This blog is designed to help new traders and those who have yet to become profitable understand what it takes to become consistently profitable. It’s a good idea to read the Introduction to Preston’s Mentoring Blog and to watch the 01/29/20 video “Consistently Profitable Trading: It Does Exist” prior to reading this entry.
This blog is designed to help new traders and those who have yet to become profitable understand what it takes to become consistently profitable.
Becoming a consistently profitable trader is NOT easy, but it IS worth it. And it DOES exist.
Now let’s talk about what DOESN’T exist…
In my last blog post I discussed the process of identifying those strategies that show success and match your personality. This is a very important step because it gets you closer to finding those strategies that will eventually comprise a profitable portfolio.
But it’s also a tricky process because it’s where the real pitfall lies.
It’s where we start seeing those mirages in the desert that we think are just up ahead…
It’s where the search for the Golden Goose really intensifies. In the trading community it’s more commonly referred to as the search for the Holy Grail.
Experienced traders know it doesn’t actually exist. Even many of the ones who try to sell it to you know it doesn’t exist. But if you’re willing to pay for it they’re more than willing to take your money.
Since we don’t yet understand what it takes to be profitable at this stage in our development we think there must be ONE strategy that will make money in any environment, all the time. We think it’s just a matter of finding it.
So we search and search and search for it. We make it our main focus. We think it MUST exist!
The Golden Goose or Holy Grail is the trade that profits in every market. It’s the trade that works all the time, in all market environments. It’s the one trade you think will allow you to quit your job and become financially independent. It’s the trade that you think will make you rich.
It’s a powerful concept for sure. I remember thinking it absolutely must be out there somewhere so I wouldn’t stop searching until I found it.
And I remember thinking I had found it many times only to lose money and realize I hadn’t. I went from being giddy and ecstatic to devastated, and I did this more times than I want to admit.
Once I had experienced enough of this I ultimately realized that it really was just a mirage. This is because no matter what I found it didn’t make money in every market environment. Invariably it would hit an environment in which it struggled.
There is no Golden Goose because MARKETS CHANGE.
Think about 2015. The first seven to eight months of that year were the greatest period for market-neutral options trading that I’ve ever seen. It didn’t matter what you traded: iron condors, iron butterflies, calendars, classic butterflies, double diagonals. They all worked. But directional strategies like my short volatility system didn’t work because the indexes traded in a fairly tight range during that time. I lost money in those systems in that environment.
But that changed in August of that year. When the market sold off from fears of a slowdown in China my market-neutral trades immediately stopped working and my volatility trades kicked in. And they kicked in bigtime. That’s the only reason I ended up profitable that year.
Think about 2016. That year started out with a big selloff and then a bounce in February. That was the year of Brexit and the U.S. election that led to the “Trump Bump.” It seemed like there was always some big news event hovering over the markets that year.
Profiting well in the 2016 market took some experience and different approaches at different times because it was really two or three different types of markets in one year.
Think about 2017. The market went straight up that year. My swing trades performed great that year, but my market-neutral options trades made very little. Without my swing trading and short volatility systems I would have had a subpar year.
And think about 2018. The “volpocalypse” in February destroyed many market-neutral options trades but long volatility trades ate it up. My market-neutral options and swing trades were not as effective in 2018.
Markets change. If I didn’t have a repertoire of different trades that work in different market environments I’d be in trouble.
This is because there is no Golden Goose market-neutral trade for every market.
There is no Holy Grail directional trade that works all the time.
And there is no magic black box automated system.
But if you assemble them to create a diversified portfolio of go-to trades for different environments, now you’re on to something.
The key to making money in the markets in my experience is having an arsenal of go-to trades, looking at the current market environment and asking yourself, “What has edge right now?”, and then employing whatever strategy or strategies that may be.
If you have different strategies that respond well to different environments you can choose what is best at the time. There may be times you have to tweak them since no market environment is ever the same, but as long as you have a clear plan for each strategy before you trade it you give yourself a fighting chance every time.
That’s the kind of thing that can lead to a long and profitable career in the markets. That’s adaptability.
That’s the solution to the search for the Golden Goose.