Adapting for a trader can be hard mentally but it is a necessary thing. Everyone who wants to have any long term success in the stock market is going to have to adapt to the market.
Adapting for a trader can be hard mentally but it is a necessary thing. Everyone who wants to have any long term success in the stock market is going to have to adapt to the market.
Some people start to trade a system and began making huge amounts of money in very short time periods. Then the market starts to change and it affects them. All of a sudden the strategy that they were using in a bulls market is not working in a volatile market.
When this happens traders will do one of three things.
1. Be stubborn. The worst way to handle a changing market is to be stubborn. It seems foolish after the fact, but it does happen.
During this time the investor/trader will do everything that they did before. Because the environment has changed, however, this will not have the same effect as it did before. This can lead to huge losses as they refuse to change.
2. Run away. Some traders will make money in one market environment but find it hard to make money in other market environments. When the market changes they decide it is best to run away with their profits. They will either give up trading all together or wait years for the market to start going their way again.
The only problem with this is that they can lose money in opportunity cost. Every day you let your money sit without gaining interest you are losing money. This is because you could always have it making money somewhere else.
3. Adapt. The markets are always profitable, just not always with the same techniques. Adapting to the new environment can make it easy to make money. There are two ways of doing this.
You can adjust your current strategy by tightening (or loosening) your risk to reward ratio. You may also decide to adjust your long/short ratio to fit the current market.
The second way you can adapt to a new market is by changing your strategy. For example you may decide to buy calls in a bulls market, puts in a bears market, and sell options in a volatile market.
Naked Puts
Selling naked puts isn't as dangerous as it is made out to be, if you do it in moderation. It can be a good strategy to pull out money from the stock market.
Staying with the trend
Stocks trend, that is what they do. So many people try to fight the trend by picking the top and the bottom. That isn't the smartest thing to do.
Trading and commission
No one wants to pay commissions, here are some ways to reduce their affect on your account.
