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.

What do you do when the markets go crazy while you’re still learning how to trade and become profitable?

I mean, here you are: working as hard as you can every day to learn how to make money in the markets, trying to find some kind of approach, ANY kind of approach, that works for you. And then all of a sudden the markets sell off in head-spinning fashion and you’re left wondering, “What the heck do I do now?”

Strategies that may work in more “normal” environments, when the markets are going up and/or moving in relatively small price ranges, may lose lots of money in environments where stocks are selling off hard. 

And while many hedging concepts may sound great when things are fine and fear isn’t taking over the markets, they don’t always work the way you expect them to work. Sometimes they don’t work at ALL.

Do you think it’s best then to continue to trade “normal” market strategies in abnormal market environments? The answer is that it’s a sure way to lose money and hurt your confidence.

So you can always choose to get out of your positions and go to cash. You can choose to buy CDs or Treasuries. These are sound ways to wait out a market storm.

But if you still want to be a market participant while the markets are moving around in wide price ranges and the VIX is at historical highs, and you haven’t yet reached the point of consistent profitability, the best thing to do in my opinion is to call a timeout, go back to the lab and continue testing in a simulated environment. 

My advice is to stay productive. You might emerge from the market storm even better than before and ready to jump to the next level!

Take this time to try and build on any strategies that have shown success and matched your personality. Spend most of your time on these. It’s still fine to study and test new ideas and strategies but I would recommend spending less time on things with which you have little or no experience or knowledge.

This is the time to sharpen your skills and deepen your knowledge. This is the time to build on things that have shown promise and to put aside things that have been difficult and were costing you money.

Get some good back testing software if you don’t already have it and go to work. Go back and study different market environments. Test ideas through the changing market environments. Work toward getting a better idea of how to read each environment and trade accordingly.

Find those strategies that match your personality and have the potential to become the building blocks of a profitable trading career.

In addition, spend some time studying those strategies that actually take advantage of a high-volatility, high-ATR (Average True Range) environment and add them to your testing group. You never know how long this environment could last.

Put yourself in position to benefit in many different kinds of environments, and especially to be ready when the markets calm down and start to make their way back up.

The markets went haywire right after I began my trading career in 2011. I remember losing lots of money and sitting stunned at my desk wondering if the markets would always act like this.

I was lost for a while after that, but my resolve took over. I wasn’t going to let the markets have the final say. I figured if “they” could do it, I could do it (“they” being anyone who ever figured out how to make money in the markets).

I took that opportunity to seek out mentors and coaches and teachers and to begin a journey toward profitability. I tried to keep my market participation at a minimum until I felt more confident and until the markets weren’t as unhinged. I went into study mode and it eventually paid off (literally).

The melt-up of early 2012 followed that 2011 selloff, and the young bull market continued its ascent.

It has always happened, by the way. Markets have eventually calmed down and fear has eventually subsided. There’s a good chance it will happen again.

So don’t quit! Take this opportunity to build your knowledge and skills. Don’t let the market have the final say.

Stay in the game!