“What do you think about the latest economic report, data coming out of Europe, etc?”
That’s a question I often receive. My typical response, I don’t care. Okay, that may be a bit harsh, but it is true. For the most part I really don’t care about the daily news that flows in and out of the market. I am an options trader. I trade strategies based off probabilities. I create statistical advantages based on my current market assumptions.
We must realize that knowing what is going on in the news and knowing how to make money consistently are two separate things. For successful options investors it’s about your strategy, your logic, your process, it doesn’t matter what you think the market the latest economic report is going to say. I realize it’s a difficult concept for the options newbie to understand.
You see, it doesn’t pay for me to try and absorb every financial story out there. All I care about is when my indicators hit extremes. I allow probabilities, not the talking heads, to define my options strategies.
And this means that the strategy enters periods of stagnation. Trades should never be forced. A forced trade is not a statistically sound trade. Again, this market apathy is a long-term approach to options trading and should be expected if you wish to bring in profits over the long-term.
Boring? Maybe to the aggressive crowd out there. But, I am more interested in the profitable trades – not trying to be the short-term hero who trades every scenario out there. I am confident in trades that consist of short-term extremes that have entered the stock market – high-probability trades.
What is a high probability trade?
The High-Probability strategy is a short-term directional strategy that utilizes single calls and puts based on overbought/oversold extremes in the market. The strategy requires patience coupled with a disciplined approach. The strategy consists of approximately 2 to 5 trades a month with holding periods of 1 to 10 days, however; there will be some months when I make no trades.
Again, the key to this strategy is patience. Waiting for the appropriate scenario to trade with a high probability of success is what makes this strategy a success. As I always say, opportunities are made up easier than losses. So if you let a few pass you by don’t dwell on what could have been. There will always be more opportunities around the corner. Remember, trading is a marathon not a sprint.
What About The Markets Right Now?
Just look at how many overbought to very overbought ETFs are in the market and you can quickly see why I expect to see a short-term reprieve over the next week. Typically, when we see a reading like the one we have now in most of the ETFs I follow a short-term pullback is to be expected. I already have a few positions on in both of my options strategies, but I am not hesitating to add more if the market tells me to do so. All I can do is trade probabilities as it is all we have as traders. If we gap up again tomorrow, I will most likely fade, fade fade. Remember, position-sizing is the key to long-term trading success so keep your size small and never trade too big. Trading too big will ultimately lead to failure.