perfect setups? Sometimes waiting for all the indicators to be in line and then putting your capital in there makes for a stronger chance of profits, compared to a chart that only has a few indicators in agreement. Recently SBUX presented that perfect set up. Everything was in line and agreement on both my Daily and Weekly chart for a nice bounce higher. The next trading day, SBUX saw a beautiful gap to the upside and allowed for a wonderful profit for a trade held over the weekend.
Along the same lines as waiting for a perfect setup, perhaps you stay away from “Lotto Trades”. “Lotto Trades” are those trades that you place around an earnings announcement, or where you are looking for a market pin at the end of the week. When they work out, it is a rush of emotion and great profits. However, oftentimes these trades don’t work out as consistently and don’t necessarily follow a technical chart setup. Typically when traders look at those few winners vs the many losers, they are overall down. This is where the “lotto” comes into the name “Lotto Trade”. So instead of buying that scratch off trade, save your capital for those perfect setups. This way you place your odds more in your favor rather than the houses.
No matter how you decide to trade at the end of the year and going into 2021, always be mindful of your capital Risk and stick to your trading plan. This keeps your emotional dark side out of trading and allows you to keep a calm cool focus.
As always my fellow traders, May the Trade Be With You!