What Should You Trade Over the Holidays?

What Should You Trade Over the Holidays?

In a word: NOTHING!!

Huh? As traders, we’re always looking for the next trade. Patience is not in our DNA.  We’re driven by adding and taking off risk – and trying to make the next $100, $1,000 or $10,000.  If we’re not trading, it feels like we’re going backwards!

A common question at this time of year is: “what’s your year-end trade?”  The answer may surprise you: don’t trade and reduce your risk. Spend some time with family and friends, be grateful for the gifts you have and recharge your batteries. It’s not a time to add risk. Liquidity dries up, markets become slippery and volatile and moves can be extended. It is very easy to get caught in a trade you’ll regret. Well, then what the heck should I do if I’m not going to trade?

Glad you asked!

How Should You Spend the Holidays if You’re not Trading?

Successful trading is part preparation (learning and planning) and part execution.  We’re always focused on the execution part – taking trades.  That’s why we see so many new traders taking trades before they’re ready. Rather than adding risk over the next two weeks, focus on expanding your knowledge base and planning for 2022.  Here a few suggestions that will help prepare you for 2022:

How Should You Plan for 2022?

Take a step back and carefully consider how you would answer the following questions:

  • What size account will you trade?
  • What are your profit goals? Are they weekly, monthly, quarterly, etc. goals?
  • How much capital will you have to risk to meet or exceed your goals?
  • What instruments will you trade?
  • How will you quantify your capital at risk?
  • How much will you risk in total or on any trade?
  • What kind of trades will you focus on (for example, focus on bond futures spreads and butterflys)? What trades will you avoid (for example, don’t sell naked options)?
  • What new trades will you learn?
  • What tools will you use to find and help you manage trades? How will you use those tools to determine setups?
  • How will you determine your entries and exits?

The more specific your answers, the better – write it all down…..keep it by your computer!

How Can You Expand Your Trading Toolkit?

This is a great time to start to learn a new trade. Maybe you’re already comfortable trading equity calls and puts. Is it time to expand your horizons and learn more about trading relative value, bond futures, or lock ups?  The choices are extensive.  This is a great time to do some research and find a potential new trade that fits your style and personality.  Once you’ve found a new trade, commit to paper trading for a few months to ensure you completely understand how to find the trade, enter the trade, manage the trade and your risk, and exit the trade.  Check out Masters In Trading YouTube channel and see if you can find a new type of trade – it’s a great educational resource.

How Do You Know if Your Trades are Successful and Why?

Do you track your setups and trades?  Do you keep a trade journal?  Consider setting up a process to track your trades by capturing some of the following information trade-by-trade and for your portfolio:

  • Type of trade
  • Trade setups – why did you take the trade? What was the setup on the tools you use?
  • Trade entries
  • Trade exits
  • Trade profitability and return on risk
  • What types of trades were most successful? Which ones weren’t?
  • What were the broader market, sector, and economic conditions when you entered and exited?
  • What changes could you make in trade strategy and setups to improve your trading results?
  • What were you thinking and feeling getting into, managing, and exiting each trade?

This is just a start. Think about the information that you will find most valuable.

What Other Ways can You Increase Your Knowledge?

There is so much “educational” material out there that it’s hard to filter through all the noise to figure out what is valuable. As mentioned above, there is a ton of free content on the Masters in Trading YouTube channel.  Two books we recommend to our Masters in Trading members are “Option Pricing and Volatility” by Sheldon Natenberg and “Options as a Strategic Investment” by Lawrence McMillan.  As we say, “education mitigates risk!”.

How Can You Better Manage Your Trades?

Successful trading is really successful money management.  Take some time over the holidays to expand your knowledge of how to manage trades (and money) to increase your profitability.  The following is one of our most popular trade management videos. Many of our members watch this over and over and over again as they increase their skills!

How Do You Know the Total Risk of Your Trading Portfolio?

Here’s one final idea that will take some work and research.  A lot of traders focus on each individual trade but not the overall risk of their trading portfolio.  Many traders don’t know or consider the aggregate risk of all their trades and whether they’re long or short deltas (if you don’t understand delta, that’s a great place to start your research).  It’s critical to have a firm grasp of your risk profile so you know if you’re overexposed to upside or downside moves based on your risk parameters.  Do you have the knowledge and experience to manage your capital at risk based aggregate measures?  One of the keys to getting insight into your aggregate risk is being able to Beta weight all your positions (usually to the $SPY) and reviewing your aggregate deltas.  Spend some time understanding how to Beta weight your positions on your trading platform, reviewing your aggregate deltas, determining if you’re within your risk profile and, if not, determining what adjustments need to be made. 

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Happy Holidays!

Remember, it will take some time to fully learn new concepts as you work your way through any or all these suggestions….so paper trade, paper trade, paper trade to prove that you understand what you’ve learned and gain the confidence (and the right) to trade real money.  Happy Holidays!!

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