lystn

Alright! You know, the other day in episode #5, we talked about stock picking, we looked at that AAL call that we had where we were trading it bullish. I have to tell you, just thinking about this over the last day or so, I think the realization that I've come to, maybe I came to it a while ago, but I've just thought about a metaphor that helps out with this and maybe explain the topic a little bit better, is this concept that you really haven't become a real trader until you've gone through a string of losing trades. I think people get that really, really mixed up. You see this all the time. I think you see this honestly all the time in business or in whatever, you have people or teams or companies that seem to be on the up and up. They really never had taken a punch to the face basically is what it is. They’ve never had to step back. Until you go through a couple of those scenarios or situations where you have trades that go against you or you have even a string of losing trades, I think it’s incredibly hard for people to say that they’re a real trader or for you even to start thinking like a real trader until you have gone through those scenarios. Let me give you just an example or like a metaphor maybe to use and then an example of how we have done it here at Option Alpha. The example I use in this is it’s like being a parent. I relate parenting actually to probably a lot of investing and trading as many people do. But it’s like being a parent when you’ve only just been babysitting. There’s a big difference between babysitting kids when they’re great and they’re fed and they’ve taken their naps and they’re hyped up on sugar. That’s like having a string of winning trades like seemingly, nothing can go wrong, you really don’t have to do anything, it’s just happening on its own. But when you become a parent, you not only get to deal with those great moments where the kids are happy and having fun, but you also get the middle of the night cry fest or the pukes, the throw ups, the poops that are stuck. You get all of that stuff. You have to deal with the good and the bad and that means now, you have elevated yourself from just somebody who’s just babysitting the kids and there if something happens, but now, you’re actually being an active participant in the outcome and you have to deal with the good and the bad. You can’t quit being a parent just because something bad happens or you have to go through a couple of sleepless nights or maybe months of sleepless night as we’ve done with our second child. That doesn’t mean you can quit. You still have to push through and make sure that you’re giving that child the best opportunity that you can to have a great life and to be healthy and successful. I think the same analogy or the same metaphor can be used for trading. It’s all roses when trades are going well. But what happens when trades go bad? How do you react? Do you freak out and quit or do you have a lot of self-doubt that, “Oh, maybe I’m not a good trader.” I think you have to realize that you’re going to have those situations just like in parenting. I don’t think any parent walks into parenting and realizes that their kids are never going to cry, that they’re never going to freak out, they’re never going to have tough times or hard situations. That’s unrealistic. You have to realize in this business and probably in any business that you’re going to have trades that go against you and until you actually go through that type of scenario, then you can start to call yourself more of a real trader because now, you’ve traded through it. Just to prove this point… Of course, everything that we do is public information at some point. We release all of our trades publicly after like 20 or 30 days. It’s all out there. You can go back at years and years and years of time and watch all this stuff. In November of 2016, we went through a little drawdown on our portfolio, like November and December, about 3%, 3.5% depending on when the peak was. During that time period because it was right after the elections, markets rallied, volatility fell off the map and we just had a big move in the market that went against us. Now, it wasn’t a 10% drawdown, but it was a 3% drawdown and people are freaking out. I remember saying in all these videos like, “Hey, you just got to keep trading.” People are saying, “Whoa, we got to change our strategy, Kirk because now it’s a new market.” I’m like, “There’s nothing new about any markets. It’s just ebbs and flows. You just have to stay consistent.” And so, sure enough, January comes, we are profitable that month, then February, profitable, March, profitable and we start chipping back away at all of this stuff until the point at which we’re now above water from the loss drawdown that we had in November and December. Now, I get emails from people like, “Oh, I wish I would've continued with it.” They quit too early. When you had these strings of losing trades or you had this crying baby if you will, if you want to use your portfolio as a crying baby analogy, then they quit. They’re just like, “Whatever. Let the baby cry and we’ll figure it out later.” But that’s not the right way to go about it. You have to continuously stay active and that's the only way to overcome it. It’s just like parenting. You can’t just let the kid cry in the corner forever. You’ve got to be active and engaged and help them out and figure out what the problem is. I think that that concept might help resonate with some of you guys as you’re maybe going through a drawdown right now. If you are and listening to this now or in the future or if you have not yet and you know that it's going to come up on the horizon, that it’s not all roses and pretty smelling flowers, I think that maybe this helped out in this concept. But the real idea here is you’ve got to realist that you’re going to go through losing trades, you’re going to go through drawdown scenarios and that doesn't mean you're a bad trader. It actually is an opportunity for you to show how great of an investor you are by remaining confident, remaining consistent and persistent with the strategy, so that ultimately, it’ll work out in your favor. Hopefully you guys enjoyed this episode. Until next time, happy trading!